Index

Abu Dhabi investment, 436–437 ASC 815 (Derivatives Hedging) (SFAS 133), 14 Accounting ASC 820 (Fair Value Measurements) (SFAS assets, 55 157), 70–71, 100, 239, 491–492 board oversight, problem, 309 ASC 825.10, 70–71 concepts, 93 ASC 825 (Disclosures about Fair Value of data, conversion, 277 Financial Instruments) (SFAS 107), 97–98 dominant systems, convergence, 48 change, absence, 416–417 formula, 49 EBR initiative, 16, 36–37, 315–339 full cost method, 132 Accrual accounting, 114, 148 global convergence, 107 Accrual net income, approximation, 120 numbers, limitations, 51–53 Accruals objectives, 411–416 cash, contrast, 119–120 period, 417 changes, calculation, 120 principles, 416–418 concept, 417 qualitative characteristics, 411–416 Acid ratio, 86, 88 questions, 49–50 Acquisitions, shares (valuation), 375–382 standards, 14, 40 Active market, absence, 84–85 Accounting for Financial Guarantee Insurance Active ownership, value (addition), 535 Contracts, 82–83 Agenda projects, 422 Accountingization, 298 Agriculture (IAS 41), 66 Accounting models, variation, 13–14 AIG, bankruptcy potential, 368–369 Accounting rate of return (ARR), 87 Alchemy of Finance, The (Soros), 231, 233 Accounting Series Release (ASR) Algebra, 444–446 ASR 113, 101 http://www.pbookshop.comAlgorithmic trading, 31, 229–230 ASR 118, 101 Algorithms, asset basis, 86–90 guidance, 85 Allen, Franklin, 294 Accounting Standards Codifi cation (ASC), 40 Allowance for loan and lease losses ASC 230 (Statement of Cash Flows) (SFAS 95), (ALLL), 82 158, 200–210 American Institute of Certifi ed Public ASC 320 (Other-Than-Temporary Impairments) Accountants (AICPA) (SFAS 115),COPYRIGHTED 63 EBR initiative, MATERIAL 16, 56–57, 315–339 ASC 350 (Goodwill and Other Intangible Assets) papers, issuance, 417 (SFAS 142), 75, 99 Special Committee on Enhanced Business ASC 360 (Impairment or Disposal of Long- Reporting, 315 Lived Assets) (FAS 144), 191 standards, 12 ASC 470 (Property, Plant, and Equipment) American Society of Appraisers, 90–91 (SFAS 6), 147, 148 Amortization charges, 118 ASC 715 (Postretirement Benefi t Plan Assets) Amortized cost (calculation), cash fl ow (SFAS 132), 84 (usage), 191 ASC 805 (Business Combinations) (SFAS 141), Analytic Hierarchy Process, 45 99, 387 Anchoring, 483–484

541

bbindex.inddindex.indd 541541 99/4/10/4/10 10:05:4310:05:43 AAMM 542 index

Angles, 216–217 liabilities, 67–69 Annual income rate, derivation, 138 metric, 277–278 Annual income statement, sample, 143e–144e reconciliation, 273–275 Anthony, Robert, 108 sample, 177e–179e Antivaluation, 483 spatial challenge, 50–51 Appel, Gerald, 222 temporal challenge, 50 Applied Finance Group, 265 Bands, 217–218 Appraisers, role, 69–70 Bank holding companies (BHCs) test, 82 Arbitrage property, 463–465 Banking strategies, culture (usage), 356–357 Aristotle, fallacies, 487–488 Bankruptcy Arithmetic, usage, 443–444 emergence, shares (valuation), 387 Arthur, W. Brian, 22 fi ling, 110 Artifi cial infl ation/defl ation, impact, 6 shares, valuation, 385–387 Aspen Institute, 124–125, 151, 315–316 Banks Asset-and-liability windfalls, calculation, 274 debt ratio reliance, 232–233 Asset-based fi nancing, 60 earnings, analysis, 130–131 Asset-based model, 108 investments, valuation (Norges Bank), 64–65 Asset-based valuation, 79–83 stress tests, 6 Asset-focused investor, 60–61 valuation, 81–82 Assets Barclays-Qatar Holding, 436 accounting treatment, 55 Barrow, John, 24 characteristics (IASB), 54 Bear Stearns, 6, 58–59 defi nition, 53–55, 68 Bebchuk, Cohen & Ferrell (BCF) Entrenchment earnings, relationship, 108, 110–111 Index (E index), 329 enhancements, 112 Behavioral fi nance, 23 fair value, 70–72 Benchmarks, corporate requirement, 296 global defi nition, 49 Bench strength, corporate requirement, 296 MD&A, usage, 77–78 Berle, Adolf, 295 overview, valuation unit, 48–51 Bernstein, Stan, 387 quality, 84–85 Bertoluzzo, Francesco, 229 reporting, conservatism, 52 Bianco, David, 124 resource, control, 92 Bids prices (valuation), algebra (usage), 445–446 term, description, 78 Big picture valuation spreadsheets, 476 types, 55, 62–66 Bishop, Matthew, 314 usage, 69–70 Black, Fischer, 133, 447 value, 47–48, 86, 163 Black-Scholes-Merton formula, 431–432 Asset valuation, 69–70, 83–84, 173 Black-Scholes method, 25–26 AT&T, cash fl ow example, 195–200 Black-Scholes option-valuation formula, 133 Attractors, 235–236 Black Swan, The (Taleb), 448 Attribution bias, 484 Black swan events, 306 Availability bias, 23 Black Swan stock price valuation approach, Average accounting returnhttp://www.pbookshop.com (ARR), 172 230–231 Average book value, 87 Board Accountability Index, 335 Average collection period, 88 Board of directors Average rate of return (ARR), 104 RiskMetrics standard, 329–330 confusion, avoidance, 139 shareholder communications, focus, 385 measure, 138–139 Bogle, John, 7 Averages, 86–90 Bollinger, John, 217 Averaging process, 139 Bollinger bands, 217, 218e Bonds, security, 241–242 Baghat, Sanjai, 310 Bonus plan, EVA basis, 282–284 Bailouts, asset values, 86 Book-value equity, growth/decline Balance sheet (measurement), 33 accounting formula, 49 Brands, 72–77 assets, 236 Brealey, Richard A., 294 values, 52 Bright lines, impact, 15 equity, 67–69 British Petroleum (BP), oil spill (impact), 325–326 intangible assets, valuation, 72–77 Broker quotes, input (usage), 240

bbindex.inddindex.indd 542542 99/4/10/4/10 10:05:4410:05:44 AMAM INDEX 543

Brown, Keith C., 129 value integer, 156 Buffett, Warren, 401 working capital, changes (impact), 120 valuation methodology, absence, 258 Cash-fl ow-from-operations ratio, calculation, 120 Business Cash Flow (CRFOE) appraisal, development, 467–472 combination, 286 cycle, expansions/contractions, 527–529 valuation approach, 259, 260 fi lings, American Bankruptcy Institute data, 385 Cash Flow (CFROI) social value, 501 fi ve-year projection, 261–262 valuation, asset-based approach, 90–91 valuation approach, 259, 260–262 Business Combinations (ASC 805) (SFAS 141), variables, 260 99, 387 Cash fl ow statement, 155 Buybacks, 368, 371–372 components, 158–160 direct method, 203 Calculated intangible value (CIV), 278 indirect method, 166, 203 Calculus, 446–448 direct method conversion, 161–163 California Public Employees Retirement System indirect method, usage, 161e (CalPERS) presentation, 202–204 environmental/social/governance issues, 401 reconciliation, 275–277 Focus List Program, 311 example, 276e indexing, 227 sample, 180e–182e Candlesticks, 218–219 usage, 156–157 charting, methodologies, 218 Cash gap analysis, 119–120 Capital Cash-generating potential, 167 decrease, 283 Cash Return on Gross Investment (CROGI) expenditures, funding arrangements, 167 usage, 286 measurement, 298 valuation approach, 259, 262–263 payback, legal obligation, 9 Cash Value Added (CVA) (valuation approach), value, 274 259, 263 Capital Asset Pricing Model (CAPM), 243 Caux Round Table (CRT) Carbon investigations, 316 cost, fi nancial risk, 347 principles, 339–343 environmental issue, 324–325 wealth ownership, principles (proposal), footprint data, usage, 345–346 341–343 risk exposure, 347 Center for Financial Research and Analysis, 123 Carbon Disclosure Project (CDP), 325 Channels, 219–220 Cash Chaos/complexity theory, overview, 234–236 accruals, contrast, 119–120 Charting, 216 infl ows, 173 angles, 216–217 net present value, 168–169 bands, 217–218 receipts, 173 candlesticks, 218–219 utilization requirements, 167 channels, 219–220 value, 157 http://www.pbookshop.comdirectional movement, 220 Cash analysis statement, sample, 182e–184e geometry, 221–222 Cash/cash equivalents, 62–63 line charts, 222 Cash fl ow moving averages convergence/divergence achievement, 142 (MACD), 222–223 analysis, 172–173 parabolic systems, 223 brand name, impact, 74 percentage range, 223–224 division, 120 relative strength indicator (RSI), 224 fi nancing activities formula, 160 stochastics, 224 global standard setters, perspective, 157–158 waves, 224–226 IFRS impact, 191–192 Chartwell Litigation Trust v. Addus Healthcare, internal operations source, 159 Inc., 386–387 lenses, 194–195 Chemicals methodologies, 168–172 cash fl ow patterns, 193 patterns, 192–194 demand, 79–80 reporting practices, survey, 207–208 Chrysler, government involvement, 305 sample, 188e Citizenship, investment, 318–321

bbindex.inddindex.indd 543543 99/4/10/4/10 10:05:4410:05:44 AMAM 544 index

Claim liability, recognition, 83 Controlling transaction, 212–213 Climate Disclosure Standards Board (CDSB), noncontrolling transaction, contrast, 212e 324, 325 Corazza, Marco, 229 Closing price, 212 Corcoran, Robert L., 318 Coase, John, 294, 377 Core Earnings Metric (S&P), 123–124 Cognitive bias, 23 Corporate culture, 300 Cognitive dissonance, 484 power orientation, increase, 356 Colfax Corporation, key performance Corporate equity securities, value, 293–294 indicators, 355 Corporate fi nance spreadsheets, usefulness, 475 Commission on Public Trust and Private Corporate governance Enterprise, 124 social responsibility, correlation, 403 Commodity prices, 132 value, 309–310 increase, 81 Corporate Governance (Monks/Minow), 310 Common law system, 359 Corporate Governance Quotient (CGQ), Common ratios, 86–90 replacement, 309 Common stocks, price movements, 480e Corporate law, provisions, 361 Communication practices, importance, 299 Corporate Library, The (TCL) Companies Board Effectiveness rating, 330–332 assets, replacement, 141 corporate governance ratings, 402 bankruptcy (emergence), shares governance traits problems, 309 (valuation), 387 Corporate life cycle, equity values, 367 current contracts, impact, 118 Corporate performance governance profi le, marketplace value, 402 measurement, 396 government involvement, 305–306 statement, proposal (Rappaport), 312 insolvency/bankruptcy, shares (valuation), Corporate securities valuation, reading sources, 385–387 539–540 investment value, earnings (impact), 103 Corporate social responsibility (CSR), 314, 504 risk (understanding/measuring), environmental/ drivers, 504–505 carbon footprint data (usage), 345–346 shareholder value, connection (perception), value (accounting), complexity (sources), 13–15 321–322 Comparability, 414 social impact valuation, 506 Comparable pricing, legal basis, 380 Corporate-sponsored pension funds, value, 373 Compensation analysis, 296 Corporate strategy, examination, 390 Compensation Disclosure and Analysis (CD&A) Corporate valuation, 1–3, 258, 411 Statement, 297 Corporate value, theory Compensation disclosure requirements, SEC elements, 292–323 increase, 297–298 genius, element, 293–300 Comprehensive income, 40, 111–112 governance, element, 308–314 Comprehensive Intellectual Capital Management law, element, 302–306 (Al-Ali), 94 liberty, element, 300–302 Conceptual Framework project, phases, 13 market, element, 306–308 Confi rmatory bias, 484http://www.pbookshop.comvalues, element, 314–323 Confi rmatory value, 413 Corporate value, understanding, 325 Conformity, 484 Corporations Congressional Oversight Panel, report, 427 assets, values, 52 Consensus earnings, 124–125 par value, 369 Conservatism concept, 417 securities, valuation, 312–313 Consistency principle, 417–418 social impact, 401–403 Consolidation of Variable Interest Entities (FIN total impact, 504e 46R), 14 Corrective wave, 225 Construction companies, revenue recognition, 132 Cost concept, 418 Construction Contracts (IAS 11), 65, 115 Cost of goods sold, 135 Contingent Claims Analysis (CCA) approach, 238, Country political risk, 129 431–432 Cowles Commission index, real equity return Continuing value, formula, 265 averages, 10 Contract asset, increase, 115 Cox, Christopher, 59 Contract liability, decrease, 115 Credit Default Swap (CDS) spreads (CDS-based Contractual settlement, requirement, absence, 407 CDF approach), 238, 432–433 Control illusion, 484 Creditors, priorities (government alteration), 305

bbindex.inddindex.indd 544544 99/4/10/4/10 10:05:4510:05:45 AMAM INDEX 545

Credit Suisse First Boston (CSFB), 260, 262, 286 formula, usage, 265 Crisis of Global Capitalism, The (Soros), 233–234 liquidity questions, 166–168 Cross-sector comparison, 510 measure, 260 Currency values, expression, 25–26 methodology, usefulness, 264 Current assets, 60–61, 164 projection, 163–164 Current contracts, impact, 118–119 questions, 164–168 Current-period sales, 118 residual income, contrast, 271–272 Current ratio, 86, 88–89 strategy questions, 164–166 valuation approach, 263–265 Daines, Robert, 310 Discounted free cash fl ow (valuation Damodaran, Aswath, 258 approach), 259 Damodaran spreadsheets, usage, 475–477 Discounted payback period (DPB), 171–172 Davis v. Commissioner, 94, 350 Discount rates, decrease, 81 Dear CFO letters, 78 Discussion Papers (DPs), 421 Debt Dispersion, 448–449 market value, 268 Disposition effect, 485 ratio, bank reliance, 232–233 Distraction fallacies, 487 return, 242 Distressed transactions (fi re sales), SEC Debt securities, 9–10, 62, 63 perspective, 240 Debt-to-asset ratios, 89 Diversifi cation, cost benefi t, 383 Debt-to-equity ratios, 86, 89 Divestitures, 368, 382–383 Decision-making process, importance, 298–299 Divestment, valuation (impact), 326–327 Deductive fallacies, 487 Dividends, 368 Deferred costs, 62, 66 policy, 109–110 Defi ned benefi t pensions accounting, IASB shares, valuation, 371 improvements, 522–523 Dividends per share, 137 Defi ned benefi t pensions plans Dodd, David, 20–21, 60–61, 110, 295 accounting, importance, 372 Domestic infrastructure, investment, 533 shares, valuation, 372–373 Double-entry bookkeeping, usage, 273 Defi ned benefi t plan, 83 Dow Jones global index, decline, 34 Defi ned contribution plan, 83–84 Dow Jones Sustainability, 512 DeLong, Bradford, 242 Drucker, Peter, 210 Denniston III, Brackett B., 318 Drummond geometry, 221, 221e Depreciation, 118, 163 Due diligence, 140–141, 386 Depreciation, depletion, and amortization Duff & Phelps (D&P) (DD&A) expense, 132 report, 427–442 Derivatives and Hedging (SFAS 133), 14 transactions analysis, 434 Derivatives contracts, fair value measurement, 491 valuation model, 236–238 Derivatives (valuation), Monte Carlo simulation valuation work, 17–18 (usage), 479–480 DuPont formula, 87 Deviations/gaps, projection, 79 Differential equations, http://www.pbookshop.comusage, 446–447 Early-stage IPOs, impact, 215 Diluted EPS from continuing operations, 137 Earnings, 111–112 Diluted EPS from discontinued operations, 137 analysis trail, 130 Diluted EPS from total net income, 137 assessment, 120 Diluted EPS from total operations, 137 models, 122–124 Direct cash fl ow statement method, 161–163 assets Directional movement, 220 basis, 108 Directional movement indicator (DMI), 220 connection, 110–111 Directional price movement, 220e XBRL, usage, 116–117 Disclosure, 312–313 calculation, 117 Disclosures about Fair Value of Financial calls, 104 Instruments (ASC 825) (SFAS 107), 97–98 cash fl ow portion, 118 Discount, 58, 140 data, 118 Discounted cash fl ow (DCF) defi nition, 103–104, 111–113 analysis denominators, 129 market yields, usage, 430–431 examples, 126–128 survivability probabilities, usage, 432–433 expenses, relationship, 108 application, 172 growth, example, 141

bbindex.inddindex.indd 545545 99/4/10/4/10 10:05:4610:05:46 AMAM 546 index

Earnings (continued ) Effi cient market-random walk hypothesis, guidance, 124, 133–134 226–228 impact, 118–119 Egan-Jones Proxy Services Corporate Governance increase, 119 Ratings, 334–335 interpretation, 117 Ehler, John, 225 management/fraud, 117–118 Ehler’s sine wave, 225e manipulation, 117 E index (Bebchuk, Cohen & Ferrell (BCF) measure, requirement, 133 entrenchment index), 329 numerators, 129 Electricity prices, increase (potential), 347 quality, 119–122 Elements of Financial Statements (FASB Concepts importance, 386 Statement No. 6), 147 revenues, relationship, 108 Elliott wave, 225e types, 104–106 principle, 224–225 understandability, 129 Emergency Economic Stabilization Act (EESA), usage, 138–144 17, 86, 427, 441 Earnings and profi ts (E&P) companies, Emerging Issues Task Force (EITF), 16–17 fortunes, 132 Emotional attachment, 485 Earnings-based valuation, 129–132 Emperor’s Nightingale, The (Monks), Earnings before depreciation, interest, and 133, 234 taxes (EBDIT), operating cash fl ow Empirical Research Partners, 122 (comparison), 287 Employee Benefi ts (IAS 19), 521 Earnings before interest and taxes (EBIT), 143, End of period account balances, 274 163, 269 Endowments, example, 373–375 Earnings before interest, taxes, depreciation, Energy, 131–132 and amortization (EBITDA), 107–108, 263 cash fl ow patterns, 193 EBITDA/EV, 142 hybrid valuation approach, usage, 278–280 usage, 142–143 oil/gas exploration/production, 80–81 Earnings before taxes (income before taxes), 105 Engagement, overview, 428–429 Earnings per share (EPS), 104, 128–129, 138 Enhanced Business Reporting (EBR), 16 Economic activities, social impacts (capture), 512 framework, 335–339 Economic benefi ts, gross infl ow, 112 EBRC version 2.1, 335 Economic freedom, cornerstones, 301 initiative, 56–57 Economic Freedom of the World (Heritage investigation, 315 Foundation), 302, 358 Enron, scandal, 5 Economic impact, 511 Enterprise Value (EV), 142–143 social value, capture, 511–512 formula, 267 Economic indicators, 513 valuation approach, 259, 267–268 Economic Margin Framework (valuation Enterprise value to earnings before interest, taxes, approach), 259, 265–266 depreciation, amortization, and exploration Economic profi t (EP), 267, 282 expense (EV/EBITDAX), 278 Economics, John Coase theory, 294 Enterprise value to EBITDA, 142–143 “Economics of Short-Termhttp://www.pbookshop.com Performance Enterprise value to free cash fl ow ratio Obsession, The” (Rappaport), 118 (EV/FCF), 279 Economic transactions, report, 50–51 Enterprise value to normalized asset value Economic valuation theory, 67e ratio, 279 Economic Value Added (EVA) Enterprise value to normalized earnings before basis, 282–284 interest, taxes, depreciation, amortization, valuation approach, 259, 266, 271 and exploration expense (EV/normalized Economic value (EV), 503–507 EBITDAX), 279 Economic Value Management (EVM) Enterprise value to reserves ratio, 280 defi nition, 282–283 Entrepreneurial spirit, impact, 294 valuation approach, 259, 266–267 Environmental, social, and governance (ESG) Educational Endowment and the Financial Crisis, reporting, 323 374–375 Environmental data, usage, 345–346 Effi ciency indicators, assets (usage), 86–88 Environmental risk, investment strategies, Effi ciency ratio, 86 346–347 Effi cient market, 211 Equipment investments, 159 Effi cient market hypothesis (EMH), 343 Equity weak form, 247–248 accounting version, 5

bbindex.inddindex.indd 546546 99/4/10/4/10 10:05:4610:05:46 AMAM INDEX 547

Equity (continued) table, 517e–519e capital, 4, 8–9 tags, introduction, 515–516 cost, 282 U.S. GAAP Taxonomy testing, 496 creation, 4 usage, 313–315, 516 debt, contrast (global defi nition), 407 External cost, understanding, 344–345 defi nition, 4–5, 68 External fi nancing sources, 160 funding fl exibility, 8 global defi nition, construction, 407–409 Failure, factoring, 23 global standard, 49 Fair market value, 17–18, 70, 429 importance, 4 Fairness opinions, 140–141 indexes, 227–228 Fair value, 78, 85, 174 information sources, 12 Fair Value Measurements and Disclosures (ASC instruments, 68e, 408 820) (SFAS 157), 14, 70–71, 100, 239, investing, paradoxes, 22–24 491–492 leveraging, 232 FASB Statement No. 157, 239 liabilities, contrast, 407 Fair Value Option for Financial Assets and long-term superiority, 9–11 Financial Liabilities (ASC 825) marketplace, benefi ts, 8 (SFAS 159), 71 market value, 268 Fat-tailed domains, 448 method, investments, 62, 63, 65 Fat-tail events, 306 premium, usage, 241–243 Federal Deposit Insurance Corporation (FDIC), return, 241–242 stress test ratings, 131e securities, investments, 62, 63 Federal Financial Institutions Examination shareholder returns, 8 Council (FFIEC), 130 shares, 1, 5 Federal government, investor role, 4 valuation Federal Reserve Board (FRB), indicative loss rate complication, human nature (impact), 19–21 ranges, 82 continuation, 403–404 Ferris, Robert, 312, 370 value, 367 Fifty-day moving average, 247 human nature, impact, 24–25 Finance and Analysis of Capital Projects, The Equivalent forward, calculation, 445 (Merrett/Sykes), 172 Ethical culture, 513–514 Financial accounting, design, 118 European Union Emissions Trading Scheme Financial Accounting Standards Board (FASB) (ETS), 344–345 Accounting Standards Codifi cation (ASC), 40 Ex ante equation, 274–275 Concepts Statement No. 1, (Objectives of Ex ante income, 274 Financial Reporting by Enterprises), 118 Exchange rate risk, 129 Concepts Statement No. 5 (Recognition and Exchange-traded fund (ETF), 227 Measurement in Financial Statements of Executive/director compensation, 330 Business Enterprises), 99 Expectation, 3 Concepts Statement No. 6 (Elements of Expectations Investing (Rappaport), 175 Financial Statements), 147 Expectations investing http://www.pbookshop.comtheory, 228 Conceptual Framework, 411 Expected cash fl ows, 191, 239 Emerging Issues Task Force projects, 424 Expected dividend return, computation, 129–130 joint standards, 421 Expenses, 108, 114–115 projects, 422–424 Exploration and production (E&P) Staff Accounting Bulletin, 241 company valuation, 81 standards, 12 stocks, 80–81 Valuation Resource Group, 239 Ex post income, 274 Financial Accounting Standards (FAS); See Exposure Drafts (Es), 421 Accounting Standards Codifi cation eXtensible Business Reporting Language Financial assets, defi nition, 71 (XBRL) Financial Crisis Inquiry Commission (FCIC), content, technical explanation, 149 subpoena, 6 defi ning, 515–516 Financial information guidance, 515 delivery, 497–499 impact, 116–117 transparency, 415 information (location/usage), U.S. GAAP verifi ability, 413 (usage), 516 Financial Institutions Reform Recovery and schedules, 116–117 Enforcement Act (FIRREA), 69

bbindex.inddindex.indd 547547 99/4/10/4/10 10:05:4610:05:46 AMAM 548 index

Financial Instruments (IAS 39), 63, 66 Gann, William D., 216 Financial investing tools, social investing tools Gann angle, 216–217, 217e (contrast), 508–512 Geithner, Timothy, 86 Financial investor support, social investor support General Electric (GE) (contrast), 510e citizenship, investment, 318–321 Financial leverage, 109 compliance/governance, commitment, 317 Financial markets, informational effi ciency, 343 earnings, decrease, 126 Financial mathematics environment/health/safety, commitment, 317 symbols, usage, 452–457 performance metrics, 319e–320e usage, 26–28 profi le, 316–318 Financial metrics, 513 Generally accepted accounting standards (GAAS), Financial performance, sensitivity, 298–300 12, 416–418 Financial ratios, sample, 144, 184e–186e, 278 business activity basis, 495 Financial reporting, usage, 104 complaint, 12–13 Financial reports criteria, 416 GAAP/IAS issues, 12–13 FASB determination, 52 usage, 12 reforming, 15–17 Financial returns, improvement (examples), 348–352 requirement, 107 Financial risk standards, 12–13 carbon cost, impact, 347 General Motors (GM), government coping, 230 involvement, 305 Financials, cash fl ow patterns, 193–194 Generic valuation models, 272–273 Financial solvency, 86 Geometry, Drummond, 221–222 Financial statement presentation, 494 Geometry, usage, 451 Financial trading system, 230 G index (Gompers, Ishii & Metrick governance Financing activities, 202 index), 328–329 Financing cash fl ow, 158, 160 Gjedrem, Svein, long-term investing, 532–535 Firm, value, 461–462 Glass Lewis & Company, 335 Firm-level data collection/aggregation, 79 GLG Partners First-in/fi rst-out (FIFO) method, 191 Clean European Equity Strategy, 348e Five-day average pricing, 370 green fi lter, application, 348–349 Fixed-asset purchases, ARR (usage), 139 Global accounting, 115, 132 Fixed assets, 169 Global Agenda Council (GACs), impact, 363 set-aside values, addition, 164 Global Agenda Council on Long-Term Investing Flow-dominant assets, value-dominant assets (World Economic Forum), 324 (contrast), 55 Global Corporate Governance Principles (ICGN), Focused valuation spreadsheets, 476 306–307 Folgers Coffee Company, P&G spin-off, 382–383 Global industry classifi cation (GIC) codes, Ford Equity Research, 122 consideration, 379 Fractals, 235 Global Industry Classifi cation Standard (GICS), 79 Free capital movements, 533–534 classifi cations, 473 Free cash fl ow, 120, 159http://www.pbookshop.comindustry group, recognition, 151 FRS 17 (Retirement Benefi ts), 521–522 sectors/industry groups, 473 FRS 18, 415–416 structure, categories, 473–474 FTSE4Good, 512 Globalization, risks, 364 Full cost accounting, successful efforts (contrast), Global standards, convergence, 421 131–132 Going concern concept, 418 Funds fl ow statement, sample, 179e–180e Going-private issues, SEC fi lings, 57 Future cash fl ow, 155 Goldman-Berkshire Hathaway estimates, Monte Carlo simulations (usage), investments, value (estimation), 435–436 175–190 transactions, 434–435 prediction, 156 Goldman Sachs, 34, 211 projection, 163–164 Berkshire Hathaway investment, Duff & Phelps Future sales, 118–119 report, 427–442 assumptions/qualifi cations/conditions, G7 countries, bond returns/stock returns 439–441 (comparison), 37 fi ndings, 437–438 Gallo v. Commissioner, 94, 352 problem, 6

bbindex.inddindex.indd 548548 99/4/10/4/10 10:05:4710:05:47 AMAM INDEX 549

Gompers, Ishii & Metrick (GIM) governance cash fl ow statement reconciliation, 275–277 index (G index), 328–329 emergence, 156 Goodwill, 62, 66 emphasis, 119 write-offs, anticipation, 75–77 reconciliation, 273–275 Goodwill and Other Intangible Assets (ASC 350) example, 276e (SFAS 142), 75, 99 sample, 176e–177e Gordon formula, 287 terms (Hoover’s defi nitions), 134–137 Go-to-market strategy, 371 usage, 106 Governance, 309, 308–314, 328–335, 383–384 Indexes, list, 525–526 Governance Alpha Fund (GAF), 383 Index fund, 227 Governance-enhanced S&P500 index, 335 Index investors, 400 Governance Metrics International (GMI), 309–311 Indirect method (cash fl ow statement), conversion, governance areas, 332–333 161–163 governance areas/weights, 333 Inductive fallacies, 487 market/industry indices, 332–333 Industrial economies, legal structure/property measures, 333–334 rights security ranking, 302 Government pension fund, global market Industry value, 532e cash fl ow patterns, 192–194 Government-sponsored enterprise (GSE) classifi cations, identifi cation, 79 securities, loans/purchases, 17 global accounting standards, impact, 132–133 Graham, Benjamin, 20–21, 60–61, 110, 215, 295 government involvement, 305–306 index fund anticipation, 227 rates of return, estimation, 129–130 Grantham, Jeremy, 10 stock price patterns, 244 Green, Michael, 314 Ineffi ciency, evidence, 210 GRIds (ISS), 309 Infl ows, 112 GMRI, correlation, 311 Information gathering, cost/benefi t, 2 Gross cash fl ow, 261 Initial public offering (IPO), 212, 368 Gross investment, 261 rarity, 370 Gross margins, projection, 280 shares, valuation, 369–371 Gross profi t (gross earnings), 105, 135 value determination, 371 Group thinking, 485 Innovation, impact, 294 Growth-oriented companies, return measure In Search of Excellence (Peters/Waterman), 298 avoidance, 271 Insolvency, 110, 156, 385–387 Instantaneous incomes, basis, 274 Harvard University, endowment fund, 84 Institutional Shareholder Services (ISS), 309 Hayward, Tony, 403 Instrument, reclassifi cation, 408 Henkel Corp. v. Innovative Brands Holdings LLC, Insurance, 82–83 381 Intangible asset, 66, 72–77 Histograms, 223, 451 Intangible Assets (IAS 38), 76 Historical rates of return, 129 Intangibles, 62, 66, 73 Holding period return (HPR), 270 Interest coverage ratio, 143–144 Homma, Munehisa, 218http://www.pbookshop.comInterest expense, interest, 145 Howard v. Shay, 94, 350 Internal rate of return (IRR), 104, 169 Human-oriented culture, 299, 300 conversion, 261 Human valuation, 483 discount rate, 140 Hybrid Life Cycle Analysis (LCA), Trucost Internal Revenue Service (IRS), Form development, 347 990, 508 Hybrid valuation approaches/techniques, 255 International Accounting Standards Board usage, 278–281 (IASB) Agenda Project, 94 Immelt, Jeffrey R., 318 Expert Advisory Panel, 239 Impairment of Assets (IAS 36), 76 global standard, 112 Impairments charges, occurrence, 76–77 joint standards, 421 Impulsive wave, 225 projects, 422–424 Inactive market, transactions (impact), 240 standards, 13 Income, 104, 136 International Accounting Standards Committee Income before taxes, 136 (IASC), founding, 92 Income statement International Accounting Standards (IAS)

bbindex.inddindex.indd 549549 99/4/10/4/10 10:05:4710:05:47 AMAM 550 index

International Accounting Standards (IAS) Investor Task Force (ITF), FASB sponsor, (continued ) 15–16 IAS 2, 65 Investors, 78, 302, 399–403, 400e IAS 7, 158, 160, 201–204 InvestSign, 168, 206 objective, 201 Invisible hand (Smith), 306 principle, 201–202 IAS 7 (Statement of Cash Flows), 96, 158 Jameson, Joel, 273, 275 IAS 7.7-8, 96–97 Jenkins, Edmond L., 315 IAS 11 (Construction Contracts), 65, 115 Jenkins report, 16 IAS 18 (Revenue), 115 Jensen Index, 389 IAS 19, (Employee Benefi ts), 521 Johnson & Johnson (J&J), Tylenol tampering, IAS 33 (Earnings per Share), 138 504–505 IAS 36 (Impairment of Assets), 76 Joint ventures, investment, 62, 63, 65 IAS 38 (Intangible Assets), 76 IAS 39 (Financial Instruments), 63, 66, 72 Kaisha, Iino Kaiun, 314 IAS 41 (Agriculture), 66 Keynes, John Maynard, 22, 210, 396 International Corporate Governance Network Kjaer, Knut, 399, 401 (ICGN) Krensavage Partners, 123 activity, 296 Krugman, Paul, 281 Global Corporate Governance Principles, Kyoto Protocol, 345 306–307, 308 Nonfi nancial Business Reporting Last-in/fi rst-out (LIFO) method, 191 Committee, 293 Law, corporate value element, 302–306 International Financial Reporting Standards LeBaron, Dean, 401 (IFRS), 52, 92–93. See also International Legal frameworks, UN work, 304–305 Accounting Standards Lehman Brothers, debt security sale, 63 reforming, 15–17 Level playing fi eld, skewed playing fi eld standards, 12 (contrast), 145 total future obligations, 521 Leverage International Standards Accounting Board, indicators, assets (usage), 89–90 “Preliminary Views on Financial Statement ratio, 86 Presentation,” 113 increase, 11 International stock exchanges, value (loss), 534 Levitt, Arthur, 335 Intrinsic investors, 400 Liability, 49, 68, 115 Introduction to Security Analysis Liberty, corporate value element, 300–302 (Graham/Dodd), 20 Lindblom, Charles, 306 Inventory, 62, 65–66, 262 Line charts, 222, 222e turnover ratio, 87–88 Liquidation value, 61 Investing, endowment model, 374–375 Liquidity, 86 Investing activities, 202 indicators, assets (usage), 88–89 Investing cash fl ow, 158, 159–160 questions, 166–168 Investment, 62, 65 http://www.pbookshop.comratios, 88 allocation decisions, 84 value, relationship, 157 average book value, 87 Loan losses, 81–82, 130–131 cash fl ow, formula, 160 Logarithms, 447–448 debt/equity securities, 62, 63 Long-duration bonds, value, 80–81 equity method, 62, 63, 65 Long-term assets, short-term assets joint ventures, 62, 63, 65 (contrast), 84 portfolio, 1–3 Long-term investing, 324–326 problems, 483 Long-term value creation, 125 publicly traded securities, purchase, 397 Loss aversion bias, 23 strategy Loss event, 191 environmental risk, impact, 346–347 Low surprise factor, 119, 122 implementation, 533–534 Investment Banking (Rosenbaum/Pearl), 378 Madden, Bart, 260 Investor Responsibility Research Center Institute Magin, Konstantin, 242 (IRRCi), 347 Maintenance capex, differences, 279

bbindex.inddindex.indd 550550 99/4/10/4/10 10:05:4810:05:48 AMAM INDEX 551

Malkiel, Burton G., 226 Minow, Nell, 310 Management Mitsubishi UFJ Financial Group (MUFG) internal assumptions, 239–240 investment, 435 measurement, metrics (usage), Mixed accounting attributes, 14–15 270–271 Model Business Corporation Act, 93 processes, change, 282 Modern Corporation and Private Property (Berle/ value, assessment, 296 Means), 295 Management’s Discussion and Analysis (MD&A), Modern value chain, 60 75–76, 106, 323 Modifi ed internal rate of return (MIRR), requirements, 16 140, 171 statement, overview, 165–166 Modigliani, Franco, 5, 461 usage, 77–78 Modigliani measure, 389 Mandelbaum v. Commissioner, 94, 292, 352, 353 Modigliani-Miller propositions, 462–465 Mark-to-market accounting, 25, 238–241 Modigliani-Miller theorem, 371, 461–462 Market Money measurement concept, 418 corporate value element, 306–308 Monks, Robert A.G., 133, 234, 281, 309–310 cycle mode, 225 Monte Carlo cash fl ow, 190e nonmarket, contrast, 134 Monte Carlo simulation, 175–190, 479–480 orderliness, 306 Morgan Stanley-MUFG, 436–437 trend mode, 225 transactions, 434–435 Market Approach to Valuing a Business, The Morningstar approach, 174 (Pratt), 95 Morningstar Rating, 389 Market capitalization theory, 58 Mortgage banking Market discount data, generation, 57 crisis, economic panic, 7 Marketplace, Commons (comparison), 308 sector, fi nancial meltdowns, 81–82 Market premium, 56–57 Moving average crossover system, 223 message, 58 Moving averages convergence/divergence Market prices, halving, 56 (MACD), 222–223 Market transactions, 433–435 MSCI World Index, 322e Market Value Added (MVA) M-Square Measure, 389 formula, 268, 288 Multiples, 86–90 valuation approach, 259, 268–269 Mutual fund, 227 Market-value changes, 274 Myers, Randy, 271 Market value method, 141 Myers, Stewart C., 294 Marx, Karl, 155 Matching principle, 418 Nash, John, 23 Materiality, 414–415 National Association of Corporate Directors Mathematical tools, complexity (stages), 27–28 (NACD) Mathematician Plays the Stock Market, A governance guidance, 308 (Paulos), 22 Public Company Governance Survey Mathematics, usage, 443 (2010), 18 Mauboussin, Michael J.,http://www.pbookshop.com 228 Nationally Recognized Statistical Rating Mean absolute deviation, 449 Organization (NRSRO), 395 Means, Gardiner, 295 Negative earnings, 132 Melvin, Colin, 384 Nelson, Gregg L., 162 Mergers, 375–382 Net contract position, 115 Mergers and acquisitions (M&A) Net income, 130 strategic reasons, 381–382 decline, 144–145 valuation/cancellation cases, 380–381 Net income after taxes, 105 Merrett, A.J., 172–173 defi nition, 136 Merrill Lynch, decline, 6 Net income from continuing operations, 105 Mesa sine wave, 225 defi nition, 136 Metrics, usage, 270–271 Net income from discontinued operations, 105 Microsoft, reporting decision, 125 defi nition, 136 Miller, Merton, 5, 461 Net income from total operations, 105 Minority shareholder interests, subordination, defi nition, 136 309 Net interest income, 82, 130

bbindex.inddindex.indd 551551 99/4/10/4/10 10:05:4810:05:48 AMAM 552 index

Net operating profi t after taxes (NOPAT), 159, Operational effi ciency, 505 264, 266 Operational metrics, 513 increase, 283 Options, valuation, 25–26 Net present value (NPV), 168–169 Organic growth, merger growth (contrast), 382 yield, model (example), 176e–189e Organization for Economic Cooperation and Net profi t margin, 137 Development (OECD) Net resale value, calculation, 67 governance guidance, 308 New York State Society of CPAs (NYSSCPA), 150 Governance Principles (legal framework), New York Stock Exchange (NYSE), company 302–303 listing, 119 Organization structure, 300 Nison candlesticks, 219e Other Taxes, Interest Expense (combination), 136 No-arbitrage theorem, 289 Outfl ows, 112–113 Noncash assets, value, 61 Outliers, fi ltering, 79 Noncontrolling transaction, 212–213 Out-of-the-box valuation models, 272–273 closing price, 212 Overhead 130, 145 controlling transaction, contrast, 212 Oversight agencies, 508e Noncredit-related expenses, 82 Noneconomic impacts, monetization/ Parabolic systems, 223 quantifi cation, 501 Partial differential equation, 446–447 Nonfi nancial Business Reporting Committee Par value, 369 (ICGN), 293 Paulos, John, 22 Non-GAAP measures, 143e–144e Payables, changes, 159 Noninterest expense, increase, 145 Payback period (PB) method, 169–170 Noninterest income, 82, 130 shortcomings, 170 Nonmarket discount, 56, 57, 58 Pearl, Joshua, 378 Nonmarketability discount, 292 Pension fund, 311–312, 521 Nonoperating expenses, defi nition, 135–136 Pension funding, 368 Nonoperating income, 105 Pension plans, assets (valuation), 83–84 defi nition, 135 Percentage range, 223–224 Nonparametric statistics, usage, 448 Performance Nonsequitur fallacies, 487 assessment, risk-adjusted measures (usage), 372 Non-U.S. accounting, principles, 411 management metrics, 300 Norges Bank Investment Management (NBIM), 531 metrics, example, 319e–320 Norway obligations, 133 Government Pension Fund, consideration, Permanent income, 273–274 398–399 Perpetual approach (IASB usage), 407 state-pension plan (speeches), 531 Persistence, 121 Norwegian Bank of Investment Management Philanthrocapitalism (Bishop/Green), 314 (NBIM), 398–399 Phillips, William, 172 Not in my backyard (NIMBY) opposition, Plant investments, 159 overcoming, 505 Pooling accounting, 12–13 http://www.pbookshop.comPortfolio investment, 1–3, 373, 443 “Objective of Financial Reporting, The” (IASB), Portfolio risk-return, 257 157–158 Portfolio theory, 85 Observer effect, 24 Postretirement Benefi t Plan Assets (ASC 715) Off-balance-sheet arrangements, 167 (SFAS), 84 Off-balance-sheet items, 262 Power/authority, impact, 299 Omnicare v. NCS Healthcare, 381 Power plants, hybrid valuation approach (usage), Operating activities, 202 280–281 Operating cash fl ow, 158, 159 Pratt, Shannon, 387 direct method, impact, 162 Predictability, 121 EBDIT, comparison, 287 Preferred stock, 268 presentation, direct method (usage), 190 “Preliminary Views on Financial Statement Operating earnings (income), 105–108, 135 Presentation” (International Accounting Operating margin, 135, 280 Standards Board), 113 Operating style, fi nancial performance sensitivity, Premium, 58, 378 298–300 Preprovision net revenue (PPNR), 82 Operational cash fl ow, income (division), 120 Present value, calculation, 67

bbindex.inddindex.indd 552552 99/4/10/4/10 10:05:4910:05:49 AMAM INDEX 553

Price/cash fl ow (P/CF), 278 Real-world economic phenomena, Price channels, 219e, 220 representation, 413 Price-earnings-to-growth (PEG) ratio, 141 Reasoning, fallacies, 488 Price-implied cash fl ow expectations, 228 Receivables, 62, 63, 159 Price lattices, illustration, 480e Recognition and Measurement in Financial Price-to-earnings (P/E) ratio, 141, 214 Statements of Business Enterprises (FASB approach, 129–130 Concepts Statement No. 5), 99 change, 244 Recognized income/expense, statement, 521 Price-to-earnings-per-share (P/E) ratio, 140–141 Reconciliation, sample, 187e Principle/rule (comparison), 411 Reference transactions, 435 Principles-based accounting, 416 Refl exivity, concept/theory (Soros), 21–22 Prisoner’s dilemma, 23 stock values, relationship, 231–234 Pritchett, Price, 298 Regulation S-K, 16 Private investors, public investors (contrast), 85 Reilly, Frank K., 129 Probability, 449–451 Relative Graham value (RGV), 215–216 Probability-based fi nancial models, Relative strength indicator (RSI), 224 construction, 175 Relocation, cost-benefi t, 506 Probability-weighted cash fl ow estimate, 191 Replacement value, 141–142 Profi tability index (PI), 170–171 Research and development (R&D) costs, 159 Profi t margins, sample, 188e Reserve Management Company, Primary Fund, 63 Profi ts, 18, 121, 133 Residual income (RI) Projects, cash fl ow, 172–174 discounted cash fl ow, contrast, 271–272 Project updates, 421–425 value, 271–272 Promanagement bias, 309 Residual value, 163, 272 Property, plant, and equipment, 62, 66 Resource play producers, value, 80–81 Protectionism, mitigation, 324 Responsible investing (RI) policy, 323 Proved undeveloped reserves (PUDs), Result-oriented culture, 299, 300 proportion, 280 Retirement Benefi ts (FRS 17), 521–522. See also Provision for loan losses, 130–131 Pension fund Public corporations, market value drivers, 291 Return, 22, 134, 271 Public investors, private investors (contrast), 85 (ROA), 87, 130 Purchase contracts, 118–119 measurement, 311 Purchase Program Participants (PNC), Employed (RCE) (valuation 237–238, 430 approach), 259, 269 acquisition, 428 Return on equity (ROE), DuPont formula, 87 Pure play investment, 80–81 Return on invested capital (ROIC), 265 Return on investment (ROI), 140 Q ratio, 215 Return on Net Assets (RONA) (valuation Quaker Oats Company, Snapple (brand approach), 259, 266 impairment), 76 Revenue, 108, 112, 114–115, 134 Qualifying Equity Offering, 437 Revenue and expense model, 108 Quant analysis, 211 http://www.pbookshop.comRevenue (IAS 18), 115 Quantitative Services Group (QSG), ratings usage Revenue recognition, 53 examination, 402–403 global accounting standards, 132–133 Quant jocks, 1 standards, 115 timing, 114–115 Random Walk Down Wall Street, A (Malkiel), 226 Reverse Morris Trust transaction, 383 Rappaport, Alfred, 107, 118–119, 175, 228 Revlon, Inc. v. McAndrews & Forbes corporate performance statement proposal, 312 Holding, 380 SVA development, 269 Reward-to-variability ratio, 44 Rate of return on net new investment (ROIC), 265 Richey, Matt, 272 Rationalization, 485 Risk, 324, 346, 407 Ratios, 102, 144–145 Risk-adjusted cost of capital, usage, 163 Raw statistics, standardization, 79 Risk-adjusted measures, usage, 372 Real assets, 55 Risk-free rate, 129, 243 Real equity return average, Cowles Commission Risk Metrics, 123, 322 index (results), 10 standards, examples, 329–330 Real options approach (ROA), 205 Root-mean-square (RMS) deviation, usage, 43

bbindex.inddindex.indd 553553 99/4/10/4/10 10:05:4910:05:49 AMAM 554 index

Rosenbaum, Joshua, 378 valuation, shareholder-led governance changes Rules-based accounting, 416 (impact), 383–385 Sharpe, William, 243 Sarbanes-Oxley Act (SOX), 39, 321 , 31–32, 44, 389 Say-on-pay provision, 296 Short-term assets, long-term assets (contrast), 84 Schedule 13E-3, dissemination, 95 Short-term fi nancial returns, maximization, 304 Scholes, Myron, 447 Short-term moving averages, calculation, 221 Schwartz, Alan, 59 Short-term profi ts, 133 Scope exceptions, 14 Short-term trendlines, 221 Secondary markets, 212 Shubik’s auction, 23 Secondary offerings, 368 SIGTARP, 441–442 shares, valuation, 369–370 Simulation-specifi c spreadsheets, 476–477 Securities Situational valuation, 367–368 fair value, 427 Skewed playing fi eld, level playing fi eld government ownership, 86 (contrast), 134 investments, Monte Carlo simulation, 479 Smith, Adam, 306 market effi ciency, 306 Smith v. Van Gorkom, 380 prices, 210–211, 244–245 Social contributions, 507e, 510 problems, 240–241 Social cost, 344 valuation, 209, 236 Social impact values, 17–18, 213–214 capture, codifi cation, 509 Securities and Exchange Commission evaluation, social practices benchmark, (SEC), 12 509–510 Advisory Committee on Improvements to factors, 503e Financial Reporting methodological challenge, 502–503 fi nal report, 493 valuation, 506 fi nancial information, delivery, 496–499 Social indicators, 513 substantive complexity, 493–496 Social investing tools, fi nancial investing tools Complexity Subcommittee, mixed accounting (contrast), 508–512 attributes, 14–15 Social Investment Forum (SFI), ESG reporting enforcement releases, 117 recommendation, 323 Securitization, 5–7 Social investor support, fi nancial investor support Security Analysis (Graham/Dodd), 60, 110–111, (contrast), 510e 215, 295 Socially responsible investor (SRI) funds, Security dollar market, 533–534 focus, 512 Selective disclosures, 165 Social projects, variables (complexity), 506 Self-serving biases, 486 Social reporting, 508e Selling, General, and Administrative (SG&A) Social responsibility and governance (SRG), 121 expenses, defi nition, 135 Social value, 503–507 Shareholders capture, 511–512 activism, 383–384 Software companies, global approach, 133 equity returns, 8 http://www.pbookshop.comSoros, George, 21–22, 231–234 interests, sabotage, 295–296 Special Committee on Enhanced Business resolutions, impact, 321–323 Reporting (AICPA), 315 rights, 330 Special-purpose acquisition company, Shareholder value, 228 shares purchase (merger market calculation, 269 assessment), 377 defi nition, 249 Speech, fallacies (Aristotle), 487–488 risk, 309–310 Spending habits, impact, 299–300 sample, 188e Spin-offs, 368, 382–383 variables, impact (sample), 189e Stability, 121 Shareholder Value Added (SVA) (valuation Stakeholder Management Guidelines, 339 approach), 259, 269–270 Standard, rule, 411 formula, 269 Standard and Poor’s (S&P), Core Earnings Metric, Shares 123–124 owner considerations, 375–377 Standard deviation, 448–449 purchase/sale, management team Statement, reading, 145e consideration, 391 Statement 104 (Statement of Cash Flows), 194 tender/exchange/retention, valuation, 375–382 Statement of Cash Flows (IAS 7), 96–97

bbindex.inddindex.indd 554554 99/4/10/4/10 10:05:4910:05:49 AMAM INDEX 555

Statement of Financial Accounting Standards Tegmark, Max, 24 (SFAS). See Accounting Standards 10K fi ling, 126e, 165 Codifi cation Ten Industry Initiatives to Increase Transparency Statement of Financial Accounting Concept No. 1 in the European Securitization (FASB), 118 Markets, 307 Statistics, 79, 448–451 Time horizon, exercise, 481–482 Steel, Robert K., 294 Time Inc. v. Paramount Communications, 380 Stern, Joel, 107, 266 Time period overlays, usage, 221 Stern Stuart, 266 Tipler, Frank J., 24 Stochastic calculus, usage, 273 Tobin, James, 461 Stochastic fi nancial models, construction, 175 Tobin’s Q ratio, 31, 215 Stochastics, 224 Total bank investments, projection, 41 Stock exchange study, 311 Total business return, 270 Stock market Total business value, 270 behavior, 213–214 Total debt-to-total asset ratio, 90 competitive market attributes, 231 Total future obligations, value, 521 crash (1929), 60 Total net earnings, division, 138 equilibrium, absence, 231–232 Total net income, 105, 137 prices, fundamentals refl ection, 228 Total Shareholder Return (TSR) (valuation Stock prices approach), 259, 270 defi nition, 211–213 Traders, investor type, 399–400 dollar value information, 12 Trailing valuation multiples, 445 movements, technical analysis, 216–226 Transparency, 415 patterns, 244 , 389 ratios/formulas, usage, 214–216 Trigger event, 191 valuation, Black Swan approach, 230–231 Trigonometry, usage, 451 Stocks Troubled Asset Relief Program (TARP), 236, 427 capitalization level, 125 initiation, 17 indexes, 525 preferred stocks, 430–435 performance D&P valuation, 236–238 fundamental view, maintenance, 214 fair market value, D&P estimate, 237 GMIR, correlation, 311 marketability, reduction, 437 splits, 368, 371 purchase program, 428–429 valuation, 228, 257–258 warrants, 434–435, 437 values, refl exivity theory (relationship), D&P valuation, 236, 252 231–234 marketability, reduction, 437 Stoxx 600, UBS ECO Index (contrast), 351e Trucost, 343–352 Straight-line depreciation, usage, 139 Turner, Lynn, 335 Strange attractors, 235–236 Tweedie, David, 72 Strategic assessment/planning, 282 Stress test, 6, 131e UBS, 124 Strict pass-fail thresholdshttp://www.pbookshop.com (in accounting), 15 carbon optimization, 349–352 Stupak, Bart, 403–404 ECO Index, Stoxx 600 (contrast), 351e Subject Investments, Fair Market Values EU ETS CO2 price forecast, 350e (range), 429 green investments, 349–352 Subprime crisis/aftermath, 6–7 Uncertainty principle, 43 Successful efforts, full cost accounting (contrast), Underfunded defi ned benefi t pension plans, shares 131–132 (valuation), 372–373 Supervisory Capital Assessment Program (SCAP), Understandability, 414–415 81–82 Undisclosed liabilities, 278 Survivorship bias, 23 Undiscounted average earnings after taxes and Sykes, Allen, 172–174 depreciation, 87 Sykes model, 66–67 Uniform Bank Performance Report (UBPR), Syllogistic fallacies, 487 regulatory approach, 130 Uniform CPA Examination, 417–418 Taleb, Nassim Nicholas, 448 Uniform Standards of Professional Appraisal Technical activities, 425 Practice (USPAP), 69, 467–472 Technical analysis, 216–226 United Kingdom Sustainable Investment and Technical plan, 421–425 Finance (UKSIF), 323

bbindex.inddindex.indd 555555 99/4/10/4/10 10:05:5010:05:50 AMAM 556 index

United Nations, Global Compact Notables Value (values) (return), 322e analysis, effi cient market-random walk Univariate data set, distribution, 450–451 hypothesis (usage), 226–228 Unobservable inputs, 70 comparison, 507 Unwilling buyer/seller, willing buyer/seller corporate value element, 314–323 (contrast), 85 creation, process, 297–298 U.S. business cycle expansions/contractions, investing, 60 527–529 liquidity, relationship, 157 U.S. GAAP, 416–418 noise, 108 operating earnings, impact, 106–108 Valuable vision, impact, 2 pyramid, 502e Valuation questions, 503–504 analysis, fundamentals, 29 relativity, 367 approaches, 30–31 valuation, 501, 512–514 types, 257e, 258–270 Variability, 119, 121 assets basis, 47 Variance, 449 cash fl ow basis, 155 Volatility, 9, 11, 121, 481–482 choices, biases, 483–486 Volition, 85, 134 conditions, 233 Damodaran spreadsheets, usage, 475–477 Wall Street Reform and Consumer Protection Act defi nition, 2–4, 396–397 (Dodd-Frank), 35–36, 296 earnings/income basis, 103 Warrants, value, 427 focus, 11 Warsh, Kevin, 7 generic models, 272–273 Waves, 224–226 humility, requirement, 395–396 Waxman, Henry, 403–404 hybrid techniques, 255 Wealth (ownership), CRT principles (proposal), impact, 398–399 341–343 indicators, earnings (usage), 138–144 Weighted average cost of capital (WACC), 265 input spreadsheets, 475 Weston, J. Fred, 381 investment TARP purchase program, Wheeler, John Archibald, 24 428–429 Williams, Larry, 223 lenses, 84–85, 133–134 Willing buyer/seller, unwilling buyer/seller matrices, 3 (contrast), 85 methodologies, overview, 430–437 Windfall equation, 274–275 model Winner’s curse, 22–23 construction/purchase, contrast, 255–257 Work habits, impact, 299–300 reconciliation, 475 Working capital, 89, 120, 168, 169 selection, 109–110 WorldCom, scandal, 5, 22 out-of-the-box models, 272–273 World Economic Forum, Global Agenda Council process, 3, 397 on Long-Term Investing, 324 reasoning, fallacies, 486–487 World Health Organization (WHO), premature securities prices basis,http://www.pbookshop.com 209 death estimates, 344 studies, 18–19 Worst-case discount rate, usage, 281 summary, sample, 188e–189e Wyckoff, Jim, 224 tax court rulings, 57 Valuation Resource Group (FASB), 72 XBRL. See eXtensible Business Reporting Value at risk, 389 Language Value-dominant assets, fl ow-dominant assets (contrast), 55 Yield-based DCF approach, 237–238, 430–431 Value-price gap, closing, 377–378

bbindex.inddindex.indd 556556 99/4/10/4/10 10:05:5010:05:50 AMAM