“When in Rome, do as the Romans do,” goes the famous saying.
What this saying suggests is that you need to know the language and customs of people when you visit an unknown society. Doing so is polite, and also advantageous.
The same holds true when you enter the ‘investing society’. Before you enter, your gate pass must show that you understand the language of business.
And what’s the language of business? The answer – Numbers.
Numbers speak the language of business.
If you don’t understand the numbers that businesses use to communicate with you (through financial statements), the investing society can be like a maze.
You won’t know where you are, and you won’t know how to come out in case of a fire.
But believe me…if you can read a nutrition label on your box of corn flakes, or you know how to read your home loan statement, you can learn to read basic financial statements.
At least, here is one book that can make the task a lot easier for you than you might’ve ever imagined.
It’s The Interpretation of Financial Statements, written by none other than the father of value investing, Benjamin Graham.
This slim book was published shortly after Graham completed Security Analysis, and provides an excellent primer for those who are looking for an introduction to reading financial statements.
While this book is in no way a substitute for Security Analysis or The Intelligent Investor, it does pack in significant useful information in a small package.
The basic concepts of financial statements analysis that Graham discusses in this book are still relevant today.
While it would be unwise to limit one’s toolkit for analyzing companies to the techniques Graham presents in this short book, this is worth reading for those interested in getting a quick read on financial statement analysis from the perspective of the founder of value investing.
As he writes in the preface, “If you have precise information as to a company’s present financial position and its past earnings record, you are better equipped to gauge its future possibilities.”
By reading this book, you will learn to analyze a company’s balance sheets and income statements and arrive at a true understanding of its financial position and earnings record.
Graham provides simple tests you can apply to determine the financial health and well-being of any company.
Highly practical and accessible, it is an essential guide for you, and makes the perfect companion to Graham’s value investing masterpiece, The Intelligent Investor.
Click here to read The Interpretation of Financial Statements
Thanks a lot.Exactly the kind of information i was looking for.
Vishal Khandelwal says
Dear Mr. Vijayshankar,
Thanks a lot for your feedback. And good to know that you found this useful.
M.K Reddy says
Dear Vishal Khandelwal,
Thank u very much….
Thank for all efforts you are putting to educate small investor like me.. that too free 🙂
However I am getting file is damage error while downloading.
Faiz Shariff says
I have spent the last 5 hours reading your blog. I took a break to get all of Buffett’s, Munger’s and Mark’s letters/memos printed. I will started reading them tomorrow.
Your blog is a godsend at a time that I was struggling with intrinsic value calculation. I started studing value investing a month ago. I have struggled with what “Y” stands for in the Graham Formula (obviously I cannot use the (Discount Rate) 10 year federal note, so I used the rate on an Indian government bond from here.
Not sure if I’m right or wrong. But I’m sure that time will correct me and make me better.
I’m super impressed and grate that I found this site. I’m extremely disappointed that I can’t start studying from your and your Mastermind course right away. But ah well, your reources section and your blog has kept me happy and busy haha.
For sharing your knowledge, and your perspective. I was financially illiterate. I splurged and wasted money. Then I found Rich Dad Poor Dad and everything changed. I then found Warren Buffet and his letters. And now I found you, your course and your blog.
Things are starting to look really good. And I’m grateful.
I look forward to hearing from you.
Thank you. Again.