FINANCIAL STATEMENT ANALYSIS MARTIN FRIDSON PDF

Financial statement analysis is an essential skill in a variety of investment and finance occupations. 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.

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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. The first chapter discusses various tools used to manipulate the revenue recognition process; diverse examples include a software company, a lay-away program at a major retailer, and memberships at a health club. The next chapter discusses expense recognition using a similar framework.

Perhaps the most interesting chapter in this section discusses the role of auditors. Part 4 ties the previous sections together to illustrate how to use your new found scepticism to make forecasts.

The first chapter provides a step-by-step illustration of how combine an existing set of statements with your assumptions about the future to produce your own forecasts. Each projected statement income, cash flow, and balance sheet is accompanied by a line-by-line description of relevant issues economic, historic, etc The chapter also discusses how to construct a sensitivity analysis under varying assumptions.

Unlike the previous chapters, this one provides a detailed explanation of how to actually go through the process, and was particularly appreciated by this reader.

The other chapters in the section focus on the computation of the various ratios used in credit and equity analysis. Importantly, however, they move beyond the mechanics by providing the reader with insight into how to use, interpret, and recast the ratios under varying assumptions. As stated at the outset, the focus remains on helping the reader develop insight. Finally, the book contains a useful glossary that provides definitions and examples for many economic, financial, and accounting terms and concepts.

One caveat, however. If your accounting skills are weak or rusty like mine , you might might find the lack of more step-by-step examples and problem sets frustrating. In this case, you might consider supplementing the book with a more traditional textbook. Overall, however, the book is a very useful tool.

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Financial Statement Analysis : A Practitioner's Guide

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.

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Financial Statement Analysis (3rd Ed.)

Finance Flap copy Financial statement analysis is an essential skill for individuals involved in investment management, corporate finance, commercial lending, and the extension of credit. Over the years, it has become an increasingly complex endeavor, as corporate financial statements have become more difficult to decipher. Divided into four comprehensive parts--Reading Between the Lines, The Basic Financial Statements, A Closer Look at Profits, and Forecasts and Security Analysis--this practical guide contains: Insights that will allow you to evaluate financial statements effectively in volatile markets and an uncertain economy Discussions on properly interpreting balance sheets, income statements, and cash flow statements Valuable new case studies of fraudulent reporting Tips for maximizing the accuracy of forecasts and a structured approach to credit and equity evaluation Revelations about how earnings can be exaggerated or even fabricated And much more All too often, financial statements conceal more than they reveal. But by undertaking genuine, goal-oriented analysis--instead of simply going through the motions of calculating standard financial ratios--you can uncover the true financial condition of a company.

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Financial Statement Analysis

Education[ edit ] Fridson earned a B. He was also awarded the Chartered Financial Analyst designation in Career[ edit ] Fridson interviewed with Mitchell Hutchins and accepted a position as an electric utility bond trader in After Mitchell Hutchins was acquired by Paine Webber in he left with his trading group to Scandinavian Securities where he worked ultimately as an assistant vice president. In he joined Salomon Brothers as a Vice President focusing primarily in credit research continuing to take a high interest in the high yield debt world. At this time, high yield debt came into the sights of institutional investors as a portfolio enhancing investment and there was a great demand for quality research in the field. According to Fridson, much of the high yield analysis at the time was indistinguishable from advocacy.

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