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Preface vii
analyst’s earnings forecast converted into a valuation? How can an investor rely on earnings
when earnings are sometimes measured with doubtful accounting methods? What role does
the balance sheet play? What is a growth company and how is growth valued? What does a
firm’s price-earnings (P/E) ratio tell you? What does its price-to-book ratio tell you? How
does one determine what the P/E or price-to-book should be?
Most important, the framework gives you the security that your analysis is a sound one.
The framework is built block by block from “first principles” so that you see clearly where
the analysis comes from and, by the end of the book, have a firm understanding of the
principles of fundamental analysis. You will also be able to distinguish good analysis from
poor analysis.
Practical Tools
This book is about understanding, but it is primarily about doing. Concepts and
frameworks are important only if they lead to analysis tools. Each chapter of the book ends
with a list of Key Concepts, but also with the Analyst’s Toolkit that summarizes the key
analysis tools in the chapter. By the end of the book, you will have a complete set of tools
for practical analysis. The Toolkit is efficiently organized so that the analyst proceeds in
a disciplined way with the assurance that his or her analysis is coherent and does not
overlook any aspect of the value generation in a firm. The book identifies too-simple
methods of analysis and shuns ad hoc methods. However, it also strives to develop simple
schemes, with a sense of trade-off between the benefit of more complicated analysis over
the cost. At all points in the book, methods are illustrated with applications to firms such as
Google, Cisco Systems, Nike, Microsoft, Coca-Cola, and many more.
Most of the analysis and valuation material in the book can be built into a spreadsheet.
So, as the book develops, you are given directions for building and embellishing a
spreadsheet program, with further instructions on the book’s Web site. By the end of the
book, you will have a comprehensive analysis and valuation product that you can apply to
almost any firm and use for active investing. A comprehensive guide to building
spreadsheets—Build Your Own Analysis Product (BYOAP)—is on the book’s Web site.
Off-the-shelf spreadsheet products are available (many with faults), but you will find it
much more satisfying to build your own, and certainly you will learn more this way.
Valuation and Strategy

The tools in the book are those that a security analyst outside the firm uses to advise clients
about investing in the firm. These analysts present their recommendations in an equity
research report. After studying this text, you will have the ability to write a persuasive,
state-of-the-art equity research report. But the tools are also those that a manager within a
firm uses to evaluate investments. The analyst outside the firm values the firm on the basis
of what he or she understands the firm’s strategy to be, while the manager within the firm
uses the same tools to evaluate investments and choose the strategy. The techniques that are
used to assess the value of a firm’s strategy are also the techniques used to choose among
strategies, so this book integrates valuation analysis and strategy analysis.
Accounting-Based Approach to Valuation

Valuation texts typically use discounted cash flow analysis to value businesses. However,
analysts typically forecast earnings to indicate business value, and equity research reports
primarily discuss firms’ earnings, not their cash flows, to get a sense of whether the firm is
making money for investors. “Buy earnings” is indeed the mantra of investing. The stock
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viii Preface
market focuses on earnings; analysts’ and managements’ earnings forecasts drive share
prices, and when a firm announces earnings that are different from analysts’ earnings
estimates, the stock price responds accordingly. Revelations of overstated earnings result in
large drops in stock prices—as with the Xerox, Enron, Qwest, WorldCom, Krispy Kreme, and
other accounting scandals that broke as the stock market bubble burst. Investment houses are
increasingly moving from cash flow valuation models to earnings-based valuation models.
This book focuses on earnings forecasting and the methods for converting earnings
forecasts to a valuation. The reason will become clear as you proceed through the book:
Earnings, appropriately measured, give a better indication of the value generation in
a business, so the analysis of earnings prospects leads to a firmer understanding of
fundamental value. Graham and Dodd and the fundamental analysts of earlier generations
emphasized “earnings power.” This book maintains that focus, but in a way that is
consistent with the principles of modern finance. One must be careful, for there is a danger
in paying too much for earnings.
The Quality of the Accounting

With an understanding of how accounting should work, you will develop an appreciation in
this book of what is good accounting and what is poor accounting. By the end of the book
you will recognize the defects in financial statements that are issued by firms and will have
developed a critique of the “generally accepted accounting principles” and disclosure rules
that determine what is in the statements. You will also understand how the accounting in
reports can be distorted, as well as discover tools that detect the distortion and give you an
indication of the quality of the accounting that a firm uses.
Integrating Finance and Accounting

Financial statements are prepared according to the dictates of accounting principles, and
you take accounting courses to learn these accounting principles. Your appreciation of
financial statements from these courses is often in terms of the accounting used to prepare
them, not in terms of what the financial statements say about investing in businesses.
Principles of finance guide investment analysis and you typically take finance courses to
learn these principles. However, the investment analysis in these courses often does not
employ financial statements or accounting concepts in any systematic way. Often you see
finance and accounting as distinct or, if you see them as related, the relationship is vague in
your mind. Finance courses are sometimes dismissive of accounting, while accounting
courses sometimes propose analysis that violates the principles of finance. This book
integrates your learning from finance and accounting courses. By integrating financial
statement analysis and fundamental analysis, the book combines accounting concepts with
finance concepts. Accounting is viewed as a matter of accounting for value and the
accounting for value is appropriated for investment analysis. The organized structure of the
financial statements helps organize fundamental analysis. Accounting principles for
measuring balance sheets and income statements are incorporated as principles for
measuring value. All analysis is performed in a way that is consistent with the principles of
modern finance and with an appreciation of what is good accounting and what is poor
accounting.
Activist Approach
Investment texts often take the view that capital markets are “efficient,” such that market
prices always reflect the underlying value of the securities traded. These texts are primarily
concerned with measuring risk, not with valuation. The investor is viewed as relatively
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Preface ix
passive, accepting prices as fair value, concerned primarily with managing risk through
asset allocation. This text takes an activist’s perspective. Active investors do not “assume
that the market is efficient.” Rather, active investors challenge the market price with sound
analysis, checking whether that price is a fair price. Indeed, they exploit what is perceived
to be mispricing in the market to earn superior returns. Active investors adopt the creed of
fundamental analysts: Price is what you pay, value is what you get. They believe that an
important risk in equity investing is the risk of paying too much for a share, so active
investors seek to gain an appreciation of value independently of price. Whether or not the
market is efficient, you will find this perspective engaging.
Negotiating with Mr. Market

Benjamin Graham saw equity investing as a matter of “negotiating with Mr. Market” over
the price to pay. The book shows how to carry out these negotiations. In the spirit of
comparing price with value, analysts typically think of calculating a “true” intrinsic value
for a stock and comparing that to Mr. Market’s price quote. This is not bad thinking but,
with so many uncertainties involved, establishing one true number for the intrinsic value
with confidence is difficult. The book takes a different approach: Understand how earnings
forecasts relate to value, reverse engineer the market price to understand the forecast that
Mr. Market is making, and then challenge that forecast. This recognizes that valuation is
not a game against nature, but rather a game against other investors; one does not have to
find the true value but rather what other investors are thinking. Financial statement analysis
that challenges this thinking is then the focus in the dialogue with Mr. Market.
New to This Edition

This edition of the book emphasizes this theme of challenging market prices. A new chapter,
Chapter 7, applies the valuation models of Chapters 5 and 6 as tools for active investing. The
process is refined in Part Three of the book after the financial statement analysis of Part Two,
for it is this financial statement analysis that elicits the information to evaluate whether
market prices are reasonable. Many of the active investing themes and tools of my recent
book, Accounting for Value (Columbia University Press, 2011), are elaborated upon in this
edition.
Here are the significant changes for the fifth edition, now running to 20 chapters rather
than 19:
• The new Chapter 7—“Valuation and Active Investing”—has been added to Part One of the
book.
• Chapters 5 and 6 on valuation have been written more succinctly with some of the material
moved to the new Chapter 7.
• Material in all chapters has been updated to incorporate new accounting standards.
• Comparisons between U.S. GAAP accounting and international (IFRS) accounting are
made where relevant.
• Examples, illustrations, and graphical material have been updated, now current as of 2010.
• New cases have been added to a number of chapters and the cases in earlier editions have
been updated to 2010.
• New end-of-chapter exercises have been added.
• Chapter 15 (previously Chapter 14) on simple forecasting and valuation has been
extensively revised and simplified.
• Chapter 19 on risk and return in equity investing returns to the theme of active investing.
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x Preface
When I wrote the first edition of this book (in 1999), world equity markets were
experiencing what, in retrospect, is seen as a market bubble. The book was couched in
terms of challenging the high price-earnings and price-to-book ratios at that time with
fundamental analysis. The episode is an important historical lesson in overvaluation, so that
perspective continues in this edition, beginning in Chapter 1. But since then we have
experienced not only the bursting of that bubble, but also a credit crisis and a plunge in
stock prices, with price multiples now lower than historical benchmarks. This edition thus
emphasizes that the analysis techniques it offers are just as applicable to challenging
underpricing as well as overpricing. It also warns of the risk of investing in uncertain times
and points out that, just as bubbles can perpetuate for some time, so can depressed prices.
The Overview
Chapter 1 introduces you to financial statement analysis and fundamental analysis, and sets
the stage for the rest of the book. Chapter 2 introduces you to the financial statements. The
remainder of the book is in five parts:
• Part One (Chapters 3–7) develops the thinking that is necessary to perform fundamental
analysis. It integrates finance concepts with accounting concepts and shows you how the
structure of accounting can be exploited for valuation analysis. Good thinking about
valuation is captured in a valuation model, so this part of the book introduces accrual-
accounting valuation models that provide the framework for the practical analysis that follows
in the rest of the book. Alternative models are discussed as competing technologies, so you
develop an appreciation of the strength and weaknesses of alternative approaches. Part One
ends with an application of these models to active investing.
• Part Two (Chapters 8–13) lays out the financial statement analysis that identifies value
generation in a business and provides information for forecasting. In this part of the
book you will see the lens being focused on the business.
• Part Three (Chapters 14–16) deals with forecasting. The value of a firm and its shares
is based on the payoffs it is expected to yield investors; thus, using the information from
the financial statement analysis, this part of the book shows you how to forecast payoffs.
The forecasting is developed within a financial statement framework so that forecasting
is an exercise in pro forma financial statement analysis. The analysis then shows how to
convert forecasts into valuations of firms and their strategies.
• Part Four (Chapters 17 and 18) deals with accounting issues that arise with the use of
accounting-based valuation. It shows how to accommodate different accounting
methods for measuring earnings and how to analyze the quality of the accounting used
in financial statements.
• Part Five (Chapters 19 and 20) lays out the fundamental analysis of risk, both equity
risk and credit risk, and provides a pro forma analysis that integrates equity analysis and
credit analysis. Here, again, the emphasis is on active investing: How does the investor
handle risk in investing, particularly the risk of paying too much?
PUTTING IT ALL TOGETHER:

A TOOLKIT FOR ANALYSTS AND MANAGERS
The best way to tackle this book is to see yourself as putting together a Toolkit for
analyzing financial statements and valuing businesses and business strategies. As a
professional analyst or business planner, you want to be using the best technologies
available, to get an edge on the competition. So approach the book in the spirit of sorting
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Preface xi
out what are good methods and what are poor ones. You require methods that are practical
as well as conceptually sound.
As you read the text, you find answers to the following questions:
• How are fundamental values (or “intrinsic values”) estimated?
• How does one pull apart the financial statements to get at the relevant information to
value equities?
• What is the relevance of cash flows? Of dividends? Of book values? How are these
measures treated in a valuation?
• What is growth? How does one analyze growth? How does one value a growth firm?
• What are the pitfalls in buying growth?
• How does one challenge the growth expectations implicit in stock prices?
• How does ratio analysis help in valuation?
• How does profitability tie into valuation?
• How does one analyze the quality of financial reports?
• How does one deal with the accounting methods used in financial statements?
• How is financial analysis developed for strategy and planning?
• What determines a firm’s P/E ratio? How does one calculate what the P/E should be?
• What determines a firm’s market-to-book (P/B) ratio? How does one calculate what the
P/B should be?
• How does one evaluate risk? For equity? For debt?
• How does one evaluate an equity research report? What does a good one look like?
• How does one trade on fundamental information?
USING THE BOOK

Background Requirements
To comprehend the text material, you should have a basic course in financial accounting
and a basic course in finance. A second course in financial accounting and a course in
investments or corporate finance will be helpful but not necessary. Indeed, you may find
yourself motivated to take those courses after reading this book.
Chapter Features
The text is written with features designed to enhance your efforts in learning the material. Each
chapter of the book begins with a flow chart that lays out the material covered in the chapter and
connects that material to the preceding and upcoming chapters. This chart will help you see
clearly where you’ve been and where you are going, and how it all ties together. Each chapter also
opens with TheAnalyst’s Checklist, which has two lists: one covering the conceptual points in
the chapter and the other a set of tasks that you should be able to perform after working the
chapter. This outlines the goals of the chapter, setting you up for mastery of the material at hand.
Each chapter concludes with TheAnalyst’s Toolkit, a convenient resource complete with page
references, that summarizes the analysis tools in the chapter—ideal for studying and review.
End-of-Chapter Material
Each chapter ends with a set of concept questions, exercises, and minicases. Working through
this material will enhance your understanding considerably. These problems are designed, not
so much to test you, but to further your learning with practical analysis. Each problem makes
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xii Preface
a point. Concept questions reinforce the thinking in the chapter. Exercises apply methods
covered in the chapter. Drill Exercises lead you gently into the analysis. Applications focus
on issues involving specific companies. Minicases, designed for classroom discussion, are
more contextual and involve a broader set of issues, some involving ambiguity. They are
written more concisely than full cases so that you do not have to handle a large amount of
detail, and classroom time is used more efficiently to make the point. However, the minicases
involve considerable analysis and insight, providing stimulus for group discussion.
As with the chapter material, the Exercises and Minicases often use the same real world
companies to make different points in different parts of the book. To help you refer back to
earlier material on the same company, the Exercises and Minicases are marked with an
easy-to-identify Real World Connection tagline.
The Continuing Case

A continuing case for one company—Kimberly-Clark Corporation—weaves its way
through the book. At the end of each chapter (through Chapter 16), you receive a new
installment of the case which shows how the principles and methods in that chapter are
applied to Kimberly-Clark and build on the analysis of previous chapters. By the end, you
have a demonstration of the application of the book, in total, to one company as a model for
other companies. Work the case, then check your solution against that on the book’s Web site.
Web Site Reinforcement

The material in the text is supplemented with further analysis on the book’s Web site
at www.mhhe.com/penman5e. The Student Center on the Web site contains the following:
• Chapter supplements for each chapter in the book. The flow chart at the beginning of
each chapter of the text refers you to the Web site, and The Web Connection at the end
of each chapter summarizes what you will find in the supplements.
• Solutions to the Continuing Case.
• Additional exercises for each chapter, along with solutions. Work these exercises and
correct yourself with the solutions to reinforce your learning.
• Accounting Clinics I–VII review accounting issues that are particularly relevant to
equity and credit analysis. Among the topics covered are accrual accounting, fair value
and historical cost accounting, accounting for debt and equity investments, accounting
for stock compensation, pension accounting, and the accounting for taxes.
• Build Your Own Analysis Product (BYOAP) on the Web site shows you how to build
your own financial statement analysis and valuation spreadsheet product using the
principles and methods in the book. It is not a final product that you can immediately
appropriate; rather it is a guidebook for constructing your own. As such, it is a learning
device; rather than mechanically applying a black-box product, you learn by doing. With
the completed product you can analyze financial statements; forecast earnings, residual
earnings, abnormal earnings growth, cash flows, and dividends; and then value firms and
strategies with a variety of techniques. Add your own bells and whistles. In short, the
product is the basis for preparing an equity research report and for carrying out due
diligence as a professional. You will find the building process will give you a feeling of
accomplishment, and the final product—of your own construction—will be a valuable
tool to carry into your professional life or to use for your own investing. Spreadsheet
engines for specific tasks are available in the chapter supplements on the Web page for
each chapter. Off-the-shelf products are also available. eVal 2000, authored by Russell
Lundholm and Richard Sloan, is available through McGraw-Hill/Irwin. Also check out
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Preface xiii
the spreadsheet tool of Dan Gode and James Ohlson, at www.godeohlson.com, that
more closely follows the scheme in this book.
• Links to firms’ financial statements and to many other sources of financial information.
You will also find engines to screen and analyze stocks and to help you build your own
analysis tools.
• Market Insight (Educational Version) from Standard & Poor’s contains financial
information on 370 companies. Access codes are available from your instructor.
Resources for Instructors

The book is accompanied by ancillaries that support the teaching and learning. The
Instructor Center on the book’s Web site contains the following:
• Solutions Manual with detailed solutions to the end-of-chapter material.
• Teaching Notes with advice for teaching from the book, alternative course outlines, a
number of teaching tools, and a commentary on each chapter of the book.
• PowerPoint slides for each chapter.
• Test Bank containing further problems and exercises.
• Accounting Clinics to cover the accounting issues in the book in more detail.
• Chapter Notes for each chapter.
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Acknowledgments
This book capsulates what I have learned as a student of the subject. I am indebted to many
writers and professors for that learning. The book has the investment philosophy of
Graham, Dodd, and Cottle’s Security Analysis, the book assigned for my first finance course
as an undergraduate. It also incorporates the accounting concepts from my study of
accounting theory at the University of Queensland and from reading the classics of Paton
and Littleton, Sprouse and Moonitz, and Edwards and Bell, to name a few. It reflects my
training in the principles of “modern finance,” first as a graduate student at the University
of Chicago and subsequently from colleagues at Berkeley.
I have learned much from carrying out research on accounting and valuation. In
seminars, workshops, and informal discussions, I have been stimulated by the insights of
many colleagues at universities around the world. I have a particular debt to Jim Ohlson,
whose theoretical work on accounting valuation models has inspired me, as have our many
conversations on research and teaching. I am also indebted to my students at Berkeley, the
London Business School, and Columbia University, who have worked with draft versions
of this book and given me valuable feedback. Peter Easton and his students at The Ohio
State University, the University of Melbourne, and the University of Chicago also used
drafts of the first edition and were generous with their comments.
My appreciation also goes to Lorraine Seiji at Berkeley, whose dedication to preparing the
manuscript for the first edition was outstanding. Terrence Gabriel and Clarissa Peña at
Columbia provided similar support for this edition. Luis Palencia, Doron Nissim, Nir Yehuda,
Paul Tylkin, and Mingcherng Deng have helped in preparing the graphical material for the
various editions, and Feng Chen, Mingcherng Deng, Guohua Jiang, Siyi Li, and Nir Yehuda
provided valuable accuracy checking and help with supporting materials. To them all I
am grateful. Nancy Banks, as always, gave strong support. The administrations at Berkeley,
the London Business School, and the Columbia Business School, and my colleagues at these
schools, lent support at various stages of the book’s preparation. The entire team at McGraw-
Hill/Irwin have been outstanding. Stewart Mattson has overseen the development of the book
with an expert hand. Instructors, too many to mention, gave feedback on their experience with
earlier editions.
Anonymous reviewers of the various editions went out of their way to help improve the
manuscript. I am very thankful to them. Now identified, they are listed below. Bruce
Johnson requires special mention. He went through the manuscript for the first edition word
by word, challenged it, and persuaded me to make numerous improvements.
Pervaiz Alam Agnes Cheng

Kent State University University of Houston
Holly Ashbaugh Michael Clement
University of Wisconsin, Madison University of Texas at Austin
Scott Boylan Richard Dumont
Washington and Lee University Post University
Shelly Canterbury Peter Easton
George Mason University The Ohio State University
xiv
pen25311_fm_i-xxvii.qxd 2/2/12 4:20 PM Page xv
Acknowledgments xv
Jocelyn Evans Jane Ou

College of Charleston Santa Clara University
Patricia Fairfield Richard Sloan
Georgetown University University of Michigan
John Giles Lenny Soffer
North Carolina State University, Raleigh Northwestern University
Greg Sommers
Richard Gore
Southern Methodist University
Boise State University
Theodore Sougiannis
Bruce Johnson
University of Illinois
University of Iowa
Carolyn Spencer
Sok-Hyon Kang
Dowling College
George Washington University
Thomas Stober
Sungsoo Kim
University of Notre Dame
Rutgers University, Camden
K. R. Subramanyan
Charles Lee
University of Southern California
Cornell University
Gary Taylor
Yong Lee
University of Alabama
University of Houston at Victoria
Mark Trombley
Gerald Lobo
University of Arizona
Syracuse University
James Wahlen
G. Brandon Lockhart
Indiana University
University of Nebraska, Lincoln
Clark Wheatley
Ronald King
Florida International University, Miami
Washington University
Scott Whisenant
Arijit Mukherji
University of Houston
University of Minnesota
Lin Zheng
David Ng
Mercer University, Atlanta
Cornell University, Ithaca
Stephen H. Penman
Columbia University
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Brief Contents
List of Cases xxv PART THREE
List of Accounting Clinics xxvi Forecasting and Valuation Analysis 434
1 Introduction to Investing and Valuation 2 14 The Value of Operations and the
Evaluation of Enterprise Price-to-Book
2 Introduction to the Financial Ratios and Price-Earnings Ratios 436
Statements 32
15 Anchoring on the Financial Statements:
Simple Forecasting and Simple
PART ONE Valuation 480
Financial Statements and Valuation 72
16 Full-Information Forecasting, Valuation,
3 How Financial Statements and Business Strategy Analysis 504
Are Used in Valuation 74
4 Cash Accounting, Accrual PART FOUR
Accounting, and Discounted Cash
Accounting Analysis and Valuation 552
Flow Valuation 110
17 Creating Accounting Value and
5 Accrual Accounting and Valuation:
Economic Value 554
Pricing Book Values 140
18 Analysis of the Quality
6 Accrual Accounting and Valuation:
of Financial Statements 590
Pricing Earnings 178
7 Valuation and Active Investing 210 PART FIVE
The Analysis of Risk and Return 640
PART TWO 19 The Analysis of Equity Risk
The Analysis of Financial Statements 232 and Return for Active Investing 642
8 Viewing the Business Through 20 The Analysis of Credit Risk
the Financial Statements 234 and Return 680
9 The Analysis of the Statement
of Shareholders’ Equity 258 APPENDIX
10 The Analysis of the Balance A Summary of Formulas 709
Sheet and Income Statement 292
11 The Analysis of the Cash Flow INDEX 725
Statement 342
12 The Analysis of Profitability 364
13 The Analysis of Growth and
Sustainable Earnings 392
xvii
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Contents
List of Cases xxv The Income Statement 36

The Cash Flow Statement 40
List of Accounting Clinics xxvi
The Statement of Shareholders’ Equity 40
The Footnotes and Supplementary
Chapter 1 Information to Financial Statements 41
Introduction to Investing and Valuation 2 The Articulation of the Financial Statements:
How the Statements Tell a Story 42
Investment Styles and Fundamental Analysis 3
Measurement in the Financial Statements 44
Bubble, Bubble, Toil, and Trouble 6
The Price-to-Book Ratio 44
How Bubbles Work 7
Measurement in the Balance Sheet 46
Analysts During the Bubble 8
Measurement in the Income Statement 46
More Toil and Trouble 8
The Price-Earnings Ratio 50
Fundamental Analysis Anchors Investors 9
Accounting as an Anchor: Don’t Mix
The Setting: Investors, Firms, Securities,
What You Know with Speculation 51
and Capital Markets 10
Tension in Accounting 53
The Business of Analysis:
Accounting Quality 54
The Professional Analyst 12
Summary 55
Investing in Firms: The Outside Analyst 12
The Web Connection 55
Investing Within Firms: The Inside Analyst 13
Key Concepts 56
The Analysis of Business 14
The Analyst’s Toolkit 57
Strategy and Valuation 15
A Continuing Case: Kimberly-Clark Corporation 57
Mastering the Details 16
Concept Questions 63
The Key Question: Sustainability
Exercises 63
of Competitive Advantage 17
Minicase 69
Financial Statements: The Lens on
the Business 17
Choosing a Valuation Technology 18
PART ONE
Guiding Principles 18 FINANCIAL STATEMENTS
Anchoring Value on the Financial Statements 20 AND VALUATION 72
How to Use This Book 21
An Outline of the Book 21 Chapter 3
The Web Connection 22 How Financial Statements
Key Concepts 22 Are Used in Valuation 74
The Analyst’s Checklist 75
Multiple Analysis 76
Exercises 28
The Method of Comparables 76
Minicase 30
Screening on Multiples 79
Chapter 2 Asset-Based Valuation 82
Fundamental Analysis 84
Introduction to the Financial Statements 32
The Process of Fundamental Analysis 85
The Analyst’s Checklist 33 Financial Statement Analysis, Pro Forma
The Form of the Financial Statements 34 Analysis, and Fundamental Analysis 86
Introducing Nike, Inc. 34 The Architecture of Fundamental Analysis:
The Balance Sheet 34 The Valuation Model 87
xviii
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Contents xix
Terminal Investments and Going-Concern Prototype Valuations 142

Investments 88 Valuing a Project 142
Valuation Models for Terminal Investments 89 Valuing a Savings Account 143
Valuation Models for Going-Concern The Normal Price-to-Book Ratio 144
Investments 91 A Model for Anchoring Value on Book Value 145
Criteria for a Practical Valuation Model 91 Residual Earnings Drivers
What Generates Value? 92 and Value Creation 147
Valuation Models, the Required Return, A Simple Demonstration and a
and Asset Pricing Models 96 Simple Valuation Model 150
Summary 97 Applying the Model to Equities 151
The Web Connection 97 The Forecast Horizon and the
Key Concepts 98 Continuing Value Calculation 152
The Analyst’s Toolkit 99 Beware of Paying Too Much for Growth 155
A Continuing Case: Kimberly-Clark Corporation 99 Converting Analysts’ Forecasts
Concept Questions 100 to a Valuation 156
Exercises 101 Build Your Own Valuation Engine 157
Minicases 104 Applying the Model to Projects and Strategies 159
Appendix The Required Return and Features of the Residual Earnings Valuation 161
Asset Pricing Models 106 Book Value Captures Value and Residual
Earnings Captures Value Added to
Chapter 4 Book Value 161
Cash Accounting, Accrual Accounting, Protection from Paying Too Much for
and Discounted Cash Flow Valuation 110 Earnings Generated by Investment 162
Protection from Paying Too Much
for Earnings Created by the Accounting 163
The Dividend Discount Model 111
Capturing Value Not on the Balance
The Discounted Cash Flow Model 114
Sheet—for All Accounting Methods 164
Free Cash Flow and Value Added 117
Residual Earnings Are Not Affected by
The Statement of Cash Flows 119
Dividends, Share Issues, or Share
The Cash Flow Statement under IFRS 122
Repurchases 165
Forecasting Free Cash Flows 123
What the Residual Earnings Model Misses 165
Cash Flow, Earnings, and Accrual Accounting 124
Earnings and Cash Flows 124
Summary 165
Accruals, Investments, and the
Key Concepts 166
Balance Sheet 127
Summary 129
Key Concepts 130
Exercises 168
Minicases 173
Exercises 132 Chapter 6
Minicase 138 Accrual Accounting and Valuation:
Pricing Earnings 178
Chapter 5
Accrual Accounting and Valuation:
The Concept Behind the Price-Earnings Ratio 179
Pricing Book Values 140 Beware of Paying Too Much for Earnings
The Analyst’s Checklist 141 Growth 180
The Concept Behind the Price-to-Book Ratio 141 From Price-to-Book Valuation to
Beware of Paying Too Much for Earnings 141 P/E Valuation 180
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Prototype Valuation 181 A Continuing Case: Kimberly-Clark Corporation 223

The Normal Forward P/E Ratio 183 Concept Questions 224
The Normal Trailing P/E Ratio 184 Exercises 225
A Poor P/E Model 185 Minicases 229
A Model for Anchoring Value on Earnings 185
Measuring Abnormal Earnings Growth 187
A Simple Demonstration and a Simple PART TWO
Valuation Model 188 THE ANALYSIS OF FINANCIAL
Anchoring Valuation on Current Earnings 189 STATEMENTS 232
Applying the Model to Equities 190
Converting Analysts’ Forecasts
to a Valuation 191 Chapter 8
Build Your Own Valuation Engine 192 Viewing the Business Through
Features of the Abnormal Earnings the Financial Statements 234
Growth Model 194
Buy Earnings 195
Business Activities: The Cash Flows 236
Abnormal Earnings Growth Valuation
The Reformulated Cash Flow Statement 240
and Residual Earnings Valuation 195
The Reformulated Balance Sheet 241
Abnormal Earnings Growth
Business Activities: All Stocks and Flows 242
Is Not Affected by Dividends,
The Reformulated Income Statement 243
Share Issues, or Share Repurchases 196
Accounting Relations That Govern
Accounting Methods and Valuation 196
Reformulated Statements 243
The Fed Model 197
The Sources of Free Cash Flow and the
PEG Ratios 199
Disposition of Free Cash Flow 244
Summary 200
The Drivers of Dividends 244
The Drivers of Net Operating Assets
Key Concepts 201
and Net Indebtedness 245
Tying It Together for Shareholders:
What Generates Value? 246
Build Your Own Analysis Engine 248
Exercises 203
Summary 250
Minicase 208
Key Concepts 251
Chapter 7 The Analyst’s Toolkit 251
Valuation and Active Investing 210 A Continuing Case: Kimberly-Clark Corporation 252
Exercises 253
How the Fundamental Investor Operates 211
Common Misconceptions About Valuation 211
Applying Fundamental Principles 213 Chapter 9
Challenging Speculation in the Market Price 213
The Analysis of the Statement
Reverse Engineering the S&P 500 215
of Shareholders’ Equity 258
Challenging the Price of a Stock 218
Reverse Engineering with the Abnormal The Analyst’s Checklist 259
Earnings Growth Model 221 Reformulating the Statement of Owners’ Equity 259
Build Your Own Active Investing Tool 222 Running with Nike 260
The Web Connection 222 Reformulation Procedures 260
Summary 222 Dirty-Surplus Accounting 263
Key Concepts 223 Comprehensive Income Reporting
The Analyst’s Toolkit 223 Under U.S. GAAP and IFRS 265
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Ratio Analysis 266 Chapter 11

Payout and Retention Ratios 266
The Analysis of the Cash Flow Statement 342
Shareholder Profitability 267
Growth Ratios 267 The Analyst’s Checklist 343
Hidden Dirty Surplus 268 The Calculation of Free Cash Flow 343
Issue of Shares in Operations 268 GAAP Statement of Cash Flows and
Issue of Shares in Financing Activities 272 Reformulated Cash Flow Statements 345
Handling Diluted Earnings per Share 272 Reclassifying Cash Transactions 346
Share Transactions in Inefficient Markets 274 Tying It Together 351
The Eye of the Shareholder 275 Cash Flow from Operations 353
Build Your Own Analysis Engine 276 Summary 355
Accounting Quality Watch 276 The Web Connection 355
The Web Connection 278 Key Concepts 356
Summary 278 The Analyst’s Toolkit 356
Key Concepts 278 A Continuing Case: Kimberly-Clark Corporation 356
The Analyst’s Toolkit 279 Concept Questions 357
A Continuing Case: Kimberly-Clark Corporation 280 Exercises 357
Concept Questions 281 Minicase 362
Exercises 282
Minicase 288 Chapter 12
The Analysis of Profitability 364
Chapter 10 The Analyst’s Checklist 365
The Analysis of Return on Common Equity 365
The Analysis of the Balance
First-Level Breakdown: Distinguishing Financing
Sheet and Income Statement 292 and Operating Activities and the Effect
The Analyst’s Checklist 293 of Leverage 366
Reformulation of the Balance Sheet 293 Financial Leverage 366
Issues in Reformulating Balance Sheets 294 Operating Liability Leverage 368
Strategic Balance Sheets 301 Summing Financial Leverage and
Reformulation of the Income Statement 303 Operating Liability Leverage Effects on
Tax Allocation 304 Shareholder Profitability 370
Issues in Reformulating Income Return on Net Operating Assets and
Statements 308 Return on Assets 371
Value Added to Strategic Balance Sheets 312 Financial Leverage and
Residual Income from Operations 312 Debt-to-Equity Ratios 373
Comparative Analysis of the Balance Sheet Second-Level Breakdown: Drivers
and Income Statement 314 of Operating Profitability 373
Common-Size Analysis 315 Third-Level Breakdown 376
Trend Analysis 316 Profit Margin Drivers 376
Ratio Analysis 318 Turnover Drivers 376
Build Your Own Analysis Engine 321 Key Drivers 379
Summary 321 Borrowing Cost Drivers 380
The Web Connection 322 Build You Own Analysis Engine 381
Key Concepts 322 The Web Connection 382
The Analyst’s Toolkit 323 Summary 382
A Continuing Case: Kimberly-Clark Corporation 324 Key Concepts 382
Concept Questions 325 The Analyst’s Toolkit 383
Exercises 325 A Continuing Case: Kimberly-Clark Corporation 383
Minicases 334 Concept Questions 384
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Exercises 385 A Modification to Residual Earnings Forecasting:

Minicase 391 Residual Operating Income 438
The Drivers of Residual Operating Income 441
Chapter 13 A Modification to Abnormal Earnings
Growth Forecasting: Abnormal Growth
The Analysis of Growth and
in Operating Income 443
Sustainable Earnings 392 Abnormal Growth in Operating Income and
The Analyst’s Checklist 393 the “Dividend” from Operating Activities 443
What Is Growth? 393 Eye on the Future: Sustainable Income 445
Warnings About Growth 394 The Cost of Capital and Valuation 445
Cutting to the Core: Sustainable Earnings 396 The Cost of Capital for Operations 446
Core Operating Income 396 The Cost of Capital for Debt 447
Issues in Identifying Core Operating Income 397 Operating Risk, Financing Risk, and the
Core Operating Profitability 404 Cost of Equity Capital 448
Core Borrowing Cost 406 Financing Risk and Return and the
Analysis of Growth 407 Valuation of Equity 450
Growth Through Profitability 407 Leverage and Residual Earnings Valuation 450
Operating Leverage 408 Leverage and Abnormal Earnings Growth
Analysis of Changes in Financing 409 Valuation 451
Analysis of Growth in Shareholders’ Equity 409 Leverage Creates Earnings Growth 456
Growth, Sustainable Earnings, and the Evaluation Debt and Taxes 459
of P/B Ratios and P/E Ratios 411 Mark-to-Market Accounting: A Tool for
How Price-to-Book Ratios and Incorporating the Liability for Stock
Trailing P/E Ratios Articulate 411 Options in Valuation 461
Trailing Price-Earnings Ratios Enterprise Multiples 463
and Transitory Earnings 414 Enterprise Price-to-Book Ratios 463
P/E Ratios and the Analysis of Enterprise Price-Earnings Ratios 465
Sustainable Earnings 416 Summary 468
Price-to-Book and Growth 416 The Web Connection 468
Summary 417 Key Concepts 469
The Web Connection 417 The Analyst’s Toolkit 469
Key Concepts 418 A Continuing Case: Kimberly-Clark Corporation 470
The Analyst’s Toolkit 419 Concept Questions 471
A Continuing Case: Kimberly-Clark Corporation 419 Exercises 472
Concept Questions 420 Minicase 477
Exercises 421
Minicases 425
Chapter 15
Anchoring on the Financial Statements:
PART THREE Simple Forecasting and Simple
FORECASTING AND VALUATION Valuation 480
ANALYSIS 434 The Analyst’s Checklist 481
Simple Forecasts and Simple Valuations 482
Chapter 14 Introducing PPE, Inc. 482
The Value of Operations and the The No-Growth Forecast and Valuation 483
The Growth Forecast and Valuation 484
Evaluation of Enterprise Price-to-Book
Simple Forecasting: Adding information to
Ratios and Price-Earnings Ratios 436
Financial Statement Information 488
The Analyst’s Checklist 437 Weighed-Average Forecasts of Growth 488
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Simple Valuations with Short-Term PART FOUR

and Long-Term Growth Rates 488
ACCOUNTING ANALYSIS
Growth in Sales as a Simple Forecast
AND VALUATION 552
of Growth 489
Information in Analysts’ Forecasts 490
Chapter 17
Simple Valuation as an Analysis Tool 491
Sensitivity Analysis 491 Creating Accounting Value and
Reverse Engineering to Challenge Economic Value 554
the Market Price 491 The Analyst’s Checklist 555
Summary 492 Value Creation and the Creation
The Web Connection 493 of Residual Earnings 555
Key Concepts 493 Accounting Methods, Price-to-Book Ratios,
The Analyst’s Toolkit 493 Price-Earnings Ratios, and the Valuation
A Continuing Case: Kimberly-Clark Corporation 494 of Going Concerns 558
Concept Questions 494 Accounting Methods with a Constant
Exercises 494 Level of Investment 558
Minicases 500 Accounting Methods with a Changing
Level of Investment 561
Chapter 16 An Exception: LIFO Accounting 565
Full-Information Forecasting, Valuation, Hidden Reserves and the Creation of Earnings 566
and Business Strategy Analysis 504 Conservative and Liberal Accounting
in Practice 570
The Analyst’s Checklist 505 LIFO Versus FIFO 571
Financial Statement Analysis: Focusing the Lens Research and Development in the
on the Business 505 Pharmaceuticals Industry 572
1. Focus on Residual Operating Income Expensing Goodwill and Research and
and Its Drivers 506 Development Expenditures 573
2. Focus on Change 507 Liberal Accounting: Breweries and Hotels 574
3. Focus on Key Drivers 514 Profitability in the 1990s 574
4. Focus on Choices Versus Conditions 515 Economic-Value-Added Measures 575
Full-Information Forecasting and Accounting Methods and the Forecast Horizon 575
Pro Forma Analysis 515 The Quality of Cash Accounting and
A Forecasting Template 520 Discounted Cash Flow Analysis 576
Features of Accounting-Based Valuation 525 Growth, Risk, and Valuation 577
Value Generated in Share Transactions 526 Summary 578
Mergers and Acquisitions 527 The Web Connection 579
Share Repurchases and Buyouts 528 Key Concepts 579
Financial Statement Indicators and Red Flags 528 The Analyst’s Toolkit 580
Business Strategy Analysis and Pro Forma Concept Questions 580
Analysis 530 Exercises 581
Unarticulated Strategy 530 Minicase 586
Scenario Analysis 531
The Web Connection 532 Chapter 18
Summary 532 Analysis of the Quality
Key Concepts 533 of Financial Statements 590
A Continuing Case: Kimberly-Clark Corporation 534 The Analyst’s Checklist 591
Concept Questions 534 What Is Accounting Quality? 591
Exercises 535 Accounting Quality Watch 592
Minicases 542 Five Questions About Accounting Quality 593
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Cutting Through the Accounting: Strategy and Risk 660

Detecting Income Shifting 594 Discounting for Risk 660
Separating What We Know from Price Risk 661
Speculation 597 Market Inefficiency Risk 661
Prelude to a Quality Analysis 598 Liquidity Risk 664
Quality Diagnostics 600 Inferring Expected Returns for Active Investing 664
Diagnostics to Detect Manipulated Sales 603 Growth-Return Profiles 666
Diagnostics to Detect Manipulation Finessing the Required Return Problem 667
of Core Expenses 604 Evaluating Implied Expected Returns with
Diagnostics to Detect Manipulation Value-at-Risk Profiles 667
of Unusual Items 612 Investing Within Risk Classes 668
Detecting Transaction Manipulation 614 Beware of Paying for Risky Growth 668
Core Revenue Timing 614 Expected Returns in Uncertain Times 670
Core Revenue Structuring 614 Summary 670
Core Expense Timing 615 The Web Connection 671
Releasing Hidden Reserves 615 Key Concepts 671
Other Core Income Timing 616 The Analyst’s Toolkit 672
Unusual Income Timing 616 Concept Questions 672
Organizational Manipulation: Off-Balance- Exercises 672
Sheet Operations 616 Minicase 678
Justifiable Manipulation? 617
Disclosure Quality 617 Chapter 20
Quality Scoring 618 The Analysis of Credit Risk and Return 680
Abnormal Returns to Quality Analysis 620
Summary 621 The Analyst’s Checklist 681
The Web Connection 621 The Suppliers of Credit 681
Key Concepts 621 Financial Statement Analysis for Credit Evaluation 682
Reformulated Financial Statements 682
Short-Term Liquidity Ratios 684
Long-Term Solvency Ratios 686
Exercises 624
Operating Ratios 687
Minicases 633
Forecasting and Credit Analysis 687
Prelude to Forecasting: The Interpretive
PART FIVE Background 687
THE ANALYSIS OF RISK Ratio Analysis and Credit-Scoring 688
AND RETURN 640 Full-Information Forecasting 692
Required Return, Expected Return, and Active
Chapter 19 Debt Investing 695
The Analysis of Equity Risk Active Bond Investing 696
and Return for Active Investing 642 Liquidity Planning and Financial Strategy 696
Summary 697
The Required Return and the Expected Return 643
Key Concepts 698
The Nature of Risk 644
The Distribution of Returns 644
Diversification and Risk 648
Exercises 699
Asset Pricing Models 649
Minicase 704
Fundamental Risk 651
Risk to the Return on Common Equity 653 Appendix
Growth Risk 654
Value-at-Risk Profiling 654
A Summary of Formulas 709
Adaptation Options and Growth Options 659 Index 725
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be neglected by the generality of men, ’twas now his desire to
recover them, least they should utterly sink into oblivion.’ These
benefactions, and the growing wealth of colleges, helped to
strengthen the University in the esteem of the upper classes, upon
which it now depended for its supply of students. According to a
census taken in 1611, the number of residents was 2,420, and it
continued to increase until the outbreak of the Civil War.
CHAPTER X.
THE UNIVERSITY UNDER CHARLES I. AND LAUD.
The death of James I. and the succession of

Parliament at Charles I. produced no break in the continuity
Oxford either of national or of academical history. With
less shrewdness than his father, but more of
dignity in his character and bearing, Charles possessed equal
obstinacy, and equally regarded it as his mission to curtail the
liberties of his people, in the interests of the Crown, by the aid of the
new State Church. The profligate and unscrupulous Buckingham
retained all his ascendency, and was Charles’s trusted confidant in
politics. Abbot was still Archbishop of Canterbury, and crowned the
young King in Westminster Abbey, while Laud officiated as Dean of
Westminster. But Laud was Charles’s real adviser in Church affairs,
and his evil counsels soon brought about the disgrace of his rival,
Abbot, when the archbishop, reverting to his earlier principles, boldly
opposed the arbitrary and oppressive policy of the Court. Though he
was no longer president of St. John’s College, his influence over the
academical body was never relaxed, and was constantly exercised
on behalf of Arminianism in the Church, and absolutism in the State.
It was some time, however, before the University was directly
affected by the storms which clouded the political horizon from the
very beginning of Charles’s reign. His first Parliament, it is true, was
adjourned to Oxford in the Long Vacation of 1625, on account of the
plague then raging in London, and all the colleges and halls were
cleared, by order of the Privy Council, for the reception of the
members. The Privy Council itself met at Christchurch, the House of
Commons sat in the divinity school, and the Lords ‘in the north part
of the picture gallery,’ but the Parliament, having refused to grant
supplies, was dissolved within a fortnight. The plague, however, had
followed it to Oxford, and the commencement of Michaelmas term
had to be postponed until November 9. In 1628 the election of
proctors was attended with more than ordinary tumult; the
Chancellor intervened, and ultimately the King took the matter into
his own hands, referring the decision of it to a committee, including
Laud, who practically dictated their nominees to the University
Convocation. In February 1629, the House of Commons, which had
obtained the King’s assent to the Petition of Right, took upon itself,
by a letter from the Speaker, to call for a return of all persons known
to have contravened the Articles of Religion. The proctors so far
recognised the validity of the order as to institute an inquiry, but
Parliament was prorogued not long afterwards, and the question
seems to have dropped. The incident, however, is not without its
importance, as indicating the disposition of Parliament, now roused
into active opposition, to share with the Crown the control of the
University. On August 27 in the same year, Charles I., during his stay
at Woodstock, paid his first state visit to Oxford, and was entertained
with his queen in Merton College, where she was destined to be
lodged so long during the Civil War, of which the premonitory signs
were already visible to far-sighted observers.
In April 1630, the Earl of Pembroke died, and
Chancellorship Laud, now bishop of London, was elected
of Laud Chancellor of the University by a very narrow
majority over Philip, Earl of Montgomery,
Pembroke’s younger brother. His chancellorship lasted eleven years,
and was terminated by his resignation in 1641. However narrow may
have been his Church policy, he was a true and loyal son of the
University, by which he deserves to be remembered as an earnest
reformer and liberal benefactor. It was at his instance that in 1629,
the year before he became Chancellor, a final end was put to the
riotous election of proctors which had so often disgraced the
University for centuries. This was effected by the simple device of
constructing a cycle, extending over twenty-three years, within which
period a certain number of turns was assigned to each college,
according to its size and dignity. The inventor of this cycle was Peter
Turner, of Merton, a great mathematician in his day, and it fulfilled its
object by entrusting the nomination of proctors to individual colleges,
each of which could exercise a deliberate choice, instead of leaving
it to be fought out by the academical democracy. This salutary
change was accepted by the University Convocation on the
recommendation of the king and the Earl of Pembroke, but its real
originator was Laud. His efforts to reform the discipline and morals of
the University were equally well meant, though conceived in an
almost Puritanical spirit which might have won the approval of the
‘Precisians,’ who hated him so bitterly, and not without good cause.
These efforts extended to the colleges of which he was Visitor, and
were carried to the length of minutely regulating every detail of
University life. Attendance at sermons and services, the conduct of
disputations in theology and arts, the relations between Masters of
Arts and Bachelors or students, the forms and fashions of
academical costume, the proper length of scholars’ hair, the hours of
meals, the custody of college gates, the presentation to college
benefices, the management of college property, the use of Latin in
conversation as well as formal business, the enforcement of purity in
elections to fellowships—such are some of the academical concerns
which received from Laud as careful attention as the highest
interests of the Church and the monarchy. In one respect, indeed,
the policy of Laud strongly resembled that of Leicester, for both
maintained their influence by favouritism, and kept up a regular
correspondence with confidential agents at Oxford, through whom
they were informed of everything that passed there. But while
Leicester’s inquisitorial vigilance was directed not only against
disturbers of the peace but against persons suspected of Romanism,
that of Laud was directed against Puritans and Calvinists.
The greatest and most permanent result of
Compilation of Laud’s chancellorship was the compilation of the
Laudian famous code, known as the ‘Laudian’ or ‘Caroline’
Statutes Statutes, which continued to govern the University
for more than two centuries. From time
immemorial, the University had claimed and exercised the power of
making, repealing, and revising its own statutes. Under the
chancellorship of Archbishop Warham, in 1513, this power had been
delegated to a committee of seven, and again, in 1518, it was
delegated to Cardinal Wolsey, in spite of the Chancellor’s protest;
but in both cases, it was the University Congregation which
conferred the commission, under which, however, very little seems to
have been done. The commissioners of Edward VI. were appointed
under the Great Seal, and drew up the ‘Edwardine Statutes,’ by
virtue of an authority independent of the University. Cardinal Pole, on
the contrary, issued his Ordinances, in his capacity of Chancellor,
provisionally only, until a delegacy of Convocation should decide
upon the necessary alterations. Similar delegacies were appointed
by the authority of Convocation, as it was then called, on several
occasions during the reign of Elizabeth; and though in the reigns of
her two successors many ordinances were sent down by the Crown,
they were not accepted as operative until they had been embodied in
statutes, or adopted in express terms by Convocation. Even in 1628,
when the proctors had endeavoured to obstruct the proposed
statutes regulating proctorial elections, and the king threatened with
his condign displeasure those who should persist in opposing them,
Convocation went through the form of enacting them by its own
decree. The same course was taken in 1629, under Lord
Pembroke’s chancellorship, but at Laud’s instigation, when the
delegacy was nominated to codify the statutes, which then lay, as
Laud said, ‘in a miserable confused heap.’ The work occupied four
years, and, when it was completed, the University placed the new
code in the hands of Laud, with full power to make additions or
alterations. He corrected the draught, and in July 1634 directed a
copy to be deposited in each college or hall for a year, during which
amendments might be suggested. At last, in June 1636, Laud finally
promulgated, and the King solemnly confirmed, the ‘Corpus
Statutorum,’ as they were officially designated, and the University
Convocation formally accepted them, with the most fulsome
professions of gratitude to its Chancellor, and of confidence in the
eternity of their own legislation. This confidence was not, and could
not be, justified by events; but an impression long prevailed that the
Laudian statutes, though capable of extension, were as incapable of
alteration as the laws of the Medes and Persians. It is, indeed, very
remarkable that, with a few trifling additions, these statutes proved
capable of being worked practically until they were superseded, in
many essential particulars, by the University Reform Act of 1854.
These statutes were for the most part, a digest of those already in
force, but embodied also new regulations of great importance, such
as those for the government of the University by
Main provisions the ‘Hebdomadal Board,’ for the election of
of the Laudian proctors according to the cycle recently
Statutes established, for the nomination of ‘collectors’ (to
preside over ‘determinations’), and for the conduct
of public examinations. The principle of placing the main control of
academical affairs in the hands of heads of colleges and halls had
already been established by Leicester, but it was now reduced to a
fundamental law, and the vice-chancellor, with the Heads of Houses
and proctors, was formally entrusted with the whole administration of
the University. This statute effectually stereotyped the administrative
monopoly of the colleges, and destroyed all trace of the old
democratic constitution which had been controlled only by the
authority of the mediæval Church. The same oligarchical tendency
may be discerned in the statute which converted the popular and
public election of proctors by the common suffrages of all the
Masters into a private election by the Doctors and Masters of a
certain standing in each college, however beneficial its effect may
have been in checking the abuses of tumultuous canvassing. While
the dignity of the procuratorial office was thus sensibly reduced, that
of the vice-chancellor’s office was proportionably enhanced. The
Laudian Code legalised the practice resumed by Leicester, directing
that the vice-chancellor should be nominated annually from the
heads of colleges by the Chancellor, with the assent of Convocation.
As vicegerent of the Chancellor, and chairman of the Hebdomadal
Board, he gradually acquired a position of greater authority and
independence than had formerly belonged to him. Under Laud’s
chancellorship, indeed, he was expected to make a weekly report to
his chief on the state of the University; but later Chancellors were
neither so conscientious nor so meddlesome, and, in default of
urgent necessity for their intervention, were at last content to be
regarded as ornamental personages, rather than as the actual rulers
of the University. One of the vice-chancellor’s chief duties at this
period was to guard the orthodoxy of the University pulpit, and there
are numerous instances of preachers being summoned before him
for controverting Arminian doctrines, and forced to sign humble
recantations of their errors. Where they proved refractory, the royal
prerogative was promptly invoked to coerce them.
The course of study, and standard of
Studies and examination, prescribed by the Laudian statutes
examinations were so much beyond the requirements of later
under the times that we may well doubt whether either can
Laudian
have been strictly enforced. The B.A. degree,
Statutes
which then concluded the first stage of an
academical career, might be taken at the end of the fourth year, and
the student was bound to have attended lectures in grammar,
rhetoric, the Ethics, Politics, and Economics of Aristotle, logic, moral
philosophy, geometry, and Greek. In order to attain the M.A. degree,
three more years were to be spent in studying geometry, astronomy,
metaphysics, natural philosophy, Greek, and Hebrew. Making every
allowance for the longer residence of those days, as well as for the
lower conception of proficiency in these subjects, we cannot but
admire the comprehensive range of this curriculum, and admit that if
it was actually accomplished by a majority of students, the race of
passmen in the seventeenth century must have been cast in an
heroic mould. Disputations, which had long fallen into discredit, were
now superseded by a system of public examinations, the germs of
which are to be found in an obsolete statute of 1588, if not in the
earlier statutes of Edward VI. The examinations for the B.A. and
M.A. degrees, respectively, were to be in the subjects in which the
candidates were statutably bound to have previously heard lectures,
and special regard was to be paid to fluency in Latin, but they can
scarcely have been effective according to modern ideas. They were
to be conducted, in rotation, by all the regent masters, under the
orders of the senior proctor; the method of interrogation seems to
have been exclusively oral; and the authority of Aristotle was to be
paramount within the whole sphere of his voluminous writings. As
the ordinary period of residence waxed shorter, and the University
relaxed its authority over its own teachers, the examination system
of Laud, though it nominally survived for more than a century and a
half, became almost as illusory as the old scholastic disputations.
The effusive gratitude manifested by the
Services of University towards Laud, on the publication of his
Laud to the ‘Caroline’ statutes, was partly, no doubt, the
University expression of party spirit, but it was also justified
by his great services. He presented to the Library a
splendid collection of Oriental manuscripts, besides procuring
valuable gifts of literary treasures from others; he founded and
endowed the professorship of Arabic; he persuaded the King to
annex canonries of Christchurch to the professorship of Hebrew and
the office of Public Orator—which last grant was never confirmed by
Parliament; he obtained for the University the right of printing Bibles,
hitherto the monopoly of the King’s printers; and he secured for it a
new charter extending all its ancient liberties and privileges. Two
important acquisitions made by the University under the
chancellorship of Laud are not known to have been specially due to
his initiative. The earlier of these was the foundation of the Botanic
Gardens in 1632, though its completion was delayed by the Civil
War. The Convocation House, adjoining the Divinity School, was
begun in 1634 and finished in 1638, with an extension of the
Bodleian Library above it, and the apodyterium at its north end,
where the Chancellor’s Court is still held. It was first used in October
1638. By this time, if we may trust Anthony Wood, the University had
recovered its popularity, and numbered at least 4,000 scholars. No
wonder that loyal sons of Oxford looked back with fond regret to
Laud’s chancellorship during the evil days of the Civil War and the
Commonwealth. Nor should it be forgotten that if his intolerance of
schism made him a persecutor of the Puritans, he also set himself to
exclude Romish priests from the University; or that he reconverted
Chillingworth to Anglicanism, and rewarded with a canonry the
learning of John Hales, whose views of Church government
conflicted greatly with his own.
Though Laud continued to preside over the
Last five years University until 1641, the glory of his
of Laud’s chancellorship was crowned by a solemn visit of
chancellorship the King and Queen to Oxford at the end of August
1636. This visit lasted three days, and was
attended by all the usual ceremonials, including the performance of
comedies at Christchurch, and St. John’s, Laud’s own college. The
Elector Palatine and his brother, the famous Prince Rupert, received
honorary M.A. degrees on this occasion. After this it may well be
imagined that Laud had little or no leisure for academical cares until
his resignation of the chancellorship by a pathetic letter dated from
the Tower on June 26, 1641. Within this interval of five years, the
great controversy about the payment of ship-money had come to a
head; judgment had been given against John Hampden; Prynne,
Burton, and Eastwick had been condemned to the pillory for their
writings; Charles’s fourth Parliament had met after eleven years of
personal government and been promptly dissolved; the Scotch army,
after halting on the border in 1639, had invaded Yorkshire in 1640;
the High Commission Court had been closed for ever; the Long
Parliament had commenced its sittings, and impeached both
Strafford and Laud; the Triennial Act had been passed; the bishops
had been excluded from the House of Lords; the King had agreed
that Parliament should not be adjourned or dissolved without its own
consent; Strafford had been executed; and the ‘Root and Branch Bill’
for the abolition of Episcopacy had been read in the Commons.
Nevertheless, Laud had found time for close and constant attention
to University and college business. It was in 1638 that he instituted a
regular examination for the B.A. and M.A. degrees. In 1639, he sent
another donation of books, gave stringent directions for the
repression of disorders in the Convocation House, and made special
efforts to put down drinking parties in colleges and halls, which had
come into vogue, since ‘the scholars (not excepting the seniors) had
been hunted out of alehouses and taverns by the vice-chancellor
and proctors constant walking’—a result of his own disciplinary
vigour. In November 1640, he sent his last present of books,
pleading a want of leisure, for the first time, in excuse for the brevity
of his letter. He was now in the hands of his enemies, and it was
freely alleged in the House of Commons that, through his influence,
the University was infected with Popery. Accordingly, on December
14, a statement was drawn up and signed by all the Heads of
Houses, except Rogers, Principal of New Inn Hall, declaring ‘that
they knew not any one member of this University guilty of, or
addicted to, Popery.’ Parliament, however, ordered the books and
registers of the University to be sent up to London, with a view of
extracting materials from the Acts of Convocation to serve as
evidence against Laud. Among the offences imputed to him at his
trial, several related specially to his administration of the University.
He was accused of causing old crucifixes to be repaired and new
ones to be set up; of turning Communion tables ‘altarwise,’ railing
them in, and enjoining that obeisance should be made to them; of
encouraging the use of copes; of instituting Latin prayers in Lent; of
introducing superstitious processions; above all, of erecting ‘a very
scandalous statue of the Virgin Mary, with Christ in her arms,’ over
the new porch of St. Mary’s Church. Some of these alleged acts
were denied by the archbishop; others were admitted and defended
as consistent with the received doctrine of the Church. Perhaps none
of them would be regarded by an impartial critic of Laud’s trial as
heinous enough to sustain a charge of high treason, or, indeed, as
having any bearing whatever on such a charge.
Whatever may have been the shortcomings of
Eminent Oxford in the generation which preceded the Civil
members of the War, it certainly produced a number of men whose
University in the learning and piety might have adorned a happier
generation
and more peaceful age. Among the Heads of
preceding the
Civil Wars colleges who held office under Laud’s short
chancellorship were John Prideaux, Sir Nathaniel
Brent, Gilbert Sheldon, Brian Duppa, Samuel Fell, and Juxon, and
while the headships of colleges were filled by such men as these,
others not less eminent represented the University in other
capacities. In his rectory at Penshurst, and afterwards in his rooms
at Christchurch, Hammond was maturing a theological knowledge
which has placed him among standard English divines; Bainbridge
was prosecuting at Merton important researches in astronomical
science; Earle, afterwards tutor to Prince Charles, and bishop of
Salisbury, was serving in the office of senior proctor; Selden was
acting as burgess for the University; and Brian Twyne was amassing
those antiquarian stores which supplied the most valuable materials
for the marvellous industry of Anthony Wood.
The characteristic features of University life in
University life in the period immediately preceding the Civil War
the generation contrasted equally with those which had
preceding the distinguished it in the Middle Ages and those which
Civil Wars
distinguish it in the present day. The academical
community had become far less democratic and
more outwardly decorous since the suppression of ‘chamber-
dekyns,’ and the concentration of all the students into colleges and
halls. The Heads of colleges, invested with special privileges and
absolute control over University legislation, were now permanently
resident, and had greater power of keeping good order than had
ever belonged to the proctors, vainly striving to enforce discipline
among thousands of beggarly non-collegiate students. On the other
hand, there was less unity in college society; for, while Bachelor
fellows were still an inferior grade, and bound to ‘cap’ Master fellows
in the quadrangles, a new class of ‘commoners’ had sprung up,
mostly consisting of richer men, and holding aloof from members of
the foundation. ‘Town and gown rows’ were not unknown, and the
ancient jealousy between the city and the University was intensified
by the growth of religious and political differences; but the peace was
far better kept, and the streets of Oxford were no longer the scene of
sanguinary affrays. Whether the morality of the students was
essentially improved is open to more doubt. Judging by the constant
repetition of censures on their conduct from chancellors and Visitors,
we might infer that Oxford was quite demoralised. After all, however,
most of these censures are not so much directed against grave
offences as against extravagance in dress and breaches of
academical decorum, and it is impossible not to suspect that over-
regulation had something to do with the perverse neglect of rules
among undergraduates. It is the variety of legitimate outlets for
youthful spirits and energy which in modern times has been found
the best antidote for youthful vices, and if we realise the conditions of
undergraduate society in the earlier part of the seventeenth century,
we shall rather be disposed to wonder at the standard of virtue being
so high as it seems to have been. One of these conditions was the
overcrowding of colleges due to the disappearance of hostels.
Where two or three students habitually shared the same room, and a
poor scholar rarely enjoyed the comfort of a bed to himself, unless it
were a truckle-bed in his patron’s chamber, the self-respect and
graceful courtesy which is now traditional among well-bred young
Englishmen at the University could scarcely be cultivated at all. The
tutorial system already existed in colleges, and the personal relations
thus established between tutors and pupils were sometimes
productive of very beneficial results; but outside these relations there
was little sympathy and kindly intercourse between members of
different colleges or different classes in the same college. Manly
sports were not unknown, but they were chiefly of the rougher sort,
and discouraged by the authorities. We hear little of boating, or even
of riding, and cricket had not yet been invented, but football was
vigorously played, and led to so many warlike encounters between
the combatants that it was regarded with little favour by vice-
chancellors. Archery was still practised, as well as quoits, and
ninepins or skittles, but these last games were coupled with bull-
baiting, bear-baiting, cock-fights, common plays, and public shows,
in official warnings to undergraduates against unlawful pastimes.
Even James I., who prided himself on his ‘Book of Sports’ as much
as on his invectives against tobacco, issued royal letters
condemning them, apparently because, though not intrinsically evil,
they brought great crowds of people together, who might break out
into disorder. In short, it may safely be said that an Oxford student in
the reigns of James I. and Charles I. had less recognised liberty than
a public-school boy in the reign of Victoria, the natural result of which
was that he was all the more disposed to rebel against discipline.
Meanwhile his studies, though mainly classical in their subjects, and
mainly conducted within the walls of his college, were largely
scholastic in their methods. The University was still, above all, a
training-school for the clerical profession rather than for the general
world.
CHAPTER XI.
THE UNIVERSITY DURING THE CIVIL WARS, AND THE
SIEGE OF OXFORD.
The part to be taken by the University of Oxford in

The University the great national struggle now impending was
sides with the never for a moment doubtful. Throughout its
King and the history it had loyally acknowledged not merely the
Church
supremacy of the Crown, in its capacity of
paramount Visitor, but the jurisdiction of the High
Commission and other exertions of the prerogative lately challenged
by the Commons, while it stood committed by its own solemn vote to
the doctrine of passive obedience. It was still more closely identified
with the Church. Its property had always been treated in ancient
times as ecclesiastical, being constantly taxed by votes of the
Convocation of Canterbury, and constantly exempted, by royal
letters, from taxes payable on the lands and tenements of laymen.
Its representatives had attended the great Councils of the Western
Church; its Chancellor had always been a great ecclesiastic until the
Reformation; nearly all the Visitors of its colleges were still great
ecclesiastics; and the recent imposition of test-oaths, including those
prescribed by a purely ecclesiastical canon, on all its students,
coupled with the clerical restrictions on most college fellowships, had
effectually rendered it an integral part of the Anglican Church. No
doubt, it contained a strong Puritan element which sympathised with
the Parliament, but the overwhelming majority were heartily on the
side of the Church and the King, and proved themselves capable of
great sacrifices for the cause which they espoused. The first overt
act of the University in support of these principles was taken on April
24, 1641, in the form of a ‘Petition made to the high and honourable
Court of Parliament in behalf of Episcopacy and Cathedralls.’ This
petition was accompanied by another to the same effect, bearing the
signatures of almost all the resident graduates, and derives
additional significance from its date. But a few months before, the
canons lately passed by the Convocation of Canterbury had been
declared illegal by the Commons, and the Bill to exclude bishops
from the House of Lords had just been introduced. Nevertheless, the
University did not hesitate to press upon Parliament, now in no
placable mood, the duty of maintaining not only ‘the ancient and
Apostolicall Order’ of bishops, but also ‘those pious Foundations of
Cathedrall Churches, with their Lands and Revenewes.’ Some of the
reasons alleged in support of the petition are grave and weighty;
others, if less solid, are still more interesting as indications of the
light in which Church preferments were then regarded by University
graduates. For instance, cathedral endowments are extolled ‘as the
principal outward motive of all Students, especially in Divinitie, and
the fittest reward of some deep and eminent Scholars; as affording a
competent portion in an ingenuous way to many younger Brothers of
good Parentage who devote themselves to the Ministery of the
Gospell; as the onely meanes of subsistence to a multitude of
Officers and other Ministers, who with their families depend upon
them; as the maine Authors or Upholders of divers Schooles,
Hospitalls, Highwaies, Bridges, and other publique and pious works;
as the cheife support of many thousand families of the Laity, who
enjoy faire estates from them in a free way; and as funds by which
many of the learned Professors in our University are maintained.’ It
was hardly to be expected that such arguments should prevail with
Pym and Hampden, Prynne and Holles; nor can we be surprised to
learn that ‘the answer to it was very inconsiderable.’ It was, however,
presented to the King on the following day, and his reply, preserved
by Anthony Wood, is memorable as showing how resolutely he
linked the fortunes of his Crown with those of the Church. He
declared openly that he knew the clergy were suffering because of
their fidelity to him, protested that he would rather feed on bread and
water than ‘mingle any part of God’s patrimonie with his owne
revenewes;’ insisted that ‘Learning and Studies must needs perish if
the honors and rewards of Learning were destroyed;’ and predicted
that ‘Monarchy would not stand long if the Hierarchy perish.’
Within a month after the presentation of this petition Strafford had
been executed, and the ‘Root and Branch Bill’ for the complete
abolition of Episcopacy had been read in the
The Commons Commons. Two months later (July 1641) the
issue an order Courts of Star Chamber and High Commission,
for the with the arbitrary jurisdiction of the King’s Council,
University
had ceased to exist. On November 22 the ‘Grand
Remonstrance’ was passed, containing an
elaborate indictment against the Crown for all the unconstitutional
acts committed since the beginning of the reign, and an appeal to
the people of England. Then followed in quick succession the King’s
attempt to arrest the five members in the House of Commons, his
final departure from London, his refusal to place the custody of
fortified places and the command of the militia in the hands of the
Parliament, the levy of forces on both sides, the rejection by the King
of an ultimatum sent by the Parliament, and the erection of the royal
standard at Nottingham, on August 22, 1642. Of these momentous
events the University was, of course, a mere spectator; but the
House of Commons found leisure, in the midst of its preparations for
war, to guard its own interests at Oxford. On June 28, 1641, it issued
an order purporting to abolish the obligation of subscription to the
Three Articles of the Thirty-sixth Canon, as well as that of doing
reverence to the Communion-table, which seems to have been
enjoined in some of the colleges. This order was actually read in
Convocation, and was followed in February 1642 by the receipt of a
‘Protestation,’ which the Speaker, in the name of the House, called
upon the vice-chancellor and Heads of colleges to take and impose
upon all members, and even servants, of the University, being of the
age of eighteen years and upwards. This Protestation, conceived in
a moderate tone, bound the subscriber to uphold Protestantism and
the union between the three kingdoms of England, Scotland, and
Ireland. As it contained a profession of allegiance to the Crown, as
well as of respect for the power and privileges of Parliament, it was
generally signed, though many loyal Protestants objected to it as
dictated by a party on the verge of rebellion.
In the summer of 1642, war, though not actually
Contribution for declared, was felt to be inevitable, and both the
the King’s king and the Parliament were already raising
service, and first supplies for the autumn campaign. On July 7,
occupation of Charles I., then at York, addressed a requisition to
Oxford by Prideaux, as vice-chancellor, inviting the colleges
Parliamentary
to contribute money for his service by way of loan
troops
at eight per cent. interest, alleging that similar aid
had already been received by his enemies. Convocation immediately
voted away all the reserve funds in Savile’s, Bodley’s, and the
University chest, but it does not appear that any contributions of
plate were made by the colleges on this occasion. On July 12,
Parliament issued an order declaring this requisition illegal, and
directing watch and guard to be set on all highways about Oxford;
but it appears from a letter of the king, dated from Beverley on July
18, that a large subsidy had then reached him. At the same time, he
addressed letters to the Commissioners of Array for the county, the
high sheriff, and the mayor of Oxford, specially requesting them to
protect the University in case of attack. In the middle of August
several hundred graduates and students enrolled themselves, in
accordance with a royal proclamation, and were regularly drilled in
the ‘New Park.’ On August 28, a troop of Royalist horse, under Sir
John Byron, entered the city, and the volunteers were virtually placed
under his orders, with the apparent consent of the citizens, who,
however, did not raise a similar corps for the defence of their own
walls. On September 1, a delegacy of thirty members, including the
vice-chancellor and proctors, and popularly called ‘The Council of
War,’ was appointed for the purpose of arming the scholars and
provisioning the Royal troops. But the resolution of the University
was shaken when it was discovered, on September 9, that the
citizens were in communication with the Parliament, and that a
Parliamentary force was about to move on Oxford from Aylesbury.
Indeed, the University went so far as to despatch emissaries to
parley with the Parliamentary commanders at Aylesbury, who
answered them roughly, seized Dr. Pinke, of New College, the
deputy vice-chancellor, and sent him as a prisoner to London. On the
following day Sir John Byron, with his few troopers, left Oxford to join
the king, accompanied by about a hundred scholars, one of whom,
Peter Turner, fell into the hands of the enemy in a skirmish near
Stow-in-the-Wold, and was lodged in Northampton gaol. On
September 12, a body of Parliamentary troops entered the city from
Aylesbury, under Colonel Goodwin, who, with other officers, was
quartered at Merton College, while their horses were turned out in
Christchurch meadow. They were soon followed by Lord Say, the
new Parliamentary lord-lieutenant of Oxfordshire. He proceeded to
demolish the fortifications already begun, and instituted a search for
plate and arms. In fact, however, no college plate was then carried
off, except that of Christchurch and University College, which had
been hidden away. The other colleges, we are told, were spared,
‘upon condition it should be forthcoming at the Parliament’s
appointment, and not in the least employed against them’—a
condition almost impossible of fulfilment in the event, which actually
occurred, of Oxford becoming the King’s head-quarters. Upon the
whole, Lord Say and his men behaved with great forbearance during
this short occupation, which ended on September 27 or 28. The
gownsmen were disarmed, but no injury was done to buildings or
property, beyond some damage to the porch of St. Mary’s Church
and the combustion of ‘divers Popish books and pictures.’
A month later (October 29) Charles I. marched
Oxford into Oxford by the North Gate, after the battle of
becomes the Edgehill, at the head of his army, and attended by
royal head- Prince Rupert, Prince Maurice, and his two sons.
quarters
Even the mayor and leading citizens welcomed
him, while the University received him with open arms, expressed its
devotion in Latin orations, and showered degrees on the noblemen
and courtiers in his train. The king himself, with the most important
personages of his staff, except Rupert and Maurice, was lodged in
Christchurch; the officers were distributed among other colleges; the
soldiers were billeted about the city. Thenceforward, Oxford became
not only the base of operations for the Royal army, but the chief seat
of the royal government. Twenty-seven pieces of ordnance were
driven into the grove of Magdalen College and ranged there; the
citizens were at first disarmed, but a regiment of city volunteers was
afterwards formed, and reviewed together with a far more
trustworthy regiment of University volunteers. A plan of fortification
was prepared by Rallingson, a B.A. of Queen’s College, and
defensive works were constructed all round Oxford under the
directions of engineers. All inmates of colleges, being of military age,
were impressed into labouring personally upon these works for at
least one entire day per week, bringing their own tools with them; in
default of which they were required to pay twelve pence to the royal
treasury. A powder-mill was established at Oseney, and a mint at
New Inn Hall, whence the students had fled, under suspicion of
Roundhead leanings. Thither were removed all the coining
machinery and workmen from the factory which had been
established some time before at Shrewsbury, and the New Inn Hall
mint was conducted under the direction of Thomas Bushell, formerly
the manager of the royal mines in Wales. New College tower and
cloisters were converted into an arsenal for arms, procured by
repeated searches, the grammar-school for the choristers having
been removed to a chamber at the east end of the Hall. The Schools
were employed as granaries for the garrison; lectures and exercises
were almost wholly suspended; and in the three years from 1643 to
1646 the annual number of B.A. degrees conferred did not exceed
fifty. Before long, most of the less warlike and loyal fellows and
students retired into the country; those who remained took up arms
and kept guard on the walls; the colleges more and more assumed
the aspect of barracks; and Oxford, no longer a seat of learning, was
divided between the gaieties of a court and the turmoil of a camp.
This transformation was completed in July 1643,
Aspect of the when Henrietta Maria joined the King at Oxford.
University Charles I. rode out to meet the Queen, whose
during the passionate and sinister counsels were about to
queen’s
cost him his throne and his life. She was received
residence
with great ceremony at Christchurch, and
conducted by the King himself to Merton College by a back way,
made expressly through gardens belonging to Christchurch and
Corpus Christi College into Merton Grove. There she was saluted
with the usual Latin oration, and took possession of the apartment
still known as ‘the Queen’s room,’ which she occupied, with the
adjoining drawing-room, until the following April. Seldom in history,
and never in the annals of the University, have characters so diverse
been grouped together into so brilliant and picturesque a society as
that which thronged the good city of Oxford during the Queen’s
residence in the autumn and winter of 1643—the last happy interlude
of her ill-starred life. Notwithstanding the paralysis of academical
studies, grave dons and gay young students were still to be seen in
the streets, but too often in no academical garb and affecting the airs
of cavaliers, as they mingled with the ladies of the court in
Christchurch walks and Trinity College gardens, or with roystering
troopers in the guard-houses at Rewley, where they entertained their
ruder comrades with flashes of academic wit. Most of the citizens,
too, were glad to remain, secretly cherishing, perhaps, the hope of a
future retribution, but not unwilling to levy high rents for the lodging
of those nobles and military officers for whom there was no room in
the colleges. With these were blended in strange variety other
elements imported from the metropolis or the country—lawyers who
had come down to attend the courts held by the Lord Keeper and
one of his judicial brethren; the faithful remnant of the Lords and
Commons, who sat in one of the Schools and the Convocation-
house respectively, while the University Acts were performed once
more in St. Mary’s Church; loyal gentlemen driven out of their
manor-houses by the enemy; clergymen expelled from their
parsonages; foreigners seeking audiences of the perplexed and
vacillating King; needy poets, musicians, and players in the service
of the Court, who acted interludes or Shakespearian pieces in the
college halls. Services were still performed in the chapels; sermons
were preached from the pulpit of St. Mary’s; degrees were conferred
wholesale, as rewards for loyal service, until they were so
depreciated that at last the King promised to recommend no more
candidates for them; the outward appearances of academical routine
were maintained with decorum; the King dined and supped in public,
moving freely among his devoted adherents with the royal grace and
easy dignity which long seemed to have perished with the Stuarts;
the Queen held those receptions at Merton College of which a
tradition has survived to our own prosaic days; newspapers were
published for the first time in Oxford, and all the resources of courtly
literature were employed to enliven a spectacle over which the awful
catastrophe of that historical tragedy, unforeseen by the actors
themselves, has shed a lurid glamour, never equalled by the
romance of fiction.
During this memorable period, the records of the
The last two University and colleges are extremely scanty. The
years of the civil register of Christchurch, then little more than a
war royal palace, presents almost a blank; that of
Merton contains few entries bearing on the great
events of which Oxford was the scene or the centre. Early in January
1643, royal letters were issued to all colleges and halls, desiring the
loan of their plate, to be melted down and coined for the King’s
service, ‘we promising you to see the same justly repayd unto you
after the rate of 5/ the ounce for white, and 5/6 for guilt plate, as
soon as God shall enable us.’ All the colleges, except New Inn Hall,
are stated to have complied, and the aggregate weight of plate thus
contributed amounted to some 1,500 lbs., besides about 700 lbs.
sent in by six country gentlemen. Nevertheless, in the following
June, another levy of 2,000l. was made upon the University and City
respectively, to which the City, in an unwonted fit of loyalty, added
another 500l. At last, in October 1643, the Heads of Houses agreed
that 40l. should be raised weekly during the next twenty weeks, by a
levy on colleges and halls, in lieu of all further contributions towards
new fortifications. In the same month articles were drawn up by
some of the leading residents against the Earl of Pembroke,
Chancellor of Oxford, whom they accused of betraying the privileges
and neglecting the interests of the University, but whose real crime
was complicity with the Parliament, and whom the King caused to be
superseded by the Marquis of Hertford. During the summer of this
year the fortunes of war had, on the whole, been in the King’s favour;
but he had been compelled to abandon his design of occupying
London, and, after the indecisive battle of Newbury, in which
Falkland was killed, had retreated to Oxford for the winter. Thither he
summoned his so-called Parliament in June 1644, and there,
yielding to evil advice from his wife, he rejected overtures which
might have brought about a peaceful settlement without further
bloodshed. On May 29, 1644, a Parliamentary force under the Earl
of Essex and Sir William Waller crossed the river at Sandford Ferry,
and passed through Cowley over Bullingdon Green, on their way
from Abingdon to Islip, but nothing beyond a skirmish took place as
they defiled along the heights within sight of the city. The object of

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