It's Earnings That Count : Finding Stocks with Earnings Power for Long-term Profits [Hardcover]

Hewitt Heiserman Jr. (Author)

Book Description

ISBN-10: 0071423230 | ISBN-13: 978-0071423236 | Publication Date: November 21, 2003 | Edition: 1

An innovative way to see through a company's published numbers to discover its true investment potential

This book gives you a blueprint for finding a great growth stock for the next decade without taking on a lot of risk in the process. Inspired by the writings of Benjamin Graham, It's Earnings That Count examines a firm’s earnings quality from the perspective of a “defensive” investor who wants to avoid committing ruinous mistakes as well as the “enterprising” investor who seeks Wall Street’s next great opportunities. Unfortunately, as recent market history has shown, the traditional income statement is ill-suited to meeting the needs of these sometimes opposing viewpoints. As a result, investors can buy shares of a seemingly profitable company that, in fact, has poor earnings quality.

However, the author’s trademarked Earnings Power Chart combines Graham’s two personalities to reveal, in picture form, whether a company possesses authentic earnings power for long-term growth. Using the world-famous William Wrigley Jr. Company gum-maker as a case study, you will learn how to build these two alternate profit-and-loss statements to protect yourself. Since this book is written in plain English, you do not need to be an MBA or accountant to follow these step-by-step instructions.

Giving investors the tools they need to turn the tables in their favor, It's Earnings That Count covers:

• The four limitations of the income statement found in every annual report, 10-K, and 10-Q
• A quick-hitting, five minute test to sift out the obvious losers so you can save time and focus on analyzing potential winners
• How to spot when a company is forging an Earnings Power Staircase—that’s your hallmark of a low-risk growth stock like Microsoft and Paychex
• Why the charts of Lucent Technologies, WorldCom, Enron, and Tyco signaled trouble ahead of traditional income statement.
• The 2 earnings power ratios you need before making your next investment
• 12 ways to check whether management’s interests are aligned with yours
• A list of 15 items to check for to make sure the companies in your stock portfolio have a competitive advantage. (Hint: Great growth stocks always have competitive advantages.)
• 16 kinds of companies to avoid
• 20 indicators that it may be time to sell

“Well-written, intellectually sound, "accessible" to those who take the time to understand, and a poke in the eye to those who abused our capitalistic system and those (pros) who let them get away with it." -John C. Bogle, the founder and former CEO of The Vanguard Group

"In a single, easy to use index, Hewitt Heiserman captures the essence of growth and value—a most insightful approach to stock picking." -Charles W. Mulford, co-author, The Financial Numbers Game, Director, DuPree Financial Analysis Lab and professor of Accounting, Georgia Institute of Technology.

"Clear and engaging, Heiserman shows how to easily evaluate a growth company's investment potential for both conservative and aggressive investors. The result? The 'cautiously greedy' investor wins." -Tom Jacobs, Senior Analyst, The Motley Fool

“Heiserman’s unique and thorough analysis not only provides methods for avoiding companies with suspect earnings, but also uncovering the true gems that are able to grow well into the future.” -Timothy M. Mulligan, J.D., LL.M., CPA., CEO, Forensic Advisors, Inc.

“Hewitt Heiserman's innovative financial analysis techniques goes a long way towards providing an investor with an extra edge in identifying the growth stocks of tomorrow without being unduly exposed to excessive investment risk today.” -Thornton L. Oglove, Founder, Quality of Earnings Report

"This book lays the groundwork for becoming a successful long-term investor.” -Mark Sellers, Equities Strategist & Portfolio Manager, Morningstar, Inc.

"As an avid reader of investment books, I recommend this book wholeheartedly." -Arne Alsin, Real Money.com and The Turnaround Fund

“In a clear, sound and practical way, Heiserman provides an investment road map that enhances the odds of your becoming a successful long-term investor.” -Robert L. Rodriguez, Chief Executive Officer, First Pacific Advisors and two-time recipient of Morningstar Mutual Fund’s Manager of the Year

"You really do have to understand 'earnings' if you are to succeed long term in investing." -Jim Rogers, author, Adventure Capitalist and Investment Biker

"Heiserman shows investors how to uncover Wall Street earnings quackery and frauds. A must read." -Kenneth Lee, author, Trouncing the Dow

"Like a professional athlete, Hewitt Heiserman Jr. brings intensity and brainpower to the world of investing. You need the graduate school that It's Earnings That Count can provide. Buy the book and do your homework." -John D. Spooner, Director-Investments SmithBarney Citigroup and author of Confessions of a Stockbroker, Sex and Money, and Do You Want to Make Money or Would You Rather Fool Around?

"Great addition to the literature! Hewitt Heiserman has crafted an easy read, basic tutorial on avoiding the most common mistakes caused by accounting phony baloney-combined with some age old investment wisdom. Mandatory for the intermediate investor!" -Kenneth L. Fisher, CEO of Fisher Investments Inc. and Forbes' "Portfolio Strategy" columnist

Editorial Reviews

From the Back Cover

A Powerful, Easy-to-Use Investment Tool for Delivering Long-Term Profits While Protecting Your Family's Savings

Investors today must look beyond balance sheet "earnings" to gauge whether the company behind a stock has the potential to deliver triple-digit capital gains. It's Earnings that Count shows you how to know, at a glance, whether a company has legitimate long-term earnings power--or whether its stock is little more than an attractively packaged time bomb, waiting to explode without warning in your portfolio.

Praise for It's Earnings That Count:

"Well-written, intellectually sound, 'accessible' to those who take the time to understand, and a poke in the eye to those who abused our capitalistic system and those (pros) who let them get away with it."

--John C. Bogle, Founder and former CEO, The Vanguard Group

"Clear and engaging, Heiserman shows how to easily evaluate a growth company's investment potential for both conservative and aggressive investors. The result? The 'cautiously greedy' investor wins."

--Tom Jacobs, Senior analyst, The Motley Fool

"In a single, easy to use index, Heiserman captures the essence of growth and value--a most insightful approach to stock picking."

--Charles W. Mulford, Professor of accounting, Georgia Institute of Technology, Director, Dupree Financial Analysis Lab, and Coauthor, The Financial Numbers Game

"A great addition to the literature! Hewitt Heiserman has crafted an easy read, basic tutorial on avoiding the most common mistakes caused by accounting phony baloney--combined with some age-old investment wisdom. Mandatory for the intermediate investor."

--Kenneth L. Fisher, CEO, Fisher Investments, Inc., and Forbes columnist, "Portfolio Strategy"

"If you are a long-term investor most companies are not worth touching; your focus must be on identifying that small minority of firms that have the potential go be great growth stocks for the next ten years without exposing your portfolio to excessive risk. My purpose is to share with you a hands-on approach for looking beyond what a company reports and what Wall Street says. In the end, you'll be able to form your own educated opinions based on your analysis and make the best investment decisions for you."

--From the Introduction

Whether you invest in mutual funds or individual stocks--or, more likely, a combination of the two--you have undoubtedly lost money on companies that "looked good on paper." It's Earnings That Count introduces the easy-to-use Earnings Power Chart^TM methodology, an approach that quickly identifies that small number of companies that possess high-quality earnings growth, and are positioned for growth over the long haul.

This two-step methodology reveals not only if a company has the ability to finance its growth, but also how successful it is (and will continue to be) at creating value for its investors. Giving you the tools you need to take on both the back-office number crunchers and Wall Street sharks, It's Earnings That Counts reveals:

• The four substantive limitations of the income statement found in every annual report, 10-K, and 10-Q
• How those limitations can cost you money even if the company is "profitable"--and how to protect yourself
• A quick-hitting, five minute test for sifting out the obvious losers so you can save time and focus on analyzing potential winners
• The Earnings Power Chart--A powerful, picture-based investment tool for identifying great growth stocks for the next decade
• Case studies of real companies, from Enron and WorldCom to HealthSouth, Microsoft, and Wrigley

If recent history has taught us anything, it is that published financial reports can be questionable and even misleading to investors looking for solid investment targets, while a sound business foundation and legitimate earnings power provide the best insurance against a stock's collapse. Let It's Earnings That Count show you how to look beyond reported figures to find those needle-in-the-haystack companies that will power your portfolio with profits and growth proven to last for the life of the portfolio--not artificially enhanced growth destined to last only until the release of the next quarterly report.

About the Author

Hewitt Heiserman Jr. writes a popular column on earnings power for TheStreet.com's investment website realmoney.com. A financial analyst for the last 15 years, Heiserman is a member of the Boston Security Analyst Society and the Association for Investment Management and Research.

Product Details

• Hardcover: 210 pages
• Publisher: McGraw-Hill; 1 edition (November 21, 2003)
• Language: English
• ISBN-10: 0071423230
• ISBN-13: 978-0071423236
• Product Dimensions: 9.3 x 6.2 x 1 inches
• Shipping Weight: 1.2 pounds
• Average Customer Review: 4.6 out of 5 stars  See all reviews (14 customer reviews)
• Amazon Best Sellers Rank: #766,665 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

40 of 42 people found the following review helpful:

5.0 out of 5 stars Combine Graham & Economic Value Added in one chart, December 1, 2003

By 

John C. Dunbar (Sugar Land, TX United States) - See all my reviews
(REAL NAME)   

This review is from: It's Earnings That Count : Finding Stocks with Earnings Power for Long-term Profits (Hardcover)

This book describes a fundamental approach to stock selection. It combines the "margin of safety" approach using free cash flow of Graham with the Economic Value Added (EVA) approach of determining returns in excess of its weighted average cost of capital. The author charts these new Defensive EPS and Enterprising EPS so you can see if they meet a minimum test.

The book is easy to read and the techniques are easy to apply. The author also gives you some extra ratios to help screen out your long term purchase candidates.

It's not a deeply academic book but more of a presentation of practical advice and a proprietary fundamentalist stock selection system that will keep you out of trouble. The author also discusses how to evaluate management and how to evaluate competitive advantange. These chapters were also good.

There are many interesting examples in the book. The book makes it look simple but I'm sure there are many areas in financial statment analysis where you'll be scratching your head to create these new EPS figures. Still, overall the book is great.

John Dunbar
Sugar Land, TX

21 of 23 people found the following review helpful:

5.0 out of 5 stars One of the Best Investment Books Around, June 22, 2004

By 

lostpros (Edgewood, KY United States) - See all my reviews

This review is from: It's Earnings That Count : Finding Stocks with Earnings Power for Long-term Profits (Hardcover)

Could you have predicted the downfalls of Enron and MCI Worldcomm? Could you have predicted the meteoric rise in Dell? Now you can with the tools Mr. Heiserman provides us in this must read.

Whether you are a beginner or expert, the book gives everyone tools that they can use in their investment approach. First, the book discusses what to look for in companies. Chapters 5 through 7 are my personal favorites. These provide the investor with the structure and format to analyze companies. The premise is that you need three sets of earnings statements to accurately analyze a company. The first is the enterprising income statement that allows you to deetermine if a company can create value for its investors. The second is the defensive income statement that allows you to determine if a company can self fund (does it need to borrow money or can it grow from within). The third is the plain, old income statement (called accrual income statement), which focuses on what was reported. Mr. Heiserman shows you how to chart these earnings to determine if the company you are analzying is the next Dell, Enron, or something in between.

Finally, he explains to the reader a valuation technique (the Croesus Test). This allows the reader to understand and appreciate whether now is the right time to buy.

On a personal note, after reading the book I read an article he wrote regarding Sanderson Farms. He recommended that it be purchased based upon the methodology used in the book.

I then emailed Mr. Heiserman and pointed out that my own valuation techniques showed this company to be overvalued. Surprisingly, Mr. Heiserman is both accesible and generous with his time. He emailed me back several times and almost immediately. Since his article, Sanderson Farms is up an astounding 93% (split adjusted price of $27 at the time of the article). In the meantime, the market has been flat. I guess I was wrong.

In any event, if you are looking for a method that works and an easy to learn format, this book is for you.

9 of 10 people found the following review helpful:

5.0 out of 5 stars Must-Read for Every Investor, December 16, 2003

By 

Adam J. Peck (Miami, FL) - See all my reviews

This review is from: It's Earnings That Count : Finding Stocks with Earnings Power for Long-term Profits (Hardcover)

It's Earnings that Count should be on every investor's bookshelf. Whether you are a seasoned investor with an extensive background in accounting or just a beginner, this book is a must-read. Hewitt Heiserman effortlessly incorporates Benjamin Graham's defensive and enterprising perspectives into one easy-to-use system to determine a company's true earnings power. While these two methods are well known to the avid investor, Mr. Heiserman presents them in a fresh visual perspective, which through example, empowers the reader to not only learn how to discover the next Microsoft, but also how to avoid the next Enron or WorldCom.