“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.