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Financial Statement Analysis: A Practitioner's Guide
Praise for Financial Statement Analysis
A Practitioner's Guide
Third Edition
"This is an illuminating and insightful tour of financial statements, how they can be used to inform, how they can be used to mislead, and how they can be used to analyze the financial health of a company."
-Professor Jay O. Light
Harvard Business School
"Financial Statement Analysis should be required reading for anyone who puts a dime to work in the securities markets or recommends that others do the same."
-Jack L. Rivkin
Executive Vice President (retired)
Citigroup Investments
"Fridson and Alvarez provide a valuable practical guide for understanding, interpreting, and critically assessing financial reports put out by firms. Their discussion of profits-'quality of earnings'-is particularly insightful given the recent spate of reporting problems encountered by firms. I highly recommend their book to anyone interested in getting behind the numbers as a means of predicting future profits and stock prices."
-Paul Brown
Chair-Department of Accounting
Leonard N. Stern School of Business, NYU
"Let this book assist in financial awareness and transparency and higher standards of reporting, and accountability to all stakeholders."
-Patricia A. Small
Treasurer Emeritus, University of California
Partner, KCM Investment Advisors
"This book is a polished gem covering the analysis of financial statements. It is thorough, skeptical and extremely practical in its review."
-Daniel J. Fuss
Vice Chairman
Loomis, Sayles & Company, LP
A Practitioner's Guide
Third Edition
"This is an illuminating and insightful tour of financial statements, how they can be used to inform, how they can be used to mislead, and how they can be used to analyze the financial health of a company."
-Professor Jay O. Light
Harvard Business School
"Financial Statement Analysis should be required reading for anyone who puts a dime to work in the securities markets or recommends that others do the same."
-Jack L. Rivkin
Executive Vice President (retired)
Citigroup Investments
"Fridson and Alvarez provide a valuable practical guide for understanding, interpreting, and critically assessing financial reports put out by firms. Their discussion of profits-'quality of earnings'-is particularly insightful given the recent spate of reporting problems encountered by firms. I highly recommend their book to anyone interested in getting behind the numbers as a means of predicting future profits and stock prices."
-Paul Brown
Chair-Department of Accounting
Leonard N. Stern School of Business, NYU
"Let this book assist in financial awareness and transparency and higher standards of reporting, and accountability to all stakeholders."
-Patricia A. Small
Treasurer Emeritus, University of California
Partner, KCM Investment Advisors
"This book is a polished gem covering the analysis of financial statements. It is thorough, skeptical and extremely practical in its review."
-Daniel J. Fuss
Vice Chairman
Loomis, Sayles & Company, LP
396 pages, Hardcover
First published March 19, 1991
169 people are currently reading
2288 people want to read
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Displaying 1 - 19 of 19 reviews
August 14, 2011
According to the author's introduction, the goal of "Financial Statement Analysis" is to "acquaint readers who have already acquired basic accounting skills with the complications that arise in applying textbook-derived knowledge to the real world of extending credit and investing in securities." It succeeds admirably in this purpose. By using case studies drawn from real world situations that illustrate how even a basic analysis can reveal problems before it's too late, the book is a cogent, topical, and valuable reference for any user of financial statements.
Part 1 sets the stage by positing the adversarial nature of financial accounting. Unlike the textbook approach, in which rational companies disclose audited statements in order to convey impartial data about their financial condition, "Financial Statement Analysis" begins with the proposition that the producers of financial statements have motives other than those suggested by traditional texts. Although you would find few people who would argue against this proposition today, it is still valuable to be reminded of the potential agency issues facing corporate officers and auditors.
Part 2 provides an intoduction to the financial statements, devoting a chapter to each. The main emphasis here is on helping the analyst develop judgement. For example, the balance sheet chapter provides insights into problems that arise from the difficulty of assigning a value to an asset, while the income statement chapter details the many pitfalls of pro-forma earnings. Throughout, the authors note critical issues to consider that go beyond the numbers.
Part 3 discusses the thorny problem of profits. Beginning with the simple formulation that "profit = revenue - costs," the authors discuss the myriad of complexities that arise in distinguishing real, economic profits from accounting profits. The first chapter discusses various tools used to manipulate the revenue recognition process; diverse examples include a software company, a lay-away program at a major retailer, and memberships at a health club. The next chapter discusses expense recognition using a similar framework. Perhaps the most interesting chapter in this section discusses the role of auditors. In light of the Enron fiasco, which post-dates this book's publication, the discussion is prescient and will no doubt need to be expanded in future editions!
Part 4 ties the previous sections together to illustrate how to use your new found scepticism to make forecasts. The first chapter provides a step-by-step illustration of how combine an existing set of statements with your assumptions about the future to produce your own forecasts. Each projected statement (income, cash flow, and balance sheet) is accompanied by a line-by-line description of relevant issues (economic, historic, etc...) to consider. The chapter also discusses how to construct a sensitivity analysis under varying assumptions. Unlike the previous chapters, this one provides a detailed explanation of how to actually go through the process, and was particularly appreciated by this reader. The other chapters in the section focus on the computation of the various ratios used in credit and equity analysis. Importantly, however, they move beyond the mechanics by providing the reader with insight into how to use, interpret, and recast the ratios under varying assumptions. As stated at the outset, the focus remains on helping the reader develop insight.
Finally, the book contains a useful glossary that provides definitions and examples for many economic, financial, and accounting terms and concepts.
One caveat, however. If your accounting skills are weak or rusty (like mine), you might might find the lack of more step-by-step examples and problem sets frustrating. In this case, you might consider supplementing the book with a more traditional textbook. (In the author's defense, they state in the introduction that accounting is assumed, so it's not really fair to fault them for this). Overall, however, the book is a very useful tool.
Part 1 sets the stage by positing the adversarial nature of financial accounting. Unlike the textbook approach, in which rational companies disclose audited statements in order to convey impartial data about their financial condition, "Financial Statement Analysis" begins with the proposition that the producers of financial statements have motives other than those suggested by traditional texts. Although you would find few people who would argue against this proposition today, it is still valuable to be reminded of the potential agency issues facing corporate officers and auditors.
Part 2 provides an intoduction to the financial statements, devoting a chapter to each. The main emphasis here is on helping the analyst develop judgement. For example, the balance sheet chapter provides insights into problems that arise from the difficulty of assigning a value to an asset, while the income statement chapter details the many pitfalls of pro-forma earnings. Throughout, the authors note critical issues to consider that go beyond the numbers.
Part 3 discusses the thorny problem of profits. Beginning with the simple formulation that "profit = revenue - costs," the authors discuss the myriad of complexities that arise in distinguishing real, economic profits from accounting profits. The first chapter discusses various tools used to manipulate the revenue recognition process; diverse examples include a software company, a lay-away program at a major retailer, and memberships at a health club. The next chapter discusses expense recognition using a similar framework. Perhaps the most interesting chapter in this section discusses the role of auditors. In light of the Enron fiasco, which post-dates this book's publication, the discussion is prescient and will no doubt need to be expanded in future editions!
Part 4 ties the previous sections together to illustrate how to use your new found scepticism to make forecasts. The first chapter provides a step-by-step illustration of how combine an existing set of statements with your assumptions about the future to produce your own forecasts. Each projected statement (income, cash flow, and balance sheet) is accompanied by a line-by-line description of relevant issues (economic, historic, etc...) to consider. The chapter also discusses how to construct a sensitivity analysis under varying assumptions. Unlike the previous chapters, this one provides a detailed explanation of how to actually go through the process, and was particularly appreciated by this reader. The other chapters in the section focus on the computation of the various ratios used in credit and equity analysis. Importantly, however, they move beyond the mechanics by providing the reader with insight into how to use, interpret, and recast the ratios under varying assumptions. As stated at the outset, the focus remains on helping the reader develop insight.
Finally, the book contains a useful glossary that provides definitions and examples for many economic, financial, and accounting terms and concepts.
One caveat, however. If your accounting skills are weak or rusty (like mine), you might might find the lack of more step-by-step examples and problem sets frustrating. In this case, you might consider supplementing the book with a more traditional textbook. (In the author's defense, they state in the introduction that accounting is assumed, so it's not really fair to fault them for this). Overall, however, the book is a very useful tool.
March 24, 2016
Compared to other books, this book didn't provide many valuable ideas to help reader x-Ray financial statements. For each chapter, it includes 3-5 examples to explain the author's point. Personally, if you are looking for a book to help you pickup stocks, this book is not quite helpful.
June 19, 2023
Don't trust anyone, except the SEC.
May 24, 2018
Do not expect to read a technical guide on reading or analysing financial statemen from this book. Tough the title stating that. The issue was a bit advanced.
In my opinion, I suggest reader expect this book to be able to open their eyes on wide issues of financial statement analysis. Not the detail, but mostly the concepts.
The author separated the content into four parts: the fundamental concept that financial statement is a report that should be read between the line, the basic, taking a look at profits, and lastly forecasts and security analysis. The last part reminds me some issues with technical details and formulas.
I like how this book explained using several real financial chicanery stories. The stories alone makes this book really worth.
One important thing I get from this boook: never make moral tone on financial analysis. The author suggest financial analyst should understand that this is the game between them as the user of financial statement and the author. It is easier to view from the opposite like chess player anticipating opponent's moves.
In my opinion, I suggest reader expect this book to be able to open their eyes on wide issues of financial statement analysis. Not the detail, but mostly the concepts.
The author separated the content into four parts: the fundamental concept that financial statement is a report that should be read between the line, the basic, taking a look at profits, and lastly forecasts and security analysis. The last part reminds me some issues with technical details and formulas.
I like how this book explained using several real financial chicanery stories. The stories alone makes this book really worth.
One important thing I get from this boook: never make moral tone on financial analysis. The author suggest financial analyst should understand that this is the game between them as the user of financial statement and the author. It is easier to view from the opposite like chess player anticipating opponent's moves.
December 24, 2021
It’s a dense topic. The book uses a lot of real stories to illustrate the point. It also helps explain the application of the theory. Studying accounting feels like studying how the engine of a car works, or the grammar of a foreign language. Accounting is the language used to describe the physiology of a business, and I found this book helpful for understanding it.
May 1, 2023
Fernando Alvarez's Financial Statement Analysis: A Practitioner's aid is a thorough and insightful aid to comprehending and analysing financial statements. This book is an exceptional resource for investors, analysts, and financial professionals seeking a deeper understanding of financial statements.
The book is divided into four major sections, each of which covers a unique aspect of financial statement analysis. The initial segment introduces financial statements and the fundamental concepts of financial analysis. The second section discusses the various categories of financial statements, such as income statements, balance sheets, and cash flow statements, and how to effectively analyse them.
The third section delves deeper into the analysis of financial statements, covering topics such as ratio analysis, trend analysis, and industry benchmarking. The fourth and final section of the book focuses on sophisticated techniques for analysing financial statements, such as valuation and forecasting.
Throughout the book, Fernando Alvarez explains intricate financial concepts in a manner that makes them accessible to readers with little or no background in finance. The book is also replete with real-world examples and case studies, making it a useful resource for those who wish to implement financial statement analysis in their own work.
The emphasis on practical applications is one of Financial Statement Analysis: A Practitioner's Guide's strengths. The book is not only a theoretical examination of financial statement analysis, but also a practical guide to its application. This book is an excellent resource whether you are an investor seeking to make better investment decisions or a financial professional seeking to improve your analysis skills.
Additionally, the book's clarity and organisation are a virtue. The book is well-organized and straightforward to navigate, with distinct headings and subheadings that make it simple to locate the desired information. Additionally, the writing style is straightforward and concise, making it simple to read and comprehend.
In conclusion, Fernando Alvarez's Financial Statement Analysis: A Practitioner's Guide is an excellent resource for anyone seeking a deeper understanding of financial statements and financial statement analysis. This book is required reading for investors, analysts, and financial professionals due to its lucid explanations, real-world examples, and practical focus.
The book is divided into four major sections, each of which covers a unique aspect of financial statement analysis. The initial segment introduces financial statements and the fundamental concepts of financial analysis. The second section discusses the various categories of financial statements, such as income statements, balance sheets, and cash flow statements, and how to effectively analyse them.
The third section delves deeper into the analysis of financial statements, covering topics such as ratio analysis, trend analysis, and industry benchmarking. The fourth and final section of the book focuses on sophisticated techniques for analysing financial statements, such as valuation and forecasting.
Throughout the book, Fernando Alvarez explains intricate financial concepts in a manner that makes them accessible to readers with little or no background in finance. The book is also replete with real-world examples and case studies, making it a useful resource for those who wish to implement financial statement analysis in their own work.
The emphasis on practical applications is one of Financial Statement Analysis: A Practitioner's Guide's strengths. The book is not only a theoretical examination of financial statement analysis, but also a practical guide to its application. This book is an excellent resource whether you are an investor seeking to make better investment decisions or a financial professional seeking to improve your analysis skills.
Additionally, the book's clarity and organisation are a virtue. The book is well-organized and straightforward to navigate, with distinct headings and subheadings that make it simple to locate the desired information. Additionally, the writing style is straightforward and concise, making it simple to read and comprehend.
In conclusion, Fernando Alvarez's Financial Statement Analysis: A Practitioner's Guide is an excellent resource for anyone seeking a deeper understanding of financial statements and financial statement analysis. This book is required reading for investors, analysts, and financial professionals due to its lucid explanations, real-world examples, and practical focus.
December 22, 2019
I think I have started reading this book right after going over Ben Graham’s “The Intelligent Investor”. In fact, I remember being so thrilled about his recommendations for further readings that I hastily bought a stack of new books ready to delve into them. “Financial Statement Analysis” was one of these.
I think that the book is packed with valuable information and that it is an excellent read. I, personally, was expecting more content on the topics of technical and fundamental analysis, but I was only served these in the last couple of chapters, albeit at a fairly simplistic level. I would have liked to see a more detailed expansion on these issues.
Most of the work is a mixture of financial statement accounting and cautionary notes regarding the deceiving nature of these documents, since they are prepared by companies in their hope of acquiring cheap capital, despite all the procedures put in place by regulatory bodies to mitigate the risks of misrepresentation and fraud. This became evident especially after hearing about all the ingenious tricks that companies employ to help them appear more worthy of investors’ capital (such as aggressive revenue recognition or negotiating with auditors, to name a few).
My key takeaway is that you need to be a “little” skeptical and pay a lot of attention when it comes to reading financial statements. Good luck!
I think that the book is packed with valuable information and that it is an excellent read. I, personally, was expecting more content on the topics of technical and fundamental analysis, but I was only served these in the last couple of chapters, albeit at a fairly simplistic level. I would have liked to see a more detailed expansion on these issues.
Most of the work is a mixture of financial statement accounting and cautionary notes regarding the deceiving nature of these documents, since they are prepared by companies in their hope of acquiring cheap capital, despite all the procedures put in place by regulatory bodies to mitigate the risks of misrepresentation and fraud. This became evident especially after hearing about all the ingenious tricks that companies employ to help them appear more worthy of investors’ capital (such as aggressive revenue recognition or negotiating with auditors, to name a few).
My key takeaway is that you need to be a “little” skeptical and pay a lot of attention when it comes to reading financial statements. Good luck!
November 29, 2020
It’s not a textbook on accounting and financial modeling. It’s more like a discussion on some of the common shenanigans in financial reporting and how analysts would look through them to have a clear picture of the companies they study. Some of the concepts and case studies are helpful. But as it’s published in early 2000 some of the discussion on valuation doesn't seems to be as applicable anymore given today’s investment environment. Its interesting however to see how people at the time look at value and credit after the tech bubble burst. It’s a quick and solid read.
April 2, 2021
Was able to walk away with 25%ish financial literacy to the book. I have zero finance background and wanted to know how to read balance sheets and cash flow statements for my stock investments. I later realized there was. A fourth edition and a work book so I hope to go thru that at a later time. Other wise good book that focuses on how companies are supposed to utilized their accounting practices versus reality.
July 22, 2020
The book has all elements required for your own financial analysis. Very simply put to enable understanding easily. I have a majors in Finance so serves as a quick brush up tool for me, quite often. Highly recommend.
September 21, 2018
The title can be a bit misleading. It is not an introductory book but gives insight into how to read between the lines of financial statement and how companies try to fool investors and auditors.
February 11, 2019
best book for finance
May 13, 2019
This is one of the most practical and useful guides to evaluate businesses and how to catch hidden gems in the statements
April 15, 2013
While purchasing this book, I was in two minds due to high price. But it feels worth every penny as its filled with invaluable content which is so imp for every investor to know. As buffet said "return of investment is more imp than return on investment" and this book does the job perfectly. With real life cases and frauds explained in detail, it cautions investors of how to be alert and save oneslf of dangerous traps and would be scams.
I would highly recommend this book to anyone interested in having indepth knowledge of real corporate finance and valuations.
I would highly recommend this book to anyone interested in having indepth knowledge of real corporate finance and valuations.
May 19, 2016
This book provides an excellent bird's eye view of the accounting practices, highlighting the most common pitfalls an analyst can fall in. Mostly an interesting narrative, at times it includes some common truths, e.g. "the elusiveness of true value". Credit Analysis and Equity Analysis are the most useful chapters, covering financial ratios and valuation methods in detail.
January 14, 2024
presuming you worked through Kieso & Weygandt, read 3 books and your accounting & finance education will be complete:
1. Guide to Financial Reporting & Analysis by Comiskey & Mulford
2. Financial Modeling by Simon Benninga
3. This book by clever-clogs Fridson
1. Guide to Financial Reporting & Analysis by Comiskey & Mulford
2. Financial Modeling by Simon Benninga
3. This book by clever-clogs Fridson
January 27, 2017
Excellent guide to understand simple accounting and how to spot misleading financial statements and line items with ease. Great book for any supplement for a career in finance and/or accounting
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January 25, 2014I need to see all slides about this book, thanks.
December 9, 2015
Howard Marks recommends this book.
Displaying 1 - 19 of 19 reviews