Download The Little Book of Valuation PDF
If you take a moment to think about it, stock exchanges provide a service that seems miraculous. They allow you to exchange cash that you don’t need today for a share in a claim, based on the future cash flows of a company, which should grow in value over time. You can defer consumption now in order to consume more in the future. The process also goes in reverse. You can sell shares in a company for cash, effectively trading tomorrow’s potential for a certain sum today. Valuation is the mechanism behind this wondrous ability to trade cash for claims. And if you want to invest thoughtfully, you must learn how to value.
As a student and practitioner of valuation techniques throughout my career, I can say without hesitation that Aswath Damodaran is the best teacher of valuation I have ever encountered. I have attended his lectures, consulted his books, pored over his papers, and scoured his web site. He combines remarkable breadth and depth with clarity and practicality. He intimately knows valuation’s big ideas as well as its nooks and crannies, and delivers the content in a useful and sensible way. If you are looking to learn about valuation from the master, you have come to the right place.
The Little Book of Valuation may not be large, but it packs a lot of punch. You’ll start off learning about the basics of discounted cash flow and quickly move to valuation multiples. Professor Damodaran also frames a proper mind-set—valuations are biased and wrong, and simpler can be better—and emphasizes the difference between intrinsic and relative approaches. His discussion of the pros and cons of popular valuation multiples is especially useful.
Valuing businesses at different stages of their lives is tricky. For example, how do you compare the relative attractiveness of a hot initial public offering of a company boasting the latest whiz-bang technology to a stable but staid manufacturer of consumer products? In the heart of the book, Professor Damodaran helps you navigate the valuation issues that surround companies at different points in their life cycles, providing vivid and relevant examples that help cement the ideas.
The book’s final section guides you in dealing with some of the special situations that you are likely to encounter. For instance, valuing a company that relies on a commodity that rises and falls like a roller coaster is an inherently thorny problem. So, too, is valuing a company that pours money into research and development with little that is tangible to show for it. These are some of the valuation challenges you will face as a practitioner, but are also among the most rewarding.
Don’t put the book down until you have read, and internalized, the “10 Rules for the Road” in the conclusion. They effectively meld good theory and practice, and will guide you when you reach a point of uncertainty. Source: The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit.
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About Little Book Big Profits Series
In the Little Book Big Profits series, the brightest icons in the financial world write on topics that range from tried-and-true investment strategies to tomorrow’s new trends. Each book offers a unique perspective on investing, allowing the reader to pick and choose from the very best in investment advice today.
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|Book Title: The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit|
|Author: Aswath Damodaran|
|Pages: 144 Pages|
|Published by John Wiley & Sons, Inc., Hoboken, New Jersey.|