Reddit reviews: The best valuation books

We found 68 Reddit comments discussing the best valuation books. We ran sentiment analysis on each of these comments to determine how redditors feel about different products. We found 28 products and ranked them based on the amount of positive reactions they received. Here are the top 20.

Top Reddit comments about Valuation:

u/to_change · 2 pointsr/SecurityAnalysis

Hello everyone!

I'm reading through the McKinsey "Valuation" (5th Edition) textbook (https://www.amazon.com/Valuation-Measuring-Managing-Value-Companies/dp/0470424656) and I've had some issues that I was hoping to get answered.

Specifically, in the second chapter, the authors discuss the so called value driver formula: Value =( NOPLAT_i * (1 - g/ROIC) )/WACC-g. Where:

g = constant growth rate of earnings.

ROIC = rate of return on incremental capital invested

NOPLAT_i is the operating profit after tax (before reinvestment) in period 1.

However, then they go on to show this diagram: https://imgur.com/R7umPno, which is a matrix depicting the value of companies for different ROIC, growth rate combination. I understand the *point* of this: when ROIC < WACC, growth destroys value, and vice versa. However, I'm having trouble replicating the specifics of the numbers they get:

In this situation, WACC = 9%, and the initial NOPLAT is $100. They model it for 15 years and then use 3% perpetuity growth formula for the terminal value. I have 2 questions.

  1. I don't understand how they can say that the value of the company is $1100 when ROIC and growth are both 9%. The value driver formula would clearly give a value of 0 (I know it's only applicable in constant growth settings, but this assumption is met) because g/ROIC would = 1 when g = ROIC, and thus the numerator goes --> 0. This would also make sense because of the other formula they mention: Investment Rate = growth rate / ROIC. If growth rate = ROIC, then IR = 1 and you reinvest everything in order to get the growth you want.
  2. Secondly, I've tried to model these scenarios out on my own in Excel not using any plug in formulas but just literally modeling the scenario out for 15 years with a perpetuity terminal value and I don't get anywhere close to the $1100 present value for the time when ROIC = WACC = 9%. The value ($1111.11) is only close for ROIC - 9%, Growth - 3% Anyone want to take a crack at it to help a guy out? Happy to share my spreadsheet

    Either way, I feel like I'm missing something really obvious. Help is appreciated :)
u/TomahawkChopped · 1 pointr/investing

I'm going to give you the pathway that I read that has me where I am today, its mostly going to steer you towards dollar cost averaging and passive management, but the easing of exposure to alternative strategies was invaluable and eventually brought me to value investing. Dollar cost averaging in low cost index funds is the training wheels of investing and should be the way every novice investor starts IMO.

  1. The Wealthy Barber - this is the sesame street book on investing and everyone should read it when they're starting. It'll expose you to the ideas of dollar cost averaging, low fee index funds, and the importance of using TIME as your biggest asset in slow growing your net worth. Its like $6 and 100 pages, you can read it in afternoon. http://www.amazon.com/The-Wealthy-Barber-Updated-Edition/dp/0761513116

  2. The Little Book Of Common Sense Investing - if you want to skip the previous book and go straight to this one that would make sense, they cover much of the same info but this one is written by John Bogle (founder of Vanguard) and very much pushes the idea of low cost indexed mutual funds as the only way the casual investor has a chance. If you read the wealthy barber, you'll be a little bored with this book, so take your pick. http://www.amazon.com/Little-Book-Common-Sense-Investing/dp/0470102101/ref=sr_1_1?s=books&ie=UTF8&qid=1425572242&sr=1-1&keywords=John+boggle

  3. A Random Walk Down Wall Street - its been recommended several other times in the thread and I recommend it too, but not as a starter book, read one of the two books above first. The ideas presented in Random Walk are a bit more advanced and will begin to expose you to the ideas and methods of identifying risk and diversity in a portfolio, such as alpha, beta, mordern portfolio theory, and discounting. In the end the book is going to push the novice towards low cost passively managed index funds, as it should IMHO. Absolutely worth reading once you have built a small nest egg.

    At this point if you've taken a year or two or more to invest using what you learned in the above books you'll have a better idea of what you really want to start doing with you're money. Perhaps its value investing, and now it starts to get more technical.

  4. The Little Book of Valuation - Good intro to valuing companies that begins getting into the technicalities of analyzing balance sheets. If you think this is the route you want to go then give it a read, but not until you've read the books above and cut your teeth for a year or two managing your money and exercising good decision making and patience with dollar cost averaging. http://www.amazon.com/Little-Book-Valuation-Company-Profit/dp/1118004779/ref=sr_1_1?s=books&ie=UTF8&qid=1425572657&sr=1-1&keywords=The+little+book+of+valuation

  5. The Intelligent Investor - now you're really ready to dive into the details of a companies financials to determine its worth in 5-10 years. This book by Benjamin Graham (warren Buffet's mentor) is the go to book on value investing, and I take this review seriously: "“By far the best book on investing ever written.” (Warren Buffett)". Do NOT start here, you'll just be confused, bored and frustrated. http://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ref=la_B000APZXBQ_1_1?s=books&ie=UTF8&qid=1425575056&sr=1-1

    By this point you'll no longer be an investment padawan and be well on your way to a master of the force. Do not be tempted by the dark side of day trading and penny stocks. Much fear there. There is no need for level 2 quotes with value investing because you're relying on your due dilligence from the previous years and quarters to take your portfolio higher, without worrying about the road bumps in the market today. You'll be able to happily live your life until the next quarter or two when its time to reevaluate and rebalance your portfolio.

    Good luck.
u/wspnut · 2 pointsr/incremental_games

Not in way of argument, but it's very important that the ideators of the world understand the difference between ideation and investment.

Bill Gates is well known for giving start-ups the cash

There are investors out there that throw money at ideas purely based on the idea, and nothing else. But these are the exact type of people that are being mocked in this thread - I haven't met one, myself, after many years in the field. In truth, the amount of diligence that goes behind anything beyond simple market investment is tremendous. I would argue doing research on angel investment is a sticky path. If anyone with an idea who has dreams of starting a company really wants to find that dream investor, I recommend starting with one of these books on how acquisitions work. Then work your way to understanding early-class investment. At the end of the day, they're tremendously easier to understand, and give you a better learning curve into the grit that goes into determining which - of thousands of ideas - to invest in, and which not to. There are literally thousands, if not orders of magnitude more, ideas currently being tossed around to earn money. Investors, like Bill Gates, who want to turn their money into more money, do (or pay people to do) the grit work to ensure they pick the right ones.

In this way - developers are an investor. They invest time, not money, but in essence it's exactly the same, because they could easily spend that time working on a better investment.


u/repeal48usc1414 · 2 pointsr/technology

I think it is a self-serving myth that US companies are required to only care about the $$. A very convincing and nearly entirely believed myth, but I think it's been debunked. Now don't get me wrong, that's probably all the shareholders care about and in the end the companies are setup to care about what they want...

This book covers it way better than I can:

"So long as a board can claim its members honestly believe that what they're doing is best for `the corporation in the long run,' courts will not interfere with a disinterested board's decisions -- even decisions that reduce share price today."

This review of the book summarizes it well:

u/bananajr6000 · 3 pointsr/smallbusiness

Valuation is like voodoo. According to the IRS, the fair market value is the most important, but in reality there are lots of factors. For example, what would the business sell for today if the owners agreed to stay on as regular full-time employees - That value might be zero if their cash flow is poor, but clearly the business is worth something (and they are not going to just give away equity based on poor income valuation)


This Forbes article does a fair summation of the issues you are dealing with:


I would probably start with asset and income valuation and then try to put a number on the existing owner non-asset goodwill defined as:


I would avoid, "valuation based on what the founders have already put in, i.e. a % of their day-job salaries and cash." Those are sunk costs. What I mean by that can be explained by analogy: Would you pay someone $30,000 for a rusted-out, broken down 1988 Ford Ranger because the owner put $22,000 of improvements into it over its lifetime?

The owners may feel it's worth $30,000 because of their efforts, but as I often think when I am browsing Craigslist and run across an extremely overpriced vehicle, "If there's not a couple gold bars that go along with it, I'm not paying that." The reality is that the owners are going to tend to over-value the company because of sunk costs, but you have to come to a valuation based on the current realities (future earning projections can be taken into account as well, but I would be conservative in those estimates.)

There are accountants who specialize in business valuation. I would definitely retain one to work for you and not for the company. Look for someone who is a CPA and a Certified Business Analyst or Certified Valuation Analyst or American Society of Appraisers member.

There is a book that was recommended to me (I haven't read it yet) called Valuation.


There is also a workbook:


Again, I haven't gotten around to these yet. I did notice that the first review of Valuation has a recommendation for a book: Business Valuation which that reviewer says is the best for reviewing small, private companies. The review:


The book:


Good Luck!

u/Beren- · 8 pointsr/SecurityAnalysis
u/wufnu · 2 pointsr/AskEngineers

Frankly, if you are management material, your employer will probably send you to get an MBA (likely after you're already management). I suppose you could always do it on your own, if you want.

Either way, it's really easy and won't warrant special preparation prior to starting. If you're wanting to prepare for the job rather than school, you'll have to be more specific on where you want to improve. Management, as another poster mentioned, is an entirely different discipline with its own facets of challenge. It would be like asking what books you should read to prepare for engineering; if you want it all, it will be a very long list.

My contributions below are based on my own preferences, as they're the books I felt I got the most out of, but your priorities may be entirely different:

u/WizardOfNomaha · 3 pointsr/investing

There are people that dedicate their lives to this question. But it basically boils down to understanding the business, analyzing financial statements, and coming up with projections of future performance. I encourage you to pick yourself up a copy of this book and use it as a reference to pick through the financial statements (10k's,10Q's) of whatever company it is you're trying to value. The bottom line is that if you really want to get an edge it's probably going to take more than just looking at some easily available statistic like PE. On the other hand, most big companies have hordes of analysts following them already whose sole job it is to estimate the value of the company, so the likelihood of you getting an edge for any large company is slim at best. There are probably more opportunities to be had with smaller companies that get less attention.

u/damanamathos · 3 pointsr/SecurityAnalysis

Qualitative factors are always the most important part of valuing a company as its that understanding that should drive the numbers.

Aswath Damodaran did a great talk at Google a few years back that I think you'd enjoy -- https://www.youtube.com/watch?v=Z5chrxMuBoo -- and he also wrote a book called Narrative and Numbers: The Value of Stories in Business which is worth a read.

Models are just a way to express your thoughts. My best models have been around 5 lines long outlining how the key drivers translated into future earnings. My worst models have been many many pages.

As for valuations and how stocks trade, yes they're different things. A valuation should reflect what you think a company is worth, and if you buy it at that price you should get your discount rate as a return over the long-term provided all your assumptions prove to be correct.

How a stock acts is completely different. Any investor or trader should have a clear idea about whether their strategy is to predict the long-term value of a company and buy based on that, or whether it's to predict what other market participants will do which will drive prices in the short-term. Often in practice it's a combination of both even if people don't explicitly say that.

u/unjung · 5 pointsr/SecurityAnalysis

Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Pearl and Rosenbaum.

Damodaran on Valuation: Security Analysis for Investment and Corporate Finance by Damodaran.

Both of these books provide solid walkthroughs of valuation.

If you want the Coles Notes of a simple DCF, here they are:

  • Use previous financials to project revenues and expenditures going forward;

  • From that, determine FCF;

  • Determine WACC and use that to discount FCF into the future;

  • If you don't want to forecast into infinity, determine a terminal value using DDM/GGM or some other metric (even BV);

  • Add all discounted FCFs to terminal value to determine value of the business;

  • Or divide by shares outstanding to determine intrinsic share value.

    Edit: Apparently Damodaran put that entire text online for free: http://raj.rajaditi.com/finance/corp/pages.stern.nyu.edu/_adamodar/New_Home_Page/valn2ed/book.htm
u/YOLO_SWAG_FO_JESUS · 5 pointsr/investing

Many individual stocks drastically under-perform the broader market index (e.g. S&P500, Russell3000). Historically, most of the growth in the market index comes from a select minority of "elite" stocks.

Many stocks fail. A minority hit it big. This is a deadly combination for investors whose strategy is to pick individual stocks. In fact, many mutual funds that pick individual stocks will underperform the market index in the long run when net of fees.

As an investor, you should make a choice about your own strategy:

  1. If the odds don't scare you and you want to be an elite stock picker like Buffett, then you have to learn the principles of valuing assets. Some people have had tremendous success with this type of strategy. Many have failed. A reasonable introduction is this book
  2. Instead of individual stocks, you can fill your portfolio with low-fee market indices. If you get a fancy enough broker, you can diversify the portfolio with indices that represent many different types of loosely-related assets (e.g. stocks, bonds, commodities, currencies). That's a lot more exposure than picking a few tech stocks.
    Whatever you decide, best of luck!

    For more general financial advice: Don't risk money you can't afford to lose. Buffett's wealth is the result of many years of respectable, constant growth. Large losses are very difficult to recover from and can ruin years of previous growth. To get rich you have to find a reliable strategy that compounds!
u/kemitchell · 3 pointsr/TrueReddit

The article largely parrots Lynn Stout's mass-market book.

Professor Stout's view is not universally shared by lawyers or legal academics. In my experience of the legal academy and the bar, it's a small minority view, more in the nature of activism than revisionism. I still recommend the book, just because the reflex to oppose it requires checking one's rigor closer to the primary sources.

State legislatures are running long-overdue and very promising experiments in public benefit corporations. Many of those business forms are still too fresh and untested to recommend to clients, but the same was true of LLCs not so long ago.

There is certainly a lot of interest. Lay clients are asking about the structure. That and crowd funding :-)

Edit: Word choice

u/ItsAConspiracy · 1 pointr/fatFIRE

First, keep enough in your passive funds to keep you going even if you lose the rest. Pull out your SWR and that's it, no matter what. Then maybe keep another chunk passive that you only move to active after you've had some success with that.

For the active funds, it depends what you're interested in. If you want to contribute to society while making money, another option is angel investing. Look for small startups that need early funding, and have some potential for making a positive impact.

There are some books on Amazon that look decent; I've read part of this one and it sounds like a lot of work, but potentially rewarding.

But don't go into it lightly. It's easy to throw your money away.

u/tsqr · 3 pointsr/Foodforthought

> companies ultimately exist to serve their owners (stockholders)

Do they? Says who? We as a society allow companies to have limited liability. Shouldn't we get a social benefit in return?

Even if your narrow view is true, are the practices in this article the best way, much less the only way, to serve shareholders? My clients are often large, institutional investors, with massive holdings in a wide range of companies, including Apple. I would wager that most of them disagree that the practices in this article are clearly in their best interest, especially in the long run.

For an argument against your view, see [this book] (https://www.amazon.com/Shareholder-Value-Myth-Shareholders-Corporations/dp/1605098132).

u/Sonkidd · 3 pointsr/finance

I would read "a random walk down wall street" for a good understanding of basic theories behind investing (fundamental analysis vs technical, risk and portfolio management etc...).

Then diving into to the different schools of analysis, for fundamental analysis, I super highly recommend reading: McKinseys Book on Valuation ( http://www.amazon.com/Valuation-Measuring-Managing-Companies-Edition/dp/0470424656), you might need a quick primer on accounting and corporate accounting before jumping into that book though. Warren Buffet's Essays and books and the classic "The intelligent investor" are also good resources for insights.

For portfolio management, I would study basic modern portfolio theories
( http://en.m.wikipedia.org/wiki/Modern_portfolio_theory), and read books on portfolio management such as http://www.amazon.com/Pioneering-Portfolio-Management-Unconventional-Institutional/dp/0684864436.

But then to go even further, it will be more robust to read more about risk management and the shortfalls of such portfolio management models highlighted in the recent market crashes. "The Black Swan", "Fooled by Randomness", "Irrational Exuberance" are good books to read to more qualitatively understand risk and learn to protect yourself from it.

u/cb_hanson_III · 8 pointsr/investing

Forget Shkreli. The usual sources (besides in-house proprietary models) are:

(1) Macabacus. (see http://macabacus.com/learn).

(2) Rosenbaum and Pearl, Investment Banking - book and excel models

A bit more academic, but more in-depth:

(3) Penman's Financial Statement Analysis and Security Valuation (excellent book and he has a running example that guides you to create your own valuation spreadsheet)

(4) Dan Gode and Jim Ohlson models These guys are genuine experts from the academic side.

(5) Damodaran, as others have mentioned.

(6) McKinsey, Valuation. Some people like this one.

(7) Fernandez, Company Valuation Methods and Common Errors. Something of an acquired taste, but might be worth the read since he provides a list of the most common valuation errors. Gives analysts an awareness of how they can f**k up which can be useful.

u/buttmannnnnnnnn · 1 pointr/news

STOP! The shareholder value myth is FALSE.

The shareholder value myth is a zombie that has taken dozens of shotgun blasts to the head, but refuses to die and needs to be put back into the ground from whence it came.

CEOs and boards act on behalf of shareholders and have some obligations, but not much more than any other employee has to their boss. Corporate chiefs are largely free to steer the business in the direction they want, so long as they are not committing blatant fraud and enriching themselves at the expense of shareholders. If shareholders don't like it, well, that's what at-will employment is for.

The myth of a legal obligation to maximize shareholder value arose as part of the financialization of the economy in the go-go, greed-is-good 80's. Ivy League business schools pushed this obligation so hard that it started to be taken as an absolute.

Here are some eye-opening resources on this topic:

Lynn Stout: The Shareholder Value Myth [book]

Lynn Stout article in the New York Times

u/pangolin44 · 1 pointr/investing

I personally like this one the best. It has good examples of his valuations as well.

u/ideadude · 0 pointsr/startups

I went through the process of trying to sell a failed startup a few years ago. I read this text book on "distressed assets", which is a technical term that might help you do some research on this. I can't find the exact text book, but it was something like this one.

The basic formula is:

  1. Make a realistic estimate of how much money the business will make in the future... revenue and earnings if you can estimate it.

  2. Figure out a good "multiple" on revenue or earnings based on the industry and other factors.

  3. Calculate a "discount rate" to take into account the risk that the business never makes as much money as you think it will.

    So as an example, with my former business I estimated that within 2 years it could bring in $500k/year revenue. I used a 2x revenues multiple to get a $1mm valuation. With a conservative 20% chance of getting there, I asked for ~$200k.

    If the business is nowhere near cashflow or you don't have a good way to estimate future value... if it could make anywhere from $0 to $100mm... then I'd suggest negotiating for a large advisors % in the company just in case it becomes the next big thing.

    Edit: Addressing the downvotes. (1) That's not an affiliate link to Amazon. (2) I'm not addressing OP's situation exactly, but I've been thinking about this recently and thought it might be a useful real world case of how to "value a company with no income".
u/I-R-H · 1 pointr/smallbusiness

This is all good advice. In terms of structuring the deal, I'd agree that a 5 year buy-out makes sense.

Take a look at the HBR Guide to Buying a Small Business (http://amzn.to/2qoPMhn) for some good ideas on how to do this. It spends a lot of time talking about the sourcing process, but the second half of the book covers your situation nicely.

u/rainbow3 · 2 pointsr/investing

This is great on valuation and the quantitative aspects...which is probably most useful in the finance sector.


u/ttg314 · 5 pointsr/finance

> whoaa why has my tutor been telling me to discount each expense per year then add them up then discount the total!

Fire your tutor, lol. That makes no sense. You come up with the FCF first then discount it. I mean, I guess you can do it his way but it's stupid. In a real model your going to have so many inputs you would need to discount. Read Valuation. Then you'll actually know why it works that way and it'll be much easier. It's a pretty big book so for this topic so you'll only need to read up to Chapter 6.

Tip: Read the whole thing. It'll do you good.

u/0IV8ryiqPiGYdneSejd2 · 10 pointsr/fatFIRE

this podcast talks about exactly the topic you mentioned. Interview with two Harvard Business School profs, who even wrote a book on the topic.

REALLY Private Equity, with Royce Yudkoff and Rick Ruback – Invest Like the Best, EP.33

HBR Guide to Buying a Small Business

u/[deleted] · 1 pointr/RealEstate

Thanks! I will check it out for sure. I recently read "The Complete Guide to Real Estate Finance for Investment Properties" - But even that was a bit over my head at times - http://www.amazon.com/Complete-Estate-Finance-Investment-Properties/dp/0471647128

u/Ganatron · 2 pointsr/Entrepreneur

Read HBR Guide to Buying a Small Business

It's very thorough and covers everything from valuation, to raising equity, how to split profits, etc.

In general, investors want to see a 25% return on their money for this kind of deal, maybe a little more in your case due to the turnaround nature of the deal.

Also, I echo the advice to draft pro formas-- what do the financials look like after your improvements and assuming everything goes as planned. Do the improvements yield a meaningful enough change?

Finally, the owner should be willing to finance a significant portion of the deal. It's very common in small business, but especially since you're looking at a much higher risk situation.


u/MarcusAurelius13 · 2 pointsr/investing

Learning to fill in one of these spreadsheets is pretty meaningless. There are so many adjustments to make in a DCF depending on each company and/or industry you should try to start from the bottom up. If you're a beginner and really want to learn how to do a full DCF I'd recommend getting one of the below books to start learning from scratch.




u/SPh0enix · 1 pointr/finance

While it is but a part in the M&A process, the book "Valuation: Measuring and Managing the Value of Companies" by McKinsey is one of the bibles on Valuation.

Amazon link.

u/LemonsForLimeaid · 2 pointsr/finance

Is this the same one just newer? Would you recommend?

u/gransignore · 7 pointsr/thinkpad

I understand. So you're a number-crunching-guy :-)

Here is a reading tip for you:


u/claremontboy · 3 pointsr/investing

For $50 and a couple of dozen hours spent reading, you'll get an entire MBA's valuation education by reading Valuation: Measuring and Managing the Value of Companies from McKinsey.

u/Time_Value_of_Money · 1 pointr/SecurityAnalysis

Yes, the PEG ratio is useless as are P/E, P/B, etc. if one does not know the implicit assumptions these quick-and-dirty valuation methods make. I recommend reading chapter four of this book by Damodaran.

Note: if you build a DCF model, it will imply a specific P/E, PEG, etc.

u/pxld1 · 3 pointsr/finance

For a general Damodaran text, consider Investment Valuation

u/balanced_goat · 1 pointr/reactiongifs

That's today's normal, but it wasn't always that way. And it probably shouldn't be now. Good book here.

u/klausshermann · 3 pointsr/StockMarket


read more from Aswath Damodaran, he's one of the most highly regarded equity valuations experts. In addition, read the news from a reputable source (WSJ, FTs...) multiple times every day.

Be patient.

u/twiifm · 6 pointsr/stocks

This is wrong. Shareholder maximization as legal obligation is a myth. Lynn Stout who is an academic legal professor wrote about this. The corporation is under no legal obligation to do such a thing


u/skatastrophy · 2 pointsr/investing

This is a complex subject. Here are a couple of books, though you might not need the 2nd one (I'm not sure what's involved in an education in Economics).


How to Read a Financial Report

PDF Warning - The Investment Checklist