872  Index
adjusting for nonoperating items, 
380–382
alternative multiples, 384–389
as alternative to discounted cash 
flow, 203
comparables analysis, 367–368
in continuing value (CV) 
estimation, 301–302
EBITA vs. EBITDA, 376–377
in emerging markets, 705–706
enterprise value to EBIT, 374–375
enterprise value to EBITA (or 
NOPAT), 372–375
enterprise value to revenues, 384–
385
forward-looking, 370–372
of invested capital, 386
NOPAT vs. EBITA, 378–379
of operating metrics, 386–389
peer group selection, 382–384
PEG ratios, 385–386
price to earnings, 373–374
principles, 368–369
sum-of-parts valuation, 369
Naive overconservatism, 298
Nestlé, 129
Net capital expenditures, 230
Netflix, 115, 140, 190, 387–388
Net income, reconciliation to, 227
Net interest income, 734–735, 
749–750
Net investment, defined, 49
Net operating profit after taxes 
(NOPAT), 49
Net operating profit less adjusted 
taxes. See NOPLAT
Net present value (NPV), 762–765. See 
also Contingent NPV
Netscape Communications, 108
Network effects, 93, 139, 717
Neutrogena, 46
Noise investors, 101
Nonconsolidated subsidiaries, 217
Merger Management Practice, 
McKinsey, 600
Mergers and acquisitions (M&A), 
585–612
better-acquirer characteristics, 
609–612
priority themes, 609–610
reputation management, 610–611
strategic vision, 611
buying cheap, 599–600
consolidation, 594–595, 598
defined, 156
earnings from, 111
effects on revenue growth, 249–250
empirical research on success of, 
588–593
estimation of operating 
improvements, 600–604
cost and capital savings, 600–603
implementation issues, 604
revenue improvements, 603–604
payment method (cash/stock), 
604–606
performance improvement 
reassessment, 611–612
roll-up strategies, 597–598
transformational mergers, 598–599
value creation and, 586–588
value creation strategies for, 593–
600
value creation vs. accounting focus, 
606–609
Merton, Robert, 203
Microsoft, 93, 109, 110, 138–139, 143, 
647, 659
Miller, Merton, 43, 195, 319, 805
Mitchell, Mark, 589–590
Modigliani, Franko, 43, 195, 
319, 805
Molson Coors, 686
Multibusiness companies. See 
Valuation by parts
Multiple expansion, 47
Multiples, 367–389

Index  873
key concepts, 208–209
in multiple business units, 402
for operating leases, 447–448
Novartis, 598–599
Off-balance-sheet financing, 662–664
One-time expenses, 427–428
Operating analysis, 245–247
Operating cash flows, projecting/
testing, 637–638
Operating-cost productivity, 556
Operating expenses:
forecasting, 269
separating from nonoperating 
expenses, 427–428, 428–430
Operating leases, 234–236, 347, 443–455
accounting for, 444–446
alternative method for, 453–454
capitalized, 235–236
enterprise DCF model, 190
enterprise valuation with, 446–448
as form of debt, 446
free cash flow, 448–449
incorporating into financial 
projections, 449
valuing, 453–454
Operating margins:
in high-growth companies, 717–718
and inflation, 499
Operating metrics, multiples of, 
386–389
Operating taxes:
accrual-based, 419–421
converting to operating cash taxes, 
419–423
deferred, 423–425
on reorganized balance sheet, 
423–424
valuing, 424–425
determining, 413–419
public statements, 415–417
Walmart, 418–419
estimating, 224–226
forecasting, 272–273
Noncontrolling interests, 190–191, 
221, 354–355. See also 
Nonconsolidated subsidiaries
Nonequity claims, 180, 189–191, 335
Nonfinancial operating drivers, 
281–282
Nonfundamental investors, 101
Nonoperating assets, 216–218, 337–
341
discontinued operations, 342
excess cash and marketable 
securities, 338
excess pension assets, 343
excess real estate, 342
finance subsidiaries, 341–342
forecasting, 277–278
identifying/valuing, 180, 189
loans to other companies, 341
nonconsolidated subsidiaries, 
338–341
tax loss carryforwards, 343–344
Nonoperating expenses, 427–442
amortization of acquired 
intangibles, 432–435
asset write-offs, 433
defined, 335, 427
gains/losses on sale of assets, 435
intangibles, 432–435
litigation charges, 434–435
one-time vs. ongoing, 427–428
persistence of special items, 431
reorganizing income statement, 437
restructuring charges, 433–434
separating from operating expenses, 
427–428, 428–430
special items, 431
Nonoperating income, 232, 270–271
Nonoperating taxes, 232
NOPAT (net operating profit 
aftertaxes), 213–214
calculating, 221–227
continuing value and, 288–289, 
300–301
defined, 49, 205, 206