DOCSLIB.ORG

Book-On-Buffett-Methods-Of-Clean

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Book-On-Buffett-Methods-Of-Clean Buffett and Beyond By Dr. J.B. Farwell This book is a work of non-fiction. Names and places have been changed to protect the privacy of all individuals. The events and situations are true. © 2004 by Dr. J.B. Farwell. All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission from the author. ISBN: 1-4140-0050-2 (e-book) ISBN: 1-4140-0049-9 (Paperback) ISBN: 1-4140-0048-0 (Dust Jacket) Library of Congress Control Number: 2003095999 This book is printed on acid free paper. Printed in the United States of America Bloomington, IN 1stBooks - rev. 01/31/04 ACKNOWLEDGMENTS This book is dedicated first and foremost to Tom Barnes, Chief Engineer of the S.S. Yellowstone in 1978. Without him, I would not be here to write this book. To those of you who insisted that I write this book and especially to Debby who was there through the many long years of research, the writing of that dang Doctoral Dissertation and then the writing and re-writing and re-re-writing of this manuscript. To my wonderful family who always stood behind me. Always. I love you dad. And of course to Warren Buffett, the greatest investor of all time. After all is said and done, we all want to be as successful as Warren. iii iv TABLE OF CONTENTS INTRODUCTION The Timeliness of this Book................................ ix FOREWORD A Sea Story.................................................................. xi Luck: When Opportunity Meets Preparation CHAPTER 1 The Purpose of This Book............................................. 1 CHAPTER 2 About Warren Buffett.................................................... 5 CHAPTER 3 Determining the Earning Capacity of a Company ...... 11 (Now really, can it be this easy?) CHAPTER 4 My Theory of Why Most Money Managers of the World Cannot Outperform the Market Averages .............................. 27 CHAPTER 5 A Very Simple Income Statement and an Even Simpler Balance Sheet..................................................................................... 35 CHAPTER 6 The Return On Equity Ratio........................................ 41 What is the Difference Between the Accounting Return On Equity We Hear About Every Day and Clean Surplus Accounting Return On Equity? Answer: EVERYTHING! CHAPTER 7 The Return Portion of the Return on Equity Ratio...... 47 CHAPTER 8 The Equity Portion of the Return On Equity Ratio ..... 53 ADDENDUM TO CHAPTER 8 The General Motors Story ............ 65 v CHAPTER 9 How to Determine an Equitable Equity Number......... 67 CHAPTER 10 A Very Short Chapter on the Predictability of the Finance Valuation Models ................................................................. 73 CHAPTER 11 Clean Surplus ROE: The Only Comparable Efficiency Ratio................................................................................................... 81 Developing the Tools to Determine the Probability of Predictability CHAPTER 12 What Buffett Looks for in a Company ...................... 91 How Clean Surplus Accounting Recognizes the Quality of a Company CHAPTER 13 Buy Low and Sell High ............................................. 99 How Buffett Uses Clean Surplus Accounting to Determine the Future Target Price and the All-Important Purchase Price The Purchase Price CHAPTER 14 Beyond Buffett: The Dow Jones 30 Industrials....... 119 The Predictability of Clean Surplus Accounting Relative to the Dow 30 CHAPTER 15 Beyond Buffett: The S&P 500................................. 133 The Predictability of Clean Surplus Accounting Relative to the S&P 500 CHAPTER 16 Top Dogs of the Dow .............................................. 145 CHAPTER 17 What Have You Learned? A Summary................... 191 CHAPTER 18 We Won’t Leave You Out There Alone.................. 201 BuffettandBeyond.com vi DISCLAIMER ___________________________________________ There is no guarantee that while the method of stock investment described in this book has been effective in the past it will be so in the future. This publication contains the opinions and ideas of its author. It is not a recommendation to purchase or sell any of the securities discussed in this book. Both the author and publisher are not engaged in rendering legal, accounting, investment, financial or other investment services. Thus, neither the publisher nor the author will assume liability for any losses that may be sustained by use of the methods described in this book. Any such liability is hereby expressly disclaimed. vii viii INTRODUCTION ___________________________________________ The Timeliness of this Book By the late 1990s, stock ownership had become commonplace. In 1985, only 17% of all U.S. households owned stock. In 1995, 43% of households owned stock and by 2002, 63% of all the households in America participated in stock ownership. The number of financial advisers grew from 33,000 to 110,000. Insurance companies recommended investments. Banks sold mutual funds and stock brokers sold annuities, mortgages and yes, even stocks. The stock market roared and soared. Everyone seemed to be an expert on the market. Almost everyone had tips on stocks that would gain 100% over the following six months. The internet allowed access to anyone who wanted free research on company data. People quit their jobs to become day traders. Through all of this “irrational exuberance” little was heard from Warren Buffett. Buffett said he really didn’t understand what was going on in the technology field and so, no high-flying technology stocks graced his Berkshire Hathaway portfolio. During the latter part of the 1990s, most people began thinking of him as a relic of the past and very few sought his opinion on the market. In fact, many of the new brokers and new investment advisers had never heard of him. Also during the late 1990s, fundamental analysis was not considered important by many investors because everything went up in price. Then one day the bubble blew. Enron happened and stock analysts were exposed to criticism because of their conflicts of interest. Advisers began scratching their heads. The major questions for the beginning of the 21st century was what happened to the stock market and much more importantly, what do we do now? As the dust cleared, Warren Buffett was sought after for investment advice once again. Buying growth stocks at a good value ix was coming back into style. The problem was that very few people really understood how Warren Buffett selected his stocks. And even fewer investors had any clue whatsoever of the method he used in the determination of his all-important purchase price. Now that the investing world has regained some semblance of sanity, you’ll find out why the timeliness of this book will be so very important to your financial future. This book will show you the little- known stock selection methods of Warren Buffett. In addition, this book will also show you the very new and up-to-date research of the author which in turn, will take you one very, very important step BEYOND. By D. Everett President of Clean Surplus Investing, Inc. x FOREWORD ___________________________________________ A Sea Story Luck: When Opportunity Meets Preparation A sea story is a tale or a yarn. Something like one of those “fish that got away” stories. However, our tale actually does begin with a story about the sea. This foreword is a short story in itself. It is the story of how I came into contact with a little-known type of analysis, which was developed for the sole purpose of determining the predictability (or not) of the future performance of a company. Predictability of future performance is the Holy Grail of investing. After all, if we can predict reasonably well, we would be able to determine which stocks should grace our portfolio in order to outperform the market averages on a consistent basis. This method of predictability, of which I speak, eventually became known as Clean Surplus Accounting or Clean Surplus analysis. If the word accounting is intimidating to you, just substitute it with the word analysis because it really is a method of analyzing predictability. Up until this book, Clean Surplus Accounting had pretty much been lost since its possible beginnings in 1895, except for a few rare instances between then and now. The field of accounting just did not evolve in the direction of being able to provide much-needed predictability. It very well could have, but it didn’t. Clean Surplus was designed to try to provide that predictability. Very few people are presently aware of how to apply a reliable method of predictability to the fundamental elements of a stock. Very few people except for a small group of academics, a handful of practitioners and our friend, Warren E. Buffett. More on this later, but for now let’s discuss the xi events which guided me to my discovery of this wonderful method in the first place. It was luck, of course. But the definition of luck is when opportunity meets preparation. Had I not been involved in researching Clean Surplus Accounting and also at the exact same time reading everything about Warren Buffett that I could find, I never would have figured it out. On with our sea story and the events which guided my discovery. I began my post-graduate education very late in life. I began a Master’s program in Business and Finance at the ripe old age of 48 or so. In my prior life, I had been a Marine Engineer and over the course of 13 years I worked on ships sailing to far away places with strange- sounding names. During that time, I rose to the position of Chief Engineer. I was working on a ship carrying grain from the United States to the then Soviet Union and our ship had just entered the Mediterranean Sea through the Straits of Gibraltar. My position on that ship was a First Engineer, which is the position directly under the Chief Engineer. I brought most of the engine crew up on deck to see the great Rock of Gibraltar, but it was not to be, as we were sailing directly into a huge fog bank.
Load more

Recommended publications
  • Residual Income Valuation
    CHAPTER 5 RESIDUAL INCOME VALUATION LEARNING OUTCOMES After completing this chapter, you will be able to do the following : • Calculate and interpret residual income and related measures (e.g., economic value added and market value added). • Discuss the use of residual income models. • Calculate future values of residual income given current book value, earnings growth estimates, and an assumed dividend payout ratio. • Calculate the intrinsic value of a share of common stock using the residual income model. • Discuss the fundamental determinants or drivers of residual income. • Explain the relationship between residual income valuation and the justifi ed price - to - book ratio based on forecasted fundamentals. • Calculate and interpret the intrinsic value of a share of common stock using a single - stage (constant - growth) residual income model. • Calculate an implied growth rate in residual income given the market price - to - book ratio and an estimate of the required rate of return on equity. • Explain continuing residual income and list the common assumptions regarding continuing residual income. • Justify an estimate of continuing residual income at the forecast horizon given company and industry prospects. • Calculate and interpret the intrinsic value of a share of common stock using a multistage residual income model, given the required rate of return, forecasted earnings per share over a fi nite horizon, and forecasted continuing residual earnings. • Explain the relationship of the residual income model to the dividend discount and free cash fl ow to equity models. • Contrast the recognition of value in the residual income model to value recognition in other present value models. • Discuss the strengths and weaknesses of the residual income model.
    [Show full text]
  • Splitting up Value: a Critical Review of Residual Income Theories
    CORE Metadata, citation and similar papers at core.ac.uk Provided by Munich RePEc Personal Archive MPRA Munich Personal RePEc Archive Splitting Up Value: A Critical Review of Residual Income Theories Magni Carlo Alberto University of Modena and Reggio Emilia 11. September 2008 Online at http://mpra.ub.uni-muenchen.de/16548/ MPRA Paper No. 16548, posted 27. September 2009 16:09 UTC Splitting Up Value: A Critical Review of Residual Income Theories Carlo Alberto Magni Department of Economics, University of Modena and Reggio Emilia viale Berengario 51, 41100 Modena, Italy Email:[email protected], tel. +39-059-2056777 webpage: <http://ssrn.com/author=343822> European Journal of Operational Research 2009, 198(1) (October), 1-22. Abstract This paper deals with the notion of residual income, which may be defined as the surplus profit that residues after a capital charge (opportunity cost) has been covered. While the origins of the notion trace back to the 19th century, in-depth theoretical investigations and widespread real-life applications are relatively recent and concern an interdisciplinary field connecting management ac- counting, corporate finance and financial mathematics (Peasnell, 1981, 1982; Peccati, 1987, 1989, 1991; Stewart, 1991; Ohlson, 1995; Arnold and Davies, 2000; Young and O'Byrne, 2001; Martin, Petty and Rich, 2003). This paper presents both a historical outline of its birth and development and an overview of the main recent contributions regarding capital budgeting decisions, production and sales decisions, implementation of optimal portfolios, forecasts of asset prices and calculation of intrinsic values. A most recent theory, the systemic-value-added approach (also named lost-capital paradigm), provides a different definition of residual income, consistent with arbitrage theory.
    [Show full text]
  • Investing in Small Basket Portfolios of DJIA Low Return Stocks: the Potential for Losers to Become Winners
    Investing in Small Basket Portfolios of DJIA Low Return Stocks: The Potential for Losers to Become Winners Professor Glen A. Larsen, Jr. Indiana University Kelley School of Business 801 W. Michigan St. Indianapolis, IN 46202, USA Abstract The focus of this research is on the performance of portfolios constructed on an annual basis from stocks that make up the Dow Jones Industrial Average (DJIA )using a long-only minimum realized return small-basket portfolio (MinRet SBP) strategy. The MinRet SBP is formed each year using those stocks in the DJIA that had the lowest realized returns in the previous five-years with the weight constraint that no more than 20% of the portfolio can be invested in a single security. Over the 20-year period from 1996 through 2015, the MinRet SBP strategy generates a higher average annual total return and a lower risk per unit of return measure than the DJIA. Perhaps even more importantly, measures of downside risk support the enhanced out-of-sample performance of the actively managed MinRet SBP strategy. Keywords: small-basket portfolios, risk/return optimization, low-volatility, momentum, performance enhancement, active management JEL classification: G11 The focus of this research is on the performance of portfolios constructed on an annual basis from stocks that make up the Dow Jones Industrial Average (DJIA) using a long-only minimum realized return small-basket portfolio (MinRet SBP) strategy. The results demonstrate the potential for this simple low return strategy to generate enhanced performance relative to the 30-stock DJIA. This research is different from the Dogs of the Dow approach to investing, which was popularized by Michael Higgins in his book, "Beating the Dow".
    [Show full text]
  • Valuation Models Routledge
    Valuation Models: An Issue of Accounting Theory Stephen H. Penman Columbia Business School, Columbia University The last 20 years has seen a significant development in valuation models. Up to the 1990s, the premier model, in both text books and practice, was the discounted cash flow model. Now alternative models based on earnings and book values―the so-called residual earnings model and the abnormal earnings growth model, for example―have come to the fore in research and have made their way into the textbooks and into practice. At the same time, however, there has been a growing skepticism, particularly in practice, that valuation models don’t work. This finds investment professionals reverting to simple schemes such as multiple pricing that are not really satisfactory. Part of the problem is a failure to understand what valuations models tell us. So this paper lays out the models and the features that differentiate them. This understanding also exposes the limitations of the models, so skepticism remains―indeed, it becomes more focused. So the paper identifies issues that have yet to be dealt with in research. The skepticism about valuation models is not new. Benjamin Graham, considered the father of value investing, appeared to be of the same view: The concept of future prospects and particularly of continued growth in the future invites the application of formulas out of higher mathematics to establish the present value of the favored issue. But the combination of precise formulas with highly imprecise assumptions can be used to establish, or rather justify, practically any value one wishes, however high, for a really outstanding issue.
    [Show full text]
  • Select 10 Industrials Portfolio, Series 134 Profile Fact Card
    Invesco Unit Trusts Select 10 Industrials Portfolio A strategy that gives investors access to the “Dogs of the Dow” to add as a core position in an investors portfolio. Symbol: SDOW134 Invest with a leader “Dogs of the Dow” “Blue Chip” companies $115 billion. Equity and fixed income The “Dogs of the Dow” consists of the The strategy owns some of the biggest unit trusts since 1975. 10 highest dividend-yielding stocks “blue chip” names of one of the world’s in the Dow Jones Industrial Average most famous indexes. These “blue 70+ years. Industry experience in (“DJIA”). Along with a history of usually chips” have historically had more analysis, surveillance and securities high and constant dividends, the Dogs resiliency to short-term market volatility selection. may be undervalued and have the and the cash flows to pay out higher most potential for capital appreciation dividends with consistency.2 $723.9 billion. Assets under in the DJIA.2 management as of March 31, 2013.1 “Dogs of the Dow” as of the close of business on June 28, 2013 Select 10 Industrial Portfolio 2013–3 Ticker Price ($)3 Current Dividend Yield (%)3 AT&T, Inc. T 35.40 5.08 Chevron Corporation CVX 118.34 3.38 Du Pont (E.I.) de Nemours and Company DD 52.50 3.43 General Electric Company GE 23.19 3.28 Intel Corporation INTC 24.22 3.72 Johnson & Johnson JNJ 85.86 3.07 McDonald's Corporation MCD 99.00 3.11 Merck & Company, Inc. MRK 46.45 3.70 Pfizer, Inc.
    [Show full text]
  • The Asymmetric Market Valuation of Special Items and Accounting Conservatism
    Eastern Illinois University The Keep Undergraduate Honors Theses Honors College 2011 The Asymmetric Market Valuation of Special Items and Accounting Conservatism Madeline Kay Trimble Follow this and additional works at: https://thekeep.eiu.edu/honors_theses Part of the Accounting Commons The Asymmetric Market Valuation of Special Items and Accounting Conservatism BY Madeline Kay Trimble UNDERGRADUATE THESIS Submitted in partial fulfillment of the requirement for obtaining UNDERGRADUATE DEPARTMENTAL HONORS Lumpkin College of Business and Applied Sciences along with the Honors College at EASTERN ILLINOIS UNIVERSITY Charleston, Illinois 2011 I hereby recommend this thesis to be accepted as fulfilling the thesis requirement for obtaining Undergraduate Departmental Honors d 01.[ v -7 pK I � - ·1 (. Date Datei ONORS COO RDINA OR The Asymmetric Market Valuation of Special Items and Accounting Conservatism Madeline K. Trimble Eastern Illinois University April 13, 2011 ABSTRACT This thesis investigates the asymmetric market valuation of both negative and positive special items as explained by accounting conservatism. I argue that special items, also known as nonrecurring operating gains and losses, have asymmetric market valuations, as tested using earning response coefficients (ERC). I believe that this difference in ERC between positive and negative special items can be explained by accounting conservatism. This thesis has two main findings: (1) an asymmetry exists in the valuation of positive and negative special items; and (2) the asymmetry can be explained by the idea of accounting conservatism, which is the tendency that firms report economic losses on a timelier basis than economic gains. The above two findings are supported by my empirical tests, which show that negative special items are more value relevant (i.e.
    [Show full text]
  • Statement of Hilary J. Kramer the Imperative Case for Abolishing The
    4 February 2003 Statement of Hilary J. Kramer Before the U.S. Senate Special Committee on Aging The Imperative Case for Abolishing the Double Taxation of Dividends Mr. Chairman and Members of the Committee, I am very thankful that you have invited me to testify on the relationship between corporate governance and the double taxation of dividends. This is an extremely important issue at this moment in our nation's history. Improving trust in our financial markets is critical to all investors. However, for our current retirees already living on fixed incomes as well as for our country=s workers planning for their retirement, the need to restore confidence in our stock market is critical. My name is Hilary Kramer. I am the Senior Strategist and Advisor at Montgomery Asset Management and also appear as a Business Analyst and Commentator on the Fox News Channel. Again, I am pleased to have the opportunity to share my analysis, research and conclusions with the Committee today. Allowing companies to keep the money they have earned---instead of issuing dividends to shareholders---has promoted a dangerous and inefficient system in which senior management has been able to exercise creative control over the actual financial results they report to the public and has provided them the freedom to stray and wander away from their core competencies. Abolishing the double taxation on dividends is about keeping companies honest, competent and resourceful and allowing shareholders to enjoy the financial returns they rightfully deserve as owners of the companies in which they have invested. With a reduction in the taxation of dividends, the interest of corporate management would become better aligned with the interest of the shareholders.
    [Show full text]
  • Understanding the Dogs of The
    INVESCO UNIT TRUSTS Dogs of the Dow Dogs of the Dow – Investing in undervalued high quality large cap stocks with above Select 10 Industrials Portfolio (SDOW113) market dividend yields at the time of selection. (Deposited on 05/02/11) With increased demand for higher levels of income in this low interest rate environment ** and a propensity to invest in large cap companies with the belief that these well capitalized Dividend Total Return companies can withstand the constant change we are seeing in the market, the “Dogs of the Price ($)* Yield* (from 05/02/11- Dow” strategy has garnered much attention as of late. Stock Ticker (05/31/12) (05/31/12) 05/31/12) The “Dogs of the Dow” strategy offers investors an investment strategy that owns the ten McDonald's Corp. MCD 89.34 3.03% 13.61% highest dividend-yielding companies of the Dow Jones Industrial Average Index as of the trust’s deposit date. Kraft Foods Inc. KFT 38.27 3.03 13.26 Performance summary Intel Corp. INTC 25.84 3.25 12.79 > The Select 10 Industrial Portfolio (SDOW 113) which deposited on 5/2/11, is significantly outperforming Verizon Communications Inc. VZ 41.64 4.77 10.86 the Dow Jones Industrial Average index thru 5/31/12. The portfolio returned 5.49% (with sales charge) and 8.14% (without sales charge)1, well surpassing the benchmark’s return which was down -0.37% AT&T Inc. T 34.17 5.09 9.48 during this time frame. Pfi zer Inc. PFE 21.87 3.84 4.04 > The portfolio’s overweight position in Telecommunication Services (VZ-Verizon Communication +19.5%, T-AT&T +17.4%) and Healthcare (PFE-Pfizer +10.6%, MRK-Merck +10.9%), and exposure in Merck & Co.
    [Show full text]
  • Tilburg University the Value Relevance of Dirty Surplus Accounting Flows in the Netherlands Wang, Y.; Buijink, W.F.J.; Eken
    Tilburg University The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands Wang, Y.; Buijink, W.F.J.; Eken Ra, R.C.W. Publication date: 2003 Link to publication in Tilburg University Research Portal Citation for published version (APA): Wang, Y., Buijink, W. F. J., & Eken Ra, R. C. W. (2003). The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands. (CentER Discussion Paper; Vol. 2003-63). Accounting. General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Download date: 27. sep. 2021 No. 2003–63 THE VALUE RELEVANCE OF DIRTY SURPLUS ACCOUNTING FLOWS IN THE NETHERLANDS By Y. Wang, W.F.J. Buijink, R.C.W. Eken July 2003 ISSN 0924-7815 The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands Yue Wang* Willem Buijink Rob Eken Department of Accounting and Accountancy Tilburg University This draft April 2003 This paper benefited from discussions at the 2002 EAA Annual Congress in Copenhagen.
    [Show full text]
  • Valuation Models Applied to Value-Based Management—Application to the Case of UK Companies with Problems
    forecasting Article Valuation Models Applied to Value-Based Management—Application to the Case of UK Companies with Problems Marcel Ausloos 1,2,3 1 School of Business, College of Social Sciences, Arts, and Humanities, Brookfield, University of Leicester, Leicester LE2 1RQ, UK; [email protected] 2 Group of Researchers for Applications of Physics in Economy and Sociology (GRAPES), Rue de la belle jardinière, 483, Sart Tilman, B-4031 Liege, Angleur, Belgium; [email protected] 3 Department of Statistics and Econometrics, Bucharest University of Economic Studies, Calea Dorobantilor 15–17, Sector 1, 010552 Bucharest, Romania; [email protected] Received: 22 October 2020; Accepted: 23 November 2020; Published: 11 December 2020 Abstract: Many still rightly wonder whether accounting numbers affect business value. Basic questions are “why?” and “how?” We aim at promoting an objective choice on how optimizing the most suitable valuation methods under a “value-based management” framework through some performance measurement systems. First, we present a comprehensive review of valuation methods. Three valuations methods, (i) Free Cash Flow Valuation Model (FCFVM), (ii) Residual Earning Valuation Model (REVM) and (iii) Abnormal Earning Growth Model (AEGM), are presented. We point out advantages and limitations. As applications, the proofs of our findings are illustrated on three study cases: Marks & Spencer’s (M&S’s) business pattern (size and growth prospect), which had a recently advertised valuation “problem”, and two comparable companies, Tesco and Sainsbury’s, all three chosen for multiple-based valuation. For the purpose, two value drivers are chosen, EnV/EBIT (entity value/earnings before interests and taxes) and the corresponding EnV/Sales.
    [Show full text]
  • Predominance of the Clean Surplus Valuation Model
    International Journal of Economics and Financial Issues ISSN: 2146-4138 available at http: www.econjournals.com International Journal of Economics and Financial Issues, 2019, 9(2), 265-272. Valuation-based Accounting Research: Predominance of the Clean Surplus Valuation Model Abderrahmane Djaballah Department of Accounting, Université du Québec en Outaouais, 283, Boulevard Alexandre-Taché, P.O. 1250, Hull Postal Station, Gatineau (Quebec), Canada. Email: [email protected] Received: 09 January 2019 Accepted: 10 March 2019 DOI: https://doi.org/10.32479/ijefi.7548 ABSTRACT One of the major aims of accounting information is its usefulness in decision-making and in assessing the value of a company. To this end, a vast theoretical and empirical literature has examined the relationship between accounting information and the company’s market value. In this article, we discuss the evolution of this research stream from its origins to the present by outlining the main conclusions. We also review research on the assessment of the company value through accounting determinants. In particular, we examine Ohlson’s Clean Surplus valuation model, discussing its strengths and limitations. The analysis of the conclusions of this research stream provides insights into company valuation through accounting data that are likely to be useful to financial market participants and accounting standard setters. Keywords: Value, Accounting Information, Equity Valuation, Clean Surplus JEL Classifications: M41,G14 1. INTRODUCTION The main purpose of this research is to provide investors with the mechanisms and tools to make rational decisions. The evaluation of the relationship between the capital market and financial statements has attracted particular attention from In this article, we examine empirical research on the relationship accounting researchers, particularly since the work of Fisher between the accounting measures of fïrm value and the associated (1930) and Preinreich (1936).
    [Show full text]
  • I&E Exhibit No. 1 Witness
    I&E Exhibit No. 1 Witness: Rachel Maurer PENNSYLVANIA PUBLIC UTILITY COMMISSION v. UNITED WATER PENNSYLVANIA INC. Docket No. R-2015-2462723 Exhibit to Accompany the Direct Testimony of Rachel Maurer Bureau of Investigation & Enforcement Concerning: Rate of Return Summary of Cost of Capital Type of Capital Ratio Cost Rate Weighted Cost Long term Debt 44.91% 5.28% 2.37% Common Equity 55.09% 8.77% 4.83% Total 100.00% 7.20% Ms. Ahern's Proxy Group of Non-Price-Regulated Companies Ticker Company Industry AMGN Amgen Biotechnology BAX Baxter Medical Supplies (Invasive) BMY Bristol-Myers Squibb Drug BRO Brown & Brown Financial Services (Diversified) DGX Quest Diagnostics Medical Services DVA DaVita Healthcare Medical Services HAE Haemonetics Corp Medical Supplies (Non-Invasive) KR The Kroger Co. Retail/Wholesale Food LANC Lancaster Colony Household Products MCY Mercury General Insurance (Property/Casualty) MKL Markel Corp Insurance (Property/Casualty) NLY Annaly Capital Real Estate Investment Trust NWBI Northwest Bancshares Thrift ROST Ross Stores Inc. Retail (Softlines) SHW Sherwin-Williams Retail Building Supply SJM Smucker (JM) Co. Food Processing SLGN Silgan Holdings Packaging & Container SRCL Stericycle Inc. Environmental TAP Molson Coors Beverage TECH Bio-Techne Corp. Biotechnology THG Hanover Insurance Group Insurance (Property/Casualty) WMK Weis Markets Retail/Wholesale Food NYSE Alleghany Corp Insurance (Property/Casualty) Source UWPA Exhibit No. PMA-1, Schedule 8. March 13, 2015 MEDICAL SERVICES INDUSTRY 799 With the calendar nearing the end of the first INDUSTRY TIMELINESS: 20 (of 97) quarter of 2015, the Medical Services Industry continues its clean bill of health. After several may even need to be eschewed in the name of profitabil- years of average to subpar returns, the Affordable ity, but these are all just signs of the new times.
    [Show full text]