Accounting for Growth: Stripping the Camoflage from Company Accounts

by Terry Smith

Was most of the growth seen in company profits during the late 80s, and in some cases in the early 90s, due to the improved efficiency of British industry - or was it generated from the manipulation of profits by creative accounting? This new edition of ACCOUNTING FOR GROWTH is a ruthless exposure of the accountancy practices - not illegal - which are used to bemuse the investing public and cast a rosy glow over the accounts of companies which in some cases were on the verge of bankruptcy. The first publication of the book in 1992 caused up an uproar in the City and beyond, and as a result of it many of the practices identified by Terry Smith have been changed or discontinued. This new edition, with much new material and additional chapters, is equally hardhitting and will once again put accountancy practices under the microscope.

Genres: Finance, Business, Nonfiction, Accounting

222 pages, Paperback

First published January 1, 1992

About the author

Terence (Terry) Smith is the founder and chief executive of Fundsmith and a notable British fund manager. He was formerly the chief executive of Tullett Prebon and Collins Stewart. He is a bestselling author and a regular media commentator on investment issues. He has been referred to as "the English Warren Buffett" for his style of growth investing, which involves buying and holding shares in a relatively small number of established companies.

Reviews

[^ · Rating 5 out of 5]

A refreshing reality check.

This book challenges its reader to consider the relationship between headline good corporate performance; and the reality (or not) of that performance, which may, in truth, be ascribed to accountants who have added the trade of magician to their portfolio of skills.

Hence Terry Smith’s core message doesn’t date. Accounting is a black art, it is not a science. Don’t simply read through a company’s Annual Report, to get a ‘feeling’. Do read their stated accounting policies, and assess the risks. Calculate the figures they don’t quote: operating margin, operating cashflow, return on capital employed, depreciation charge as a percentage of fixed assets, tax charge (if subnormal, then why?), and the reasonableness of interest paid/received on cash/debt.

The present value of money is worth far, far, more than corporate promises of the future value of money; especially when a corporate takeover is in the offing. Read and learn from the latest edition of this book. You won’t regret it. If you still can’t do the maths, then don’t invest. Instead go out to evening classes to learn how to.

Actually, I expect that you would not regret reading anything that Terry Smith has written or spoken. Listening to him on the BBC Radio 4 “Today” programme, on 1st June 2011 he drew attention to that fact that a “home owner” who has a mortgage secured on their property is not a “home owner”. That person is in effect paying rent to the mortgage lender. “Absolutely spot-on”, I thought. He then continued, observing that a person who renegotiates their mortgage to pay interest-only to the lender is then in effect not only renting their property, but is additionally taking on the landlord’s risk, which is not a liability saddled on a person who privately rents a property. Yet the other guest on the programme continued to argue for the benefits of the “housing ladder”. “What ladder?” asked Mr Smith. With general inflation rising, wages static, interest rates expected to rise ….. there is no ‘ladder’, only debt.

Terry Smith is the best exponent of calling a spade a spade I know. You need to learn how to cut the bumpf and understand how and why a company’s accountants can increase their earnings by how they argue their methods.

[Alex Campbell · Rating 4 out of 5]

I hated Investing for Growth, so finishing this book having enjoyed it counts as a bit of a surprise for me. There's some of the snark that features in his later stuff but it's employed more justifiably. Although new accounting standards have remedied some of the issues he points out, there are several techniques that are still useful in the present day.

[Javier HG · Rating 1 out of 5]

Quizá "Accounting for growth" me ha pillado en un mal momento, pero ha sido una decepción total. Y no porque sea un mal libro per se, sino porque su redacción me ha parecido obtusa, complicada, y difícil de seguir. No pides que un libro de este tipo se lea como un thriller, pero que al menos no cueste tanto.

Y eso que su intención es buena, y que los trucos que muestra para camuflar problemas en las cuentas corporativas son ciertos y los he visto numerosas veces en mi carrera, pero es necesario un nivel avanzado de finanzas para entender lo que se describe, por lo que el libro pierde una audiencia importante. Su lectura es tan "árida" como la de una memoria anual.

[Nick Ayton · Rating 5 out of 5]

Rebel accounting and finance. Terry punched his boss at Credit Sussie. Love him already. Read it again in 2017. reminds me that I don't like standard cost.

[Brendan Hughes · Rating 4 out of 5]

This is definitely a tough book to get through given the highly technical accounting critiques and charts, but it is useful for investors and individuals looking to learn about creative accounting.

[Jestyn · Rating 5 out of 5]

Classic tear down of the accounting tricks big companies use to meet their quarterly numbers

Terry Smith was the UBS fund manager who stayed out of the dot com bubble. He was ultimately proved right, but by then he'd lost his job...

[Mark · Rating 4 out of 5]

I would recommend starting with the 1st version if your aim is to get a better idea of why many of today's accounting principles were created. Also, read the last chapter first for quick tips on how to analyse financial statements.

[Giorgos · Rating 4 out of 5]

Very good exposure of the accounting "cooking" in listed companies