Index

Accounting information, 324 Accounting PE ratio, 13 Advertising, 6972 Ahold, 18890 Alcatel, 11112, 138 Alcoa, 17 Andersen, Arthur, 71 Apache, 145 Apollo, 15960 Apple, 121 APT (Asset Pricing Theory), 95 Arcelor, 645 Arnott, Robert D., 95, 101, 199, 200, 206 Asset growth, 106, 107, 11011, 1439 rate of accumulation, 1434, 146 typology, 1449 Asset management business, 2223 Asset multiple, 812 range, 15762 Asset valuation, 78, 423, 11415 market value, 548 trend values, 2024 variation, 10812 Assets: financial, 63 intangible, 6873 net, 28 rate of accumulation of, 1434, 146 value of, 83 AT&T, 1835 B Sky B, 136 Bachelier, Louis, 18 Barings, 71 Behavioural finance, 1315 Benckiser, 1313, 202 Berkshire Hathaway, 19, 152 Bernstein, Peter L., 95, 101, 195, 199, 200 Book value, 634 Boots, 1956, 201

Brainard, W. C., 115 British Airways, 89 Buffett, Warren, 14, 17, 1920, 106, 1512, 208 Burr Williams, John, 10, 17, 42 Business cycle, 80, 99100 Canon, 145 Capex, 8, 656 maintenance capex, 8, 8990 Capital cycle theory, 1347 Capitalisation-weighting, 206 CAPM (Capital Asset Pricing Model), 95, 154 Carnival Corporation, 179 Carrefour, 67, 1356 Cash flow, 8 asset value relationship, 83, 867 forecasting, 1545, 1567 see also Free cash flow Cash returns: cyclicality of, 13943 falling or fading cash returns, 1348 management and, 12730 perpetual, 202 rising cash returns, 1303 see also CROCI (Cash Return on Capital Invested) Chancellor, Edward, 134 Ciena Systems, 1378 Cisco Systems, 107, 130 Coca-Cola, 142, 1556, 1623, 1656 Colgate, 96, 131, 138, 1769 Colt Telecom, 1823 Competitive advantage period, 96 Contingent liabilities, 62 Copeland, Tom, 3, 42, 43 Corporate behaviour typology, 13043 cyclicality of cash returns, 13943 falling or fading cash returns, 1348 rising cash returns, 1303

228

Index

Corporate governance, 207 Cost of capital, 3840, 489, 92100 calculation of, 1001 explicit model, 94, 95 implicit model, 945 weighted average cost of capital (WACC), 94, 1012 Cost of debt (CoD), 1012 Cost of equity (CoE), 1012 CROCI (Cash Return on Capital Invested), 34, 902, 11516 innovation strategy, 21416 patterns, 13043 sector index, 21214 trend CROCI, 2024 value index, 20812 Current cost accounted (CCA) assets, 8990 Damodaran, Professor A., 23 Debt, 548, 18890 cost of (CoD), 1012 Decision-making, role of emotions, 6, 2045 Dell, 107 Depreciation, 72, 828 accounting depreciation model, 867 economic depreciation model, 87 Dimson, E., 91 Discounted cash-flow model (DCF), 423, 45, 96 Discounted dividend model, 42 Diversification, 196 Dividend growth, 1067 Dodd, David, 134, 135 Du Pont, 934 Duke Energy, 107 Earnings growth, 107 valuation and, 10812 Earnings yield, 41 East Japan Railway, 1456 Eastman Kodak, 146 eBay, 1802 EBITDA, 7, 8 EV to EBITDA ratio, 89 Ecolab, 1089 Economic asset multiple, 736 Economic depreciation, 828 Economic equivalence, see Equivalence Economic PE ratio, 13, 24, 289, 423 Economic profit (EP) framework, 1213, 30, 34, 1434, 1629

implicit EP, 1624 see also Investment strategies Economic Value Added (EVA) model, 30, 323 Efficient Market Hypothesis (EMH), 1820, 154 Electronic Data Systems (EDS), 1678 Employee-bound liabilities, 62 Enron, 110, 143 Enterprise/entity value (EV), 6, 58 calculation of, 634 EV to EBITDA ratio, 89 EV to Sales ratio, 8 EP see Economic profit (EP) framework Equity risk premium, 198201 Equivalence, 314, 478, 100, 105 analysis of, 158 as an investment tool, 348 cost of capital, 3840, 489 mean-reversion to, 358 EV see Enterprise/entity value (EV) Exchange traded funds (ETFs), 2212 Fade rate, 968, 138 Fama, Eugene, 1819, 154, 214, 221 Familiarity bias, 14 Fed model, 15, 41 Financial analysis, 7, 219 Financial assets, 63 Financial groups, 1267, 207 Financial liabilities, 61 Financial ratios: history of, 79 see also Specific ratios Forecasting: cash flows, 1545, 1567 growth, 11213 Forest Laboratories, 1857 Free cash flow, 25, 267, 98100 forecasting, 112 perpetual discounting, 456, 96 see also Cash flow French, K. R., 95 Fundamental analysis, 126, 149, 1512 GDP deflator, 667 General Electric, 1637 General Motors, 1345 Gnrale des Eaux, 93 Generally Accepted Accounting Principles (GAAP), 11 Gillette, 158

Index

229

Gilovich, Thomas, 126, 127, 204 Givaudan, 1901 Gordon growth model, 45 Graham, Benjamin, 134, 135 Gross capital invested (GCI), 90 Growth, 1517, 389, 96, 1056 asset growth, 106, 107, 11011, 1439 at equilibrium, 1056 dividend growth, 1067 earnings growth, 10812 forecasting, 11213 growth/return interplay, 11316, 1749 measurement of, 11213 price of, 1201 Harley Davidson, 1923 Hedge funds, 220 Herms, 70 Hidden liabilities, 5961 Home Depot, 1478 Hotelling, Harold, 828 Hsu, Jason, 206 Indices, 206 sector index, 21214 value index, 20812 Inflation, 648 Innovation, 712, 21416 Intangible assets, 6873 economic life of, 712 Intel, 968 Internal rate of return (IRR), 86, 88, 90, 98, 1012 calculation of, 98, 100 International Paper, 140 Invested value, 57, 68, 73 Investment analysis, 56, 801, 126, 152 purpose of, 57 Investment process, 197 Investment strategies, 20516 innovation, 21416 sector rotation, 21214 value indices, 20812 Investment styles, 1518 style management, 1967 Investors: definition, 10 typology, 1012 Itochu, 93 Juniper Networks, 1378

Kahneman, Daniel, 1314 Kama, E. F., 95 Keynes, J. M., 7980 Kimberly-Clark, 211, 212 Kingfisher, 32 Kmart, 110 Liabilities, 58, 5963 employee-bound, 62 financial, 61 hidden, 5961 tax, 63 Lintner, J., 107 Liquidity, 196 Litigation liabilities, 62 Lo, Andrew, 154 Long-Term Capital Management, 197 Lowenstein, Roger, 1267, 1978 Lufthansa, 89 LVMH, 1489 Lynch, Peter, 125 McDonalds, 1078, 152 MacKinlay, Craig, 154 Macro investors, 10 Maintenance capex, 8, 8990 Management skills, 12730 Mandelbrot, Benoit, 18, 20, 95, 153, 154, 155, 221 Mannesmann, 923 Market efficiency, 1821 degree of, 20 Market value, 548, 64, 68, 73, 96 Markowitz, Harry, 95, 196 Marks & Spencer, 1878 Marshall, Alfred, 3 Microsoft, 36, 106 Miller, M., 58 Minority interests, 634 Modigliani, F., 58 Moore, Philip, 206 Murata, 37 Net asset value, 88 Net assets, 28 Net capital invested (NCI), 105 Next, 32 Nike, 96 NOPAT (Net Operating Profit After Tax), 30, 45

230

Index

OHanlon, John, 67 Operating leases, 61 Pacioli, Luca, 1112 Patterson, Cleveland, 39, 94, 95 Paulos, John Allen, 5, 14, 20, 204 PE ratio, 13, 234, 43, 467, 534 actuarial framework, 248, 42 discounted cash-flow model (DCF), 423, 45 dividend discount model, 256 economic construction, 13, 24, 289, 423, 199 free cash-flow model, 25, 267 PE paradox, 1315, 23 Peasnell, Ken, 67 PEG ratio, 27 Pension accounting, 11 Pension funding, 62, 195 Porter, Michael, 71, 98, 134, 202 Posco, 645 Prediction, 1534, 1567 see also Forecasting Price of growth, 1201 Product lifecycles, 712 Purchasing Power Parity (PPP), 66 Q ratio, 736, 11516 Random Walk Theory, 19, 154 Reckitt & Colman, 1313, 202 Reinvestment rate, 3940 Relative return, 7982, 15762 Replacement cost, 745 Replacement value, 33 Research and development, 6973 Residual income (RI) model, 2932, 43, 478 Retained earnings, 106 Return on assets (RoA), 567 Return on Equity (RoE), 289, 556 Risk premium, 956, 101, 198201 S&P/Citigroup Pure Value index, 209 Sainsbury, 36 Samuelson, Paul, 18 Schering Plough, 138 Sector rotation strategy, 21214 Securitas, 161

Sharpe, William, 95 Shiller, Robert, 12 Smith, Terry, 11, 182 Sony, 1589 Speculation, 126 Standard and Poors, 17 Starbucks, 152 Stern Stewart & Co, 33 Stewart, G. B., 323 Stigler, G. J., 3940 Stock pickers, 10, 173 Style management, 1967 Sun Microsystems, 138 Sungard Data Systems, 160, 1612 Survival Bias, 101, 150, 198, 205 Taiwan Semiconductor, 141 Takeda Chemical, 1746 Takeover targets, 1835 Taleb, Nassim, 18, 39, 221 Tax liabilities, 63 Texas Instruments, 13940 Thaler, Professor R., 21 Tobin, James, 736, 7980, 11516 Tomkins, 1089 Toyota, 134 Tversky, Amos, 14 Valuation, 11415 range, 15762 variation, 10812 see also Asset valuation Value, 1516 book value, 634 creation of, 34 invested value, 57, 68, 73 market value, 548, 64, 68, 73 perpetual, 203 trend values, 2024 see also Enterprise/entity value (EV) Value indices, 20812 Vodafone, 137 Volatility, 196 Wal-Mart, 1802 Walgreen, 10910, 134, 144 Warranties, 62 Weighted average cost of capital (WACC), 94, 1012