The McKinsey Quarterly

2010

• October 2010 

  A better way to anticipate downturns

  Credit markets, though harder to follow than equity markets, provide clearer signs of looming economic decline.

• April 2010 

  Why value value?—defending against crises

  Companies, investors, and governments must relearn the guiding principles of value creation if they are to defend against future economic crises.

2009

• November 2009 

  Are you still the best owner of your assets?

  As companies rethink their portfolios for the post-crisis world, they should ask themselves if they are still the best owners of their assets.

  Includes:

• July 2009 

  Valuing social responsibility programs

  Most companies see corporate social responsibility programs as a way to fulfill the contract between business and society. But do they create financial value?

  Includes:

• April 2009 

  The crisis: Timing strategic moves

  Timing is key as companies weigh whether to make strategic investments now or wait for clear signs of recovery. Scenario analysis can expose the risks of moving too quickly or slowly.

• February 2009 

  Valuing corporate social responsibility: McKinsey Global Survey Results

  Environmental, social, and governance programs create shareholder value, most executives believe, but neither CFOs nor professional investors fully include that when evaluating business projects or companies.

2008

• November 2008 

  Value creation in health care: A sector-by-sector analysis

  Success is not just about top-line growth.

  Includes:

• October 2008 

  How climate change could affect corporate valuations

  Efforts to reduce climate change can profoundly affect the valuations of many companies, but executives so far seem largely unaware.

  Includes:

• July 2008 

  A better way to understand TRS

  Traditional methods of analyzing total returns to shareholders are flawed. There’s a better way.

  Includes:

2007

• September 2007 

  How to choose between growth and ROIC

  Investors reward high-performing companies that shift their strategic focus prudently, even if that means lower returns or slower growth.

  Includes:

• September 2007 

  Market fundamentals: 2000 versus 2007

  Whither the S&P 500? Comparing the market’s recent turmoil with its decline at the end of the dot-com boom can help investors assess what might come next.

  Includes:

• July 2007 

  Preempting hostile takeovers

  Companies that stick to valuation basics can capture any value that would make them attractive for takeover bids.

  Includes:

• May 2007 

  Investing in sustainability: An interview with Al Gore and David Blood

  The former vice president and his partner in an investment-management firm argue that sustainability investing is essential to creating long-term shareholder value.

• February 2007 

  Leading change: An interview with TXU's CEO

  C. John Wilder describes how economic thinking helped him lead TXU out of a regulated mind-set and toward competitive success.

• February 2007 

  Why accounting rules shouldn't drive strategy

  When changes in accounting rules provide no new information, they don't register with investors. Nor should they lead managers to shift focus.

  Includes:

• January 2007 

  The truth about growth and value stocks

  Investors and fund managers build entire portfolios around the premise that growth stocks grow faster than value stocks. The problem is that they don't.

  Includes:

2006

• July 2006 

  Betas: Back to normal

  Betas that were artificially low after the market bubble of the 1990s have returned to normal.

• July 2006 

  The irrational component of your stock price

  In the short term, emotions influence market pricing. A simple model explains short-term deviations from fundamentals.

  Includes:

• March 2006 

  Balancing ROIC and growth to build value

  Companies find growth enticing, but a strong return on invested capital is more sustainable.

• March 2006 

  The misguided practice of earnings guidance

  Companies provide earnings guidance with a variety of expectations—and most of them don't hold up.

  Includes:

• March 2006 

  Weighing the pros and cons of earnings guidance : A McKinsey Survey

  Most companies plan to continue providing investors with frequent earnings guidance, though executives disagree about its costs and benefits.

• January 2006 

  Asian companies: Closing the valuation gap

  A focus on ROIC and a better strategy for communicating with investors are key.

2005

• August 2005 

  Does scale matter to capital markets?

  Simply getting bigger won't produce a higher valuation multiple.

  Includes:

• March 2005 

  Do fundamentals—or emotions—drive the stock market?

  Emotions can drive market behavior in a few short-lived situations. But fundamentals still rule.

  Includes:

• March 2005 

  Don't expect too much of your share price

  Companies are what they are, not what their executives want them to be perceived as being. But management can improve the match between share prices and intrinsic value.

• March 2005 

  Managing value and performance

  Maximizing the value of companies means attending not only to their short-term performance but also to their long-term health.

• March 2005 

  Merger valuation: Time to jettison EPS

  Assessing the value of an acquisition by estimating its likely impact on earnings per share has always been a flawed approach. Now it’s likely to be flat-out wrong.

• March 2005 

  The right role for multiples in valuation

  A properly executed multiples analysis can make financial forecasts more accurate.

2004

• August 2004 

  Internal rate of return: A cautionary tale

  Tempted by a project with a high internal rate of return? Better check those interim cash flows again.

• May 2004 

  Stock indexes: Does membership matter?

  Executives expecting a big bounce when their companies join major equity indexes will surely be disappointed.

• March 2004 

  All P/Es are not created equal

  High price-to-earnings ratios are about more than growth. Understanding the ingredients that go into a strong multiple can help executives make the most of this strategic tool.

  Includes:

• March 2004 

  Putting value back in value-based management

  Value-based management programs focus too much on measurement and too little on the management activities that create shareholder value.

• January 2004 

  Investing when interest rates are low

  Projects that wouldn’t have created value because interest rates were higher aren’t necessarily attractive when interest rates drop.

2003

• December 2003 

  Emerging markets aren't as risky as you think

  Are emerging markets riskier than developed ones? Not if you take a portfolio perspective on corporate investments.

• November 2003 

  Living with lower market expectations

  An analysis of the long-term performance of the real economy and its links to financial markets suggests that in general—though not in the late 1990s—the market values stocks rationally.

• October 2003 

  A closer look at the bear in Europe

  The market slump in Europe was deeper and more widespread than its cousin in the United States.

• August 2003 

  Multiple choice for the chemical industry

  Although a new study shows that the basic financial performance of chemical companies correlates only with their product portfolios, they have many opportunities to create shareholder value.

• August 2003 

  Numbers investors can trust

  What counts isn’t the bottom line but rather how it is calculated.

• February 2003 

  A better beta

  Executives should correct for the distortion of risk metrics during the unprecedented market bubble of the late ’90s.

• January 2003 

  Anatomy of a bear market

  Was the stock market plunge of the past two years the worst dip since the 1930s or just a correction for specific sectors and companies? The answer depends on your metric.

2002

• October 2002 

  The real cost of equity

  The inflation-adjusted cost of equity has been remarkably stable for 40 years, implying a current equity risk premium of 3.5 to 4 percent.

• June 2002 

  Stock options —the right debate

  Reformers want companies to treat executive stock options as a cost. The real question is whether shareholders are getting what they pay for.

• June 2002 

  Who's afraid of variable earnings?

  Many companies waste effort smoothing short-term earnings. They would be better off focusing on long-term profit and return on capital.

• May 2002 

  The long and short of ticker shock

  We need complex perspectives to understand complex capital markets.

• January 2002 

  A new way to measure IPO success

  The double-digit first-day jump, celebrated as the measure of success for an IPO, must be replaced by metrics that include longer-term vision.

2001

• November 2001 

  What happened to the bull market?

  Unless long-term interest rates drop further, aggregate price-to-earnings ratios are about as high as they can possibly be.

• October 2001 

  Shopping in the Internet bargain basement

  Beleaguered dot-coms can represent real bargains for savvy acquirers—and real lemons for buyers who don’t scope out the territory.

• June 2001 

  Shed no tears for pooling's demise

  The US Financial Accounting Standards Board has eliminated “pooling” accounting for business combinations. How can companies make the most of “purchase” accounting?

• June 2001 

  Valuing dot-coms after the fall

  Investment values always revert to a fundamental level based on cash flows. Get used to it.

2000

• December 2000 

  Valuation in emerging markets

  Procedures for estimating a company’s future cash flows discounted at a rate that reflects risk are the same everywhere. But in emerging markets, the risks are much greater.

• August 2000 

  Value in Argentina

  Argentina has recently made great economic progress, but a McKinsey study, described in “Value in Argentina,” found that three-fourths of 22 leading Argentine companies were destroying value, mostly because of the high cost of capital and the heavy investments of the 1990s.

• June 2000 

  The real power of real options

  Change the way you create value: The case for applying options thinking to any strategic situation.

• May 2000 

  Black-Scholes meets Seinfeld

  Uncertainty defines the television business, but the application of options theory to TV programming decisions can improve returns from programming investments.

• May 2000 

  Valuing cyclical companies

  Cyclical stocks such as airlines and steel can appear to defy valuation. But an approach based on probability will help managers and investors draw up a reasonable estimate.

• February 2000 

  Valuing dot-coms

  You don’t have to step through the looking glass into a parallel universe to understand the valuations of Internet stocks. Discounted-cash-flow analysis can focus your mind on the right issues, help you see the risks, and separate the winners from the losers.

1998

• August 1998 

  Making real options real

  Most applications of option theory have been oversimplifled. What happens when options generate more options as well as cashflows? Here is a second-year course on compound options.

• May 1998 

  Banking on shareholder value

  An interview with Sir Brian Pitman, chairman of Lloyds TSB.

• May 1998 

  How much is flexibility worth?

  A lot, if uncertainty is high. But discounting cashflows is the wrong way to calculate it. Instead, use options theory to value management1s flexibility to act in the future.

1997

• May 1997 

  The virtuous cycle of shareholder value creation

  A new study shows that shareholders and job seekers have a common interest:high returns on capital. Continental Europe should pursue its social goals through deregulation.

1996

• November 1996 

  Putting a value on board governance

  According to a survey conducted by McKinsey in conjunction with Institutional Investor, Inc., good governance practice really does make a difference—a difference that many investors are willing to pay for.

1994

• November 1994 

  Why value value?

  An excerpt from the second edition of Valuation: Measuring and Managing the Value of Companies.

• August 1994 

  What is value-based management?

  An excerpt from Valuation: Measuring and Managing the Value of Companies, second edition.