#74 Stephen Penman: Financial Statement Analysis for Value Investing

Investing by the Books

In this episode, we have the pleasure of welcoming back Stephen Penman, professor emeritus of accounting and security analysis at Columbia Business School. Stephen has been elected into the Accounting Hall of Fame and is also a distinguished author. We discuss his latest book, in which he shows how accounting helps you, how it doesn't help you, and how to use it when evaluating investments. Stephen also shares his insights on hurdle rates, the development of accounting, and the possible impact of AI.

Our conversation with Stephen Penman was recorded on 18 August 2025.

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We love to hear your thoughts, so please rate and review us. And feel free to tell us about great authors, books, and investors. Thank you. /Eddie with team

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Episode Chapters

(00:00) Intro by Eddie & Martin

(01:24) Welcoming Stephen

(01:56) Keynote at climate change conference

(02:58) Intro to Stephen’s latest book

(04:39) Co-author Peter Pope

(07:02) Investing by the book

(10:03) Cash flow valuation

(11:43) Ignore information at your peril

(14:49) The required return – a personal matter

(19:46) Fantasy thinking

(20:18) The hurdle rate of fund managers

(22:57) M&A accounting

(27:37) Good vs. Bad thinking

(30:04) Reverse engineering

(33:48) Stephen’s current engagements

(36:54) Development of accounting

(43:20) Impact of AI on accounting

(45:21) Stephen’s own investments

(48:30) Book recommendations

(52:01) New writing projects

(55:32) Concluding remarks

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Books & Articles Mentioned

• Fundamental Statement Analysis for Value Investing – Stephen Penman & Peter Pope
• Accounting for Value – Stephen Penman
• A Proposal for Goodwill Accounting – Stephen Penman
• Expectations Investing - Michael Mauboussin & Alfred Rappaport
• Books about the enlightenment – Smith, Hume, Baker
• Books by Anthony Trollope

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More on Stephen Penman

• Book website: https://www.penmanpope4value.com/
• Papers at SSRN: https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=15046
• Columbia Business School: https://business.columbia.edu/faculty/people/stephen-penman
• LinkedIn: https://www.linkedin.com/in/stephen-h-penman-80004628b/

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About the Podcast

Intro episode: https://www.redeye.se/podcast/investing-by-the-books/817383/0-intro-to-investing-by-the-books

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What is Investing by the Books?

Investing by the Books was founded by Henrik Andersson, Bo Börtemark, Mats Larsson and Michael Persson. It has published hundreds of book reviews in the past 10 years and operates on a non-profit basis.

Visit the website: http://www.investingbythebooks.com/

Follow on Twitter/X: https://twitter.com/Investbythebook

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What is Redeye?

Redeye is a research-centered boutique investment bank from Stockholm. Founded in 1999, Redeye cultivates investors through timeless knowledge, a humble attitude, and a strong focus on quality.

Visit the website: https://www.redeye.se/

Follow on Twitter/X: https://twitter.com/Redeye_

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Disclaimer

Notice that the content in this podcast is not, and shall not be construed as investment advice. This information is meant to be informative and for general purposes only. For full disclaimer, visit Redeye.se