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DCF Model in CD ROM for Valuation: Designed to help you Measure and Manage the Value of Companies (Wiley Finance) CD-ROM – 17 Jun 2005
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From the Back Cover
VALUATION DCF Model, CD–ROM FOURTH EDITION Updated spreadsheet models compatible with Excel 2004 Contains models and reports for valuing projected performance Model completes computations automaticallypromoting error–free analysis Valuation, Fourth Edition, CD–ROM is filled with expert guidance as well as a valuation model developed by McKinsey′s own finance practice. The Valuation DCF Model contains preformatted financial statements and analytical reports for evaluating performance and valuing projected performance using both the enterprise DCF and economic profit approaches described throughout Valuation, 4th Edition. The model ensures that all–important measures, such as return on investment capital and free cash flow, are calculated correctly so that you can focus on analyzing a company′s performance instead of worrying about computational errors. The model follows the three–period forecast methodology, comprising five years of detailed forecasts, ten years of summarized key driver forecasts, and a continuing value period. With this companion CD–ROM as your guide, you can use the Valuation DCF Model to value real companies, in real–world situations or to practice the art and science of valuation in the classroom.
Most helpful customer reviews on Amazon.com
I gave the CD product 4 stars, instead of 5 stars, because I felt that:
1) The PDF instructional manual on using the model is woefully inadequate.
2) There were a few serious errors in the model.
3) The model took the easy way out on a lot of difficult valuation items.
1. The PDF manual is woefully inadequate. Reading it, you think the model is self-explanatory, but it really isn't. You have to really study the numbers to understand what assumptions the model wants you to make. In this regard, the book is marginally helpful, the examples in the book is slightly more helpful. In many cases, I had to turn to other valuation texts to figure out a few things.
2. The model is for the most part, error-free. But I did catch two calculation errors that I will share, so that others can avoid the pain. First, in the Forecast Drivers tab, there is a data row called Capex. It looks back at the optional Capital Expenditure line as an off-balance sheet item in 'Historical Data.' This is inconsistent with the book's data driven approach and specification that CapEx = change in Net PPE + Depreciation. You may want to recorrect the Capex formula to specify this. Why the model asks us to manually specify the Capital Expenditures in Historical Data, I have no idea.
Another error I saw is in the Results tab. In the Ratios section, there is one called 'Enterprise value / EBITA'. If you look at the formula, it points to EBIT. You need to correct this by having it point to Reported EBITA.
3. I think the model takes the easy way out on a lot of the most difficult items. For example, the book advocates treatment of R&D as a capitalized asset, and yet the model excludes this entirely. The book advocates dealing with the market value of debt, but the model just incorporates the book value of debt. The model leaves as an entry item the value of the lease as a balance sheet item, when it you could easily just as well incorporate extensions to model this. This is the same for options, convertible debt, customer receivables, unutilized/discontinued assets, etc.
Basically, the book is aggressive in advocating a firm estimation of operational value, NOA value, and Debt/DE claims, but the model is much less ambitious.
This does not make the model useless. It's a great data-driven model. It just requires the user to build sophisticated extensions to deal with the most complicated parts. At the same time, this is no cheap model. They are probably making lots of money on it. I would have expected the folks at McKinsey to provide extensions to handle the most complicated aspects of valuation, in addition to the core items.
Whilst the model on the CD is fine for valuing non-financial companies, I HAD ALREADY DOWNLOADED IT FROM THE NET FOR FREE. Furthermore the CD didn't include a model for valuing banks - I'm going to have to build a new one from scratch.
In other words, I've paid a fortune for something I had already got for free. Ironic then, that the model comes from a leading consulting company (McKinsey)...what's the saying about consultants charging a fortune to tell you things you already know (or in my case sell me things I already OWN).
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