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Financial Statement Analysis and Security Valuation 4th Edition

3.9 out of 5 stars 14 customer reviews
ISBN-13: 978-0073379661
ISBN-10: 0073379662
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Editorial Reviews

About the Author

Stephen Penman is the George O. May Professor and the Morgan Stanley Research Scholar in the Graduate School of Business, Columbia University. He also serves as co-director of Columbia's Center for Excellence in Accounting and Security Analysis. Prior to his appointment at Columbia in 1999, Stephen Penman was the L.H. Penny Professor in the Walter A. Haas School of Business at the University of California at Berkeley. From 1990-95 he served a Chairman of the Professional Accounting Program and Chairman of the Accounting Faculty at Berkeley. He also initiated and chaired Berkeley's Annual Conference on Financial Reporting. He has served as a Visiting Professor at Columbia University and the London Business School of Economic. Professor Penman received a first-class honors degree in Commerce from the University of Queensland, Australia, and M.B.A. and Ph.D. degrees from the University of Chicago. His research is concerned with the valuation of equity and the role of accounting information in security analysis. He has published widely in finance and accounting journals and has conducted seminars on fundamental analysis and equity evaluation for academic and professional audience. In 1991 he was awarded the Notable Contribution to Accounting Literature Award by the American Accounting Association and the American Institute of Certified Public Accountants, and in 2002 he was awarded the American Accounting Association and Deloitte & Touche Wildman Medal for his book, Financial Statement Analysis and Security Valuation, published by McGraw-Hill/Irwin. He is managing editor of the Review of Accounting Studies and is on the editorial board of the Schmalenbach Business Review.
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Product Details

  • Hardcover: 784 pages
  • Publisher: McGraw-Hill/Irwin; 4 edition (March 23, 2009)
  • Language: English
  • ISBN-10: 0073379662
  • ISBN-13: 978-0073379661
  • Product Dimensions: 8.2 x 1.2 x 10.3 inches
  • Shipping Weight: 3.5 pounds (View shipping rates and policies)
  • Average Customer Review: 3.9 out of 5 stars  See all reviews (14 customer reviews)
  • Amazon Best Sellers Rank: #575,778 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

Format: Hardcover
Most books on financial statement analysis are written by professors that neither are passionate about the subject nor are interested in practical applications. A recent mistake was to spend $50 on International Financial Statement Analysis (CFA Institute Investment Series). The current book is different because the author really seems to care about the topic and he freely dishes out advice. He is part of the Graham & Dodd value-based investment crowd.

It is hard to find similar material outside textbooks, so you will have to bear with the extremely tedious format of US textbooks (whether you are a student or not). The key alternative is Valuation: Measuring and Managing the Value of Companies, 5th Edition (Wiley Finance), which is written for managers and largely lacks the accounting perspective. If I only could buy one book, that would be my choice.

A strength of the current book is an attempt to bridge the accounting and finance perspectives. Briefly, the accountants like accrual accounting, the finance guys like cash flow, and most of the time they do not talk to each other. The current book presents several ratios and perspectives that could be used in financial model building. In that regard it is more advanced than the recommended book above.

A key weakness with the current book is that it does not go into sufficient depth on important topics in valuation, like goodwill after acquisitions, pension reserves, revenue recognition, capitalisation of R&D, etc. This is a weakness shared with all the textbooks that I have seen.
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Format: Hardcover Verified Purchase
I had to read this 3 times to really get it. Probably read it again. Its not deeply technical but uses simple equations, principles, and examples to show where value comes from. I really think its quite profound. He covers many areas of the subject to put them in proper perspective. Doesn't pretend to any precision that isn't there. Explains how to value growth (or not!). In other books on this subject there's always a sense that it's not really showing a valuation so much as things that tend to produce good results (based on relative value of course). Penman try's to really get to the root of it and makes a case for valuation that I don't think can be logically challenged as its based on facts and separates facts (accounting) from speculation clearly. I think its a must read right up there with Grahams' "Intelligent Investor". Penman fills in the "valuation" part, Graham's book addresses the "mind set" part.
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Format: Hardcover
We had this book as the recommended text book in Strathclyde University (Glasgow) and initially I got a bit knocked out by Penman's approach because finance starts with CASH FLOWS and the writer does not approve the DCF Method. But once I settled into the book, trust me, its a BIBLE for FSA. Because the approach links Economic activity and Eco profit to valuation thus allowing greater clarity in understanding where VALUE actually comes from - something not so explicit when using DCF. And the best part of the book is the the 2-step to obtain FCF against the lengthy approach in Mckinsey Valuations and other text books. A good knowledge of excel can really help you get the best out of the book since using VLOOKUP and SUMIF you can create the templates just as described in the text book.The book does not use complicated language - basic concepts are from standard finance text books - Brealey & Myers, Ross Westerfield Jaffe, but the beauty lies in the way Penman integrates them into a holistic approach that can be used across various GAAPs and business functions.
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Format: Hardcover
On Wall Street, this book is a staple. A basic reference that explains financial statement analysis like no other. A must read introduction. The only downside is some of the terms the author uses are a little different than terms used in the Bloomberg or FactSet system, so it takes a little understanding to get that one straight. It will be a long time before someone publishes a better text.
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Format: Paperback Verified Purchase
This is the best book I have ever read on Value Investing. He starts with valuing a basic Bank Deposit and builds on that to valuing all securities using simple easily understood concepts - rather than complex financial engineering. Highly recommended.
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Format: Hardcover Verified Purchase
This book needs lots of diligent study, but if one has taken some accounting and/or finance courses it helps a lot. I use some concepts in this book (also in other text books by Lundholm and Sloan, CFA texts) to assess S&P 500 price vs. value. On October 29, 2013 S&P 500 is at 1769, book value (BV) is 667 and let's assume a 9% return. one year forward earnings is $120 for S&P (all this can obtained by various websites such as Barrons, S&P, Yardeni etc). Using the RE (Residual earnings model), implied growth rate is 3.56%, expected return is 9.276%. S&P 500 maybe trading slightly ahead of itself. Contrast 2013 expected return to that of 2007 when the implied growth rate was 6.46% (GDP 4%), S&P 500 is not over-valued. In 2011 implied growth was around 1.52% (S&P at 1136, BV of 593).
Bottom line: 2007 S&P 500 index at 1527 was overvalued (implied growth rate of 6.46%)
2011 S&P 500 index at 1136 was undervalued (implied growth rate of 1.52%, less than GDP)
2013 S&P 500 index at 1769 appears to be fairly / or slightly over-valued (implied growth rate of 3.56%, about the same as GDP or slightly overvalued if we take GDP as 3%))

I believe concepts in this text can be used to assess if a security (HPQ, GOOG, GE and lot more) is over-valued or undervalued using basic EPS, DPS, BV and other readily available numbers from yahoo finance. Overall, I would say, this is an excellent addition to valuation and financial statement analysts. I bought a used book, fourth edition (including S&H) only for $9 or less.
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