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Book Review: Damodaran on Valuation: Security Analysis for Investment and Corporate Finance

Ashwath Damodaran’s Damodaran on Valuation: Security Analysis for Investment and Corporate Finance is a book that must be on the bookshelf of every serious student and practitioner of valuation.

This three-part book concentrates on discounted cash flow and relative valuation models in it’s first two parts. The third part concentrates on topics that get short shrift. These topics are liquidity, control, synergy, transparency and distress.

Damodaran tries to list out as many valuation frameworks as possible. He enumerates commonalities in the frameworks and suggests which valuation framework will suit a particular situation.

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He also presents these models in the context of real-world case scenarios, in order to highlight their strengths and pitfalls in a given situation. The modular structure of the book helps the reader to pick a topic and read it from that point on. Examples from overseas markets have also been enclosed.

Introduction to valuation, estimating discount rates, measuring cash flows, forecasting cash flows, equity discounted cash flow models, firm valuation models, relative valuation, equity multiples, value multiples, cross-holdings, employee equity options and compensation, value of intangibles, value of control, liquidity, synergy, transparency, cost of distress and steps to better valuation are covered in this highly recommended book.

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