The value investor takes on the mantra, Beware of Buying Profitability but then embraces another mantra, Carry the Balance Sheet with You. The enterprise valuation formula in short form is
RNOA1 can be high because assets are missing from its denominator, NOA0. That results in a higher residual income. But correspondingly, the book value term in the valuation, NOA0 is lower. Indeed, it exactly offsets the higher RNOA1, leaving  unaffected. See the illustration with Coca Cola in chapter 6. Carry the Balance Sheet with You.
The same point applies to RNOA1 generated by accounting manipulation. The mischievous accountant can increase next year’s operating income and RNOA1 by writing off assets. But that reduces NOA0. Carry the balance sheet with you to protect against such mischief.
