Review of Accounting Studies, 6, 361–364, 2001 C 2001 Kluwer Academic Publishers. Manufactured in The Netherlands. Discussion of “Back to Basics: Forecasting the Revenues of Internet Firms” and “A Rude Awakening: Internet Shakeout in 2000” STEPHEN H. PENMAN email@example.com Graduate School of Business, Columbia University, 612 Unis Hall, 3022 Broadway, NY 10027 1. Introduction For the purpose of ﬁrm valuation, analysis of ﬁnancial statements is typically more infor- mative for seasoned ﬁrms. Equity value is based on the earnings or cash ﬂows that are expected in the future and, for seasoned ﬁrms, the current ﬁnancial statements are more likely to be an indication of the future “steady state.” So, if one forecasts that current proﬁt margins and turnovers are a good indicator of future margins and turnovers, one gets a good indication of ﬁrm value simply by adding a forecast of sales growth to the ﬁnancial statement information. The Coca Cola Company, for example, is relatively easy to value because it has fairly constant margins and turnovers, so the analyst focuses on the sales growth rate. The ﬁnancial statements enhance the valuation even though Coke’s important brand asset is missing from the balance sheet. Despite the poor balance sheet,
Review of Accounting Studies – Springer Journals
Published: Oct 3, 2004
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