Stock Valuation

Contents......Page 7
List of figures......Page 13
Preface......Page 15
Acknowledgments......Page 17
Who Values Stocks?......Page 19
Financial Analysts: Equity Research......Page 20
Individuals......Page 21
The Objective of Equity Investment......Page 22
Earnings vs. Cash Flow......Page 23
Good Companies vs. Good Stocks......Page 24
Size Matters......Page 25
Growth vs. Value......Page 26
Few Stocks vs. Many Stocks......Page 29
Broad-Based Portfolios vs. Concentrated Portfolios......Page 30
The Investment Process......Page 32
Class/Industry Selection......Page 33
Asset Selection......Page 34
Organization of the Book......Page 39
Case Study: O'Charley's......Page 40
Purpose and Scope......Page 43
Types of Orders......Page 44
Dealer Markets......Page 47
Auction Markets......Page 48
What Have We Learned about Price Formation?......Page 51
Market Efficiency......Page 52
The Evidence......Page 53
The S&P 500!......Page 56
Warren Buffett......Page 57
Peter Lynch......Page 58
Bill Miller......Page 59
In Practice . . .......Page 62
Case Study: O'Charley's......Page 63
In Theory . . .......Page 65
The Discount Rate......Page 66
Multiple Cash Flows......Page 67
Implied Discount Rates......Page 72
Expressing Interest Rates......Page 74
Application: Retirement Planning......Page 78
Summary......Page 83
Purpose and Scope......Page 85
Financial Statements......Page 86
The Balance Sheet......Page 87
The Income Statement......Page 97
The Statement of Cash Flows......Page 105
Linkages Between the Statements......Page 111
Building the Free Cash Flow Equation......Page 113
Sales and Cost of Goods Sold: Implications for Free Cash Flow......Page 115
Dealing with Capital Expenditures and Depreciation......Page 118
Cash......Page 119
The Free Cash Flow Equation......Page 120
In Practice . . .......Page 121
Nonsynchronous Financial Statements......Page 122
Differences in Terminology and Reporting Structure......Page 125
Case Study: O'Charley's......Page 126
A Note on SFAS No. 123R......Page 133
Summary......Page 134
Purpose and Scope......Page 135
In Theory . . .......Page 136
Common Size Financial Statements......Page 137
The Turnover Balance Sheet......Page 140
The DuPont Method......Page 143
Special Ratios......Page 158
Unused Assets......Page 163
Identifying Misleading Items......Page 166
Case Analysis: O'Charley's......Page 168
Case Study: Applebee's......Page 173
Summary......Page 178
Purpose and Scope......Page 181
The Pecking Order Theory......Page 184
Internal Financing......Page 186
External Financing......Page 189
Signaling Effects......Page 191
The Cost of Capital......Page 194
Problems with Estimating the Cost of Debt......Page 205
Problems with Estimating the Cost of Preferred Stock......Page 209
Problems with Estimating the Cost of Equity......Page 210
Problems with Estimating Weights for the WACC Calculation......Page 215
Case Study: O'Charley's......Page 218
Summary......Page 220
Purpose and Scope......Page 223
In Theory . . .......Page 224
Growth from Retained Earnings......Page 227
The Forecasting Process......Page 230
Case Study: O'Charley's......Page 254
Summary......Page 259
Purpose and Scope......Page 263
In Theory . . .......Page 265
The Black-Scholes Option Pricing Model......Page 268
Valuing Yet-to-Be-Issued Employee Stock Options......Page 290
In Practice . . .......Page 295
A Note on Dilution-Based Approaches......Page 296
Different Contracts and Lack of Complete Information......Page 297
Early Exercise......Page 299
Case Study: O'Charley's......Page 302
Summary......Page 307
Purpose and Scope......Page 309
A Note on Model Error......Page 311
Screening......Page 312
Comparables ("Comps") Analysis......Page 314
Discounted Dividends and the Malkiel Model......Page 327
A Relative Version of the Malkiel Model: Growth-Adjusted Comps......Page 335
In Practice . . .......Page 340
What Stocks Can We Include?......Page 341
Outliers......Page 342
Case Study......Page 343
Summary......Page 345
Purpose and Scope......Page 347
In Theory . . .......Page 348
The DCF Model......Page 352
In Practice . . .......Page 369
Case Study......Page 370
Other Recommended Readings......Page 374
Bibliography......Page 377
C......Page 381
E......Page 382
G......Page 383
M......Page 384
R......Page 385
Y......Page 386