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Financial Statement Analysis: A Practitioner's Guide, 3rd Edition 3rd Edition

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ISBN-13: 978-0471409151
ISBN-10: 0471409154
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Review

In Financial Statement Analysis: A Practitioner?s Guide, Third Edition (New York: John Wiley & Sons, Inc., 2002), Martin Fridson and Fernando Alvarez detail a number of gimmicks that companies have employed, including:
  • Booking deliveries of computer software to resellers as sales, despite undisclosed agreements permitting the return of unsold merchandise for refunds.
  • Helping managers to achieve their annual sales targets by announcing a price increase, effective January 2, to induce customers to order before year-end, even though the hike puts the company out of line with the competition.
  • Taking credit for volume-based rebates from suppliers before purchases of merchandise reach the level needed to qualify for the rebates.
Surprisingly, to many readers, the slipperiness depicted in Financial Statement Analysis is not limited to penny-stock companies or high-flying initial public offerings. A number of the book?s case studies involve widely respected Fortune 500 corporations. The authors quote an official of one such company who freely admits that when a division is in danger of missing its quarterly profit goal, management tries to make an acquisition in the waning days so that it can count the unit?s earnings for the entire period.

Fridson and Alvarez do not merely describe and deplore opaque financial reporting practices. They document a number of cases in which analysts successfully anticipated stock and bond price shocks, using financial ratios and publicly available information from outside the statements. The authors also provide practical advice on making financial projections. (Extra Credit, The Journal of Global High Yield Bond Research)

Financial Statement Analysis, by junk bond guru Martin Fridson, is my No. 1 pick for those at an intermediate level. Fridson does a great job of explaining the various forces at work in corporate financial statement preparation, and also has valuable insights into issues such as pro form a income statements and revenue recognition practices. - Street.com

From the Inside Flap

Financial Statement Analysis

The goal of financial statement analysis is to shed light on the true financial condition of a company so realistic valuations can be determined for investment, lending, or merger and acquisition purposes. This important process has become increasingly complex over the years as corporate financial statements have become more difficult to decipher. But with Financial Statement Analysis, Third Edition, you’ll learn how to handle the practical challenges that are part of this business.

In Financial Statement Analysis, Third Edition, leading investment authority Martin Fridson returns with NYU Professor 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. This fully revised and up-to-date Third Edition offers detailed, fresh information that will allow you to evaluate financial statements in today’s volatile markets and uncertain economy.

This definitive guide to the analysis and use of financial statements arms investors, money managers, bankers, and financial analysts with:

  • Information that will allow you to "read between the lines" of financial statements and help you get past the biased portrait of a company’s performance as represented by its financial statements
  • Guidelines on how to interpret balance sheets, income statements, and cash flow statements
  • A solid understanding of the lifeblood of the capitalist system–profits–and how earnings can be exaggerated or even fabricated
  • Tips for maximizing the accuracy of forecasts and a structured approach to credit and equity evaluation

With expanded coverage that includes merger accounting, pension issues, integrity of audits, and the addition of valuable new case studies, Financial Statement Analysis, Third Edition teaches analysts and professional investors new techniques for understanding and interpreting financial statements that are designed to conceal more than reveal.

Filled with real-life examples and expert advice, this comprehensive guide will motivate you to undertake genuine, goal-oriented analysis instead of simply going through the motions of calculating standard financial statement analysis. Pick up Financial Statement Analysis, Third Edition and you will acquire all the insight and professional know-how you need to find the facts behind the fiction of most corporate financial statements.

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Product Details

  • Series: Wiley Finance (Book 76)
  • Hardcover: 396 pages
  • Publisher: Wiley; 3 edition (March 15, 2002)
  • Language: English
  • ISBN-10: 0471409154
  • ISBN-13: 978-0471409151
  • Product Dimensions: 6.4 x 1.4 x 9.1 inches
  • Shipping Weight: 1.4 pounds
  • Average Customer Review: 4.1 out of 5 stars  See all reviews (14 customer reviews)
  • Amazon Best Sellers Rank: #758,926 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

76 of 79 people found the following review helpful By "ano202" on September 14, 2002
Format: Hardcover
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.
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49 of 49 people found the following review helpful By Denise on May 2, 2004
Format: Paperback
in all likelihood, average investors will not get much out of this book, as average investors don't pore over 10-ks, annual reports and conduct industry analysis prior to investing (which they should!). but for those above average investors who do (read: intelligent investors, per ben graham), this book is an excellent read.
2/3 of the book deals w/ alterting the investor to some of the areas where company mgmt can play games w/ the #s in order to goose the stock price. the examples were helpful, but the insights were not exactly earth shattering for experienced investors.
however, the last 1/3 of the book, on forecasts & security analysis, is worth the price of the book. in 100pgs, you get an MBA-level text on security / credit / financial statement analysis, complete w/ ratio definitions, caveats(!), and applicability. excellent stuff for the beginning or experienced analyst, and i will doubtless refer to the last 1/3 time and again.
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14 of 14 people found the following review helpful By A Customer on August 4, 2002
Format: Hardcover
In this environment, on the heels of the dot-com meltdown, and the implosions of Enron, Worldcom, and their ilk, a fresh look at financial statement analysis and what that can mean to an investor, is timely. The book is extremely well written and highly readable, unlike most texts I have seen on the subject. The detailed exercises are relegated to a separate workbook, making it an easier read for those who want to simply glean some new insights.
It is, in fact, a fast read, and the fresh, real-world case examples add new dimensions to the topic. There are, of course, detailed reviews of the basic financial statements, but also detailed discussions about these statements in light of M&A and other notable events in the life of a firm. One of the most interesting chapters included a detailed discussion of the EBITDA, which the PR machines have tried to paint as a true indicator of profitability.
This is a valuable resource to anyone who needs to analyze financial statements for professional reasons, but is straightforward enough to engage the reader who may only wish to better understand the companies in which he or she is considering investing.
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14 of 15 people found the following review helpful By A Customer on May 20, 2002
Format: Hardcover
Dr. Alvarez and Mr. Fridson's book is a MUST READ not only for every finance professional...but for the average investor as well. By the use of real-life examples and fascinating stories, the authors present a compelling behind-the-scenes look at the world of corporate finance, and how financial statements can often deceive. In today's post-Enron world, this book is a must-have for anyone who dabbles in the market, even on a part-time basis.
What I enjoyed most about Financial Statement Analysis-a Practioner's Guide is the tone of the book...rather than your standard dry academic tome, the authors inform us through interesting stories, and speak WITH us rather than AT us. I find their approach extremely effective, given that this is the first finance related book I've ever read that didn't put me to sleep (I actually had a hard time putting it down).
As a financial professional, instructor and investor, I've applied many of the lessons taught in this book, and have begun recommending it to all of my classes, clients and colleagues. As such, I highly recommend it to anyone that is read for an eye-opening look at the world of corporate finance.
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17 of 19 people found the following review helpful By A Simple Guy on February 24, 2006
Format: Hardcover Verified Purchase
I'm not a financial analyst but I'm interested in analysing companies for my own investments. I found the book easy to read. It's a big eye-opener for someone who was not aware of all the accounting gimmicks that aggressive companies can play. I'm certainly a better investor now.

That being said, please note that this book won't tell you much about what you need to do to value a company and invest in it. It will help you spot troublesome companies and accounting tricks that don't look right, but after that you're on your own. You need more than this book to be a good investor, but this book is a pretty important part of being a good investor.
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