All rights reserved Copyright © 2017 Valens Research | Privacy Policy | Terms of Use | Contact Us

Register to Get Access to...

Unparalleled Financial Statement Reliability

Valens Research rips apart the financial statements of over 5,000 companies globally, line by line by line, to uncover GAAP and IFRS misclassifications, distortions from elections and estimates, and outright missing material economic information using UAFRS principles.

Valens reconstructs the financials systematically to greatly improve trend analysis and peer analysis of profitability and performance, relative valuation, and discounted cash flows into a whole new light of reliability.

Better Financial Statement Analytics, Better Signals, Better Decisions 

 

See clearly through financial statement distortions

Save time and resources as you identify early where to focus analysis efforts

Make smarter corporate and investment decisions

“...insights are needed to connect core principles of wealth creation to both reported financial performance and firm valuations in the stock market. They've put it all together for you...”

Bartley J. Madden, Author of the book, "CFROI Valuation: A Total System Approach to Valuing the Firm"

“...what we as educators and thought leaders should embed in our curricula and teachings in business schools throughout our education programs...”

Arthur Kraft, Ph.D., Chairman of the Board of Directors of The Association to Advance Collegiate Schools of Business

Sign Up Free

What Others Are Saying...

What Makes Valens Research Different

Click HERE to get full access to this month's featured company. No sign up required.

Sign Up Free

Valens Equities

  • Cleaned-up historical profitability
  • Market embedded expectations
  • Relative value and comparative performance analysis
  • Pre-built and fully adjustable DCF and metric driven valuation analysis
  • Embedded Expectations analysis and reports
  • Customized idea generation screens and reports
Sign Up Free

Quantamental, Cross-Capital Analytics

The heart of fundamental company analysis is the business, studying the enterprise itself. Fundamental research requires a strong attention to quantitative analytics about company performance.

By analyzing equity and credit analytics together within cross-functional research teams, our clients gain entirely unique insights about company fundamentals, market dislocations, and potential company mispricings.

It has been said by many of the greatest investors, in many different ways, “Know what the market is thinking before you determine your thinking.” Sell-side buy/sell opinions have been diminishing in value for years.

Instead, Valens Research provides detailed embedded expectations analysis of every company analyzed at current valuations. Clients access provide pre-built relative valuation and discounted cash flow models that reach today's price, not the target price of a potentially biased analyst.

Value the Embedded Expectations of Every Company

Valens Credit

  • Fair-value Intrinsic CDS (iCDS) pricing of credit default swaps and credit risk
  • Detailed, forecasted obligation and cash flow analysis free of accounting distortions
  • Historical asset-backed credit risk analysis
  • Valens Corporate Credit Ratings and Full Reports

Valens Incentives Dictate Behavior™ Analysis

  • Management alignment and compensation analysis
  • Peer comparability of compensation metrics
  • Corporate governance analysis and metrics 

Market Phase Cycle™

  • Macroeconomic analysis of US and major global regions
  • The Litman Letter – Research and analysis penned by Chief Investment Strategist, Professor Joel Litman on topical macro and financial analytics issues
  • Aggregate analytics of Valens proprietary research surrounding corporate profitability, aggregate valuations, earnings and cash flow quality, credit markets, and management sentiment data

Valens Institute of Strategy & Valuation

  • Foundational and highly advanced training programs and educational collateral on financial reporting, corporate finance, and investing
  • Access to seminars, classes and content from past institute presentations and events
  • Advanced custom and published research on finance research topics such as competitive advantage periods, cost of capital, metric design and analysis, and financial decision models

…allows the investor to judge the ability of companies to create lasting value and should be part of any investor's stock selection process...”

Alfred Jackson, Former Head of Global Equity Research at Credit Suisse First Boston and Number-One-Ranked Stock Analyst

summarizes a breakthrough study that will change the way business will be done. It offers a simple and comprehensive framework for taking on today’s complex business world...”

Hitendra Patel, Ph.D., CEO of the IXL Center, Former Senior Leader of the Innovation Practice of the Monitor Group, and Author

...provides a framework for placing any business discipline in the perspective of overall business strategy...

Belverd E. Needles, Jr., PhD. CPA, Ernst & Young Distinguished Professor of Accountancy, DePaul University, Past President of IAAER

provides the finance leader with a good idea on the key elements of a strategy for your business and personal career aspirations... very practical...”

Kirk Ho, Former Senior Regional Finance Director, Crocs

There is a very dark side to financial statement reporting.

According to the highest-ranking financial statement experts, GAAP and IFRS accounting are “misclassified” and “likely to be misunderstood,” as “an erosion in the quality of earnings...and financial reporting” is “giving way to manipulation...and illusion.”

Uniform Adjusted Financial Reporting Standards (UAFRS) enable investors and analysts to see the economic reality of corporate profitability and valuation. It provides a cleaner, more reliable, more useful picture of operating earnings, cash flows, assets, returns, and obligations of a firm...

The impact on equity research, corporate credit, and macroeconomic analysis is material and decision-changing. 

In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:

  • GAAP and IFRS have failed to provide rules for reliable financial statement reporting
  • Stock analyst recommendations are not grounded in disciplined financial analysis
  • Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
  • Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
     

We sought to provide investors and company analysts with a source of information that changed all that.

Many years later, our business model remains because little has changed on Wall Street.

  • Corporate credit ratings remain years behind the fundamental underpinnings of company performance
  • Stock analysts continue to make recommendations with deeply inherent biases
  • Research firms have failed to break down the walls between credit, equity, and macroeconomic research
  • The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming

The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.

Register to see for yourself the difference you can have in time-saved, portfolio torpedoes avoided, and opportunities capitalized on through our dedication to enhance your analysis.

Dig into the drivers of company valuations in a whole new light.

GAAP & IFRS: Misclassified, Misunderstood, Illusion?

Valens Research has shown that even in the most simple examples, that the growing complexity of financial statements has made these issues in earnings quality worse, not better, over time. For instance, “Big Bath” activities are pronounced and increasingly more active. The rules of accounting allow for write-offs at somewhat arbitrary times elected by the management of the company. So, in a bad year of economic activity, companies will take significant one-time charges, write-offs and expenses of various kinds. This makes a bad year look very, very bad, and thereby ensuing years look much better than otherwise.

One of the more popular cases in our seminars has been seen in the big bath charges of 2009. Specifically, in 2009, corporate earnings of large non-financial companies fell by 95%. While the stock market collapsed, it didn’t fall by a similar rate, thankfully.

As aggregate corporate earnings recovered nearly 20X over the next 2-3 years, the stock market recovered, however not by rising 20X.

Some finance practitioners smartly note that the market values companies on many years of earnings, not just one, resulting in the lower volatility of the stock market relative to earnings. This observation is no doubt true. However, we can take a closer look of what kinds of charges and expenses actually drove the big drop in earnings in 2009 and subsequent rise in the following years.

This dramatic swing in earnings was not due simply to poor economic activity. It was the result of a concerted effort by management teams, each following the rules of GAAP and IFRS, to recognize any bad charges, bad expenses, bad investments in one year, even if the actual cash expenditures of those failing activities occurred over several years.

Valens Research specifically targets special items, special charges, divestiture accounting, and other similar “big bath” issues including the ones that flow into the calculation of “operating earnings.”

The result is a far cleaner, more accurate view of corporate profitability and earnings quality and balance sheet quality. Valuation measures and discounted cash flow analyses are far more reliable when using higher quality inputs of actual economic activity of the firm.

—SEC Chairman Arthur Levitt, during his tenure as the longest-running chairman of the US Securities and Exchange Commission, at a Speech at the NYU Center of Law and Business, titled “The ‘Numbers’ Game,”

“Increasingly, I have become concerned that the motivation to meet Wall Street earnings expectations may be overriding common sense business practices.  Too many corporate managers, auditors, and analysts are participants in a game of nods and winks.  In the zeal to satisfy consensus earnings estimates and project a smooth earnings path, wishful thinking may be winning the day over faithful representation.

As a result, I fear that we are witnessing an erosion in the quality of earnings, and therefore, the quality of financial reporting.  Managing may be giving way to manipulation; Integrity may be losing out to illusion.

Many in corporate America are just as frustrated and concerned about this trend as we, at the SEC, are. They know how difficult it is to hold the line on good practices when their competitors operate in the gray area between legitimacy and outright fraud.”

 

—Barry J. Epstein, Author of the GAAP Guide, the IAS Guide, the IFRS Guide and one of the most sought after experts on accounting research and accounting malpractice

“…the FASB and the IASB have jointly made progress on converging U.S. GAAP and IFRS. A transition of this magnitude is likely to prove to be a challenge and could, for those not prepared, easily result in misapplication… The fact that IFRS provides more opportunity for the application of judgment… only adds to the risk for those not fully ready for this undertaking.”  

From the actual Statement of Financial Accounting Standards No. 95 requiring the adoption of the Statement of Cash Flows, of which three of the seven FASB members strongly dissented against  passing, for many of the aforementioned reasons. (from left to right: Lauver, Swieringa, and Leisenring) Amazing that such a major change in the financial reporting requirements of the world could pass with just a simple majority of seven members. 

“Mr. Lauver believes the internal inconsistencies in the provisions… concerning the classification of cash flows identified in the preceding paragraphs result from putting other objectives ahead of the Statement's stated objective of providing relevant information about cash receipts and payments.

...this Statement… attempts to establish net cash from operating activities as an alternative performance indicator, an objective that he believes is undesirable. Further, that objective makes each of the three categories misleading by excluding from investing and financing categories cash receipts and payments that stem from investing and financing activities and ought to be included in those categories.

The result is that none of the three required categories of cash flows is aptly named and all of them are, therefore, likely to be misunderstood.”

The distortions include the decision of the four of seven members of FASB at the time to not classify interest expenses or leasing expenses as financing activities.  To any student of finance this has to appear either terribly confusing or downright laughable.

Over the years, with many FASB statements, a major problem has continued in FASB members’ individual understanding of who the user of the financial statements might actually be.

Banking and leasing industries might consider interest expense and leasing part of operations as they are in the business of providing financing as part of normal operations. No other industry group would see interest or leasing cash flows as anything other than financing, right beside dividends paid or debt repaid.

Since then, IFRS accounting rules have sought to remove many of the misclassifications in the Statement of Cash Flows. The failure of US GAAP to have such similar improvements has created even more inconsistency across financial reporting analysis. Valens Research restates the Statement of Cash Flows, accurately categorizing cash flows, consistently and comprehensively. 

Register for the Open Beta