Foreword
Introduction
Part I. : Valuation Perspectives: Then and Now
1. : Two Illustrative Approaches to Formula Valuations of Common Stocks
Notes
2. : Seeking a Margin of Safety and Valuation
Two Basic Investment Goals
The Price of Money is Fake
The Future is Uncertain
Dealing with Macro Risk
Owning an Enterprise Preserves Purchasing Power
Seek a Margin of Safety
Valuation
Business Model Erosion
Focus on Assets, Not on Residual Equity.
ManagementFlexibility to Look Different
Conclusion
Question and Answer Session
Note
Part II. : Valuation Methodologies
3. : Company Performance and Measures of Value Added
Foreword
Introduction
How Value Is Created
Relating New Performance Methods to Capital-Budgeting Techniques
Summary
Traditional Measures of Performance
Return-on-Investment Ratios
Tobin's q
Summary
Measures of Value Added
Economic Profit
Market Value Added
Reconciling Economic Value Added with Market Value Added
Challenges in Applying Value-Added Measures
Holt's Cfroi
Summary.
Comparison of Alternative Performance MeasuresThe Sample
The Variables
Empirical Results
Summary
Conclusions
Appendix 3. A: The Firm's Cost Of Capital
Cost of Debt
Cost of Preferred Stock
The Cost of Common Equity
Weighted-Average Cost of Capital
Issues in Calculating a WACC
Appendix 3. B: Net Present Value and Internal Rate of Return
Notes
4. : The Affordable Dividend Approach to Equity Valuation
Affordable Dividends
Affordable vs. Conventional dividends
Significance of Difference
Book Value vs. Economic Value weights
Conclusion
Notes.
5. : Discounted-Cash-Flow Approach to ValuationThe DCF Formula
Estimation of Cash Flows
Discount Rate
Definition
External Factors
Internal Factors
Components
Terminal Value
Conclusion
Question and Answer Section
Note
6. : Equity Securities Analysis Case Study: Merck & Company
Recent Annual Reports
Strategic Objectives
Structural Reorganization
Position on Health Care Reform
Outlook for the Future
Fundamentals of the U.S. Pharmaceutical Industry
Pricing and the Demand for Pharmaceuticals
Consolidation and Joint Ventures
Marketing Trends.
International CompetitionThe U.S. Political/Regulatory Environment
Tasks to be Completed
Appendix 6. A: Merck & Company Financial Data
Appendix 6. B: Statistical Data: Pharmaceutical Industry
Appendix 6. C: Competitive Strategy Analysis Framework
Appendix 6. D: Review of the Dupont Financial Ratio Analysis Method
Appendix 6. E: Selected Valuation Methods
Single-Stage Constant-Growth DCF Model
Multistage DCF Model
H-Model
Financial Ratios Approaches
Guideline Answers: The Merck Case
The Current Issues Involved in Marketing Pharmaceuticals.
The Competitive Structure of the U.S. Pharmaceutical Industry.