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How to Read a Financial Report: Wringing Vital Signs Out of the Numbers, 8th Edition by Tage C. Tracy, John A. Tracy

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CHAPTER 22

BASIC QUESTIONS, BASIC ANSWERS

Some years ago a women’s investment club invited John to their monthly meeting to explain financial statements. It was a lot of fun. These women were a savvy group of investors who pooled their monthly contributions and invested mainly in common stocks traded on the major securities exchanges.

These women investors asked thoughtful questions. We share these with you in this chapter, and answer a couple of other questions that are important for anyone who invests in stock and debt securities issued by public corporations, or who has an investment in a private business. Other financial statement readers will also find this chapter helpful.

Business investors and lenders should know the answers to certain questions concerning financial statements. We answer these questions from the viewpoint of a typical individual investor, not an institutional investor or a professional investment manager. John’s retirement fund (TIAA-CREF) manages about $400 billion of investments. We assume its portfolio managers know the answers to these questions. They’d better!

When You Sell a Stock Does the Company Get Your Money?

One point caught John quite by surprise, and it’s an important one to understand. At that time the women were thinking of buying common stock shares of General Electric (GE). Two members presented their research on the company with the recommendation to buy the stock at the going market price. The discussion caused John to suspect that several ...

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