By
Pascal Costantini, Managing Director, Global Market Research, Deutsche Bank
Description
In this book, Pascal Costantini gives a lively and wonderfully readable account of ten years of efforts by a small group of investment
analysts to find a reliable, practical and implementable method for valuing and selecting shares. The result of their effort is an original
investment methodology called CROCI (Cash Return on Capital Invested), best described as a variation of the economic profit model. For
over a decade now, Costantinis group at Deutsche Bank has been using this valuation tool every time it has had to take a view on the
pricing of an equity asset, be it a market, a sector or an individual sharein other words, every single working day, since it is this
groups job to advise institutional investors on equity valuation. Costantini describes in detail, accompanied by concrete examples in
the form of charts and graphs, the precise investment results of the actual implementation of the CROCI approach in the global equity
markets since 1996. Readers will enjoy taking this journey with Costantini to see how and why the model was developed, assess the results
of ten years of actual implementation and measure the successes of using this model in stock picking and portfolio construction. This
book will also make it easy for them to see how the CROCI approach can be used successfully by others now and in the future.
The book
is divided into four parts. The first part is a review and discussion of the fundamentals of investment analysis. The second part is
dedicated to the construction of economic data, with the sole objective of calculating an economically meaningful asset multiple and
relative return, the combination of which gives an economic PE ratio, the authors main stock selection tool. While the economic profit
model is not exactly new, it is still largely ignored by the investment community. In essence, it does three things: it calculates the
real amount of cash, or value created by a business; it compares the market value of an asset to an approximation of its replacement
value; and it assumes that the former will converge to the latter through the arbitrage of investors and capital providers. The third
part is dedicated to the analysis of economic data, and the last part deals with the actual implementation of the CROCI economic profit
model, including real life examples. This final part also discusses how to use the output of the CROCI model with individual stocks,
and then with investment portfolios.
*Techniques are based on the authors performance record at Deutsche Bank since 1996
*Based
on almost ten years of proprietary knowledge and implementation of these techniques
*Factual illustrations of the results of the valuation
techniques are provided at each step
Audience:
Primary audience: Investment Professionals, specifically equity analysts, both on the buy side (working in investment management firms)
and on the sell side (working in investment banks), and portfolio managers.
