Text

Valuation measuring and managing the value of companies

The 󿬁rst edition of this book appeared in 1990, and we are encouraged that itcontinues to attract readers around the world. We believe the book appeals toreaderseverywherebecausetheapproachitadvocatesisgroundedinuniversaleconomic principles. While we continue to improve, update, and expand thetext as our experience grows and as business and 󿬁nance continue to evolve,those universal principles do not change.The 25 years since that 󿬁rst edition have been a remarkable period in busi-ness history, and managers and investors continue to face opportunities andchallenges emerging from it. The events of the economic crisis that began in2007, as well as the Internet boom and its fallout almost a decade earlier, havestrengthened our conviction that the core principles of value creation are gen-eral economic rules that continue to apply in all market circumstances. Thus,the extraordinarily high anticipated pro󿬁ts represented by stock prices duringthe Internet bubble never materialized, because there was no ?new economy.?Similarly,theextraordinarilyhighpro󿬁tsseeninthe󿬁nancialsectorforthetwoyears preceding the start of the 2007?2009 󿬁nancial crisis were overstated, assubsequent losses demonstrated. The laws of competition should have alertedinvestors that those extraordinary pro󿬁ts couldn?t last and might not be real.Over time we have also seen con󿬁rmed that for some companies, some of the time, the stock market may not be a reliable indicator of value. Knowingthat value signals from the stockmarket may occasionally be unreliable makesus even more certain that managers need at all times to understand the under-lying, intrinsic value of their company and how it can create more value. Inour view, clear thinking about valuation and skill in using valuation to guide business decisions are prerequisites for company success.Today, after six years of sluggish recovery in the United States and stag-nation in Europe, calls mount for changes in the nature of shareholder capi-talism. We 󿬁nd that the blame for a poorly performing economy should not xi xii PREFACE be placed on the pursuit of shareholder value creation, but on a misguidedfocus on short-term performance that is inconsistent with the value-creationprinciples we describe in this book. Creating value for shareholders does notmean pumping up today?s share price. It means creating value for the collec-tiveofcurrentandfutureshareholdersbyapplyingthetechniquesexplainedinthis book.

Ketersediaan