Franchise Value: A Modern Approach to Security Analysis (Wiley Finance) (Hardcover)

Understanding the key ingredients that combine to affect price/earnings (P/Es) is of crucial importance to the investment process. In Franchise Value, Martin Leibowitz tackles the imposing task of determining what really has an impact on P/Es. The author shows why he subscribes to the conventional logic that the P/E gauges the market′s assessment of the firm′s future. He then introduce readers to the franchise–value approach to analyzing the prospective cash flows that determine a company′s P/E. The franchise–value approach to valuation enables the analyst or investor to break the firm into two key component parts and to value those components. The franchise value approach is original and insightful, and with this book, readers can begin to implement this approach to perform better equity valuations.

Martin L. Leibowitz, PhD (Stamford, CT), is Vice Chair and Chief Investment Officer at TIAA–CREF, where he is responsible for the overall management of all TIAA–CREF investments. He has authored several books and more than 130 articles, nine of which have received a Financial Analysts Journal Graham and Dodd Award of Excellence.

From the Inside Flap
Investors and analysts in today’s fiercely competitive global equities market are finding traditional valuation models to be unrealisticallystatic–andwoefullyinadequate–for reliably valuing companies and their stock. Looking for improved flexibility and insight into the components of price/earnings growth, they are increasingly turning to the practical and innovative franchise value (FV) approach, introduced by Martin Leibowitz and Stanley Kogelman in the early 1990s. Over the subsequent ten years, this FV approach was further developed through a series of papers, four of which received the prestigious Graham and Dodd Awards.

Franchise Value is the first book to provide investment practitioners with authoritative and comprehensive guidance on the use of this adaptable and insightful approach. Compiling and arranging the writings of FV pioneer Leibowitz in one accessible volume, Franchise Value features detailed information and analysis on the documented improvements FV provides for the analysis of:

• Opportunity–Based Growth–How the FV approach allows for inherent differences between return on new franchise investments and return on legacy investments
• Growth Illusions–How the FV approach allows a firm’s earnings, sales, assets, and other variables to follow their own differentiated growth paths, no matter how erratic
• Super–Growth and Spread–Driven Growth–Techniques for distinguishing between a firm’s superheated early growth and its more persistent later growth
• Margin Erosion Within a Competitive Environment–How the FV approach allows assumptions to "age" with a firm, helping to prevent overstated P/E ratio forecasts
• Leverage and Interest Rate Effects–Several ways in which the FV framework resolves the "duration paradox" to provide a reasonable explanation for the more modest real–world duration effects
• Generalization to Other Financial Applications–How the same decomposition used in the FV approach can be generalized to model a number of financial situations

For the first time, Franchise Value provides a working format for using the franchise value approach to understand and assess the numerous factors involved in determining P/E ratios. As thought–provoking as it is invaluable, it will allow investors and analysts to improve their thinking about valuations–and the overall success of their investment decisions.

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