McKinsey & Company Inc. - Valuation: Measuring and Managing the Value of Companies (7th University Edition)

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McKinsey & Company

Tim Koller

Marc Goedhart

David Wessels

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Copyright 1990, 1994, 2000, 2005, 2010, 2015, 2020 by McKinsey & Company. All rights reserved.

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The authors are all current or former consultants of McKinsey & Companys Strategy & Corporate Finance Practice. Together they have more than 85 years of experience in consulting and financial education.

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Tim Koller is a partner in McKinseys Stamford, Connecticut, office, where he is a founder of McKinseys Strategy and Corporate Finance Insights team, a global group of corporate-finance expert consultants. In his 35 years in consulting, Tim has served clients globally on corporate strategy and capital markets, mergers and acquisitions transactions, and strategic planning and resource allocation. He leads the firms research activities in valuation and capital markets. Before joining McKinsey, he worked with Stern Stewart & Company and with Mobil Corporation. He received his MBA from the University of Chicago.

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Marc Goedhart is a senior expert in McKinseys Amsterdam office and an endowed professor of corporate valuation at Rotterdam School of Management, Erasmus University (RSM). Over the past 25 years, Marc has served clients across Europe on portfolio restructuring, M&A transactions, and performance management. He received his PhD in finance from Erasmus University.

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David Wessels is an adjunct professor of finance at the Wharton School of the University of Pennsylvania. Named by Bloomberg Businessweek as one of Americas top business school instructors, he teaches courses on corporate valuation and private equity at the MBA and executive MBA levels. David is also a director in Whartons executive education group, serving on the executive development faculties of several Fortune 500 companies. A former consultant with McKinsey, he received his PhD from the University of California at Los Angeles.

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McKinsey & Company is a global management consulting firm committed to helping organizations create change that matters. In more than 130 cities and 65 countries, teams help clients across the private, public, and social sectors shape bold strategies and transform the way they work, embed technology where it unlocks value, and build capabilities to sustain the change. Not just any change, but change that mattersfor their organizations, their people, and, in turn, society at large.

The first edition of this book appeared in 1990, and we are encouraged that it continues to attract readers around the world. We believe the book appeals to readers everywhere because the approach it advocates is grounded in universal economic principles. While we continue to improve, update, and expand the text as our experience grows and as business and finance continue to evolve, those universal principles do not change.

The 30 years since that first edition have been a remarkable period in business history, and managers and investors continue to face opportunities and challenges emerging from it. The events of the economic crisis that began in 2007, as well as the Internet boom and its fallout almost a decade earlier, have strengthened our conviction that the core principles of value creation are general economic rules that continue to apply in all market circumstances. Thus, the extraordinarily high anticipated profits represented by stock prices during the Internet bubble never materialized, because there was no new economy. Similarly, the extraordinarily high profits seen in the financial sector for the two years preceding the start of the 20072009 financial crisis were overstated, as subsequent losses demonstrated. The laws of competition should have alerted investors that those extraordinary profits couldnt last and might not be real.

Over time, we have also seen confirmed that for some companies, some of the time, the stock market may not be a reliable indicator of value. Knowing that value signals from the stock market may occasionally be unreliable makes us even more certain that managers need at all times to understand the underlying, intrinsic value of their company and how it can create more value. In our view, clear thinking about valuation and skill in using valuation to guide business decisions are prerequisites for company success.