What's a company worth? To judge by the stock market, you might think that there is little rhyme or reason to the exercise. Yet, since the beginning of commerce thousands of years ago, people have been asserting the value of enterprises. Despite that long history, the math and specific logic of enterprise valuation is only about a century old.
For thirty of those years, Tim Koller
and his colleagues at McKinsey have been in the forefront of thinking about value and how to measure it. The first edition of Valuation: Measuring and Managing the Value of Companies
(Wiley) came out in 1990. This is the seventh iteration, so Koller has seen the zigs and zags over time in how this question has been answered. And his team has its own strongly held view. His calm and cool reasoning should be required reading for all business managers and investors.
Daniel Peris is Senior Vice President at Federated Investors in Pittsburgh. Trained as a historian of modern Russia, he is the author most recently of Getting Back to Business: Why Modern Portfolio Theory Fails Investors
. You can follow him on Twitter @HistoryInvestor or at http://www.strategicdividendinvestor.com