The Interpretation Of Financial Statements Graham

[Lola Bergo]

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After read Benjamin Graham's masterpiece The Intelligent Investor, I got curious to read his other books. I did a small research on the internet to find other of his books and got two main names, The Interpretation of Financial Statements and Security Analysis. I know, I am not a pro in economic studies (the reason why I chose to bold this sentence is that you should never feel like a pro in the financial market), so I decided to go for the basics and preferred to start reading The Interpretation of Financial Statements.

Since I moved to the United States two years ago to study business, I got very interested in the construction of financial statements and its analysis to evaluate if the value of a stock is fair or not. So, I thought this book would go deep in the analysis, but it didn't. I got a little bit disappointed because of that, but my expectations were too high, and high expectations are harder to satisfy.

In every part of the book, he tries to give us an idea of what is a good number for a company compared to the market and teach us how should we compare companies (time-basis or market-basis). This is crucial because each industries have their own characteristics, it can be in inventory, accounts receivable, research and development, or anything else.

For example, comparing two food companies, ABC company sells vegetables and XYZ company sells cookies, it is acceptable that the inventory for XYZ is higher than ABC because cookies take longer to get expired than vegetables.

Another immeasurable advice that Benjamin left for the readers is how accountants can blur a company's financial statement to show misleading results. Two good example of that can be of extreme importance (being honest, I do not remember if I read in this book or others):

In both scenarios, companies are obligated by law to provide us what kind of expenses are that. The way accountants find to hide this costs is detailing this expenses in the last pages of the report (people get tired of reading and don't give enough importance to the end) or in the footnotes (many people don't read it). In the Intelligent Investor, Benjamin Graham cites investors that recommend readers to start analyzing reports by the last pages, and they are not playing with you, it is a helpful technique.

This book was written in 1937, as a result, some numbers may not be the same nowadays. When reading an old book we need to be ready for those peculiarities, for example, I noticed that some content was missing, and other terms seem not familiar to me. However, it is a way to improve vocabulary and to learn why accounting today is so complex, understanding more about the origin of it. At some points of the book, I even remembered how Giovanni de Medici created the double entries system for accounting.

I would recommend this book for many kind of people, but not for everyone. "The Financial Statement Analysis" is an excellent book for investors that did not have any (or a little) contact with accounting and also for the ones that want to remember accounting basics concepts.

For now on, I will use this book every time I want to remember a reason behind an accounting concept or interpretation. On the other hand, I would not reread this book, it is too specific and is not helpful regarding investments for who already studied accounting before.

Overall, maybe I am responsible for my partial disappointment. I was expecting an analysis of financial statements, but the book is "The Interpretation of Financial Statements," and that is what Benjamin Graham does.

But he also wrote a third book that is rarely cited called The Interpretation of Financial Statements. Probably because of the inherently dry nature of its contents, this book has remained largely unheralded.

As I said, most of the book revolves around the fundamentals of interpreting financial statements (again, hence the title), but there are a few spots where Graham hints at his underlying investment philosophy, which he covers in his other two books.

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Benjamin Graham has been called the most important investment thinker of the twentieth century. As a master investor, pioneering stock analyst, and mentor to investment superstars, he has no peer. The volume you hold in your hands is Graham's timeless guide to interpreting and understanding financial statements. It has long been out of print, but now joins Graham's other masterpieces, The Intelligent Investor and Security Analysis, as the three priceless keys to understanding Graham and value investing. The advice he offers in this book is as useful and prescient today as it was sixty years ago. As he writes in the preface, "if you have precise information as to a company's present financial position and its past earnings record, you are better equipped to gauge its future possibilities. And this is the essential function and value of security analysis." Written just three years after his landmark Security Analysis, The Interpretation of Financial Statements gets to the heart of the master's ideas on value investing in astonishingly few pages. Readers will learn to analyze a company's balance sheets and income statements and arrive at a true understanding of its financial position and earnings record. Graham provides simple tests any reader can apply to determine the financial health and well-being of any company. This volume is an exact text replica of the first edition of The Interpretation of Financial Statements, published by Harper & Brothers in 1937. Graham's original language has been restored, and readers can be assured that every idea and technique presented here appears exactly as Graham intended. Highly practical and accessible, it is an essential guide for all business people--and makes the perfect companion volume to Graham's investment masterpiece The Intelligent Investor.

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Once audiences complete and master Buffett's simple financial calculations and methods for interpreting a company's financial statement, they will be well on their way to identifying which companies are going to be tomorrow's winners - and which will be the losers that should be avoided at all costs.

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Thomas R. Ittelson is an expert at translating complicated financial topics in an accessible way for non-financial audiences. In this book, he empowers listeners by clearly and simply demonstrating how the three major accounting statements interact to offer a snapshot of a company's financial health. This book teaches listeners how to use specialized accounting vocabulary and makes accessible the structure and purpose of the three major numeric statements that describe a company's financial condition.

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