Company Valuation: with fundamental analysis — Hjelström, Isaksson & Nilsson: COMPLETE

The core of the book is the process, not the formula. A valuation that begins in a DCF model is, according to the book, valuation-wise house-building on swampy ground: the numbers look load-bearing but the foundation is missing. First the strategic analysis — industry, competitiveness, moat — determines whether future cash flows are even credible.

Then the accounting analysis: do the results match reality, or is the profit painted with fiscal and accounting brushes? After that comes the financial analysis — the financial ratio and cash flow. Only then is it time for the valuation models: cash-flow-based (DCF, DDM), net-asset-value-based and multiple-based approaches.

This is exactly the logic of AKM1's 20 fundamental variables: the categories Growth (V01-V03) and Moat (V13-V15) correspond to the book's strategic analysis, Profitability and Stability (V07-V12) to the accounting and financial analysis, and Valuation (V04-V06) to the valuation step itself. The difference from an American textbook is that everything here is translated to Swedish conditions: the Annual Reports Act, K3 and IFRS, Swedish tax rules, the voting-rights structure of A/B stocks and the conventions of the Stockholm exchange.

When the book works its examples it calculates in kronor, on companies you can look up on Nasdaq Stockholm.

The book is also candid about the role of valuation: a valuation opinion is a structured, motivated and reproducible assessment of a company's value — never a truth. It therefore demands that every assumption can be scrutinised and that uncertainty is handled with sensitivity analysis and a range instead of a single point estimate.

It is the same principle as AK1A's requirement of reproducibility: every conclusion has a source, and every number a derivation.

Swedish companies report under the Annual Reports Act (ÅRL). Listed companies must, under an EU regulation, apply IFRS for consolidated accounts, while unlisted companies choose between K2 (simple, normative) and K3 (BFNAR 2012:1, the main rule for larger companies with more options). The difference is practical: K3 allows component depreciation, deferred tax and intrinsic value in a way that resembles IFRS, while K2 forces simpler solutions.

If you value an unlisted company under K2, hidden values (properties at old acquisition values) and hidden liabilities (leasing) may require adjustment before comparison with the stock exchange.

The Swedish income statement has a peculiarity the book stresses: operating profit is reported before financial items. The structure is revenue, operating costs, operating profit, financial items, profit before tax, tax and annual result. That makes operating profit (EBIT) cleaner in Swedish practice than in American — interest and exchange-rate changes sit in net financial items.

The balance sheet then covers a Swedish speciality that chapter 4 goes deeper into: untaxed reserves, where tax and equity are mixed in the same post.

The annual reports of listed companies also include the corporate governance report (under the Swedish code) and the sustainability report — no source is easier to navigate yet less read than the notes to the accounts. There live the accounting principles, the impairment tests, the valuation hierarchy of financial instruments (level 1-3) and the segment disclosures.

The book's advice is literal: read the notes to the accounts before the income statement. AKM1's V12 (revenue stability) and V19 (risk) are in practice fed mostly from precisely the notes to the accounts and the directors' report — not from headlines on financial sites.