The End of Accounting and the Path Forward for Investors and Managers

Chapter 18Investors' Operating Instructions

In this final chapter, we synthesize the main lessons for investors drawn in the previous chapters in the form of a new approach to analyzing the performance and long-term competitive position of twenty-first-century business enterprises. Forget the conventional, short-term analysis you learned in business school, focusing on accounting-based profitability (ROE, ROA) and liquidity ratios. Those are based on flawed data, and their predictive power is negligible. Our proposed analysis focuses on what matters: the strategic assets that determine the enterprise’s ability to sustain competitive advantage—bringing to light their availability to the enterprise and the efficiency of their deployment by management. This represents a radically different methodology of securities analysis.

Analysis Focused on Strategic Assets

Imagine, you were just notified by your doctor of an appointment at XI:XLV on VIII-XX-MMXVI. Overcoming the initial temptation to switch doctors, you vaguely recall that you saw similar signs at the end of movie credits and in Super Bowl announcements (up to 2015), but you haven't the faintest idea what they mean. A Google search clarifies: these are Roman numerals, meaning that your doctor's appointment is at 11:45 on 8–20–2016. You should thank the thirteenth-century mathematician Fibonacci (Leonardo of Pisa) for liberating you of the clunky Roman numeral system inherited from the ancient world, and the picturesque, ...