Financial Statement Analysis: A Practitioner's Guide, 4th Edition
July 2011, ©2011
In Financial Statement Analysis, Fourth 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.
This fully revised and up-to-date Fourth Edition offers fresh information that will help you to evaluate financial statements in today's volatile markets and uncertain economy, and allow you to get past the sometimes biased portrait of a company's performance.
- Reflects changes in the financial reporting landscape, including issues related to the financial crisis of 2008-2009
- Provides guidelines on how to interpret balance sheets, income statements, and cash flow statements
- Offers information for maximizing the accuracy of forecasts and a structured approach to credit and equity evaluation
Filled with real-life examples and expert advice, Financial Statement Analysis, Fourth Edition will help you gain a firm understanding of the techniques that will help you interpret financial statements, which are designed to conceal more than reveal.
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.
The Importance of Being Skeptical.
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.
Chapter 3 The Income Statement.
Making the Numbers Talk.
How Real Are the Numbers?
Chapter 4 The Statement of Cash Flows.
The Cash Flow Statement and the Leveraged Buyout.
Cash Flow and the Company Life Cycle.
The Concept of Financial Flexibility.
In Defense of Slack.
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?
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.
Chapter 7 Expense Recognition.
Nortel's Deferred Profit Plan.
Grasping for Earnings at General Motors.
Time-Shifting at Freddie Mac.
Chapter 8 The Applications and Limitations of EBITDA.
EBIT, EBITDA, and Total Enterprise Value.
The Role of EBITDA in Credit Analysis.
A More Comprehensive Cash Flow Measure.
Working Capital Adds Punch to Cash Flow Analysis.
Chapter 9 The Reliability of Disclosure and Audits.
An Artful Deal.
Systematic Problems in Auditing.
Chapter 10 Mergers-and-Acquisitions Accounting.
Maximizing Postacquisition Reported Earnings.
Managing Acquisition Dates and Avoiding Restatements.
Chapter 11 Is Fraud Detectable?
Telltale Signs of Manipulation.
Fraudsters Know Few Limits.
Enron: A Media Sensation.
HealthSouth's Excruciating Ordeal.
Milk and Other Liquid Assets.
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.
Chapter 13 Credit Analysis.
Balance Sheet Ratios.
Income Statement Ratios.
Statement of Cash Flows Ratios.
Relating Ratios to Credit Risk.
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.
APPENDIX: Explanation of Pro Forma Adjustments for Hertz Global Holdings, Inc./DTG.
About the Authors.
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.
Christopher Shayne, CFA, Director of Product Operations for Enterprise Risk Solutions at Moody's Analytics
"Any book that reaches its 4th edition (updated to 2011) should be good. That's true in spades for Financial Statement Analysis. Fridson and Alvarez have written a classic. It should be required reading and a constant reference source on the bookshelf of any investor intending to buy individual company stocks or bonds."
Canadian Financial DIY blog
"In the 1990s, Benjamin Graham's Security Analysis served as [Value Partners’] reference book, but since then they have been using Martin Fridson's Financial Statement Analysis: A Practioner's Guide."
excerpt from The Value Investors: Lessons from the World's Top Fund Managers by Ronald Chan, Bruce C. N. Greenwald (Foreword)
What is the Purpose of Financial Reporting? What companies are concealing can inform you a lot more than what they're revealing. Learn what's behind the numbers with author of Financial Statement Analysis Fourth Edition, Martin Fridson.