High-Powered Investing All-in-One For Dummies, 2nd Edition

Chapter 2

A Value Investor's Guide to Financial Statements

In This Chapter

Finding need-to-know info about a company's financial performance

Reading annual reports, balance sheets, earnings statements, and cash flow statements

Recognizing how accounting practices impact company valuation

Value investors need to know about the companies they invest in. Fortunately, an enormous amount of financial information about companies is available and easy to find. Unfortunately, it's too much information for most of us. Worse, it's possible to present legally correct information in ways that make the true meaning hard to decipher.

The challenge is to acquire the right information about a company and then to convert it into actionable investing knowledge that

• Reveals the true character and dynamics of a business, its intrinsic value, and, more importantly, its future value
• Conclusively indicates whether the company is one you'd want to own and therefore would be a good place to invest

The goal of this chapter is to provide a guide for separating the wheat from the chaff, giving you a basic overview of financial statements and sharing some tricks of the trade and creative accounting practices ...