Academic journal article Journal of Applied Finance

Valuation Handbook: Valuation Techniques from Today's Top Practitioners

Academic journal article Journal of Applied Finance

Valuation Handbook: Valuation Techniques from Today's Top Practitioners

Article excerpt

Valuation Handbook: Valuation Techniques from Today's Top Practitioners

Edited by Benton E. Gup and Rawley Thomas, Forthcoming, John Wiley & Sons

Valuation is at the core of the study of finance. Correct valuations of investment opportunities, securities, and businesses facilitate the efficient flow of capital from providers to users in a capitalist economy. Most of the material taught in finance courses in undergraduate and MBA business programs comes back to the basics of valuing a stream of expected future cash flows. There is no shortage of books published on valuation (whether investment, securities, or businesses).

Is there really a need for another valuation book? I was initially skeptical, but after reading the Valuation Handbook, I have come to the conclusion that it provides unique and useful perspectives for students and teachers of business valuation. Because it is a compilation of original chapters written by valuation practitioners, the Valuation Handbook lacks the "flow" of a book written entirely by the same authors. Nevertheless, it provides readers with an interesting overview of different issues confronted by the professional (or amateur) valuation practitioner. Readers of the book can easily self-select chapters based on their interests. Additionally, many of the authors offer excellent lessons for senior corporate managers and board members. Overall, the Valuation Handbook offers many insights for the advanced student of business valuation, and some of the chapters are readily accessible to general business authences.

The review that follows is written primarily to an authence that shares my major teaching objectives as I explain below. First and foremost, I am a teacher of business valuation (principally to senior-level undergraduate business majors). As such, I am interested in valuation fundamentals that I can communicate and instill in my students. An additional underlying goal is to provide the students with fundamental frameworks to develop and assess corporate strategies. Nevertheless, I also propose three additional constituencies that would be well served by reading selected chapters in the Valuation Handbook.

The remainder of the review is organized as follows. In Section I, I provide a brief description of the Valuation Handbook. In Section II, I identify and discuss major themes and issues addressed in the Valuation Handbook. I conclude with some overall thoughts about the Valuation Handbook in Section III.

I. Book Description and Possible Pedagogical Reorganizations of Chapters

Benton Gup and Rawley Thomas have compiled an interesting collection of chapters related to the practice of valuation. Table 1 shows a basic table of contents of the chapters. They have subdivided the book into four major sections. The first six chapters comprise a section entitled, "Valuation, Value-Based Management, Governance, and Drivers." Chapters 7 - 9 are contained within a section titled, "Residual Income." The third section is called "Cash Return and Net Cash Flow Valuation Methods," and contains Chapters 10 - 12. The final section is entitled, "Specialized Valuations, Liquidity, and Other Topics," and includes the remaining chapters of the book.

The first 12 chapters make up the core of the book. One possible use of the Valuation Handbook might be to read the first 12 chapters thoroughly, and select a few of the remaining chapters for special study.1

II. Important Themes Throughout the Valuation Handbook

Academics trained in financial economics tend to have pretty strong opinions about important issues in fundamental financial topics such as equity valuation. After reading the Valuation Handbook, I came across many important themes that seem to represent the strongest opinions about valuation issues from practitioners. There are many instances of opinions that are shared by both academics and practitioners of equity valuation. …

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