Interpretation Of Financial Statements Benjamin Graham Pdf

[Alice Palecek]

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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.

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