Principles of Equity Valuation

The book provides a rigorous introduction to corporate finance and the valuation of equity. The first half of the book covers much of the received theory in these areas such as the relationship between the risk of an equity security and the return one can expect from it, the effects of leverage (that is, the borrowing policies of the firm) on the return one can expect from the firm’s shares and the role that dividends, operating cash flows and accounting earnings play in the valuation of equity. The second half of the book is more advanced and deals with the important role that "real options" (that is, as yet unexploited investment opportunities) play in the valuation of equity.

Ian Davidson is Head of Business, Management and Economics and Professor in the Science Policy Research Unit (SPRU) at the University of Sussex, UK

Mark Tippett was formerly Professor of Accounting and Finance in the Business School at Loughborough University.

Introduction 1. The Measurement of Returns on Bonds, Equities and Other Financial Instruments 2. The Relationship between Risk and Return 3. Alternative Approaches to the Relationship between Risk and Return 4. Returns and the Capital Structure of the Firm 5. The Relationship between Equity Value, Dividends and Other Cash Flow Streams 6.The Relationship between Book (Accounting) Rates of Return and the Cost of Capital for Firms and Capital Projects 7. Statistical Foundations: First Order Stochastic Differential Equations 8. Statistical Foundations: Systems of and Higher Order Stochastic Differential Equations 9. Equity Valuation: A Canonical Model 10. Equity Valuation: Non-Linearities and Scaling 11. Equity Valuation: Multi-Variable Investment Opportunity Sets 12. Equity Valuation: Higher Order Investment Opportunity Sets, Momentum and Acceleration.