Value Investing – Financial Statements (Lesson 10)
Accounting is the language of business. Warren Buffett
Each year, every publicly traded company is required to report their financial status. Many go beyond simple financial statements and prepare an annual report covering all the relevant issues affecting the company. The high quality corporations present a fully comprehensive document that covers the prior year activity, including impact factors and why there is a difference between what was expected and the end result. In addition, these companies prepare forecasts of production, sales and any pending changes with systems and production processes. Most importantly, they include key performance data that allows shareholders to have a deep understanding of the economic variables that affect financial results.
But the primary purpose of the annual report is the financial information presented. This is where the average non accountant degreed investor has trouble. Many are not confident about interpreting and understanding financial statements. Don’t let this lack of knowledge prevent you from pursuing value investing. Understanding financial information isn’t as difficult as one may believe or have been told. In Phase Two of this program, there is a lot more information and exposure to the different ways of interpreting financial results.
To understand financial information, first the member must understand their general purpose and how they are prepared.
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