Acknowledgments ix Introduction 1 1 Corporate Valuation 5 1.1 The discounted cash flow approach 5 1.2 The market approach 6 1.3 The net asset approach 6 2 What Value? 9 2.1 Standard of values 9 2.2 Marketability and control 11 2.2.1 Marketability (liquidity) 11 2.2.2 Control 11 2.2.3 Adjusting formarketability and control 13 3 Exchange-traded Shares vs. Transactions 19 3.1 Exchange-traded shares 19 3.2 Transactions 20 4 How to Put the Peer Group Together 23 4.1 The selection process 23 4.1.1 Geography 23 4.1.2 Business model 23 4.2 How many comparables? 26 4.3 Analyzing the history 26 5 Market Value of Equity vs. Market Value of Operating / Invested Capital 29 5.1 Market value of equity 29 5.2 Market value of operating/invested capital 29 6 The Value Multiples 39 6.1 EV multiples 40 6.2 Pmultiples 42 6.3 Other details to consider 47 7 The Value Drivers 49 7.1 Primary value drivers of the EV multiples 49 7.2 Primary value drivers of the Pmultiples 50 7.3 Assumptions regarding value drivers 50 8 Applying the Market Approach in Practice 53 8.1 The case study 53 8.1.1 EV/Sales 56 8.1.2 EV/EBIT 79 8.1.3 EV/BEV 87 8.1.4 Some closing remarks 90 8.2 Risk 96 8.2.1 The discounted cash flow approach (DCF) 97 8.2.2 Forecasted cash flows 105 8.2.3 Cost of capital (discount rate) 106 8.2.4 Cost of equity (Ke) 107 8.2.5 The capital asset pricing model (CAPM) 107 8.2.6 Adjusted CAPM 114 8.2.7 Cost of debt (Kd) 118 8.2.8 Capital structure 119 8.2.9 Weighted average cost of capital (WACC) 120 8.3 Summary of calculated values 130 8.3.1 EV multiples 130 8.3.2 Price multiples - short tuning 131 8.3.3 Concluding remarks 137 9 Using the Market Approach for Reconciliation 141 9.1 The discounted cash flow value of Engineering Corp 141 9.1.1 EV/Sales 146 9.1.2 EV/EBIT 158 9.1.3 EV/BEV 165 9.1.4 Some closing remarks 166 10 Forward-looking Value Multiples 173 11 Summary and Concluding Remarks 181 12 Epilog 189 Appendix: Brief Derivation of the Respective Value Multiple's Individual Value Drivers 191 Index 197

"Provid[es] the reader with a rational scientific-based understanding and the necessary tools to perform a sound market approach valuation, or if reviewing such valuations, provide[s] the tools to challenge the work of the arts-based senior experts."