This is one of my favorite investing books. Greenwald starts with the balance sheet and calculates the asset value based on the replacement cost. Then he goes on to calculate “earning power” from the income statement. If earning power is greater than [cost-of-capital * replacement-cost] then according to him there is a presence of durable competitive advantage. This is similar to Stephen Penmann’s work in “Accounting for value”. In it Penmann uses book value instead of replacement cost.
There are few additional things I learnt from this book. They are (1) calculating maintenance capex (2) what is growth worth. I have found Greenwald’s discussion on competitive advantage (moats) one of the best. I would highly recommend reading his other book “Competition Demystified” which has taken the discussion on moats to a different level.
Regards,
Jana