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The Art of Company Valuation and Financial Statement Analysis A value investor's guide with real-life case studies von Schmidlin, Nicolas (eBook)

  • Erscheinungsdatum: 30.04.2014
  • Verlag: Wiley
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The Art of Company Valuation and Financial Statement Analysis

The Art of Company Valuation and Financial Statement Analysis: A value investor's guide with real-life case studies covers all quantitative and qualitative approaches needed to evaluate the past and forecast the future performance of a company in a practical manner. Is a given stock over or undervalued? How can the future prospects of a company be evaluated? How can complex valuation methods be applied in practice? The Art of Company Valuation and Financial Statement Analysis answers each of these questions and conveys the principles of company valuation in an accessible and applicable way. Valuation theory is linked to the practice of investing through financial statement analysis and interpretation, analysis of business models, company valuation, stock analysis, portfolio management and value Investing. The book's unique approach is to illustrate each valuation method with a case study of actual company performance. More than 100 real case studies are included, supplementing the sound theoretical framework and offering potential investors a methodology that can easily be applied in practice. Written for asset managers, investment professionals and private investors who require a reliable, current and comprehensive guide to company valuation, the book aims to encourage readers to think like an entrepreneur, rather than a speculator, when it comes to investing in the stock markets. It is an approach that has led many to long term success and consistent returns that regularly outperform more opportunistic approaches to investment.


    Format: ePUB
    Kopierschutz: AdobeDRM
    Seitenzahl: 264
    Erscheinungsdatum: 30.04.2014
    Sprache: Englisch
    ISBN: 9781118843055
    Verlag: Wiley
    Größe: 4135 kBytes
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The Art of Company Valuation and Financial Statement Analysis

Chapter 1


By means of this he can at any time survey the general whole, without needing to perplex himself in the details. What advantages does he derive from the system of book-keeping by double entry! It is among the finest inventions of the human mind.

Johann Wolfgang von Goethe

Accounting is the language of businesses. Those who wish to value companies and invest successfully in the long term have to be able to understand and interpret financial statements. The primary purpose of accounting is to quantify operational processes and to present them to stakeholders including shareholders and creditors but also suppliers, employees and the financial community. The financial statement forms a condensed representation of these processes. It delineates the assets and liabilities as well as performance indicators such as turnover, profit and cash flow. Evaluating and interpreting this data against the background of business activity is an important component of the valuation process. Developing an understanding of this 'language of businesses' and, at the same time, including qualitative factors in the analysis provides a solid foundation for anyone interested in valuing enterprises. Accountancy illustrates, in one snapshot, the corporate world in the past and the present. Company valuation joins in at this point and attempts to predict the future development and the risks of an enterprise with the help of data obtained from the financial statement. This chapter addresses the weaknesses and limits of modern accounting. A particular disadvantage of accountancy is that it is by nature a purely quantitative model. A sound financial statement analysis, meanwhile, while being quantitative by design, requires the combination of both quantitative facts and qualitative characteristics in order to be a reliable forecast of the future.

This chapter deals primarily with different types of accounting systems, the components of financial statements and the calculation of a first set of key financial ratios. Chapter 2 lays the foundation for further ratio-based analysis, and also for the following qualitative analyses, which are at least oriented towards the financial statement.

The precursors of today's accounting rules came into being after the stock market crash of 1929, when the American Institute of Accountants' special committee first proposed a list of generally applicable accounting principles. By 1939, the first Committee on Accounting Procedure was created in the US in order to establish a coherent and reliable system of accounting standards. This set of rules was meant to tackle the rather dubious and unreliable accounting procedures and helped to restore the trust in financial statements published by listed companies. Now the Financial Accounting Standards Board (FASB) prescribes the main accounting standards in the United States. This set of rules, the US Generally Accepted Accounting Principles, or US GAAP for short, governs the accounting principles for all companies subject to Securities and Exchange Commission (SEC) regulation.

On the other side of the Atlantic, beginning in 1973, the European Union began harmonizing the diverse accounting rules of its member countries. This process eventually culminated in the creation of the International Financial Reporting Standards. The IFRS have so far been adopted by more than 100 countries, including all the members of the European Union, Hong Kong, Australia, Russia, Brazil and Canada. Whilst there are several differences between the US GAAP and IFRS, both accounting systems are based on a similar set of principles and are, by and large, comparable. Following the previously mentioned international harmonization of accounting standards around the globe, a key future milestone is the planned full adopt

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