Equity Fundamentals (Part 1) Introduction to Financial Statements


In this chapter and the next we lay out a general framework for answering the most fundamental question for anyone working in equities or equity derivatives: “What is a share of stock and how much is it worth?” The goal is to develop sufficient understanding of the relevant concepts and terminology from financial accounting to ensure that the reader can understand, participate in, and benefit from, the sort of general stock analysis and valuation discussions that are held on a trading floor.
The presentation of the material is deliberately of a general character—the focus is on developing a clear conceptual understanding without getting bogged down in the details that, while essential to the work of an equity research analyst, are unnecessary for our purposes. Readers interested in a more detailed presentation can consult any of the many well-written books available on equity analysis or financial accounting.
It is worth clarifying that while the material in the first two chapters is basic, that does not mean it is easy. Readers with no previous exposure to financial accounting or valuation may find the writing rather dense—many of new concepts are introduced in a small number of pages. Because the material is conceptually fundamental, it is presented at the beginning of the book. It is not, however, a prerequisite for understanding the contents of subsequent chapters and readers who ...

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