Tài liệu Accounting versus Financial Balance Sheets

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CHAPTER 9


MEASURING EARNINGS
To estimate cash flows, we usually begin with a measure of earnings. Free cash


flows to the firm, for instance, are based upon after-tax operating earnings. Free cashflow


to equity estimates, on the other hand, commence with net income. While we obtain and


use measures of operating and net income from accounting statements, the accounting


earnings for many firms bear little or no resemblance to the true earnings of the firm.


In this chapter, we begin by consider the philosophical difference between the


accounting and financial views of firms. We then consider how the earnings of a firm, at


least as measured by accountants, have to be adjusted to get a measure of earnings that is


more appropriate for valuation. In particular, we examine how to treat operating lease


expenses, which we argue are really financial expenses, and research and development


expenses, which we consider to be capital expenses. The adjustments affect not only our


measures of earnings but our estimates of book value of capital. We also look at


extraordinary items (both income and expenses) and one-time charges, the use of which


has expanded significantly in recent years as firms have shifted towards managing earnings


more aggressively. The techniques used to smooth earnings over periods and beat analyst


estimates can skew reported earnings and, if we are not careful, the values that emerge


from them.


Accounting versus Financial Balance Sheets


When analyzing a firm, what are the questions to which we would like to know


the answers? A firm, as we define it, includes both investments already made -- we will


call these assets-in-place -- and investments yet to be made -- we will call these growth


assets. In addition, a firm can either borrow the funds it needs to make these investments,


in which case it is using debt, or raise it from its owners, in the form of equity. Figure 9.1


summarizes this description of a firm in the form of a financial balance sheet: