The Little Book of Valuation PDF (How to Value a Company, Pick a Stock and Profit) explains the techniques in language that any investors can understand, so you can make better investment decisions when reviewing stock research reports and engaging in independent efforts to value and pick stocks.
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An accessible, and intuitive, guide to stock valuation
Valuation is at the heart of any investment decision, whether that decision is to buy, sell, or hold. In The Little Book of Valuation, expert Aswath Damodaran explains the techniques in language that any investors can understand, so you can make better investment decisions when reviewing stock research reports and engaging in independent efforts to value and pick stocks.
Page by page, Damodaran distills the fundamentals of valuation, without glossing over or ignoring key concepts, and develops models that you can easily understand and use. Along the way, he covers various valuation approaches from intrinsic or discounted cash flow valuation and multiples or relative valuation to some elements of real option valuation.
- Includes case studies and examples that will help build your valuation skills
- Written by Aswath Damodaran, one of today’s most respected valuation experts
- Includes an accompanying iPhone application (iVal) that makes the lessons of the book immediately useable
Written with the individual investor in mind, this reliable guide will not only help you value a company quickly, but will also help you make sense of valuations done by others or found in comprehensive equity research reports.
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 mindset—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.
Valuation is at the core of the economic activity in a free economy. As a consequence, a working knowledge of valuation’s broad concepts as well as its ins and outs is of great utility. Aswath Damodaran has done more to bring these ideas to life than anyone I know. I hope that you enjoy The Little Book of Valuation and profit from its lessons.
Michael J. Mauboussin
Michael J. Mauboussin is chief investment strategist at Legg Mason Capital Management and an adjunct professor at Columbia Business School.
Table of Contents- The Little Book of Valuation PDF
Hit the Ground Running—Valuation Basics
Chapter 1 : Value—More Than a Number!
Two Approaches to Valuation
Why Should You Care?
Some Truths about Valuation
Start Your Engines!
Chapter 2 : Power Tools of the Trade
Time Is Money
Grappling with Risk
Making Sense of Data
The Tool Box Is Full
Chapter 3 : Yes, Virginia, Every Asset Has an Intrinsic Value
Value the Business or Just the Equity?
Inputs to Intrinsic Valuation
What Do These Models Tell Us?
It’s All in the Intrinsic Value!
Chapter 4 : It’s All Relative!
Standardized Values and Multiples
Four Keys to Using Multiples
Intrinsic versus Relative Value
Einstein Was Right
From Cradle to Grave—Life Cycle and Valuation
Chapter 5 : Promise Aplenty
Are We Missing Something?
Chapter 6 : Growing Pains
Chapter 7 : Valuation Viagra
Can Changing Management Change Value?
Chapter 8 : Doomsday
Breaking the Mold—Special Situations in Valuation
Chapter 9 : Bank on It
Chapter 10 : Roller-Coaster Investing
The Real Option Argument for Undeveloped
Chapter 11 : Invisible Value
“There is nothing ‘little’ about Damodaran’s The Little Book of Valuation. The whole gamut of ideas that form the basis for all business valuations– covered in his many multi-hundred page classics-are all here, with the same rigor, clarity, pointedness, and wit.”
–Professor Anant K. Sundaram Tuck School of Business, Dartmouth College
“The Little Book of Valuation is a great book that I will recommend to my students and friends. This book is an impressive synthesis of sound theory and best practice. It is completely accessible to the novice. It is also an important addition to the professional library of the finance specialist. Acquire it without hesitation.”
–Pablo Fernandez, Professor of Finance IESE Business School, Spain
“Damodaran’s fast read book offers valuable insights for both institutional and sophisticated individual investors. Within the confines of ‘intrinsic’ (income approach) and ‘relative’ (market approach) analysis, he identifies the ‘value drivers’ in several broad categories of stocks and the most important factors to look for, and how to treat them in valuation for each category.”
–Shannon Pratt Chairman and CEO, Shannon Pratt Valuations
About the author
ASWATH DAMODARAN is Professor of Finance at New York University’s Leonard N. Stern School of Business. He has been the recipient of numerous awards for outstanding teaching, including the NYU universitywide Distinguished Teaching Award, and was named one of the nation’s top business school teachers by BusinessWeek in 1994. He has written or coedited numerous books, including Damodaran on Valuation, Investment Valuation, Corporate Finance, Investment Management, Investment Philosophies, and Applied Corporate Finance (all published by Wiley), as well as The Dark Side of Valuation, Investment Fables, and Strategic Risk Taking.
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