Accounting for Value teaches investors and analysts how to handle accounting in evaluating equity investments. The book's novel approach shows that valuation and accounting are much the same: valuation is actually a matter of accounting for value.
Laying aside many of the tools of modern financethe cost-of-capital, the CAPM, and discounted cash flow analysisStephen Penman returns to the common-sense principles that have long guided fundamental investing: price is what you pay but value is what you get; the risk in investing is the risk of paying too much; anchor on what you know rather than speculation; and beware of paying too much for speculative growth. Penman puts these ideas in touch with the quantification supplied by accounting, producing practical tools for the intelligent investor.
Accounting for value provides protection from paying too much for a stock and clues the investor in to the likely return from buying growth. Strikingly, the analysis finesses the need to calculate a "cost-of-capital," which often frustrates the application of modern valuation techniques. Accounting for value recasts "value" versus "growth" investing and explains such curiosities as why earnings-to-price and book-to-price ratios predict stock returns. By the end of the book, Penman has the intelligent investor thinking like an intelligent accountant, better equipped to handle the bubbles and crashes of our time. For accounting regulators, Penman also prescribes a formula for intelligent accounting reform, engaging with such controversial issues as fair value accounting.
About the Author
Table of Contents
Chapter 1 Return to Fundamentals (and an Accounting for the History of Investment Ideas)
Chapter 2 Anchoring on Fundamentals (and How Accounting Supplies the Anchor)
Chapter 3 Challenging Market Prices with Fundamentals (and Deploying Accounting for the Challenge)
Chapter 4 Accounting for Growth from Leverage (and Protection from Paying Too Much for Growth)
Chapter 5 Accounting for Growth in the Business (and More Protection from Paying Too Much for Growth)
Chapter 6 Accounting for Risk and Return (and a Remedy for Ignorance About the Cost-of-Capital)
Chapter 7 Pricing Growth (and a Revision to Value Versus Growth Investing)
Chapter 8 Fair Value Accounting and Accounting for Value
Chapter 9 Adding Value to Accounting
Chapter 10 The Intelligent Investor and the Intelligent Accountant
What People are Saying About This
In his latest book, Stephen Penman displays his mastery of the language of accounting through an integrated view of the interactions of company balance sheets and income statements. This approach allows an investor to more effectively 'account for value' and identify opportunities in the capital markets.
Mitchell R. Julis, cochairman and co-CEO, Canyon Partners, LLC
This book cleverly weaves together important but otherwise unreconciled themes, enhancing our conceptual understanding of the nature and usefulness of accounting in valuation. Stephen Penman also updates the Benjamin Graham school of investment thought by incorporating changes in the economy, accounting, and financial modeling.
Stephen Ryan, New York University, Stern School of Business
Accounting for Value is a thoughtful yet widely accessible discourse on how accounting facilitates valuation. It is a gold mine of ideas for investors, academics, and market regulators and establishes Stephen Penman as the modern day standard bearer of the Graham School of Fundamental Investing. Anyone who cares about the role of accounting in this increasingly complex world should read this book.
Charles M. C. Lee, Joseph McDonald Professor of Accounting, Stanford University