Earnings and book value lost relevance
The decline is structural and continuous rather than cyclical. Financial reports now capture a shrinking fraction of what investors actually price.
The End of Accounting
6 ideas
Expensing intangibles distorts both statements
R&D, IT, brand building and employee training are charged immediately as expenses, while physical assets are capitalised and depreciated over time. Heavy investors in innovation therefore show depressed earnings in the years they invest and understated equity on the balance sheet. The result is a mismatch: costs are booked now and benefits later, so reported profit no longer tracks value creation.
Accounting reports mostly tell investors old news
By the time quarterly and annual reports come out, analysts' forecasts, management guidance and other disclosures have usually priced in most of the content. The formal report now largely confirms what the market already knows.
Estimates and one-offs have swamped the numbers
Standard-setters keep adding fair-value marks, impairments, restructuring charges and other managerial estimates. Each item may be defensible alone, but together they inject noise and discretion into earnings. More rules have made reported figures less comparable over time and less predictive of future results.
Strategic Resources and Consequences Report
First, the firm's strategic resources: patents, brands, customer bases and technology. Second, the actions it takes to build, protect and deploy them, and third, the consequences in value created, measured with industry-specific indicators such as subscriber churn, drug pipeline stage or proved reserves.
Industry-specific metrics beat GAAP numbers
In industries such as wireless telecom, insurance and oil and gas, the authors show that non-accounting indicators explain market values better than earnings do. These include subscriber counts and churn, policy renewal rates and reserve replacement. Investors in these sectors already rely on operating metrics tied to the core strategic resource, which shows the kind of information a better report should standardise.