Contributor(s): Author: Russell Lundholm Author: Richard Sloan WHY THIS BOOK? This book spans the void between the abstract theoretical treatment of Equity Valuation and the practical problem of valuing an actual company using real-world data.
The book is supported by a comprehensive set of free online resources, including software, cases, and quizzes, all available at http: //www.lundholmandsloan.com.
By blending the theory of Equity Analysis with practical application, we feel that students learn both more effectively.
Financial statements, accounting rules, financial ratios, and Valuation models are all pretty dull beasts on their own, but if we can use them to answer questions such as these, we can really bring them to life.
Tesla wants to produce and sell hundreds of thousands of cars in the future, but can it generate enough cash from existing sales to fund the production of all these new cars? A careful study of their cash flows shows that they will almost certainly be borrowing lots of money to build all these cars.
Is Apple really worth more than any other public company in the world? The answer is probably yes, once you understand its free cash flow generating ability.
What makes this topic exciting is seeing how an organized approach to studying a real company leaves you so much better informed about the firm\'s future.
The abstract theory of financial statements, ratios, and Valuation formulas can be covered in a few boring lectures.
HOW DOES ALL THIS HELP YOU? The theory of financial Analysis and Valuation is more compelling when linked to real-world examples.
This reinforces our main point that the key to good valuations is good forecasts.
We demonstrate that these different formulas are easily reconciled and refocus students on developing the best set of financial forecasts to plug into these formulas.
They become obsessed with learning acronyms and formulas but flounder when asked to provide a plausible Valuation for an actual company.
For example, students get confused as to whether they should use a DDM, DCF, or RIM Valuation formula and whether they need to use the CAPM, APT, or MFM to estimate their WACC (and to how many decimal places).
In the past, we have seen students become lost in a sea of Valuation formulas and inconsistent spreadsheet models.
A final goal of this book is to demystify the Valuation process.
Armed with such a rich source of data, we are able to provide you with plenty of practical examples and limitless opportunities for you to practice doing your own analyses.
We also provide plenty of advice on where to go to obtain the most relevant raw data.
However, we always do so with a clear view to how these analyses help us to generate better financial statement forecasts.
As with many other textbooks, we discuss topics like business strategy analysis, accounting analysis, financial ratio analysis, and so forth.
In fact, this text refers often to eVal, a fancy Excel workbook that provides a template for these many mechanical tasks and is freely available.
Most other aspects of the Valuation process are mechanical and can be programmed into a computer.
Our overriding theme is that good forecasts of the future financial statements are the key input to a good valuation. 3.
We demystify the mechanics of Equity valuation. 2.
We provide detailed practical guidance on how to obtain and analyze relevant real-world data.
The key differences can be summarized as follows: 1.
Our focus is on generating good financial statement forecasts.
We give serious treatment to the underlying theory of financial Analysis and valuation, but our main goal is to be able to arrive at a pragmatic answer to the important question, "what is this company really worth?" To answer this question, we adopt a different approach from other textbooks.
Contributor(s): Author: Russell Lundholm Author: Richard Sloan WHY THIS BOOK? This book spans the void between the abstract theoretical treatment of Equity Valuation and the practical problem of valuing an actual company using real-world data
