Accounting-earnings

If you are looking for a book that will help you to understand complex Financial Accounting using cases taken form the real life, this is your book!

Nancy Mangold is a god amoung men! Her accounting genious forever changed the way I view auditing and earnings. Buy this book or regret it for the rest of your life! GOO MANGOLD!!!

If you want to learn about accounting scams, you probably need Mulford and Comiskey, The Financial Numbers Game. But for a broader view of the virtues and limits of accounting, Eccles and company have a lot to offer. You can skip or skim the somewhat overhyped stuff about the "ValueRevolution" itself (note that three of the authors come from PricewaterhouseCoopers, where they seem to be having some trouble with their space bar, or spacebar). Keep your best brain cells for chapters three through eight, where you get a look at the earnings obsession -- and just as useful, a suggestion of what investors really need and want. Note that one of the co-authors (Robert H. Herz) is the new head of the Financial Accounting Standards Board).

"ValueReporting" smoothly describes many broken financial reporting processes, including "whispering", a time-consuming process that CFOs play with analysts, where CFOs "whisper" their earnings expectations to the analyst, making the analysts appear intelligent. A great deal for the analyst cause they don't have to do any real analysis. If the CFO does not play this game, they risk the wrath of Wall Street.

The problem with this is that it is in violation of the spirit (if not the law) of the yet to be enforced SEC Fair Disclosure Act which states that Sally Q. Public gets to know material information the same time that John Q. Analyst does.

"ValueReporting" does offer a practical solution through XBRL technology. As a member of XBRL.org I strongly agree with the authors that if business reporting, both financial and non-financial, is standardized, Web technologies are in place to distribute this information uniformly to all investors and in a richer format than at present. With the gentle prodding of regulatory agencies like the SEC and FDIC, this will happen sooner rather than later. Let's hope that SEC Chairman Unger reads this book, and fast.

For me as a consultant and a technologist "who can spell XBRL", The ValueReporting Revolution was a call to arms to apply my knowledge to the inequities of financial reporting. Helping clients sell their wares over the Web is nice, but to level the financial playing field for small companies as well as large, for the small investor as well as the institutional, is ennobling. And forcing Wall Street analysts to actually work for a living, would be, well, just icing on the cake.

This is the first book that adresses the critical issue of corporate reporting - which hasn't significantly changed, if not since business entities started to get created in Ancient Mesopotamia, at least since the Great Depression. Yet investing habits have significantly changed. The SEC has brought in much needed changes in the way financial information gets reported, especially the way reports get written, etc. But there has been little movement in the types of information which get reported or new types of analyses that need to get done so shareholders have a better picture of the companies in which they invest.

This book takes us long ways in pushing for such changes. Written by a group of people who know a lot about the topic - unlike most business books, which are typically written by those who know very little, because the ones in the know are too busy working - this sounds the first death knell of corporate reporting as we know it. It is a rather courageous set of arguments that the authors make, coming as it does from an institution, PriceWaterhouseCoopers, which, frankly, has plenty of incentives to maintain the status quo.

I would highly recommend this book to every manager, investor, and student of business. One of the nice aspects of the book is its international breadth, further reinforcing the argument that in today's global realities, the changes ought to be globally driven and required.

The best thing about the book is its rigor. The authors' authority of over their subject matter clearly comes through the book as does their hands-on experience in wrestling with tricky, complex, corporate reporting issues that companies face and shareholders need - issues that under today's requirements are typically not addressed, and therefore, lead to the kinds of deleterious effects that are evident in today's pump-and-dump markets.

Finally, in a world of superficial, shoddy, silly, ghost-written tripe that is published under the guise of management thinking, this book stands as a shining, stellar example of what good management writing is all about: rigor, clarity, and the kind of expansive and aspirational thinking that forces people to want to read a book and ask themselves, "where do I begin?" This book is a much needed call to action on probably the most important managerial, corporate, and financial issue.

Investors who want to survive need to avoid torpedo stocks - the one's you don't see coming to blow a hole in your portfolio. This requires arming yourself with a healthy skepticism. Your stock analyst may be under pressure not to disrupt investment banking deals with negative reports. The auditor's independent review may be compromised by a desire to secure "fat fees" for a host of additional advisory services. Bottom line: Investors need to trust in their own abilities and do the job of reading corporate reports themselves. Read the annual report and more detailed SEC required 10-K filing. This is the simple message of QUALITY OF EARNINGS. Interpreting trends in accounts receivable and inventory levels from publicly available reports are useful tools to spot problems before they impact a stock's price. This is the author's "most important" chapter and it is as good a discussion as I have seen on the subject. The importance of understanding accounting practice changes and their immediate impact on how earnings are reported is another important matter that gets attention here. We also see why "big bath" restructuring charges that lower the bar for short term earnings growth expectations have become a predictable consequence of corporate acquisitions and CEO transitions. Much of this material will be familiar to readers of more current books on the topic, but O'glove's clear explanations and use of the numbers to support his conclusions are instructive. Because this book was written in 1987 the majority of examples used are quaint at best (e.g., Church's Fried Chicken, Coleco, Adademy Insurance Group, etc.). On the other hand, describing accounting changes at IBM or GE's managed use of tax losses through its Credit Corporation unit (GECC) may resonate rather differently with today's wary investor. A chapter dealing with dividends, the "tender trap", reflects recent, not current, thinking. O'glove's position is that "minimal or no dividends" is the best corporate policy. It is a fair discussion. This has been a general consensus for years because of the issues of double taxation and a conviction that capital can be more efficiently employed in a company's core business development. Currently, in the throes of a bear stock market, investors have sought dividend bearing stocks to hedge market volatility, as a tangible sign of legitimate profits (showmethemoney) when accounting scandals are discovered, and more broadly as way of supplementing retirement income. Preferences change, but one thing is certain. The issue of transparency in the markets is critical to assessing value. This book is an excellent introduction to the topic.

This book is very effective in introducing people to critical financial statement analysis. It helps to have some accounting background though. The material in this book will reinforce a lot of the important financial/accounting concepts that all investors should at least understand before committing to an investment. The author makes the accounting concepts interesting and accessible for most people. In short, the book is a great way to learn/reinforce important financial analysis techniques.

I got a lot out of this book. It has helped me a lot in my personal schooling of fundamental analysis. It is easily understood and comprehended by most anybody of average intelligence and belongs on every investor/traders bookshelf. You can tell that Thornton L. O'Glove knows his stuff and I only wish that he was still doing his Quality Of Earnings Report. I have owned it for a little over a month as of this review and have read it three times now getting more and more out of it every time. I obviously love it.

Happy Trading,
David Taggart

I am a professor of finance and economics and must recommend this book for anyone with even a basic interest in corporate markets. I've asked my students to read The Number largely because it presents a fair and in-depth perspective on this fascinating economic fallout without ignoring the historical context. Berenson writes clearly and perceptively while analyzing from both top to bottom as well as left to right the market growth and its subsequent implosion.

How do the financial markets work? How good are the information flows? How far can you trust what you read and hear? Where are there conflicts of interest? Why are these conflicts dangerous? Those are the fundamental questions that Mr. Alex Berenson addresses in his century-long look at how the government, companies, investment banks, brokers and investors have interacted. Unlike other books about the need for reform in the financial markets, this one also looks thoroughly at thoughtful commentary by market experts, academics and regulators over the years. The book is enlivened by entertaining writing, a willingness to say "shame on you" to those who have done wrong and insights into the work that short sellers do to make the market more rational when it isn't.

If you just want to read about the current market or you know a lot about the market history, you can skip over the first 70 pages. If you are new to the market, you may find the first 70 pages to be the most interesting. Stock promotion and trading have always been corrupt. Over time, that corruption finds new ways to manifest itself. What's new now is that the potential financial stakes are so large that they would blow the mind of an ancient Egyptian pharaoh. At the same time, the social cost of corruption is equally large.

I found the book to be quite thorough when it came to the recent market bubble (and partial bursting in 2000-2002). The main area that did not receive enough attention was pointing out why boards go wild with options and CEO pay (even for lousy performance).

The book has two technical weaknesses in its observations that deserve note. First, like almost all financial writers, Mr. Berenson assumes that the current way companies employ stock options is unfixable except through accounting changes. Actually, the current use of stock options (although excessive in many cases for senior management) could easily be made into a major source of profits for companies. If companies bought back shares equivalent to the options they grant at lower prices than the option exercise price, any options that were later exercised would generate real cash and real earnings for the company. That's because Uncle Sam provides tax deductions for these options (as the author thoughtfully points out). Companies could achieve this positive result simply by granting options at exercise prices well above the current market while simultaneously purchasing the equivalent shares. The premium on the exercise price would have to account for the cost of capital on the money tied up in the meantime. If a company couldn't afford to do this, then it has a real cost of issuing options that should be recognized. Actually, that cost is recognized now through an increase in shares outstanding. Option grants are disclosed. If investors ignore these points, they deserve to bear the consequences. There's no real need to change accounting in this situation . . . just to improve financial management and board behavior.

The other problem is that Mr. Berenson doesn't quite understand accounting, and says things that are "almost" right . . . but not quite right in several places. Take his accounting comments with a grain of salt as exposing an issue . . . but don't quote him literally.

The book would have been much improved if Mr. Berenson had also examined those who managed their companies well. How did they avoid the evils portrayed in the book? What clues do those companies provide for the future?

I hope that in the future Mr. Berenson will write a book about the government numbers that mislead companies, investors and consumers about what's going on in the economy. The political propaganda that is disguised as economic information also plays a large role in stock market problems . . . and has an even larger social cost.

This book makes an eloquent piece of evidence for only investing in stocks through index funds. When you do that, you reduce your risk of being tricked by any particular corrupt company or person. You will also outperform 90 percent of all professionally managed portfolios (and a higher percentage of individually managed portfolios) when you do. Keep that in mind as you invest.

As I finished the book, I realized that the lack of practical economic education in high schools and colleges leaves each new generation exposed to the con men and women in the securities industry and those they use to weave their schemes and scams. Be sure that your children and grandchildren don't have to learn Enron-type lessons the hard way. Teach them what you know!

Mr. Berenson takes a very interesting approach to explaining the rise of the 90s bubble economy. The book opens with a wonderfully apt quote from Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it." The drive for Earnings Per Share (EPS) by analysts and investors guided by them, according to the author, leads them astray because the number is inherently imprecise. Earnings are stated by the company as an exact figure and EPS is simply that number divided by the number of outstanding shares of common stock.

However, earnings depend a great deal on the methods of accounting used by the firm. In the 90s we saw a rise in very aggressive accounting. Any system of rules that is intended to be applied generally over a wide range differing conditions is going to have gaps and unintended effects that distort the intention of the rules. General rules rely upon the good will and integrity of the participants to keep the intention or spirit of the rules in tact in order for the rules to have any real meaning in application. In sports we also have referees to keep the game fair, but both teams still have to intend to follow the rules completely. No game could be played if the participants tried to push every rule to an extreme interpretation. Aggressive accounting uses extreme interpretations of the Generally Accepted Accounting Principles (GAAP) to present as favorable earnings number as possible. This results in a higher (and therefore more pleasing) EPS number.

Analysts started giving forecasts of coming EPS reports for firms and those that met or slightly exceeded that forecast were rewarded with higher share prices because investors competed for their shares. Those that missed the forecast by even a penny per share were punished as investors abandoned their stock. Mr. Berenson demonstrates that many companies had reserves and other accounting tricks to make sure their EPS forecasts were always met. However, as companies grow this becomes harder to do. And for companies such as Tyco, Enron, Adelphia, and even the mighty General Electric, it finally became impossible. The most aggressive companies had presented such a distorted picture of reality that they collapsed. Those that were still within shouting distance of reality remained solvent, but still suffered a significant depression in their stock price.

Since the EPS is inherently inexact it seems strange that the markets would react so strongly to that single measure. Mr. Berenson calls the number a lie. I think he does that for rhetorical effect and one time he does admit it is a white lie. I think he has a very strong point for those companies using aggressive interpretations of GAAP. The author also provides a history of the SEC and calls for stronger enforcement powers and the staff to provide that enforcement. While there is certainly a good case to have an effective SEC with sufficient resources (there will be a debate on what this level is), Mr. Berenson has more faith in regulation than I do.

Even if I fully concede his point and support an SEC of enormous size, it still could not provide the necessary enforcement to keep companies in line if the market keeps rewarding companies for fudging the numbers. The market will provide what people want to buy even if they want to buy lies. I agree with Mr. Berenson that INVESTORS need to become better educated and make more demands of the management of the companies in which they invest. Investors, by NOT investing in companies who use very aggressive accounting, could affect the way finances are reported than any regulatory body.

Not every company can be a growth company. Heck, even Microsoft isn't a Microsoft anymore. Investors have to demand that financial statements actually present a real picture of the financial state of the firm rather then providing a manufactured dream of ever expanding growth. One of the strengths of this book is the compelling evidence Mr. Berenson provides of management spinning these euphoric visions just long enough to cash out and then let the bad news (read reality) come to light on someone else's watch.

This is a fine book. I think that anyone who has investments in public companies ought to read it and better educated themselves on the realities of the equities marketplace. I think Mr. Berenson's recommendations for public policy are measured and good for debate even if I don't personally agree with all of them. There are a few minor quibbles I have with some of his explanations, but they don't affect my recommendation.

The book has a couple of short appendices to help the reader understand the accounting issues involved. There are helpful notes for sources and an index.

In his new book on valuation, Pablo Fernandez presents and analyzes a variety of valuation methods. The book is comprehensive in covering ALL of the methods and contains a wealth of information, data and examples on the relevant topics. The book is a valuable source for obtaining details on the different methods. However, there is a risk, although small, that the number of trees may overwhelm the reader and the reader may miss the forest.
In Part III, which is the theoretical part of the book, he examines all the various approaches for Discounted Cash Flow Valuation. In particular, Pablo Fernandez makes the unusual claim that for FCF in perpetuity with a constant growth rate of g, the discounted value of the tax shield (DVTS) is not the present value of the tax shield (PVTS). Furthermore, he defines the PVTS as follows: PVTS = T*D*Ku/(Ku - g). At first sight, this definition of the PVTS seems very strange. To obtain this result, which is in direct contradiction with the formulas in Copeland's book, he assumes that the return to levered equity Ke does not depend on whether the growth rate is zero or nonzero. This departure from the accepted definition of the PVTS may surprise those readers who are familiar with other books on valuation.
In common with other books on valuation, the examples on the cost of capital are restricted to cash flows in perpetuity. Without providing the necessary justification, the author assumes that the formulas for the cost of capital carry over to finite cash flows. The book would be strengthened if there were numerical examples that linked the discussion on the cost of capital directly to the finite cash flow statements that are derived from the usual financial statements.

A great book with clear explanations and excellent support web site.
The book describes many tools on how to do the valuation (DCF, ratios, real options etc.). I particularly like the explanation of eight models of DCF. Chapters 19, 20 and 21 are the best ones I have ever read about discounted cash flow valuation.
For finance professionals, "Valuation methods and shareholder value creation" is a wonderful book to study, to keep and to look up for reference. I strongly recommend investment bankers (and clients), finance managers and MBAs to have one.
It explains Adjusted Present Value much better than Copeland's and DamodaranÂ's books. Now, I understand it!!!