Professor Rappaport's revised version of his 1986 book on creating shareholder value provides a good description of the value based management concept that he helped create. However, many of the chapters are stand alone sections that do not flow well together. In some chapters he does not provide enough depth on how this book can actually be used by managers. In addition, the chapters on using his concepts to formulate value-maximizing business strategies was somewhat lacking.

Nevertheless, the book was an easy read and many of his points were right on target. I would also highly recommend interested readers to check out "The Value Imperative" by Marakon Associates and "Valuation" by McKinsey & Co for more information on value based management.

Professor Rappaport's revised and updated edition, provides a clear explanation of shareholder value concepts and application. One welcomed insight: he compares and contrasts the various shareholder methodologies (EVA and CFROI). As an indepent consultant specializing in shareholder value, I owe professor Rappaport and "Creating Shareholder Value" a debt of gratitude for introducing the critical link between corporate finance and competitive strategy. This is definately the "classic" work on shareholder value.

Given that investors value bonds by discounting future cash flows, it stands to reason that they value stocks in the same fashion. Alfred Rappaport is the founder of the shareholder value mindset which gained importance in the '80 and is widely accepted in this new millenium. Rappaport starts the book explaining that objections to using a discounted Cash Flow model do not hold. Strong arguments and empirical evidence is given to explain the market's valuation mechanism. What follows is a basic but thorough explanation of the 3 elements for valuing a company (cash flows , risk and the competitive advantage period). In the second part of the book, it will become clear for the reader DCF is closely linked to strategic analysis and is not in contradiction with stakeholder analysis, customer value analysis, Activity Based costing or any other tool. On the contrary, Rappaport shows DCF is a communication tool that helps investors understand a company's implied performance and how to (re)act. Together with the Valuation book from Copeland, Koller and Murrin this is the book you need.

An observation by Peter L. Bernstein that the "fundamental law of investing is the uncertainty of the future" sets up the dilemma undertood by all investors grappling with risk in pursuit of gain. This book starts with the assumption that stock prices represent the market's expectations about a company's future performance. There are "price implied expectations" (PIE) embodied in the price of a stock. Defining the "value drivers" of these expectations, understanding how they contribute to a company's success, and anticipating revisions in their assessed effectiveness for a particular company are critical steps in this investment approach. Determining the PIE for a particular stock from publicly available information involves a range of estimates and a need to understand the industry sector. What we have here is an artful process for estimating value not fail safe equations. This is a challenging book on a number of fronts: Stock prices, we are told, only "tenuously" relate to earnings growth. Rather "changes in expectations about future cash flows" are the key, and earnings and shareholder value may not move together. On the other hand, the notion that a stock price can be deconstructed to establish the expectations investors have for its future seems intuitively clear. This reader would have been more persuaded of the usefulness of this analytical approach with more case studies where the ideas are comprehensively applied. Separate chapters dealing with acquisitions, stock buybacks, and employee stock options - each of which when properly interpreted can modify an investor's expectations - are especially insightful.

Alfred Rappaport is a wide acknowledged founder of the shareholder value approach. Michael Mauboussin is a respected strategist at CSFB, a respected investment banking firm. Together, they wrote a book which is simple and intuitive to read for people with a financial background or a strong interest in different aspects of corporate finance. A good grisp of the DCF approach is a minimum requirement. (you could start with creating shareholder value of A. Rappaport to get up to date)

Both authors start by explaining why investors place short term bets on the Long term future of stocks... Some companies are victim of the expectation treadmill and saw there stockprices decline rapidly as a result (90% of the TMT companies). The good thing about the book starts after this intro which is refreshing but not new. The second part links the number crunching part with interesting frameworks for competitive analysis. The fundamental law of investing might be the uncertainty of the future, but the frameworks at least will give you the tools in trying to be a visionair. because being a visionair is the only way you can beat the index. An investor does not only need to find good companies. He/she also needs to know the expectations already embedded in the stock price. The third part gives a couple of examples when these expectations might change and how to react (buy or sell). This book will be the start of a standard type of analysis in the next decade. I will try to start in the Netherlands...

This book is a must read for anyone that invests in the market and wants to make consistent gains in his/her portfolio. Most people spend more time planning a vacation than they do in picking the stocks in their portfolios. And even when they do some research into a stock usually it constitutes asking their peers on what they think about company XYZ. And the people they solicit this advice from are just as ineffective in their research and knowledge about company XYZ.

Mr. Mauboussin and Mr. Rappaport give investors the right tools to make careful and informed investing decisions. The authors suggest that the market prices "expectations" into a stock and a good investor needs to strip this from the analysis and find the true intrinsic value of a security. The is accomplished by various financial analysis tools presented in the book and also by a fundamental shift in investor thinking and perception.