The Power of Ratios

The eyes may or may not be a window into the soul, as Immanuel Kant suggested, but ratios are definitely a window into a company’s financial statements. They offer a quick shortcut to understanding what the financials are saying, no matter whether the company is a start-up, a small but growing company, a struggling midsize business, or a large, publicly held company. A Paine Webber analyst named Andrew Shore knew this and used his skill at analyzing ratios to tell the public about a fraudulently managed public company—Sunbeam, when it was run by the notorious CEO “Chainsaw Al” Dunlap. We’ve mentioned Sunbeam before in this book, but now we want to relate a few more of the sorry details.

Dunlap had arrived at Sunbeam in ...

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