randallzoeng/accounting-model

Nowadays people know the price of everything and the value of nothing. - Oscar Wilde

Accounting-model

"There's been research that has shown that these accounting based evaluation models work the best. And of course, I'm telling you about that, because I am an Accounting professor. But there is a solid rationale for why that would be the case. So the whole idea of accrual accounting is to try to capture business activities. Not the timing of cash flows, which can be somewhat arbitrary. Plus accrual accounting has all these estimates of the future, bad debt expense, depreciation expense. Which try to capture value creation during the period more effectively than a free cashflow or dividends would. So because accounting picks up more of this value creation in the short term, and it's easier to forecast things in the short term than the in the long term. The accounting based evaluation models tend to show smaller errors than the other two models, but just don't tell your finance professor." - Prof. Brian Bushee

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