Whether you are a disciple of Ben Graham, a value investor, or a growth or momentum investor, you can agree that a stock’s price must relate to its financials. From time to time investors ignore the basic numbers like book value, cash flow, interest, and various ratios that fundamentally value common stock. It is especially common during periods of exuberance or fear that investors depart from the fundamental methods of successful investing. A sound understanding of how to read the basic financials should keep investors focused and thereby avoid costly mistakes, and also helps to uncover the hidden values of market.
The Interpretation of Financial Statements was first published in 1937, shortly after the Ben Graham bible, Security Analysis, and during an era when investors left the stock market in droves. Today, when the contrary is the case, investors should confirm their understanding of the financial statements of the companies whose stock they own. This manual takes you through both the balance sheet (what a company owns and owes) and the income statement (what it earns). Helpful discussions of other statements, ratios, and a glossary of frequently used terms are also included.
Earnings reports, annual reports, and news releases concerning charges, reserves, and restatement of earnings, to name just a few subjects, will all become clearer with this book in hand. All investors, from beginners to old hands, should gain from the use of this guide, as I have. As Ben put it, in the end you should buy your stocks like you select your groceries, not your perfume. Focus on the fundamentals – how much you are paying for the steak and how much for the sizzle – and you shouldn’t go wrong.
Read from Safal Niveshak
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