Beyond Earnings is targeted at investors, financial professionals, and students who want to improve their ability to analyze financial statements, forecast cash flows, and ultimately value a company. The authors demonstrate that reported earnings are easily gamed by accounting shenanigans and reveal how commonly used profitability measures such as return on equity can be misleading.

Because earnings and P/E ratios are too unreliable for valuation, this book takes you beyond earnings and shows you how to apply the HOLT CFROI and Economic Profit framework in a step-by-step manner. A better measure of profitability results in improved capital allocation decisions and fundamental valuations.

This ground-breaking book offers the first practical in-depth discussion of how profitability and growth fade, and shows how to put this information to work right away. The authors introduce their trailblazing Fundamental Pricing Model which includes fade as an adjustable value driver and can be used to value the impact of business model disruption.

As the authors explain, the key to superior stock picking is understanding the expectations embedded in a stock's price and having a clear view of whether the company can beat those expectations. The HOLT framework has been rigorously field tested for over 40 years by global investment professionals to help them make better stock picks and by corporate managers to understand the expectations embedded in their stock price.
Beyond Earnings is an indispensable guide for investors who want to improve their odds of outperforming the competition.

DAVID A. HOLLAND is an independent consultant who serves as a senior advisor to Credit Suisse and is an adjunct professor at the University of Cape Town Graduate School of Business. Formerly, he was a managing director at Credit Suisse based in London. David oversaw HOLT Valuation and Analytics, the research and development arm of Credit Suisse HOLT, and ran their global Custom Solutions Group.

BRYANT A. MATTHEWS is the senior director of research for Credit Suisse HOLT. He has over 20 years of professional experience valuing stocks and helping professional investors improve their stock selection process and valuation models. His research on understanding quality and fade has been adopted by professional investors around the world and led to numerous innovations in the flagship Credit Suisse HOLT Lens application.

PRAISE FOR BEYOND EARNINGS

"Holland and Matthews show why successful investors (and corporate managers as well) must focus on cash flow metrics in analyzing and valuing a business. This book is essential reading for anyone who wants to make successful investment decisions."
—William Priest, CEO, and Steven Bleiberg, Managing Director, Epoch Investment Partners, authors of Winning at Active Management: The Essential Roles of Culture, Philosophy, and Technology

"Holland and Matthews do an amazing job articulating the theoretical underpinnings of valuation and value creation without limiting or compromising the practical application of the DCF methodology."
—Frank Ieraci, Head of Active Fundamental Equities, Canada Pension Plan Investment Board

"Beyond Earnings belongs on the desk of every investor, corporate manager, and student of financial markets who seriously want to understand how companies create value for their shareholders and other stakeholders of corporations."
—Hon. Professor Dr. Jan Viebig, Goethe University Frankfurt; editor and author of Equity Valuation: Models from Leading Investment Banks

"If the 'science' of Economics can be described as often 'dismal' then the discipline of Equity Valuation could easily be described as mostly 'amateurish'. Holland and Matthews have done more than anyone to help professionalize the investment industry's approach to financial analysis and business valuation."
—Mark Ferguson, Founding Partner and Co-Chief Investment Officer, Generation Investment Management

"Beyond Earnings brings erudition and sense to equity valuation and financial performance analysis, and then links them clearly to investment decision making."
—Michael O'Sullivan, Chief Investment Officer, International Wealth Management, Credit Suisse

"Value conscious executives from listed corporates will find the time invested in studying Beyond Earnings immensely rewarding."
—Patrice Lambert - de Diesbach, Head of Investor Relations, Orange Group

"Most investors fall victim to extrapolation. Holland and Matthews demonstrate in their must-read book that the value of a business is not only driven by its rate of growth and level of profitability, but also by its rate of profitability decay."
—Roger Merz, Head of Global Equities, Vontobel Asset Management

Zusammenfassung

Beyond Earnings is targeted at investors, financial professionals, and students who want to improve their ability to analyze financial statements, forecast cash flows, and ultimately value a company. The authors demonstrate that reported earnings are easily gamed by accounting shenanigans and reveal how commonly used profitability measures such as return on equity can be misleading.

Because earnings and P/E ratios are too unreliable for valuation, this book takes you beyond earnings and shows you how to apply the HOLT CFROI and Economic Profit framework in a step-by-step manner. A better measure of profitability results in improved capital allocation decisions and fundamental valuations.

This ground-breaking book offers the first practical in-depth discussion of how profitability and growth fade, and shows how to put this information to work right away. The authors introduce their trailblazing Fundamental Pricing Model which includes fade as an adjustable value driver and can be used to value the impact of business model disruption.

As the authors explain, the key to superior stock picking is understanding the expectations embedded in a stock's price and having a clear view of whether the company can beat those expectations. The HOLT framework has been rigorously field tested for over 40 years by global investment professionals to help them make better stock picks and by corporate managers to understand the expectations embedded in their stock price.

Introduction xix

The Pricing Puzzle: Foundational HOLT Concept and a Key to Better Valuation xix

Overview of Book Chapters xxvi

Who Are We and What Do We Hope to Achieve xxviii

I Financial Performance Assessment

1 Never Forget the Golden Rule: Pursue Strategies with Positive NPV 3

Key Learning Points 3

Introduction 4

What Do Corporate Financial Managers Do During the Day? 6

What Is Value? 8

The Golden Rule of Financial Decision Making 12

Back-of-the-Envelope Basics 15

Is the NPV Rule Foolproof? 20

The Price of Short-Termism 22

Thinking Clearly about Actions, Reactions, and Value 28

2 The Flying Trapeze of Performance Metrics 31

Key Learning Points 31

Measures of Corporate Performance 32

Return on Equity 33

What about Debt and Leverage? 36

Return on Assets 39

Return on Invested Capital 39

P/E as a Valuation Metric and Discounted Cash Flow Valuation Approach 44

Hallmarks of a Sound Economic Performance and Valuation Model 51

Chapter Appendix 53

3 Accounting to Cash Flow Return on Investment 57

Key Learning Points 57

Is CFROI a Better Measure…