The updated, real-world guide to interpreting and unpacking GAAP and non-GAAP financial statements
In Financial Statement Analysis, 5th Edition, leading investment authority Martin Fridson returns with Fernando Alvarez to provide the analytical framework you need to scrutinize financial statements, whether you’re evaluating a company’s stock price or determining valuations for a merger or acquisition. Rather than taking financial statements at face value, you’ll learn practical and straightforward analytical techniques for uncovering the reality behind the numbers. This fully revised and up-to-date 5th Edition offers fresh information that will help you to evaluate financial statements in today’s volatile markets and uncertain economy. The declining connection between GAAP earnings and stock prices has introduced a need to discriminate between instructive and misleading non-GAAP alternatives. This book integrates the alternatives and provides guidance on understanding the extent to which non-GAAP reports, particularly from US companies, may be biased.
Understanding financial statements is an essential skill for business professionals and investors. Most books on the subject proceed from the questionable premise that companies’ objective is to present a true picture of their financial condition. A safer assumption is that they seek to minimize the cost of raising capital by portraying themselves in the most favorable light possible. Financial Statement Analysis teaches readers the tricks that companies use to mislead, so readers can more clearly interpret statements.
* Learn how to read and understand financial statements prepared according to GAAP and non-GAAP standards
* Compare CFROI, EVA, Valens, and other non-GAAP methodologies to determine how accurate companies’ reports are
* Improve your business decision making, stock valuations, or merger and acquisition strategy
* Develop the essential skill of quickly and accurately gathering and assessing information from financial statements of all types
Professional analysts, investors, and students will gain valuable knowledge from this updated edition of the popular guide. Filled with real-life examples and expert advice, Financial Statement Analysis, 5th Edition, will help you interpret and unpack financial statements.
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Preface to Fourth Edition.
Acknowledgments.
PART ONE Reading between the Lines.
Chapter 1 The Adversarial Nature of Financial Reporting.
The Purpose of Financial Reporting.
The Flaws in the Reasoning.
Small Profits and Big Baths.
Maximizing Growth Expectations.
Downplaying Contingencies.
The Importance of Being Skeptical.
Conclusion.
PART TWO The Basic Financial Statements.
Chapter 2 The Balance Sheet.
The Value Problem.
Comparability Problems in the Valuation of Financial Assets.
‘Instantaneous’ Wipeout of Value.
How Good Is Goodwill?
Losing Value the Old-Fashioned Way.
‘True’ Equity Is Elusive.
Pros and Cons of a Market-Based Equity Figure.
The Common Form Balance Sheet.
Conclusion.
Chapter 3 The Income Statement.
Making the Numbers Talk.
How Real Are the Numbers?
Conclusion.
Chapter 4 The Statement of Cash Flows.
The Cash Flow Statement and the Leveraged Buyout.
Analytical Applications.
Cash Flow and the Company Life Cycle.
The Concept of Financial Flexibility.
In Defense of Slack.
Conclusion.
PART THREE A Closer Look at Profits.
Chapter 5 What Is Profit?
Bona Fide Profits versus Accounting Profits.
What Is Revenue?
Which Costs Count?
How Far Can the Concept Be Stretched?
Conclusion.
Chapter 6 Revenue Recognition.
Channel-Stuffing in the Drug Business.
A Second Take on Earnings.
Astray on Layaway.
Recognizing Membership Fees.
A Potpourri of Liberal Revenue Recognition Techniques.
Fattening Earnings with Empty Calories.
Tardy Disclosure at Halliburton.
Managing Earnings with ‘Rainy Day’ Reserves.
Fudging the Numbers: A Systematic Problem.
Conclusion.
Chapter 7 Expense Recognition.
Nortel’s Deferred Profit Plan.
Grasping for Earnings at General Motors.
Time-Shifting at Freddie Mac.
Conclusion.
Chapter 8 The Applications and Limitations of EBITDA.
EBIT, EBITDA, and Total Enterprise Value.
The Role of EBITDA in Credit Analysis.
Abusing EBITDA.
A More Comprehensive Cash Flow Measure.
Working Capital Adds Punch to Cash Flow Analysis.
Conclusion.
Chapter 9 The Reliability of Disclosure and Audits.
An Artful Deal.
Death Duties.
Systematic Problems in Auditing.
Conclusion.
Chapter 10 Mergers-and-Acquisitions Accounting.
Maximizing Postacquisition Reported Earnings.
Managing Acquisition Dates and Avoiding Restatements.
Conclusion.
Chapter 11 Is Fraud Detectable?
Telltale Signs of Manipulation.
Fraudsters Know Few Limits.
Enron: A Media Sensation.
Health South’s Excruciating Ordeal.
Milk and Other Liquid Assets.
Conclusion.
PART FOUR Forecasts and Security Analysis.
Chapter 12 Forecasting Financial Statements.
A Typical One-Year Projection.
Sensitivity Analysis with Projected Financial Statements.
Projecting Financial Flexibility.
Pro Forma Financial Statements.
Pro Forma Statements for Acquisitions.
Multiyear Projections.
Conclusion.
Chapter 13 Credit Analysis.
Balance Sheet Ratios.
Income Statement Ratios.
Statement of Cash Flows Ratios.
Combination Ratios.
Relating Ratios to Credit Risk.
Conclusion.
Chapter 14 Equity Analysis.
The Dividend Discount Model.
The Price-Earnings Ratio.
Why P/E Multiples Vary.
The Du Pont Formula.
Valuation through Restructuring Potential.
Conclusion.
APPENDIX: Explanation of Pro Forma Adjustments for Hertz Global Holdings, Inc./DTG.
Notes.
Glossary.
Bibliography.
About the Authors.
Index.
เกี่ยวกับผู้แต่ง
MARTIN FRIDSON is Global Credit Strategist at BNP Paribas
Investment Partners, one of the world’s largest asset managers.
Over a twenty-five-year span with brokerage firms including Salomon
Brothers, Morgan Stanley, and Merrill Lynch, he became known for
his innovative work in credit analysis and investment strategy.
Fridson has served as president of the Fixed Income Analysts
Society, governor of the Association for Investment Management and
Research (now CFA Institute), and director of the New York Society
of Security Analysts.
FERNANDO ALVAREZ is currently an Adjunct Associate
Professor of Finance and Economics at the Columbia University
Graduate Business School, where he teaches entrepreneurship
finance. From 2003 until 2008, he was associate professor in the
Finance and Economics Department and director of entrepreneurship
programs at Rutgers Business School, Newark and New Brunswick.
Alvarez has taught at New York University’s Stern School of
Business where he was associate professor on innovation and
entrepreneurship, and Babson College where he was assistant
professor of finance.
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