The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit (Little Books. Big Profits)

by Aswath Damodaran

Just as with the measurement of asset value, the accounting categorization of liabilities and equity is governed by a set of fairly rigid principles. Current liabilities include obligations that the firm has coming due in the next accounting period, such as accounts payable and short-term borrowing, and these items are usually recorded at their current market value. Long-term debt, including bank loans and corporate bonds, are generally recorded at the face value at the time of issue and are generally not marked-to-market. Finally, the accounting measure of equity shown on the balance sheet reflects the original proceeds received by the firm when it issued the equity, augmented by any earnings made since then (or reduced by losses, if any) and reduced by any dividends paid out and stock buybacks.