Valuation of Companies: Common Sense and Errors

The book explains the nuances of different valuation methods and provides the reader with the tools for analyzing and valuing any business, no matter how complex. The book uses 160 figures, 231 tables, and 63 examples to help the reader absorb these concepts. It also reflects more than 300 comments from readers.

This book contains materials of the MBA and executive courses that I teach in IESE Business School. It also includes some materials presented in courses and conferences in Brazil, Chile, Spain, US, Austria, Mexico, Argentina, Peru, Belgium, Sweden, Colombia, UK, Italy, France, and Germany. The chapters have been modified many times because of the suggestions of my students since 1988, my work in class, and my work as a consultant specialized in valuation and acquisitions. I want to thank all my students for their comments on previous manuscripts and their questions.
This book would never have been made possible without the excellent work done by a group of students and research assistants, namely Jose Ramon Contreras, Teresa Modrono, Gabriel Rabasa, Laura Reinoso, Jose M? Carabias, Vicente Bermejo, Javier del Campo, Luis Corres, Pablo Linares, Isabel Fernandez-Acin, Alberto Ortiz, Vitaly Pershin, Mar Martinez and Diego Garcia de la Garza. It has been 34 years since we began, and their contribution has been essential.
Chapters of the book have been revised by such IESE Finance Professors as Jose Manuel Campa, Javier Estrada, Javier Aguirreamalloa and M? Jesus Grandes, who have provided their own enhancements.

The book has 22 Chapters:
Ch1 Company valuation methods
Ch2 Cash flow discounting: fundamental relationships and unnecessary complications
Ch3 Discounted cash flow valuation methods: perpetuities, constant growth and general case
Ch4 Valuing companies by cash flow discounting: 10 methods and 9 theories
Ch5 WACC: definition, misconceptions and errors
Ch6 Valuation using multiples: dispersion. Useful to compare and to negotiate
Ch7 Price to Earnings ratio, Value to Book ratio and Growth
Ch8 How to value a seasonal company discounting cash flows
Ch9Equity Premium: Historical, Expected, Required and Implied
Ch10 CAPM: an absurd model
Ch11 The equity premium in 150 textbooks
Ch12 Market risk premium and risk-free rate used in 80 countries in 2023: a survey
Ch13 Are calculated betas good for anything?
Ch14 Beta = 1 does a better job than calculated betas
Ch15 Valuing real options: frequently made errors
Ch16 Value of tax shields (VTS): 3 theories with “some” common sense
Ch17 Valuation of Internet-related companies
Ch18 Valuation of brands and intellectual capital
Ch19 Interest rates and company valuation
Ch20 Dividends and share repurchases
Ch21 How inflation destroys value: taxes
Ch22 119 common errors in company valuations