Financial Statement Analysis
A Practitioner's Guide
4th Edition
Published on 1. June 2011
400 pages
978-1-118-06418-4 (ISBN)
Description
Praise for Financial Statement Analysis FOURTHEDITION
"I love this book. It helps to develop the questioningmind--the mind of a financial detective. It teaches the art ofskepticism and critical thinking. Readers go beyond definition andcalculation and learn interpretation."
--Philip L. Cooley, PhD, Prassel DistinguishedProfessor of Business, Trinity University
"Over my decades of involvement with high-yield bonds, MartyFridson has been the leading speaker of truth. As he so accuratelystates in Financial Statement Analysis, the credit investoris required to engage in a game of cat-and-mouse with companymanagement's intent on minimizing their cost of capital by puttinga positive gloss on their financial statements. The Fourth Editionof Marty's terrific book is the bible on how to detect and dealwith these efforts."
--Howard Marks, Chairman, Oaktree CapitalManagement
"Financial Statement Analysis is a unique text; itcombines great academic work with numerous real-life examples toform a highly useful reference for equity investors, debt holders,and investors who straddle both asset classes. Whether you are aninvestor, an investment advisor, or a teacher, Financial StatementAnalysis will prove very valuable."
--Margaret M. Cannella, former head of Global CreditResearch, J.P. Morgan and Adjunct Professor, Columbia BusinessSchool
"Marty has seen it all! He has had a front-row seat to see thebirth, death, and rebirth of the high-yield bond market . . .several times over! In the Fourth Edition of Financial StatementAnalysis, Marty clearly demonstrates that despite the enactmentof Sarbanes-Oxley in 2002, and other attempts to curtail abuse ofthe system, one needs a critical analytical eye to be certain thatmanagement is not trying to obfuscate the truth. The case studiesprovide excellent and timely examples of some of the techniquesthat companies have used to mislead investors."
--Edward Z. Emmer, former global head of Corporate andGovernment Ratings and Equity Research, Standard & Poor's
"Those who read financial statements without understanding thestrategic context in which they are written will land on the losingend of the gripping episodes with which bond-market legend MartyFridson illustrates in the Fourth Edition of his classic reference,Financial Statement Analysis. And all of us who depend onthe markets sending capital to its best use should hope thatinvestors read this book first."
--David Musto, Professor of Finance, the Wharton Schoolof the University of Pennsylvania
"This book rightly urges resolute skepticism when inspectingfinancial statements. Its great value, though, is in theplain-spoken stripping down of real-world and illustrative examplesthat show how to see past the numbers to the practicalities andincentives behind them--and so help analysts and journalistsalike ask the right questions."
--Richard Beales, Assistant Editor, ReutersBreakingviews
Reviews / Votes
"Financial Statement Analysis: A Practitioner's Guide is awell-organized, thorough exploration of the challenges facingpractitioners who rely on financial statements to make investmentand lending decisions. Reference books about accounting, whilevaluable for their insights, are seldom this enjoyable to read.This book is different because the authors seamlessly integratefascinating real-life examples and instructive fictional scenariosinto each chapter to illustrate their points. For anyone with apassing interest in the subject, or for new analysts learning thetrade, Financial Statement Analysis is an amazingresource." --Christopher Shayne, CFA, Director of ProductOperations for Enterprise Risk Solutions at Moody's Analytics "Any book that reaches its 4th edition (updated to 2011) shouldbe good. That's true in spades for Financial StatementAnalysis. Fridson and Alvarez have written a classic. It shouldbe required reading and a constant reference source on thebookshelf of any investor intending to buy individual companystocks or bonds." --Canadian Financial DIY blog "In the 1990s, Benjamin Graham's Security Analysis served as[Value Partners'] reference book, but since then they havebeen using Martin Fridson's Financial Statement Analysis: APractioner's Guide." --excerpt from The Value Investors: Lessons from theWorld's Top Fund Managers by Ronald Chan, Bruce C. N. Greenwald(Foreword)More details
Other editions
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Book
07/2011
4th Edition
Wiley
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Persons
MARTIN FRIDSON is Global Credit Strategist at BNP ParibasInvestment Partners, one of the world's largest asset managers.Over a twenty-five-year span with brokerage firms including SalomonBrothers, Morgan Stanley, and Merrill Lynch, he became known forhis innovative work in credit analysis and investment strategy.Fridson has served as president of the Fixed Income AnalystsSociety, governor of the Association for Investment Management andResearch (now CFA Institute), and director of the New York Societyof Security Analysts.
FERNANDO ALVAREZ is currently an Adjunct AssociateProfessor of Finance and Economics at the Columbia UniversityGraduate Business School, where he teaches entrepreneurshipfinance. From 2003 until 2008, he was associate professor in theFinance and Economics Department and director of entrepreneurshipprograms at Rutgers Business School, Newark and New Brunswick.Alvarez has taught at New York University's Stern School ofBusiness where he was associate professor on innovation andentrepreneurship, and Babson College where he was assistantprofessor of finance.
Content
Preface to Fourth Edition.
Acknowledgments.
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.
Downplaying Contingencies.
The Importance of Being Skeptical.
Conclusion.
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.
Conclusion.
Chapter 3 The Income Statement.
Making the Numbers Talk.
How Real Are the Numbers?
Conclusion.
Chapter 4 The Statement of Cash Flows.
The Cash Flow Statement and the Leveraged Buyout.
Analytical Applications.
Cash Flow and the Company Life Cycle.
The Concept of Financial Flexibility.
In Defense of Slack.
Conclusion.
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?
Conclusion.
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.
Conclusion.
Chapter 7 Expense Recognition.
Nortel's Deferred Profit Plan.
Grasping for Earnings at General Motors.
Time-Shifting at Freddie Mac.
Conclusion.
Chapter 8 The Applications and Limitations of EBITDA.
EBIT, EBITDA, and Total Enterprise Value.
The Role of EBITDA in Credit Analysis.
Abusing EBITDA.
A More Comprehensive Cash Flow Measure.
Working Capital Adds Punch to Cash Flow Analysis.
Conclusion.
Chapter 9 The Reliability of Disclosure and Audits.
An Artful Deal.
Death Duties.
Systematic Problems in Auditing.
Conclusion.
Chapter 10 Mergers-and-Acquisitions Accounting.
Maximizing Postacquisition Reported Earnings.
Managing Acquisition Dates and Avoiding Restatements.
Conclusion.
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.
Conclusion.
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.
Multiyear Projections.
Conclusion.
Chapter 13 Credit Analysis.
Balance Sheet Ratios.
Income Statement Ratios.
Statement of Cash Flows Ratios.
Combination Ratios.
Relating Ratios to Credit Risk.
Conclusion.
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.
Conclusion.
APPENDIX: Explanation of Pro Forma Adjustments for Hertz Global Holdings, Inc./DTG.
Notes.
Glossary.
Bibliography.
About the Authors.
Index.
