From the Publisher
The text brings finance and accounting concepts together. In a typical program, students get their accounting "here" and their finance "there." Finance professors often do not cover how accrual accounting helps in valuation and settle for cash-flow analysis. Accounting professors teach accrual accounting and financial statement (ratio) analysis, but sometimes don't make the link to investment questions. This book links accounting and finance so that the financial statement analysis is guided by concepts of finance and central issues in finance equity and debt valuation within an accounting framework.
Penman takes a disciplinary approach to the subject. That is, it builds the analysis from "first principles" in a systematic way so students can see where things are coming from. The author believes that in the area of investments, where there are many suspect techniques, the student needs to have the confidence that the analysis is rigorous and sound. An alternative approach is to teach by metaphor through cases without a formal framework. Cases are included as applications of the analysis, but the book is, in the real sense, a textbook.
The text takes an activist approach to investing (and using financial statements for investing.) It does not assume that the market is efficient. It encourages students to think that a stock might be mispriced, so it gives students a motivation to be active about doing analysis. This in no way prejudges the market efficiency issue. It is a pedagogical device and the student might well discover, through analysis, that a particular stock's price is efficient.
This text shows how to move from concepts to practice. It is "product" oriented in that it aims to show how to build a concrete valuation technology based on the financial statements. Most of the analysis can be built into a spreadsheet program.
This text is "state of the art." It reflects recent developments in research and practice, particularly the use of residual-income (economic profit) techniques. Author Stephen Penman is among the top financial accounting academics in the world. He is extremely well known for his research, which is the framework of this textbook.
Penman incorporates cases, problems, and exercises from real world companies including Wal-Mart and Hewlett-Packard. The real world emphasis is a major strength of the text.The web site will have links to data sources and the financial press, including Standard & Poors (COMPUSTAT) data and Business Week sites, as well as relevant public sites. It will also include additional material and examples and a number of devices to help instructors deliver the course efficiently.