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Accounting for Value Page vii (7 of 528)
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Introduction
IT IS PROBABLY WITH mixed feelings that you fi nd yourself
holding a book on accounting in your hands. Apprehensive: Isn’t ac-
counting complex? Defl ated: Isn’t accounting boring? Amused: Remem-
ber all those accounting jokes? Your interest may occasionally be piqued
when accounting is called into question, usually during a crisis— in the
Enron collapse or the recent fi nancial meltdown— but the discussions
of revenue recognition, fair value accounting, variable interest entities,
and so on that ensue quickly dissolve into technicalities beyond the
common man. Or worse: Babel and confusion. Leave it to the nerds, it
is not for me.
I hope to persuade you otherwise.
First understand that, while this book deals with accounting, it is
primarily a book on valuation, written for investors and those to whom
they trust their savings: investment advisors, analysts, and portfolio
managers. The book explains how to employ accounting to estimate
share value. It embraces the fundamental investing approach identifi ed
with Benjamin Graham, adapted to incorporate pertinent principles of
modern fi nance. Fundamentalists distinguish price from value— the two
can be different— and it is accounting, executed in de pen dently of price,
to which the investor refers to determine the difference. This book shows
how the investor handles accounting to identify value and challenge stock
prices.
In this book the investor will see that accounting and valuation are
so intertwined that valuation is actually a matter of accounting; valuation
