The Interpretation of Financial Statements

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.

Introduction:

This book is designed to enable you to read financial statements intelligently. Financial statements are intended to give an accurate picture of a company’s condition and operating results, in a condensed form. Everyone who comes in contact with corporations and their securities has occasion to read balance sheets and income statements. Every business man and investor is expected to be able to understand these corporation statements. For security salesmen and for customers’ men in particular, the ability to analyze statements is essential. When you know what the figures mean, you have a sound basis for good business judgment.

Our plan of procedure is to deal successively with the elements that enter into the typical balance sheet and income account. We intend first to make clear what is meant by the particular term or expression, and then to comment briefly upon its significance in the general picture. Wherever possible we shall suggest simple standards or tests which the investor may use to determine whether a company’s showing in a given respect is favorable or the reverse. Much of this material may appear rather elementary, and indeed the analysis of financial statements is a comparatively simple matter. But even in the elementary aspects of the subject there are peculiarities and pitfalls which it is important to recognize and guard against.

Of course the success of an investment depends ultimately upon future developments, and the future may never be forecast with accuracy. But 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. The following material is used in the courses in Security Analysis given by the New York Stock Exchange Institute. It is designed either for independent study as an elementary work, or as an introduction to a more detailed treatment of the subject.

Contents:

• BALANCE SHEETS IN GENERAL
• DEBITS AND CREDITS
• TOTAL ASSETS AND TOTAL LIABILITIES
• CAPITAL AND SURPLUS
• PROPERTY ACCOUNT
• DEPRECIATION AND DEPLETION
• NON-CURRENT INVESTMENTS
• INTANGIBLE ASSETS
• PREPAID EXPENSES
• DEFERRED CHARGES
• CURRENT ASSETS
• CURRENT LIABILITIES
• WORKING CAPITAL
• CURRENT RATIO
• INVENTORIES
• RECEIVABLES
• CASH
• NOTES PAYABLE
• RESERVES
•  BOOK VALUE OR EQUITY
• CALCULATING BOOK VALUE
• BOOK VALUE OF BONDS AND STOCKS
• OTHER ITEMS IN BOOK VALUE
• LIQUIDATING VALUE AND NET CURRENT ASSET VALUE
• EARNING POWER
• A TYPICAL PUBLIC UTILITY INCOME ACCOUNT
• A TYPICAL INDUSTRIAL INCOME ACCOUNT
• A TYPICAL RAILROAD INCOME ACCOUNT
• CALCULATING EARNINGS
• THE MAINTENANCE AND DEPRECIATION FACTOR
• THE SAFETY OF INTEREST AND PREFERRED DIVIDENDS
• TRENDS
• COMMON STOCK PRICES AND VALUES

The Interpretation of Financial Statements By Spencer Barrett Meredith, Benjamin Graham pdf