The Interpretation of Financial Statements

The Interpretation of Financial Statements
by Benjamin Graham, Spencer B. Meredith

The Interpretation of Financial Statements
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Book Summary Information

Author: Benjamin Graham, Spencer B. Meredith
Introduction: Michael F. Price
Edition: Hardcover
Audio: English (Unknown); English (Original Language); English (Published)
Published: 1998-01-15
ISBN: 0887309135
Number of pages: 144
Publisher: HarperBusiness

Book Reviews of The Interpretation of Financial Statements

Book Review: Meet the father of value investing... and Warren Buffett's mentor
Summary: 5 Stars

"In 1984, [Warren] Buffet returned to Columbia to give a speech commemorating the fiftieth anniversary of the publication of "Security Analysis". During that speech, he presented his own investment record as well as those of Ruane, Knapp, and Schloss [other successful investment managers who were students of Graham at Columbia]. In short, each of these men posted investment results that blew away the returns of the overall market. Buffett noted that each of the portfolios varied greatly in the number and type of stocks, but what did not vary was the managers' adherence to Graham's investment principles."

It is difficult to encapsulate Benjamin Graham's investing style in a few sentences or paragraphs. Readers are strongly urged to refer to his "The Intelligent Investor" to obtain a more thorough understanding of his investment principles.

In brief, the essence of Graham's value investing is that any investment should be worth substantially more than an investor has to pay for it. He believed in thorough analysis, which we would call fundamental analysis. He sought out companies with strong balance sheets, or those with little debt, above-average profit margins, and ample cash flow. (For more insight, see Introduction To Fundamental Analysis and Testing Balance Sheet Strength.)

He coined the phrase "margin of safety" to explain his common-sense formula that seeks out undervalued companies whose stock prices are temporarily down, but whose fundamentals, for the long run, are sound. The margin of safety on any investment is the difference between its purchase price and its intrinsic value. The larger this difference is (purchase price below intrinsic), the more attractive the investment - both from a safety and return perspective - becomes. The investment community commonly refers to these circumstances as low value multiple stocks (P/E, P/B, P/S).

Graham also believed that market valuations (stock prices) are often wrong. He used his famous "Mr. Market" parable to highlight a simple truth: stock prices will fluctuate substantially in value. His philosophy was that this feature of the market offers smart investors "an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal."

Summary of The Interpretation of Financial Statements

"All investors, from beginners to old hands, should gain from the use of this guide, as I have."
From the Introduction by Michael F. Price, president, Franklin Mutual Advisors, Inc.

Benjamin Graham has been called the most important investment thinker of the twentieth century. As a master investor, pioneering stock analyst, and mentor to investment superstars, he has no peer.

The volume you hold in your hands is Graham's timeless guide to interpreting and understanding financial statements. It has long been out of print, but now joins Graham's other masterpieces, The Intelligent Investor and Security Analysis, as the three priceless keys to understanding Graham and value investing.

The advice he offers in this book is as useful and prescient today as it was sixty years ago. 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. And this is the essential function and value of security analysis."

Written just three years after his landmark Security Analysis, The Interpretation of Financial Statements gets to the heart of the master's ideas on value investing in astonishingly few pages. Readers 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 any reader can apply to determine the financial health and well-being of any company.

This volume is an exact text replica of the first edition of The Interpretation of Financial Statements, published by Harper & Brothers in 1937. Graham's original language has been restored, and readers can be assured that every idea and technique presented here appears exactly as Graham intended.

Highly practical and accessible, it is an essential guide for all business people--and makes the perfect companion volume to Graham's investment masterpiece The Intelligent Investor.

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