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Franchise Value: A Modern Approach to Security Analysis
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A modern approach to equity valuation

Understanding the key ingredients that combine to affect price/earnings (P/Es) is of crucial importance to the investment process. In Franchise Value, Martin Leibowitz tackles the imposing task of determining what really has an impact on P/Es. The author shows why he subscribes to the conventional logic that the P/E gauges the market's assessment of the firm's future. He then introduce readers to the franchise-value approach to analyzing the prospective cash flows that determine a company's P/E. The franchise-value approach to valuation enables the analyst or investor to break the firm into two key component parts and to value those components. The franchise value approach is original and insightful, and with this book, readers can begin to implement this approach to perform better equity valuations.

Martin L. Leibowitz, PhD (Stamford, CT), is Vice Chair and Chief Investment Officer at TIAA-CREF, where he is responsible for the overall management of all TIAA-CREF investments. He has authored several books and more than 130 articles, nine of which have received a Financial Analysts Journal Graham and Dodd Award of Excellence.

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MARTIN L. LEIBOWITZ is a managing director in the Research Department of Morgan Stanley. For the prior nine years, he served as vice chairman and chief investment officer of TIAA-CREF, overseeing over $300 billion in assets. Leibowitz has authored several books and more than 130 articles, ten of which have received a Financial Analysts Journal Graham and Dodd Award of Excellence. He was the recipient of AIMR’s Nicholas Molodovsky Award in 1995 and the James R. Vertin Award in 1998. In 1995, he received the Distinguished Public Service Award from the Public Securities Association and became the first inductee into the Fixed Income Analysts Society’s Hall of Fame. Leibowitz is a vice chair of both the Carnegie Corporation and the Institute for Advanced Study at Princeton. He holds an AB and an MS from the University of Chicago and a PhD in mathematics from the Courant Institute of New York University.
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CHAPTER 1: An Introduction to the Franchise Value Approach.

CHAPTER 2: Sales-Driven Franchise Value
Reprinted from monograph published by the Research Foundation of the Institute of Chartered Financial Analysts, July 1997.

CHAPTER 3: Franchise Margins and the Sales-Driven Franchise Value
Financial Analysts Journal, November/December 1997 (Received Graham & Dodd Scroll for 1997).

CHAPTER 4: Franchise Value and the Price/Earnings Ratio with Stanley Kogelman
“Inside the P/E Ratio: The Franchise Factor,” Financial Analysts Journal, November/December 1990
“Inside the P/E Ratio (Part II): The Franchise Portfolio,” Salomon Brothers, January 1991
“A Franchise Factor Model for Spread Banking,” Salomon Brothers, April 1991
“The Franchise Factor for Leveraged Firms,” Financial Analysts Journal, November/December 1991
“Franchise Value and the Growth Process,” Financial Analysts Journal, January/February 1992 (Received Graham & Dodd Scroll)
“The Growth Illusion: The P/E ‘Cost’ of Earnings Growth,” Salomon Brothers, April 1993 (Received Graham & Dodd Scroll)
“Inflation-Adjusted ROEs: Strong Effects Even with Low Inflation,” Journal of Investing, Winter 1993
  “Resolving the Equity Duration Paradox,” Financial Analysts Journal, January/February 1993
“Theoretical Price/Earnings Ratios and Accounting Variables,” Salomon Brothers, June 1992.

CHAPTER 5: Franchise Valuation under Q-Type Competition
Financial Analysts Journal, November/December 1998.

CHAPTER 6: P/E Forwards and Their Orbits
Financial Analysts Journal, May/June 1999
(Received Graham & Dodd Scroll for 1999).

CHAPTER 7: Franchise Labor
Financial Analysts Journal, March/April 2000.

CHAPTER 8: Spread-Driven Dividend Discount Models
Financial Analysts Journal, November/December 2000.

CHAPTER 9: The Levered P/E Ratio
Financial Analysts Journal, November/December 2002.

CHAPTER 10: The Franchise Value Approach to the Leveraged Company
The Research Foundation of AIMR.

CHAPTER 11: Retirement Planning and the Asset/Salary Ratio with J. Benson Durham, P. Brett Hammond, and Michael Heller
Innovations in Retirement Financing, University of Pennsylvania Press.

Notes.

Index.

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". . . Most investors don't have a clear sense of what a price-earnings mulitiple implies about a company's future financial performance, or how a company's price-earnings multiple will likely change over time. The widespread use of relative multiples often compounds the problem. Investors frequently justify their valuation conclusions with apples-to-oranges comparisons of businesses with very different economics. Multiples are ubiquitous but remain, on balance, poorly understood. . . . One of the investment industry's all-time great thinkers, Marty Leibowitz, covered many of these topics in a series of papers and monographs over the past 20 years (much of this work was in collaboration with Stanley Kogelman). These articles have been complied for Leibowitz's new book, Franchise Value: A Modern Approach to Security Analysis, which we recommend highly for readers who want to delve into this valuation topic in more detail."--Michael J. Mauboussin, "Mauboussin on Strategy", Legg Mason Capital Management (January 14, 2005).
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