Stephen H. Penman

Laying aside many of the tools of modern financeùthe cost-of-capital, the Capital Asset Pricing Model, and discounted cash flow analysisùStephen 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 on 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

Financial statement analysis and security valuation

Lays out the techniques and principles of financial statement analysis, with a focus on the investor. Works from a conceptual framework and provides tools for practical analysis. Illustrates methods with applications to recognisable companies such as Nike, Microsoft, Dell, and Coca-Cola.

Financial Statement Analysis and Security Valuation

This paper yields a summary score that informs about the sustainability (or persistence) of earnings and about the trailing P/E ratio. The score is delivered from a model that identifies unsustainable earnings from the financial statements by exploiting accounting relations that require that unsustainable earnings leave a trail in the accounts. The paper also builds a P/E model that recognizes that investors buy future earnings, so should pay less for current earnings if those earnings cannot be sustained in the future. In out-of-sample prediction tests, the analysis reliably identifies unsustainable earnings, and also explains cross-sectional differences in P/E ratios. The paper also finds that stock returns are predictable when traded P/E ratios differ from those indicated by our P/E model.

Modeling Sustainable Earnings and P/E Ratios with Financial Statement Analysis

Valuation is at the heart of investing. A considerable part of the information for valuation is in the financial statements. Financial Statement Analysis and Security Valuation, 5 e by Stephen Penman shows students how to extract information from financial statements and use that data to value firms. The 5th edition shows how to handle the accounting in financial statements and use the financial statements as a lens to view a business and assess the value it generates.

Stephen H. Penman

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