List of Figures | p. xiii |
Preface | p. xv |
Acknowledgments | p. xvii |
Setting the Stage | p. 1 |
Purpose and Scope | p. 1 |
Who Values Stocks? | p. 1 |
Corporate Managers | p. 2 |
Financial Analysts: Investment Banking | p. 2 |
Financial Analysts: Equity Research | p. 2 |
Asset Managers | p. 3 |
Individuals | p. 3 |
Economic Policymakers | p. 4 |
The Objective of Equity Investment | p. 4 |
Related Concepts | p. 5 |
Earnings vs. Cash Flow | p. 5 |
Good Companies vs. Good Stocks | p. 6 |
Size Matters | p. 7 |
Growth vs. Value | p. 8 |
Few Stocks vs. Many Stocks | p. 11 |
Broad-Based Portfolios vs. Concentrated Portfolios | p. 12 |
The Investment Process | p. 14 |
Market Selection | p. 15 |
Class/Industry Selection | p. 15 |
Asset Selection | p. 16 |
Organization of the Book | p. 21 |
Case Study: O'Charley's | p. 22 |
Price Formation, Market Efficiency, and Great Investors | p. 25 |
Purpose and Scope | p. 25 |
How Are Prices Determined? | p. 26 |
Types of Orders | p. 26 |
Dealer Markets | p. 29 |
Auction Markets | p. 30 |
What Have We Learned about Price Formation? | p. 33 |
Market Efficiency | p. 34 |
The Evidence | p. 35 |
A Few of the Great Investors | p. 38 |
The S&P 500! | p. 38 |
Warren Buffett | p. 39 |
Peter Lynch | p. 40 |
Bill Miller | p. 41 |
Putting It All Together | p. 44 |
In Practice ... | p. 44 |
Case Study: O'Charley's | p. 45 |
The Time Value of Money | p. 47 |
Purpose and Scope | p. 47 |
In Theory ... | p. 47 |
The Discount Rate | p. 48 |
Multiple Cash Flows | p. 49 |
Implied Discount Rates | p. 54 |
In Practice ... | p. 56 |
Expressing Interest Rates | p. 56 |
Application: Retirement Planning | p. 60 |
Summary | p. 65 |
Understanding Financial Statements | p. 67 |
Purpose and Scope | p. 67 |
Financial Statements | p. 68 |
The Balance Sheet | p. 69 |
The Income Statement | p. 79 |
The Statement of Cash Flows | p. 87 |
Linkages Between the Statements | p. 93 |
Building the Free Cash Flow Equation | p. 95 |
Sales and Cost of Goods Sold: Implications for Free Cash Flow | p. 97 |
Dealing with Capital Expenditures and Depreciation | p. 100 |
Cash | p. 101 |
The Free Cash Flow Equation | p. 102 |
Other Cash Flow Items | p. 103 |
In Practice ... | p. 103 |
Nonsynchronous Financial Statements | p. 104 |
Differences in Terminology and Reporting Structure | p. 107 |
Case Study: O'Charley's | p. 108 |
A Note on SFAS No. 123R | p. 115 |
Summary | p. 116 |
Interpreting Financial Statements | p. 117 |
Purpose and Scope | p. 117 |
In Theory ... | p. 118 |
Common Size Financial Statements | p. 119 |
Indexed Financial Statements | p. 122 |
The Turnover Balance Sheet | p. 122 |
The DuPont Method | p. 125 |
Special Ratios | p. 140 |
Unused Assets | p. 145 |
In Practice ... | p. 148 |
Identifying Misleading Items | p. 148 |
Case Analysis: O'Charley's | p. 150 |
Case Study: Applebee's | p. 155 |
Summary | p. 160 |
Capital Structure and the Cost of Capital | p. 163 |
Purpose and Scope | p. 163 |
In Theory ... | p. 166 |
The Pecking Order Theory | p. 166 |
Internal Financing | p. 168 |
External Financing | p. 171 |
Signaling Effects | p. 173 |
The Cost of Capital | p. 176 |
In Practice ... | p. 187 |
Problems with Estimating the Cost of Debt | p. 187 |
Problems with Estimating the Cost of Preferred Stock | p. 191 |
Problems with Estimating the Cost of Equity | p. 192 |
Problems with Estimating Weights for the WACC Calculation | p. 197 |
Case Study: O'Charley's | p. 200 |
Summary | p. 202 |
Forecasting | p. 205 |
Purpose and Scope | p. 205 |
In Theory ... | p. 206 |
Growth from Retained Earnings | p. 209 |
The Forecasting Process | p. 212 |
In Practice ... | p. 236 |
Case Study: O'Charley's | p. 236 |
Summary | p. 241 |
Valuing Employee Stock Options | p. 245 |
Purpose and Scope | p. 245 |
In Theory ... | p. 247 |
The Black-Scholes Option Pricing Model | p. 250 |
Valuing Yet-to-Be-Issued Employee Stock Options | p. 272 |
In Practice ... | p. 277 |
A Note on Dilution-Based Approaches | p. 278 |
Different Contracts and Lack of Complete Information | p. 279 |
Early Exercise | p. 281 |
Case Study: O'Charley's | p. 284 |
Summary | p. 289 |
Relative Valuation and Screening | p. 291 |
Purpose and Scope | p. 291 |
In Theory ... | p. 293 |
A Note on Model Error | p. 293 |
Screening | p. 294 |
Comparables ("Comps") Analysis | p. 296 |
Discounted Dividends and the Malkiel Model | p. 309 |
A Relative Version of the Malkiel Model: Growth-Adjusted Comps | p. 317 |
In Practice ... | p. 322 |
Equity Research and Investment Banking | p. 323 |
What Stocks Can We Include? | p. 323 |
Outliers | p. 324 |
Analyst Growth Rates | p. 325 |
Case Study | p. 325 |
Summary | p. 327 |
The Discounted Cash Flow Model | p. 329 |
Purpose and Scope | p. 329 |
In Theory ... | p. 330 |
The DCF Model | p. 334 |
In Practice ... | p. 351 |
Case Study | p. 352 |
Other Recommended Readings | p. 356 |
Bibliography | p. 359 |
Index | p. 363 |
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