Investment Valuation: Tools and Techniques for Determining the Value of Any Asset (Wiley Finance)

As a businessman and a student of business, I consider this one of the most important business books that I own. I consult it regularly and use it in every consideration I have involving valuation. This is a complex and subtle topic. I know people wish it were a straightforward topic that you could simply apply inputs and crank the handle and receive a sure valuation that everyone could agree to. But real life isn’t like that. This is why every deal has a buyer and a seller. We each have different approaches, different needs, different desires, and different expectations about what tomorrow will bring. Professor Damodaran has gathered together a vast number of valuation techniques and gives us great background and context for applying them and when they will tend to provide good information and when they can mislead us. I think this is tremendously valuable. But it requires work on the part of the student or the business person trying to come up with a useful valuation for some asset. In reality, we should use multiple techniques when considering any asset and see how well they agree with each other and where there are divergent valuations. We should then consider what is causing those differences and see if that analysis yields some valuable insight. So, if you want to think deeply and seriously about valuation, this is a great resource. If you want a simple machine to crank out a number, this is not valuation for dummies. I recommend this book strongly. Reviewed by Craig Matteson, Saline, MI

I have great admiration and respect for Prof. Damodaran, and I don't know anyone who doesn't. I have attended some of his conferences and they are usually packed. Not only does he explain things with great clarity, but he delivers his conferences with gusto and humor. This is a fabulous reference text. The author covers practically every aspect of valuation: big firms, small ones, private cos., real estate, m&a, etc. What I really liked were his methods for including option theory and use of options formulae for calculating value when there is no cash-flow, such as oil or mining reserves, or some sort of contingent claim on an asset. The section on use of estimates for cost of equity and capital are highly detailed, and don't miss any of the many aspects that can affect the variables involved: country risk, default risk, etc. Although the book is readable, and very clear and organized in the layout of the methodology, it is heavy reading. I for one, read at most one or two chapters at a time, because of the high level of detail, and the many sub-themes within the broad chapters. Also, I have had to read quite a few chapters once or twice because the material is abundant and the many formulae are easy to forget. That is why i would consider it a reference text, as opposed to other books of Damodaran on this subject, which are much more synthetic. His most recent book: "Narratives and Numbers" complements this text very well.

Many of the numbers have been updated since the 2nd edition of this book was published some 10 years ago. That is, many charts and tables have data going through as late as 2011 (although some still use old data). To be fair, it is very hard to find really good examples of things, so I don't really blame him for not updating some of the examples. Most of the topics though are still pretty much the same as the 2nd edition (this is also to be expected), but, in some instances, the discussion is updated to cover recent events. Overall, this is still an excellent valuation book. Especially for someone that has not read the 2nd edition, this is an excellent resource. I would describe Damodaran's writing style as "honest," which means that he gives you both the good and the bad. He acknowledges that valuation is inherently a subjective process, which, in my opinion, can only be really done well with experience. I find this book as kind of a road map to good valuation fundamentals, as Damodaran shows you what alternatives you can do and what things to avoid.

Aswath Damodaran is the master when it comes to valuing companies. No one does a better job than he does. Small growing companies making losses, large behemoths lumbering to extinction, Mr Damodaran has a way to value them all. His blog is really good and the fact that he makes his spreadsheets available to download is literally priceless. Deals with all kinds of issues in valuation such as Net Operating Losses, Operating Leases, Research and Development Expenses, Stock Options, RSUs, and Cost of Capital Calculations. Invaluable.

Love this book, a definite must have for anyone interested in valuation. I have multiple degrees in finance and find myself referring to this book often, for many different situations. The author demystifies what is often perceived as a complicated subject area, which makes the material much more approachable. It isn't full of models to rinse and repeat, but instead contains useful explanations of theory to help with a variety of applications.

Really well done! I've read this one and the valuation book authored by some folks from McKinsey. This book is excellent; however, it is much more academic. I really enjoy Damodaran's website and teachings, so I prefer this one a little more. That said, Valuation: Managing and Measuring the Value of companies is a great complement. Really comes down to preference.

Bought this book expecting a plethora of valuation methods, as the title suggests. It was certainly thorough, and what it does good, it does very good. Yet there were some specific shortcomings that I couldn't help but overlook. PROs: - Unlike many, many, MANY other investment books out there, which mismatch numerators and denominators when constructing various ratios, the author is VERY consistent in his application of these ratios. For instance, Return on Assets is typically calculated as Net Income/Total Assets. However, the numerator, net income, is what's available to equity-holders after bond-holders have been paid, whereas the denominator, total assets, is funded by both debt AND equity. The author explicitly points out the flaws of this ratio, as well as Price/Sales (Again, the numerator is an equity measure, whereas the denominator, revenues, is what's generated via both bond-holders and equity-holders), and stresses that numerators and denominators should be consistent with what they're measuring. This is a big plus, as almost every other investment book out there makes this mistake at some point within their text. - Sufficient detail is given to both "intrinsic" valuation (DCF, EVA, etc.) and "relative" valuation (P/E, EV/EBITDA, etc.) - His explanation on what drives different multiples is fantastic. - The accompanied spreadsheets on his website are very good. - Both the pros and cons for each valuation method are given honestly. - The valuation methods for financial service firms, which are notoriously hard to value, is amongst the best I've seen. CONs: - The biggest issue I have is the authors strict adherence to CAPM and beta when calculating a discount rate. This was even more frustrating as he specifically cites the Fama/French study that showed low beta stocks outperform the market, and high beta stocks underperform, which is the exact opposite of what the model says should happen. Rather than attempt to use the other possibilities for beta that he mentions (such as fundamental and accounting betas, which IMHO, make 10x more sense than traditional beta), the regular CAPM beta is used throughout the text. CAPM may be the academically "correct" way to quantify "risk," but it's well known errors should warrant another method. - It's not exactly clear who the book is written for: the individual investor, or the potential securities analysis. There is a certain level of finance knowledge implied from the start, yet the author feels the need to present a whole chapter on elementary financial statement interpretation (Current assets are listed from most liquid to least liquid? I had no idea!). Further, when estimating growth rates, one of the proposed solutions is to use whatever growth rate the analyst gives, as these are shown to be, in the short run, more accurate. Okay, fine. But then on the topic of Discounted Cash Flow, the author consistently projects earnings out up to 10 years. Plenty of studies have shown that beyond 2 - 3 years, professional analysts tend to get their numbers wrong. So if this book is for the individual investor, why on earth would they attempt a 10-year DCF model, when the professionals so often get it wrong? And if the book is for potential analysts, why is the author recommending to use given analyst numbers? - The author LOVES DCF. LOVES it. While I believe that DCF is the THEORETICALLY correct way to value an asset, there's so much room for error that beyond 2 - 3 years, it's fairly unreliable. Yet the author repeatedly stretches the DCF valuation out to 10 years. Entirely unrealistic, even if it is theoretically correct. - Lots of statistics and greek letters. As Buffett says, any time you see greek symbols, they're most likely substituting theory for experience. - Free cash flow, according to the author, should factor in new debt issued by the firm netted against debt retired. This is the only book I've seen that considers proceeds from debt issuance to be part of free cash flow. Free cash flow is supposed to be the funds available to equity holders after all obligations have been met. Unless it's a rare case like Apple recently (that issued debt to pay dividends since the majority of their cash balance was held overseas, and thus subject to taxation (at a higher rate than the interest its paying on the debt) should it be brought back to the U.S.), factoring in new debt as part of free cash flow seems entirely counter-intuitive. - "Earnings quality" is based on how consistent the earnings are, rather than the actual accrual/cash component of them. - Residual earnings is mentioned as Economic Value Added, but there is no discussion of Abnormal Earnings. - Only real "performance" metrics mentioned are ROE and ROIC. No FCFF/IC, no RNOA, no GPA. - The chapter on acquisitions is rather lacking. No detail given for leveraged buyouts. Overall, this is a very useful book in your valuation toolkit, but shouldn't be your only reference. For a better, more complete valuation text, I'd HIGHLY recommend Stephen Penman's "Financial Statement Analysis and Security Valuation."

Helpful with some youtubing to clear a few concepts up

Impeccable packaging and delivery. Regarding the book, is a must have for those studying or working within Valuation.

Es handelt sich hierbei um das meiner Meinung nach beste Buch der BWL. Komplexe Themen werden sehr gut erläutert. Ich habe es für viele Hausarbeiten als Quelle nutzen können und auch viel durch dieses Buch gelernt. Insbesondere half es mir auch, ein allgemeines Verständnis aufzubauen, statt bloß Themen auswendig zu lernen.

A must have for almost all of us, who invest in one or the other.

If I would be able to recommend only one book to best understand the principles of corporate finance (including core notions of accounting) and valuation then it would be this one. Indispensable for students and never to late for professionals as key source of definitions, formulas and context. If accompanied by other books on valuation (e;g. from McKinsey and more prosaic ones like the intelligent investor etc.) then your knowledge base (from books) is quite complete.

thank you