Mar 01, 2017 2:40pm

UNDERSTANDING ACCOUNTING AND FINANCE

I’ve been told all my life by some asshole or other that I don’t understand accounting or finance. And I always found that humorous. I took the same classes as everyone else. I just learned something very different from them: most of it is used to lie under pseudoscientific pretense caused entirely by the necessity of limiting profitability in order to reduce taxation, complying with government regulation that obscures real costs of doing business, and complying with bank lending requirements that force you to claim regularity to your income that does not exist, forcing you to keep Operational P&L to run a business, Credit P&L to borrow money, Tax P&L to pay taxes, and Investor P&L to estimate upside.

But given the archaic and pseudoscientific nature of accounting and finance and that super-pseudoscience we call mainstream macro economics, all of these things are falsehoods that address special cases.

The value of a business is one of three things: the current liquidation value in the event of closure, the value of the business as a going concern to a competitor in the market, and the value to some sucker you can find who will pay you more than either of those numbers.

What it is expressly NOT is whatever nonsense your bank, or the government says that it is. Every time I hear the value of a company is expressed in market cap I wanna put irons on someone and stick them in a cell.

Suckers exist in america in large numbers principally because we just create so many of them, and we hold so few punishments for them, that the legal and financial industry largely seems to exist in order to allow and profit from, sucker- plays. Now sure, you might be lucky and get a Peter Theil or one of the other Paypal Mafia to invest in your company. These are entrepreneurs who happen to have turned to entrepreneurship at scale. They are not engaged in financialization which provides them with gains whether you win or lose. But that is exactly how most of the capitalist class functions.

We need to get back to lender beware.