TIP OF THE WEEK – A Free Lesson on How to Read a Financial Report

A Free Lesson on How to Read a Financial Report

Jason Brizic

October 28, 2011

A proposed definition of INVESTMENT from “Security Analysis” 2nd ed. (1940) written by legendary investors Benjamin Graham and Christopher Dodd is particularly appropriate for this Tip of the Week.

An investment operation is one which, upon through analysis, promises safety of principal and a satisfactory return.  Operations not meeting these requirements are speculative.

The phrases thorough analysis, promises safety, and satisfactory return are all chargeable with indefiniteness, but the important point is that their meaning is clear enough to prevent serious misunderstanding.  By thorough analysis [Graham and Dodd] mean, of course, the study of the facts in the light of established standards of safety and value.  An “analysis” that recommended investment in General Electric common at a price forty times its highest earnings merely because of its excellent prospects would be clearly ruled out, as devoid of all quality of thoroughness.

The “facts” that Graham and Dodd are referring to are the financial results that are located in company’s quarterly and annual reports.  You should be able to understand how the company makes a profit, what its assets and liabilities are, and how much cash is flowing into the business.  In general, you should have a basic understanding of how to read a financial report.

Merrill Lynch has provided a short 52 page free report on “How to Read a Financial Report”  It is available for free in PDF format at this link http://tinyurl.com/63yr4qs .  I’ve read this document and it is a great introduction to the contents of the typical financial reports worldwide.

There are more free sources on how to read a financial report available from this Google search http://tinyurl.com/3dxe7xq

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Published in: on October 28, 2011 at 5:04 pm  Leave a Comment  

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