Actuarial Notes

Valuation: Measuring and Managing the Value of Companies

By Tim Koller, Marc Goedhart and David Wessels · Wiley · 2025

Study guides: Exam CFE-201, Exam CP-311

The eighth edition (May 2025, 976 pages) of McKinsey & Company's guide to valuation. Wiley describes it as walking readers through the foundations of valuation, advanced topics such as valuing high-growth companies and digital assets, and managerial topics such as corporate portfolio strategy and acquisitions, with detailed guidance on the fundamental principles of value creation, on applying valuation to business strategy questions and communicating with investors, and on analyzing and forecasting performance and the cost of capital.

On the syllabus

  • Exam CP-311 — Ch 13 Forecasting Performance, excluding pp. 259-278 "Mechanics of Forecasting" (outcomes 2a, 2b, 2c); Ch 3 Fundamental Principles of Value Creation (2d, 2f); Ch 16 Moving from Enterprise Value to Value per Share, excluding pp. 341-353 starting from the Valuing Interest-Bearing Debt section (2d); Ch 18 Using Multiples (2d); Ch 32 Divestitures (2d, 2f); Ch 43 Banks (2d, 2f).
  • Exam CFE-201 — Ch. 10 Framework for Valuation (excluding "Problematic Modifications to Discounted Cash Flow" and "Alternatives to Discounted Cash Flow" sections) (1a, 1b); Ch. 27 Cross Border Valuation (excluding "Using Translated Foreign-Currency Financial Statements" section) (1a, 1b, 1c); Ch. 35 Capital Structure, Dividends, and Share Repurchases, "Setting a Target Capital Structure" section only (pp 679-688) (1a, 1b, 1c); Ch. 31 Mergers and Acquisitions (1a, 1b, 1c); Ch. 22 Leases (1a, 1b); Ch. 40 Flexibility (1a, 1b).

Part One Foundations of Value

1 Why Value Value?

2 Finance in a Nutshell

3 Fundamental Principles of Value Creation

4 Risk and the Opportunity Cost of Capital

5 The Alchemy of Stock Market Performance

6 The Stock Market and Economic Fundamentals

7 The Stock Market Is Smarter Than You Think

8 Return on Invested Capital

9 Growth

Part Two Core Valuation Techniques

10 Frameworks for Valuation

11 Reorganizing the Financial Statements

12 Analyzing Performance

13 Forecasting Performance

14 Estimating Continuing Value

15 Estimating the Cost of Capital

16 Moving from Enterprise Value to Value per Share

17 Analyzing the Results

18 Using Multiples

19 Valuation by Parts

Part Three Advanced Valuation Techniques

20 Taxes

21 Nonoperating Items, Provisions, and Reserves

22 Leases

23 Retirement Obligations

24 Measuring Performance in Capital-Light Businesses

25 CFROI and Other Ways to Measure Return on Capital

26 Inflation

27 Cross-Border Valuation

Part Four Managing for Value

28 Corporate Portfolio Strategy

29 Strategic Management: Analytics

30 Strategic Management: Governance, Processes, and Decision Making

31 Mergers and Acquisitions

32 Divestitures

33 Digital Initiatives and Companies

34 Sustainability

35 Capital Structure, Dividends, and Share Repurchases

36 Investor Communications

Part Five Special Situations

37 Leveraged Buyouts

38 Venture Capital

39 High-Growth Companies

40 Flexibility and Options

41 Emerging Markets

42 Cyclical Companies

43 Banks

Appendix A Discounted Economic Profit Equals Discounted Free Cash Flow

Appendix B Derivation of Free Cash Flow, Weighted Average Cost of Capital, and Adjusted Present Value

Appendix C Levering and Unlevering the Cost of Equity

Appendix D Leverage and the Price-to-Earnings Multiple

Appendix E Other Capital Structure Issues

Appendix F Technical Issues in Estimating the Market Risk Premium

Appendix G Global, International, and Local CAPM

Appendix H Two-Stage Formula for Continuing Value

Appendix I A Valuation of Costco Wholesale

Index

Sources