The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit 1st Edition

by Aswath Damodaran (Author)

494 ratings

ISBN-13: 978-1118004777

ISBN-10: 1118004779

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An accessible, and intuitive, guide to stock valuation

Valuation is at the heart of any investment decision, whether that decision is to buy, sell, or hold. In The Little Book of Valuation, expert Aswath Damodaran explains the techniques in language that any investors can understand, so you can make better investment decisions when reviewing stock research reports and engaging in independent efforts to value and pick stocks.

Page by page, Damodaran distills the fundamentals of valuation, without glossing over or ignoring key concepts, and develops models that you can easily understand and use. Along the way, he covers various valuation approaches from intrinsic or discounted cash flow valuation and multiples or relative valuation to some elements of real option valuation.

Includes case studies and examples that will help build your valuation skills
Written by Aswath Damodaran, one of today's most respected valuation experts
Includes an accompanying iPhone application (iVal) that makes the lessons of the book immediately useable

Written with the individual investor in mind, this reliable guide will not only help you value a company quickly, but will also help you make sense of valuations done by others or found in comprehensive equity research reports.

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Editorial Reviews

From the Inside Flap

LITTLE BOOK BIG PROFITS^(R)

Praise for
THE LITTLE BOOK OF VALUATION

"There is nothing 'little' about Damodaran's The Little Book of Valuation. The whole gamut of ideas that form the basis for all business valuations-- covered in his many multi-hundred page classics-are all here, with the same rigor, clarity, pointedness, and wit."
--Professor Anant K. Sundaram Tuck School of Business, Dartmouth College

"The Little Book of Valuation is a great book that I will recommend to my students and friends. This book is an impressive synthesis of sound theory and best practice. It is completely accessible to the novice. It is also an important addition to the professional library of the finance specialist. Acquire it without hesitation."
--Pablo Fernandez, Professor of Finance IESE Business School, Spain

"Damodaran's fast read book offers valuable insights for both institutional and sophisticated individual investors. Within the confines of 'intrinsic' (income approach) and 'relative' (market approach) analysis, he identifies the 'value drivers' in several broad categories of stocks and the most important factors to look for, and how to treat them in valuation for each category."
--Shannon Pratt Chairman and CEO, Shannon Pratt Valuations

From the Back Cover

LITTLE BOOK BIG PROFITS^®

Praise for
THE LITTLE BOOK OF VALUATION

"There is nothing 'little' about Damodaran's The Little Book of Valuation. The whole gamut of ideas that form the basis for all business valuations― covered in his many multi-hundred page classics-are all here, with the same rigor, clarity, pointedness, and wit."
―Professor Anant K. Sundaram Tuck School of Business, Dartmouth College

"The Little Book of Valuation is a great book that I will recommend to my students and friends. This book is an impressive synthesis of sound theory and best practice. It is completely accessible to the novice. It is also an important addition to the professional library of the finance specialist. Acquire it without hesitation."
―Pablo Fernandez, Professor of Finance IESE Business School, Spain

"Damodaran's fast read book offers valuable insights for both institutional and sophisticated individual investors. Within the confines of 'intrinsic' (income approach) and 'relative' (market approach) analysis, he identifies the 'value drivers' in several broad categories of stocks and the most important factors to look for, and how to treat them in valuation for each category."
―Shannon Pratt Chairman and CEO, Shannon Pratt Valuations

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Product details

Publisher : Wiley; 1st edition (May 3, 2011)
Language : English
Hardcover : 256 pages
ISBN-10 : 1118004779
ISBN-13 : 978-1118004777
Item Weight : 10 ounces
Dimensions : 4.8 x 1 x 7 inches

Best Sellers Rank: #30,374 in Books (See Top 100 in Books)
- #15 in Valuation (Books)
- #101 in Stock Market Investing (Books)
- #216 in Business & Finance

Customer Reviews:
494 ratings

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5 star		68%
4 star		16%
3 star		9%
2 star		5%
1 star		3%

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Top reviews from the United States

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Robert Ray

Discounted cash flow and not too much else

Reviewed in the United States on August 10, 2015

Verified Purchase

The author's problem seems to be that he can't say much in 200 pages (his textbooks are several times as long) so he just discusses discounted cash flow methods (intrinsic valuation) and the usual comparative valuation ratios (PE,...). It is all based on the income and cash flow statements, there is nothing at all about using the balance sheet or trying to estimate asset values, even when writing about oil companies. The difficulty with DCF is that one has to estimate cash flows for 5 to 10 years, when predicting the future is difficult. His DCF methods are also based on the CAPM theory which doesn't really have much to do with reality (volatility and risk are two different things for example). He doesn't have much to say about the problems of relying on valuations; mention of Graham's Margin of Safety ideas would have been appropriate. All in all there isn't a lot here for experienced investors, and beginners would be better to start somewhere else.

51 people found this helpful

Helpful

HelsinkiStationChief

I Love the Author, Not the Book

Reviewed in the United States on February 25, 2021

Verified Purchase

I’m a big fan of Aswath Damodaran. He is a fantastic teacher who writes about finance the way it should be written - simply and conversationally.

That’s why I was so disappointed in “The Little Book of Valuation”. The core of “The Little Book” series is simplicity. All the other titles I’ve read are brief, “big idea” books. They aren’t designed to be exhaustive, and if the reader wants more on the subject, they can seek a more advanced text.

“The Little Book of Valuation” got way too far into the weeds. As an investor who is just beginning to value companies, I was looking for a starter kit, not a science project.

In “One Up on Wall Street” Peter Lynch writes about the “two minute drill”. It was his quick and dirty test of what to look for in a company. Revenue growth rate vs. P/E ratio, debt ratio and cash position per share where all calculated in under two minutes. Starting with a simple core valuation like this, even if crude, is helpful to newbies.

Not seeing a basic model like this was a let down. I felt like every piece of information that was presented had an exception or five to it. This made it difficult for me to grasp the material.

6 people found this helpful

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Merry

So much algebra!

Reviewed in the United States on September 19, 2020

Verified Purchase

This book has defeated me. It feels like every page offers a new algebra equation. (I've attached some random one below.) It has a few clear idea that I'll try out, but on the whole, this book is NOT for beginners or for anyone who doesn't consider themselves a "math person."

Oh, and also the pages fall out.

5 people found this helpful

Helpful

Jonathan S.

NOT for a beginner

Reviewed in the United States on October 4, 2020

Verified Purchase

I am fairly new to investing, and the first 18 pages were fine. At some point thereafter (around Chapter 3), I ran into difficulty trying to understand the content.

5 people found this helpful

Helpful

Nick

Good introduction, but lacks depth for the practitioner

Reviewed in the United States on April 25, 2012

Verified Purchase

If you want a short and lightweight introduction to the subject and have basic compound interest and financial statement analysis this book is useful. If you are looking for more than an introduction/overview then the book lacks some depth. It is short, clearly written, and covers the ground with minimal mathematics. I do recommend it as an introduction and overview of the subject area. However, if you can't do basic compound interest or have not looked at basic financial statement analysis it would be helpful to brush up on these topics before using this book to get into valuation.

For knowledgeable readers the book is less useful. To much time is spent presenting an answer on the mechanics of valuing a company and not enough time is spent on the nuances, tradeoffs, and implications of various valuation assumptions. The mechanics are important, but the book does not really grapple adequately with some of the big difficulties in valuation, which include the selection of discount rates and estimation of terminal value. For example, there is no discussion on merits or otherwise of using the average weighted cost of capital (AWCC) for discounting or presenting any alternatives. I don't claim that the approach is wrong just that it carries certain implications that deserve discussion.

Risk is dealt with simplistically through the discount rate, which is not inherently bad, but alternative actuarial approaches exist that I personally think deserve discussion, if only to inform the reader of the scope of the subject matter. Finally, success is as much about managing risk as it is about placing a value on a business. I feel that this most important point is lost.

Is the book worth reading? Absolutely. However, if you are hoping for a tool kit that will provide you with crystal ball to gaze on the future then you are surely going to be disappointed, because none exists.

19 people found this helpful

Helpful

Top reviews from other countries

PK3

Not a good first book for investing/ valuation

Reviewed in India on October 11, 2018

Verified Purchase

This is a good book however it covers a large number of concepts very briefly. It covers in 200 tiny pages multiple MBA courses that takes hours to learn. For e.g. the first 30 odd pages deal with many fundamentals like time value of money, fundamental ratios etc which are larges chapters in corporate finance classes.

So in summary, if you have some background in corporate finance this books is great. If you are looking to take your first steps into the area of valuation, there are other books that may not be as "little" but will be worth it. Make this your pocket reference guide.

25 people found this helpful

Avid Reader

Does what it says on the cover, but ...

Reviewed in the United Kingdom on December 19, 2016

Verified Purchase

The "Little Book" series is very good, each book typically being short and to the point, and this one fits the series profile. It covers how to value a company, including intrinsic valuation techniques like discounted cash flows, and relative valuation techniques. It succeeds in what it sets out to do. The problem I have is that Joel Greenblatt in another Little Book The Big Secret for the Small Investor: A New Route to Long-Term Investment Success , totally destroys the concept of trying to value companies in this way. I'd recommend reading Greenblatt before this, and coming back if you still think it's worth it.

2 people found this helpful

Amazon Customer

Not a bad introduction to valuation

Reviewed in the United Kingdom on September 12, 2017

Verified Purchase

A reasonable introduction to valuation but the author tends to skip about between concepts without fully explaining them. The author also has a particular view on valuation techniques and doesn't fully explore alternative approaches.

One person found this helpful

Abhisek

Should have included the financials based on which valuation is calculated

Reviewed in India on December 3, 2018

Verified Purchase

The author in chapter 3 talks about intrinsic valuation and computes 3M company's valuation on the basis of September 2008 financial . The financials are not included as reference , inclusion in my opinion would have made easy for readers to know where exactly figures are picked up for the calculations as some of the figures are indirect. I tried downloading the Sept 2008 report of 3M but the figures in the book don't match the figures in the report. In my opinion inclusion of the report in the book would have made the book immensely more helpful for readers .

9 people found this helpful

FTorres09

Reader-friendly description meets hardly approachable calculations

Reviewed in Germany on December 28, 2018

Verified Purchase

All in all, this book can be summarized by saying that ther. Damodaran has once more published a book which is easy to read, very well structured and reader-friendly. To conclude the learnings I've made while reading this book, let me say this: Valuations are non-scientific due to the fact that you cannot find one enterprise value (no matter the approach) that is not negotiable or disagreeable. And this thesis is also backed by many sentences in the book. Still, Mr. Damodaran tries in the basis of practical examples to show how he goes for the calculations of intrinsic and relative value. Unfortunately, these calcs could have been visualized far better. They could have also been better or more precisely explained.
Nevertheless, this book is worth reading for everybody who is interested in company valuations as I am due to my job.

3 people found this helpful

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