Warren Buffett Accounting Book: Reading Financial Statements for Value Investing

by Stig Brodersen, Preston Pysh

The Warren Buffett Accounting Book is the second volume learning experience to Warren Buffett's Three Favorite Books. This book 1. Two methods for calculating the intrinsic value of a company 2. What is a discount rate and how does it work 3. Detailed instructions on how to read an income statement, Balance sheet, and cash flow statement 4. How to calculate important ratios to properly value any business

Genres: Finance, Business, Accounting, Nonfiction, Money, Economics, Personal Finance

258 pages, Kindle Edition

First published May 1, 2014

Reviews

[Đạt Tiêu · Rating 5 out of 5]

Excellent book for rookie investors. Some notes:
A. Must-know Concepts
1. Interest rate
-> [when contraction] Low: easier to borrow money -> demand up -> spending up -> supply up -> GDP up
-> unemployment down -> wealth up -> inflation up -> price up -> currency down
-> bubbles on the way
-> stocks are cheap -> buy stocks
-> [when expansion] High: discourage in borrowing money -> demand down -> spending down -> supply down -> GDP down
-> unemployment up -> wealth down -> inflation down -> price down -> currency up
-> Buy bonds

2. Inflation
-> more money in the circle -> consume more -> demand up -> spending up -> ...
-> more (hidden) tax to government
-> pay debt (use real inflated currency to pay off nominal debt)
-> stock return down
-> bond interest down

3. Bonds
-> good when interest rate is high and|or inflation is low

B. Core principles of value investing
1. Vigilant leadership
- Low debt: -> low debt-2-equity (<= 1) -> good solvency -> OK in long run
- Big working capital -> high current ratio (>= 1.5)-> good liquidity -> OK in daily business routine
- Strong and consistent return -> high and consistent ROE (>= 8% in 5-10 years, depends on specific industry) -> good profitability
- Appropriate management incentives -> management board is good and dedicated to business

2. Long-term prospects
- Persistent products: -> do technology advance affect somehow on products?
- Tax efficiency: -> Long-term investment cost less tax

3. Stock stability
-> Business: understandable and stable
- Stable book value: -> high and consistent owner earning -> EPS growth, FCF growth
- Economic moats: -> durable competitive advantages -> overcome competition in long run

4. Buy at attractive prices
- wide margin of safety to intrinsic value -> buffer for any error in value estimation and risk assessment
- Low price multiples: low P/E (<= 15), low P/B (<= 1.5) (depends on specific industry)-> likely undervalued stocks
- Set a safe discount rate: -> a kind of risk coefficient -> the riskier the investment, the higher the discount rate
-> also equivalent to the ROI (required rate of return)
-> use a benchmark like bond interest
- Estimate intrinsic value: -> DCF model or Buffet adjusted DCF model
- Sell if stocks break any core principle

[Mohammadreza Khedmati · Rating 4 out of 5]

پادکست "پرسه زنی در بازار" به شنوندگانش توصیه کرده بود که برای آشنایی با قواعد حسابداری که لازمه فعالیت تو بورسه، این کتاب رو مطالعه کنند. من دانش حسابداری داشتم اما باز از سر کنجکاوی، کتاب رو خوندم. توضیحات کتاب به زبان ساده و روان هست و به غیر از مقدمات حسابداری، مسائلی مثل نرخ بهره و همینطور دو مدل از انواع ارزشگذاری سهام رو دربرمی گیره. برای افرادی که سواد مالی از قبل دارند اما تو بورس فعال نبودن، این بخش هایی که بهشون اشاره کردم مفیدن.
در کل کتاب خیلی خوبی برای شروع هست.
ترجمه فارسی (عباس احمدی) رو استفاده نکنید که از زیانکاران خواهید بود. خیلی بی دقت و سرسری ترجمه شده.

ضمنا نویسندگان سایتی رو طراحی کردن که فایل های ویدیویی متعددی داره که همین مطالب آموزشی رو در برمی گیره. فروم پرسش و پاسخ هم داره.
http://www.buffettsbooks.com/

لینک پادکست پرسه زنی در بازار
https://mehdi70501002.podbean.com/

[Toe · Rating 3 out of 5]

Objective Summary

Brodersen and Pysh’s book explores accounting concepts and financial statements using Coca Cola as an example company. The book focuses on principles the authors derived from following legendary investor Warren Buffett’s spoken and written words. Buffett’s investment style is one of “value investing,” which seeks to buy the stock of solidly performing companies when their intrinsic values fall below their market values. Buffett has written an annual letter to the shareholders of his company, Berkshire Hathaway, every year since 1977. They can be found here http://www.berkshirehathaway.com/lett.... By following Buffett’s principles, the authors believe they can enjoy above average investment returns. These are some of the lessons of this book.

1. Invest in assets that generate cash flow back to you. Precious metals, wine, and art generally do not create consistent cash flow. Stocks generally do.

2. Governments like inflation because (1) it increases current consumption, which generates employment; (2) taxation generally occurs on nominal dollars; and (3) debt, of which the government has a lot, is issued in nominal dollars. Inflation is a constant drag on an investor’s ability to make returns.

3. Bonds are preferred over stocks only when inflation is low and interest rates are high.

4. Warren Buffett invests according to 4 principles:
(1). Vigilant leadership
i. Low debt – a debt-to-equity ratio (debt / equity) < .5 is preferred.
ii. High current ratio – (current assets / current liabilities) > 1.5 is preferred.
iii. Strong and consistent return on equity – (net income / shareholder’s equity) > 8% for the last 10 years
iv. Appropriate management incentives – Managers are shareholders’ agents and should not be compensated only by salary or short-term stock price increases.
(2). Long-term prospects
i. Persistent products – Buffett’s favorite holding period is forever, so he prefers products like Coca Cola, trains, banking, real estate over high tech devices like smartphones and tablets.
ii. Minimize taxes – Hold investments for at least one year, and preferably longer to minimize taxes, which reduces overall return.
(3). Stock stability
i. Stable book value growth from the owner’s earnings – a graphing tool on the authors’ website has 6 inputs—EPS, ROE, Dividend Rate, Book Value, Debt/Equity, and the Current Ratio—that can be graphed for 10 years to show stability. The website is: http://www.buffettbooks.com/intellige....
ii. Sustainable competitive advantage (moat) – Invest in companies with durable competitive advantages like brand value or other intangibles, low-cost structures, and high switching costs or stickiness.
(4). Buy at attractive prices
i. Keep a wide margin of safety to the intrinsic value – your intrinsic value calculation should be lower than the market price at the time you purchase, and the wider the margin the better
ii. Low price-earnings ratio – generally should be less than 15
iii. Low price-to-book ratio – generally should be less than 1.5
iv. Set a safe discount rate – should never be less than the 10-year Treasury Bond rate, and should reflect the risk of the business
v. Buy undervalued stocks by determining intrinsic value – use either the Discounted Cash Flow method (using assumptions of free cash flow for 10 years and then into perpetuity, estimated discount rate, and then convert to a per share price) or the authors’ intrinsic value calculator available at: http://www.buffettsbooks.com/intellig... (using estimated future book value growth based on past change, and estimated dividends).
vi. Know the right time to sell your stocks – sell stock that breaks one of the 4 principles, is too large a percentage of your portfolio, or you can get a better return from another investment.
a. Calculate the expected annual return for stocks A and B based on the current market prices.
b. Subtract the cost of capital gains tax from Stock A.
c. Calculate whether stock A or stock B yields the highest expected annual return based on a given timeframe.

5. Net income margin ratio = net income / revenue. Higher is better and there should be a trend of a high net-margin ratio.

6. Interest coverage ratio = income from operations / interest expense. Higher is better, but a ratio of 5 or greater is generally safe.

7. Return on equity and return on assets are equal if the company has no debt. If you’re buying a company with a lot of debt, you probably want to refer to ROA rather than ROE.

8. Debt-to-equity ratio = (long-term debt + notes payable) / equity. A lower ratio signifies a less risky company. Buffett generally does not like a debt-to-equity ratio above .5. Liabilities-to-equity ratio = total liabilities / equity. It is similar but even more conservative than debt-to-equity ratio, and it should generally be below .8.

9. Free cash flow = operating cash flow + net property, plant, and equipment. Many value investors believe this figure holds the key to determining the intrinsic value of a business.

10. Free cash flow-to-revenue ratio = (operating cash flow + net property, plant, and equipment) / revenue. A higher ratio is better, and it should be at least 5%.

11. Accounting information is contained in 10-Ks and 10-Qs. All publicly traded companies are required to generate these reports. Use the information in these reports to filter companies through the accounting ratios discussed. The ratios are just a starting point and guide. Stock selection is ultimately both science and art.


Subjective Thoughts

Value investors like Buffett, Brodersen, and Pysh implicitly—if not explicitly—reject the efficient market hypothesis, which states that the market value of stocks reflects all publicly available information. If the efficient market hypothesis is true, individual investors should not be able to consistently outperform the market. Investors may outperform the market in the short run, but they should not expect to do so in the long run. Furthermore, individual investors who do outperform the market are either lucky or using insider information. The investing strategy suggested by the efficient market hypothesis is to hold a broad index of funds and minimize transaction costs to maximize overall returns. This strategy was pioneered by John Bogle of Vanguard based on the academic work of Burton Malkiel, and it has been adopted by countless investors. Buffett himself even famously bet a hedge-fund manager (the supposed cream of the investing crop) that an index fund would outperform a basket of hedge funds that his counterpart to the wager selected. Buffett won the bet. It’s strange to me that Buffett has stated that low cost index funds are the best investment for 99% of investors under the logic of the efficient market hypothesis, but he himself selects individual stocks and has outperformed the market during his tenure at Berkshire Hathaway. How do we square that circle?

The answer is that Buffett believes himself to be in the 1% or less of people who can outperform the market, and he has done so since taking the reins at Berkshire Hathaway in 1962. There is an open question to what extent he has been able to outperform the market since 2000. Buffett has an incentive to discourage people from analyzing and investing in individual stocks as it decreases his competition. But most people, by definition, are not in the upper echelon of investors. I think the market is largely efficient, and it becomes more so with improved technology. Arbitrage opportunities, to the extent they appear, vanish at an increasingly rapid pace. Most people do not have the time or expertise to invest as Buffett does, and they truly are better off investing in low cost index funds. Brodersen’s and Pysh’s book is just the tip of the iceberg in terms of the knowledge and time required to try to outperform the market on the basis of skill rather than luck.

And this book itself is just ok. It seemed repetitive and strangely organized. Chapter 4, for example, is 84 pages, while Chapter 5 is 10 pages. A little balance in the scope of chapters would be nice. Chapter 3 is a brief introduction to financial statements that are then explored in more detail in Chapters 6, 7, and 8. Why not just eliminate Chapter 3 altogether rather than repeat the same information? It felt at times as if the authors were stretching to meet a 250 page minimum rather than conveying useful information efficiently. The use of analogies was distracting and overdone. There were a few noticeable typos. This book is in need of a strong editor. There is useful information buried in here, but it could be both shorter and more logically organized. Mike Piper’s “Accounting Made Simple” is a great example of how to cut fluff.

I don’t personally invest in individual stocks, and I don’t intend to start doing so with any significant portion of my total portfolio. I am satisfied with the returns provided by Vanguard’s index funds. I’d view any individual stock selections as more akin to gambling or a fun hobby than a serious investment strategy. But I don’t currently derive any significant pleasure from wading through financial statements and estimating the future cash flows of large companies. It sounds more like a chore than an enticing way to spend an evening. Fortunately, the index funds are out there, and Joel Greenblatt’s “Little Book that Beats the Market” offers a stock screening strategy with just slightly more work than index funds. His website (available here: https://www.magicformulainvesting.com/) prioritizes various financial information and ratios to yield an investment strategy. In terms of the effort-to-reward ratio, which I always consider in life, index funds and Greenblatt’s stock screener appeal to me more than the approach from Brodersen, Pysh, and Buffett. But, as I said, less competition from me and people like me should be good news to them.


Revealing Quotes

“As your knowledge increases, your confidence improves and your understanding of truth and facts becomes clear. Financial education removes the time and impulse element found in novice investors.”

“Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.” – Warren Buffett

“Warren Buffett strongly believes that concentration of your portfolio actually diminishes your risk. He compares this strategy with having Michael Jordan on your team: would you substitute him because he is scoring all the points?”

“When I am in doubt as to whether something is an asset or liability, this is the definition I think of: Can it make money for the company?”

“Goodwill only occurs during the acquisition process; it is not something companies can create by themselves.”

“When you look at five-year trends on the company’s cash flow statement, nothing spells trouble faster than a company that continually raises cash outside of the company’s operating activities.”

[Archit · Rating 5 out of 5]

One of the best books I have ever read on Finance & Investing. The author has distilled complex financial concepts in a simple language.
This book could have been made even better had the author thrown more light on practical investing decisions to be taken based on analysis of the financials. But it, nevertheless, is a compelling read.

1. Chapter 1 – how to look at the stock market
• Value investors believe that stock market fluctuates in the short-term due to emotions and in the long run due to value
• Bubbles – dotcom bubble in 2000 took place due to an overly optimistic faith in technology companies. In 1637, we had the first recording of an economic bubble. It was in the Netherlands when “Tulipmania” occurred. At the peak of the bubble, a tulip bulb was traded at the price of 10 years’ annual income for a worker, far greater than the value of a tulip bulb. Today we might have a laugh at the expense of the poor Dutch people who went into economic ruin, but as we have seen twice in the last decade, humanity has learned very little from historic economic bubbles.
• The market doesn’t offer value, it offers price – you determine the value.
• Some investments do not generate profit like gold, silver. Their value is based on people’s belief & perception


2. Chapter 2 – concepts every investor should know –
• Interest rate – its like gravity i.e. it’s always there, having an impact on people & businesses. Interest rate is like the PRICE OF MONEY.
• The FED determines the interest rate in a similar way. They look at risk and how to adjust financial behavior; however, they do it on a much larger macro scale. The FED is not only looking at you, but at the whole economy. In times of recession, the government wants us to spend more money. It achieves this by lowering the price of money. In other words, it lowers interest rates. This is an incentive to spend more money. When more money is spent, it will increase consumption, which in turn will lead to employment and higher wealth in the economy. When interest rates are low, companies can borrow for less. This makes new investments more attractive, which again leads to more employment and higher wealth. When money is cheap, typically stocks are too. This is the most important time to accumulate as many shares as you can. When times are good, the government wants it to continue. They achieve this by trying to avoid a bubble in the market—so they increase the price of money, or increase interest rates. When things get expensive, we tend to buy less. That is not only true for TVs and houses; we adjust our financial behavior to all consumption. As with the electronic store that is lending you money for a TV, the risk and thereby the interest rate is high. Citizens really do not want a bubble, and even less a bubble that bursts, because it creates instability in the economy. As a successful stock investor, bubbles and interest rate swings present enormous opportunities. If you want to master the stock market, start with a firm understanding of interest rates. It’s truly the foundation to the entire economic cycle and value of everything on the planet. There’s a big difference between price and value, and interest rates are the key ingredient to their disparity.
• Inflation (value) – nominal dollar does not adjust for inflation whilst real dollar adjusts the inflation. Government likes inflation for 3 reasons:
• Reason 1 – you start purchasing more, generating employment & wealth in the society. Side note – if you earn $1 per hour in 1913, & $23.94 in 2013, then a way to say this is nominal $1 in 1913 is equivalent to real dollar 23.94 in 2013
• Reason 2 – you are taxed on nominal dollars
• Reason 3 – debt is issued in nominal terms.
• Bonds - We have also learned that the interest rate was the price of money. So when the interest rate is high, the price of money is also high. That means that if you’re the lender (or bond purchaser), you will receive more money from the borrower (or bond seller) if interest rates across the market are generally high. We have also learned that the interest rate was the price of money. So when the interest rate is high, the price of money is also high. That means that if you’re the lender (or bond purchaser), you will receive more money from the borrower (or bond seller) if interest rates across the market are generally high.

3. Chapter 3 – a brief introduction to financial statements
• Profits/ earnings/ net income all mean the same
• If equity is “own funds”, why is it not grouped under “assets”? Because equity does not belong to company, it belongs to shareholders. Hence, it’s a liability. Equity is referred to as “book value”

4. Chapter 4 – principles & rules of value investing
• Principle 1 – VIGILANT LEADERSHIP
o RULE 1 – LOW DEBT – analyse the debt-equity ratio. Ratio below 0.5 is preferable.
o RULE 2 – HIGH CURRENT RATIO – current ratio of between 1.5 and 2.5 is preferable
o RULE 3 – STRONG AND CONSISTENT RETURN ON EQUITY – ROE ratio is akin to a first impression. Net income/ total equity. In general, look for companies with a consistent ROE of >8% over the past 10 years. DEBT-EQUITY RATIO IS A METRIC FOR RISK, WHILST ROE RATIO IS A METRIC FOR RETURN. Both are equally important
o RULE 4 – APPROPRIATE MANAGEMENT INCENTIVES – principal-agent problem. You, as investor, are the principal & the Board of Directors is the agent
• Principle 2 – LONG-TERM PROSPECTS
o RULE 1 – PERSISTENT PRODUCTS – will technology/ internet change the way we use the product? In case of, say Coca Cola, answer is no.
o RULE 2 – MINIMISE TAXES
• Principle 3 – STOCK STABILITY
o RULE 1 – STABLE BOOK VALUE GROWTH FROM EARNINGS – EPS, ROE, dividend rate, book value, debt-equity, current ratio
o RULE 2 – SUSTAINABLE COMPETITIVE ADVANTAGE (MOAT) – 3 hints of recognizing a moat – presence of intangible assets (patents etc.), low cost (Walmart), high switching costs or “stickiness” (for eg. – shifting from Microsoft will be very troublesome for Windows users)
• Principle 4 – BUY AT ATTRACTIVE PRICES
o RULE 1 – KEEP A WIDE MARGIN-OF-SAFETY TO INTRINSIC VALUE – MOS is the difference between Share Price & Intrinsic Value.
o RULE 2 – LOW PRICE-TO-EARNINGS RATIO - Since this number is a ratio, we must always remember that the denominator (or number on the bottom of the fraction) is always 1; therefore, a P/E ratio of 10 is actually a 10/1 ratio. This means that every ten dollars of price towards the stock should give you one dollar of earnings (for one year). So if we want to understand this relationship as a percentage, we need to look at the inverse of it —or in other words, the E/P ratio. By taking the inverse of the P/E, we get a percentage yield; for example, the previous situation had a P/E of 10. Therefore 1/10 = 10%. That’s the annual yield. Let’s try it again but with a different P/E ratio. If you negotiated a lower price of $800 for the juice stand and the business still produced the same earnings, you would have a P/E of: $800/$100 = 8. Or a return of 1/8 = 12.5%. As you can see, a low P/E is preferable to a high P/E. GENERALLY, BUY STOCKS WITH A P/E RATIO OF 15 OR LOWER
o RULE 3 - LOW PRICE-TO-BOOK RATIO - As equity and book value are the same, Price to Book value or P/B also measures how much the investor pays for every $1 of the company’s equity. So let’s demonstrate this idea with an example. Looking at the $38,000 of equity from the chart above, let’s turn it into a P/B ratio. Let’s assume that this company is broken down into 100 shares. Based on that number, we know that the book value would be $380 per share (the math is $38,000/100 shares). We also need to assume a market price for one share, so let’s use $570 per share. In order to calculate the P/B ratio, we will simply conduct the following math: P/B = $570/$380 = 1.5. As you can see, the ratio has no units. So what does 1.5 mean? This means that if the P/B is 1.5, you pay a market price of $1.5 for every $1 of equity on the company’s books.
GENERALLY, P/B RATIO OF 1.5 OR BELOW IS GOOD.


o RULE 4 – SET A SAFE DISCOUNT RATE


o RULE 5 – BUY UNDERVALUED STOCKS – DETERMINING INTRINSIC VALUE – 2 approaches – Approach 1 is Discount Cash Flow calculation. 2nd approach is a variant of the 1st but it treats stock like a bond
o RULE 6 – THE RIGHT TIME TO SELL YOUR STOCKS


5. Chapter 5 – Financial statements
• Prior to 1987, companies did not report cash flow statement, they reported only P/L & Balance sheet

6. Chapter 6 – income statement in detail
• Revenue – from Primary activities, from secondary activities (other income) & gains (sale of asset gain)
• Expenses – Primary (COGS), secondary (SG&A, other operating expenses), losses (loss on sale of Fixed asset)
• Gross profit aka Margin or markup – measures organization’s efficiency to control direct cost of revenue while simultaneously increasing sales
• Net income from operations aka EBIT
• Gross Profit Margin ratio – gross profit/ revenue
• Operating margin ratio = EBIT/ revenue (considers secondary expenses like SG&A)
• Net income margin ratio = PAT/ revenue (what amount of sales will translate into Profit)

7. Balance sheet in detail
• Profitability ratios
o Return on equity – tells how much company has been able to grow the owners’ money during the year
o Return on assets – if company has no debt, ROA = ROE. ROA will always be lower than ROE if company has debt
• Liquidity ratios
o Current ratio – ideally between 1 to 1.5. Too high a ratio indicates bad cash management as cash could be put to better use
o Quick ratio – excludes inventory. Assuming we don’t sell any inventory, do we still expect to receive more than we pay over the next 12 months
• Efficiency ratios
o Inventory turnover ratio –
o Debtors turnover
o Creditors turnover
• Solvency ratios
o Debt to equity – below 0.5 is good
o Liabilities to equity – another variant of debt-to-equity –below 0.8 is good

8. Cash flow statement in detail
• A stock issue is like a perpetuity loan (never-ending loan)
• To determine if stock issue as a financing mode is good or not, look at the ROE & the Price-to-book-value (P/BV) & then you will get a fair idea of the effective perpetuity interest rate
• As a CFO – 3 options of availing funding – bank loan, bond issue, stock issuance,
• Payout to shareholder options – dividend, treasury stock buy back
• Free cash flow – operating cash flow excluding PPE
• Free-Cash-Flow to revenue ratio – 13.2% indicates that of every 100$ of revenue, 13.2$ is available for the shareholders as cash. Generally, at least 5% or higher is good
• Investing-cash-flow to operating-cash-flow ratio

[Madhur Bhargava · Rating 4 out of 5]

Really good beginner level book to understand the 3 crucial statements of any business i.e. the cash flow statement, the income statement and the balance sheet. As a personal opinion, It may be more beneficial for beginners to start with this book as an initial step before delving into other "well-known" finance literature.

[Ektor · Rating 4 out of 5]

good introductory book

[Sean Mitchell · Rating 3 out of 5]

A lot of really good information, but this was really aimed at someone with little to no experience with financial statements or accounting. I would've liked more theory of how to properly analyze statements.

[Nattapan · Rating 3 out of 5]

In my opinion, the parts that explain about value investing and calculation of intrinsic value either from DCF model or Buffett-book model are good enough. However, the parts that explain some basic knowledge of accounting and financial statements are a bit too rough to help unsophisticated readers clearly understand the complexity and the complicatedness of listed companies' financial statements.


Remark: In Thai version, some formulas of financial ratios are not correct.

[g0dmarryjane · Rating 5 out of 5]

เจอหนังสือดีเกินราคาอีกแล้ว สรุป3งบให้เข้าใจง่าย ๆ (ส่วนตัวมีพื้นฐานมาอยู่แล้ว ยิ่งเข้าใจเข้าไปใหญ่) สนุกมากกลับมาอ่านอีกรอบแน่นอนเพราะมีบางเรื่องที่ยังไม่เข้าใจ อย่างการแตกหุ้น ออกหุ้นใหม่ เป็นหนังสือที่คนสนใจเรื่อง financial ควรอ่านจริง ๆ นะเพราะง่ายมาก

ข้อเสีย คือ งบบางงบมันไม่เหมือนของไทย เลยอ่านยากนิดหน่อย โดยเฉพาะงบกำไรขาดทุน แต่ก็เข้าใจได้ง่ายเพราะเจาะลึกเข้าไปในแต่ละตัว

บทที่ 1 เราควรมองตลาดหุ้นอย่างไร

“คุณตลาดเป็นคนรับใช้ ไม่ใช่นายของเรา” วอ���์เรน บัฟเฟตต์

เปิดมาบทแรกทำให้รู้สึกว่าน่าอ่านมาก พูดเรื่องความผันผวนของตลาด แฝงจิตวิทยาในการลงทุน พูดเรื่องว่าตลาดหมีดียังไง อ่านแล้วรู้สึกใจชื้น มีแรงลงทุนเยอะเลย

บทที่ 2 คอนเซ็ปท์ที่นักลงทุนควรรู้

บทนี้พูดถึง 3 เรื่องหลัก ๆ ดอกเบี้ย, เงินเฟ้อ, พันธบัตร(หุ้นกู้) เป็นการเล่าเรื่องให้เข้าใจง่าย ๆ ว่า 3 สิ่งนี้เกี่ยวกับการลงทุนยังไง

ในส่วนของเรื่องดอกเบี้ย เมื่ออัตราดอกเบี้ยสูง ธุรกิจจะเปราะบางมูลค่าของสินทรัพย์จะลดลง (กู้แล้วดอกเบี้ยเงินกู้จะสูง) แต่เมื่ออัตราดอกเบี้ยลดลง อุปสงค์จะเพิ่มมากขึ้น บริษัทจะกู้เงินนำมาลงทุนในสินทรัพย์มากขึ้นเพราะะจ่ายดอกเบี้ยลดน้อยลง เมื่ออัตราดอกเบี้ยลดนี่คือเวลาที่นักลงทุนควรจะเข้าไปเก็บหุ้นให้เยอะที่สุด เพราะต้นทุนต่ำ(บริษัทกู้เงินด้วยต้นทุนที่ต่ำลง)

ในส่วนของพันธบัตรมองเผิน ๆ อาจจะให้ผลตอบแทนที่ดีแต่เมื่อมีเงินเฟ้อเข้ามาเกี่ยวของด้วย อัตราผลตอบแทนจะต่ำ คิดง่าย ๆ อัตราผลตอบแทน 5% เงินเฟ้อเพิ่มขึ้น 5% เราจะได้ผลตอบแทนเท่าเดิม อัตราผลตอบแทนที่แท้จริงจึงเป็น0 (พันธบัตรจึงเหมาะกับช่วงที่เงินเฟ้อต่ำ)

พันธบัตรรัฐบาล, หุ้นกู้เอกชน (อันเดียวกัน)

บทที่ 3 อธิบายงบการเงินพอสังเขป

บทนี้อธิบาย 3 งบให้เข้าใจได้ง่าย ๆ

งบแสดงฐานะทางการเงิน บอกได้ว่า ฉันมีความมั่งคั่งแค่ไหน ประโยคนี่น่าสนใจเหมือนเป็นเฉลยว่าทำไม ส่วนของผู้ถือหุ้นถึงอยู่ในฝั่งของหนี้สิน เพราะว่า ส่วนของผู้ถือหุ้นไม่ได้เป็นของบริษัท แต่เป็นส่วนของผู้ถือหุ้น เพราะมันเป็นเงินที่บริษัทเป็นหนี้ของส่วนผู้ถือหุ้นอยู่นั่นเอง

งบกำไรขาดทุน
บอกได้ว่า ปีนี้ทำกำไรได้เท่าไหร่ล่ะ นอกจาดกูรายรับรายจ่ายแล้วที่เราจะดูคือ กำไรต่อหุ้น (EPS: Earings Per Share)=กำไรสุทธิ/หุ้นทั้งหมดฟ EPS สำคัญมาก เพราะมันคือกำไรของบริษัทต่อหนึ่งหุ้น

งบกระแสเงินสด
บอกได้ว่า เรามีเงินเท่าไหร่ เงินเข้าออกบริษัทยังไง งบกระแสเงินสดจะบอกเราตรงนี้

บทที่ 4 หลักการและกฏแห่งการลงทุนเน้นมูลค่า

บทนี้ตรงพาร์ท intrinsic value เข้าใจยากมากเลย เพราะเราเรียนแบบ DDM ที่ใช้ในส่วนของเงินปันผล ต่อปู่ใช้ในส่วนของงบกระแสเงินสด ซึ่งยากจริง ไว้จะมาเก็บตกที่หลังเมื่อมีไฟเรียน ในส่วนของเนื้อหาอื่น ๆ ดีมากสรุปได้ว่า

D/E < 0.5 (แปลได้ว่าส่วนผู้ถือหุ้นมากกว่าหนี้)
ROE > 8 (แปลได้ว่าบริษัทเอาเงินไปลงทุนในธุรกิจได้มากกว่าแค่ไหน, ผลตอบแทนที่ผู้ถือหุ้นได้รับจากเงินลงทุนของตัวเอง)

พิจารณา D/E ให้ดีก่อน แล้วค่อยไปดู ROE ว่ามาหหรือน้อย ถ้าD/Eต่ำ ลึก ๆ จะเป็นการบอกความมั่นคงของบริษัท(บอกสภาพคล่อง)


Current ratio > 1.5 (แปลได้ว่าทรัพย์สินหมุนเวียนมากกว่าหนี้สินหมุนเวียน)
P/E < 15 (ระยะเวลาคืนทุน, แปลได้ว่ายิ่งต่ำยิ่งดี อย่าจ่ายแพงเมื่อกำไรต่อหุ้นเท่ากัน)

อีกหนึ่งสิ่งที่น่าสนใจก็คือเรื่อง คำนวณหาผลตอบแทนต่อปีของหุ้น A และหุ้น B จากราคาตลาดปัจจุบัน ดีมากไว้จะอ่านเพิ่มเติมต่อจาก intrinsic value

ประโยคที่ชอบมากของหนังสือเล่มนี้คือ “แม้แต่นักลงทุนที่ดีที่สุดยังเลือกหุ้นผิดได้ และคุณก็คงไม่อยากทุ่มเงินไปเต็ม ๆ กับหุ้นตัวเดียว แม้ว่ามันจะดูเหมือนเป็นหุ้นที่ดีที่สุดในตลาดแล้วก็ตาม”

บทที่ 5 งบการเงินกับนักลงทุน

บทนี้พูดเรื่องเดบิตเครติด ที่จะเอาไปทำงบแสดงฐานะการเงิน แล้วก็ได้เงินมาจากอะไร ใช้เงินไปกับอะไร เงินสดเข้ามาทางไหน พูดคร่าว ๆ เตรียมขึ้นงบ ประโยคที่น่าสนใจสำหรับเราคือ เวลานักลงทุนมือสมัครเล่น เห็นเงินสดเพิ่มขึ้นจากปีหนึ่งไปยังอีกปีหนึ่ง ก็คงคิดว่า เออ ดีนะ แต่ถ้าเป็น นักลงทุนที่เอาจริงเอาจังจะรีบไปดูงบการะแสเงินสด และดูว่าเงินมาจากไหนจากการกู้(ไม่ดี กู้มา)หรือกำไรสุทธิ(รายได้จากการขาย)

อีกเรื่องคือเกณฑ์คงค้าง ต่อให้บริษัทคู่ค้าจะจ่ายเงินในอีก 90 วันข้างหน้า เราก็ต้องบันทึกลงในบัญชีในวันที่เราขายได้ แม้ว่าจะยังไม่ได้รับเงินก็ตาม

บทที่ 6 งบกำไรขาดทุนแบบเจาะลึก

บทนี้ดีมากไล่ไปทีละตัวเลยว่าในงบกำไรขาดทุนมีอะไรบ้าง แต่น่าเสียดายที่บางจุดของงบไม่เหมือนบัญชีไทย อาจจะต้องพิจารณาเพิ่มเติมโดยหลัก ๆ วัตถุประสงค์ของงบกำไรขาดทุน คือ รายงานกำไรสุทธิของบริษัทออกมาในบรรทัดสุดท้ายนั่นเอง

ในส่วนของการวิเคราะห์ มี 4 อัตราส่วนที่น่าสนใจ

อัตราส่วนกำไรขั้นต้น ที่บอกได้ว่าบริษัทสามารถควบคุมต้นทุนขายของกิจการได้มากน้อยแค่ไหน % สูงถึงจะดี

อัตราส่วนจากการดำเนินงาน ยิ่งต่ำยิ่งดีเพราะถือว่าเป็นการควบคุมค่าใช้จ่ายจากกิจกรรมรองได้ดี

อัตรากำไรสุทธิ ตัวนี้บอกได้ว่าบริษัททำกำไรสุทธิจริง ๆ ได้เท่าไหร่ บางทีส่วนต่าง ๆ ดีหมดแต่อาจจะมาตกม้าตาย เพราะจ่ายดอกเบี้ยสูงมาก (เพราะหนี้มาก) หากอัตรากำไรสุทธิต่ำ ก็หมายความว่าบริษัทขาดสภาพคล่อง ไม่ยืดหยุ่นเหมือนบริษัทที่ทำอัตรากำไรได้ดี ๆ

อัตตราส่วนความสามารถในการชำระดอกเบี้ย(ชำระหนี้) เป็นตัวบอกถึงความเสี่ยงทางหนี้ที่บริษัทต้องแบกรับ

บทที่ 7 งบแสดงฐานะการเงินแบบเจาะลึก

เป็นบทที่อธิบายรายละเอียดแต่ละตัวในส่วนต่าง ๆ ได้ครบเลย อาจจะมีคำที่ไม่เหมือนบัญชีไทยบ้าง ในส่วนนี้เราได้รู้(เพิ่มเติม)ว่า การเพิ่มสินทรัพย์โดยเงินของคนอื่นจะอยู่ในฝั่งหนี้สิน ในส่วนของเงินตัวเองจะเป็นเงินในส่วนของเจ้าของมาลงทุน

*สินทรัพย์หมุนเวียนอื่น คือที่ดินอาคารเครื่องจักรที่ประกาศขายไว้

*PPE มากไปก็ไม่ดี เพราะทำให้บริษัทขาดสภาพคล่อง

*ภาษีเงินได้ค้างจ่าย คือการกักเงินเอาไว้จ่ายภาษี

*กำไรสะสม คือเงินก่อนหักการจ่ายปันผล และเอาไปชงทุนต่าง ๆ

*ซื้อหุ้นคืน(อ่านเพิ่มเติม ตอนนี้ยังไม่เข้าใจ)

อัตราส่วนงบแสดงฐานะการเงิน

พาร์ท ความสามารถในการทำกำไร
ROE บอกได้ว่าบริษัทเอาเงินของเราไปลงทุนแล้วเติบโตมากแค่ไหน >8% ดี

ROA บอกได้จากผลตอบแทนจากการลงทุนได้มากแค่ไหน

หาก D/E <0.5 ควรจะใช้ ROE, ROA ช่วยกันคำนวณเพราะ ตัวตั้งของทั้งสองสูตรคือกำไรสุทธิเหมือนกัน มันจะเปรียบเทียบกันได้ตามหลักคณิตศาสตร์ ตัวหารมากถึงจะดี

พาร์ทอัตราส่วนสภาพคล่อง

อัตราส่วนเงินทุนหมุนเวียน current ratio เป็นการบอกสภาพคล่องในเรื่องของการจ่ายหนี้ ถ้า <1 บริษัทอาจจะต้องไปกู้เงินหรือการเพิ่มทุน(ออกหุ้นใหม่เพื่อระดมเงินทุนจากผู้ถือหุ้น)

อัตราส่วนเงินทุนหมุนเวียนเร็ว ตามสูตรจะลบด้วยสินค้าคงเหลือ โดยหลัก ๆ จะเป็นการทดสอบว่าหากบริษัทไม่ขายสินค้าคงเหลือออกไป บริษัทจะมีเงินจ่ายหนี้ไหม

อัตราส่วนประสิทธิภาพในการดำเนินงาน

-อัตราหมุนเวียนของสินค้าคงเหลือ บอกได้บริษัทเอาสินค้าคงเหลือมาขายกี่รอบในหนึ่งปี
-อัตราส่วนหมุนเวียนของลูกหนี้การค้า หาแล้วนำไปหาร 360 จะได้ว่ากี่วันบริษัทถึงจะได้รับเงินจากลูกค้า (วนน้อยไปก็ไม่ดี เพราะจะทำให้ลูกค้าไม่อยากซื้อสินค้าของเรา)
-อัตราหมุนเวียนของเจ้าหนี้การค้า คล้ายกันกับลูกหนี้การค้า แต่แค่คิดกลับกันเพราะเราเป็นคนจ่ายของที่ซื้อเชื่อไว้


บทที่ 8 งบกระแสเงินสดแบบเจาะลึก

จุดเริ่มต้นคือบรรทัดสุดท้ายของงบกำไรขาดทุน และบรรทัดสุดท้ายคืองบแสดงฐานะการเงิน บทนี้บอกได้อย่างดีเลยว่างบกระแสเงินสดมีอะไรบ้าง แบ่งเป็น3อย่าง การดำเนินงาน(จากการขายสินค้าเป็น+ดี), ลงทุน(จากการลงทุนในสินทรัพย์เป็น-ดีเพราะเป็นการบอกได้ว่าใช้เงินไปลงทุนกับสินทรัพย์), จัดหาเงิน(เป็น-ดี ส่วนมากจะเป็นเรื่องของการซื้อหุ้นคืน ออกหุ้นสามัญใหม่ การกู้เงิน)

อัตราส่วนที่น่าสนใจในงบกระแสเงินสด

อัตราส่วนกระแสเงินสดอิสระต่อรายได้
=(กระแสเงินสดที่ดิน อาคาร อุปกรณ์)/รายได้
เป็นตัวที่บอกได้ว่า ผู้ถือหุ้นจะมีเงินสดเหลือเท่าใดจากการขายสินค้า ควรมองหาบริษัทที่รักษาอัตราส่วนสม่ำเสมอ

อัตราส่วนกระแสเงินสดเพื่อการลงทุนต่อกระแสเงินสดจากการดำเนินงาน
= กระแสเงินสดเพื่อการลงทุน/กระแสเงินสดจากการดำเนินงาน
เป็นอัตราส่วนที่บอกได้ว่า เงินสดจากเปอร์เซ็นต์ที่คิดได้จะถูกเอาไปลงทุนเพื่อรักษา และสร้างการเติบโตเลขนี้ควรจะต่ำสุดเท่าที่จะเป็นไปได้ เพื่อที่บริษัทจะได้เงินเหลือเงินสดเหลือให้ผู้ถือหุ้นเยอะ ๆ แต่ก็อย่าลืมว่าบริษัทควรนำเงินไปดำเนินธุรกิจได้อย่างต่อเนื่อง

[Colin Burkins · Rating 5 out of 5]

My book, Warren Buffett Accounting Book: Reading Financial Statements for Value Investing, is a great read for anyone who is looking to learn more about investing. This book helps readers get a better understanding of what how the stock market works, while being able to learn, from a name that almost everybody knows. Warren Buffett, arguably,if not, the most successful investor in our current time, shares a few of his details, on what led him to become a multi billionaire. This book also references his professor in college, who also gives in an input of his investing techniques. One of my favorite parts of this book is when he describes the few steps of how to read the stock market. I liked this part because it went into great depth of how most parts of the stock market works, as well as making sure reader who might not be able to understand it with the technical term, could understand it. Another thing I liked about the book was that it went into detail about the different ways to make money from the stock market, including if it has a higher payoff, or if it has a lower, while also including the stability of it. One thing that I didn’t like about the book was that some part, which I thought were interesting, they didn’t go into that great of depth describing it, or using examples to help further the understanding of it. Overall this book is a great beginner book, which allows readers to gain a sense of knowledge of reading financial statements, as well as learning a few tricks, from the brilliant investor himself, Warren Buffett. I would recommend this book to reader who are trying to get a sense of how the stock market work, and if they would want to learn more about, they could read more of the author’s books, or actually try and invest in the stock market, to make some extra money.

[Dreslan · Rating 5 out of 5]

Actaul examples from a value investors vantage point

This book uses accounting statements from real companies and dives into them from the vantage point of a value investor. I love the discussion around key ratios for each of the three accounting statements, and relative comparison examples to competitors. I'll likely use the latter half of this book as a reference going forward. This is a great book for investors new and old.

[Chenthil]

Excellent book. Nicely explain about financial concepts....

[Dr. Cock'n Ballz · Rating 3 out of 5]

Pretty good book. Quick read.

Two authors and basically two parts to this book. The first half is an overview of how Warren Buffet invests and looks at companies. What kind of metrics he focuses on, and how he reads financial statements. If you've followed that topic before, nothing new here... I do like to see when people show the math for their intrinsic value calculations. That's the highlight of the first half.

Second half is all about accounting and financial statements, which for non-accountants, can be very confusing! But - as investors, is also very important. I liked the way they presented the material. Just the right amount of depth for me (a beginner). Quick read. I took a lot of notes and will come back to them later.

I'd recommend this book - but I certainly wouldn't call it a 'must read'.

Misc thoughts... Does Warren Buffet own his own name? Can anyone who wants to, write a book claiming to explain his methods... and just capitalize on Warren's success? Obviously hundreds of authors have done so... and I'm guessing he isn't giving them permission? Or receiving a cut? Interesting... and maybe a little crooked?

PET PEEVE TIME! - This guys have a website with some 'tools' on it... who gives a fuck? I went to the library to read a book - don't fill it with links to your website!! I CAN'T CLICK ON THEM. And I'm sure as hell not going to t...y...p...e... them into a browser. Is the website even still up? How would I know! It's not a blog fellas, don't treat it like one. I know they aren't the only ones, and its probably somewhat common. It's just insulting to my intelligence. I know how to use google. I could find your stupid website if I wanted to - but I didn't, I got a book instead. Don't embarrass yourselves.

On a lighter note - I checked out this book without noting the authors... turns out I used to listen to these guys' podcast. So that was a fun coincidence. The podcast was OK - but far from top notch. Production quality was so-so, and ultimately the topics and guests just weren't cutting it for my tastes. And nothing against Stig, but his accent is tough. Maybe stick to the books?

[samranson · Rating 5 out of 5]

If ‘accounting is the language of business’ according to Warren Buffet, this book the ideal source of information to learn more about the fundamental concepts of financial literacy.

Think what Lonely Planet is to travel, this book is to Finance & Accounting.

My notes below are weighted towards providing concise Finance & Accounting knowledge as opposed to value investing for particular stocks.

*(Warren Buffet himself advises that the average investor ought to buy the S&P 500 as opposed to picking particular stocks).*

- **Quotes & Analogies**

The stock market doesn’t offer value, it offers price

Interest Rates are like gravity, persistent impact on money & business

Debt is like stepping on accelerator in your car. If the road is smooth, will get you faster. If bumpy, could be in trouble.

- **Ch 2 Key Concepts**
1. Interest rate = price of money
📉 when lowered: business is easier; encouraged to borrow money -> demand, spending, supply, GDP, wealth, price, inflation all up -> unemployment, currency down -> bubbles on the way -> stocks are cheap -> buy stocks
📈 when increased: business is more difficult; discourage in borrowing money -> demand, spending, supply, GDP, wealth, price, inflation all down -> unemployment, currency up -> Buy bonds
2. Inflation = increasing supply of currency in economic system

a little is good as encourages consumption today which generates employment, creates wealth for consumers, creates tax income for govt. & makes debt easier to pay back (use real inflated currency to pay off nominal debt).

too much is bad as creates uncertainty which discourages investments & spending. people living on fixed incomes (pensions) experience less buying power.

1. Bonds = a loan where borrower (bond seller e.g. govt or co.) has obligation to pay back principle at par at end of the term & coupons during term to bond purchaser.
-> good when interest rate is high and or inflation is low (erodes coupon)

- **Ch 4 Core Principles of Value Investing**
1. Vigilant leadership
- Minimal Debt to reduce risk: low Debt to Equity Ratio [Liabilities / Equity] WB likes DE ~0.5)
- Strong working capital: high Current Ratio [Current Assets / Current Liabilities] (WB likes CR > 1.5 = for every £1 of debt must receive £1.50 within a year) as it gives good liquidity for company so it can meet short term debt obligations at any time.
- Strong and consistent Return on Equity over multiple years [ Net Income / Shareholder Equity ] (WB likes ROE of 8% since demonstrates mgmt effectiveness in reinvesting profits). Higher the better; if co doesn’t earn proportionally higher income when earnings reinvested, ROE will decline. Seen as the metric for return or what the owners get in return for capital that is retained in the company)
- Appropriate management incentives (not on short term price increases)
1. Long-term prospects
- Persistent products: does the internet change the way we use the product? Value investors interested in persistent products that do not change due to tech (Coke)
- Tax efficiency: Long-term investment cost less tax as holding does not trigger cap gains
1. Stock stability
-> Business: understandable and stable
- Stable book value (Earnings per Share EPS ) growth, FF growth
- Economic moats: -> durable competitive advantages through intangible assets (brands etc.) overcome competition in long run
1. Buy at attractive prices
- wide margin of safety to intrinsic value
- low P/E ratio: [Market Price / Net Income] (WB likes PE less than 15, every £15 of investment gives £1 of earnings = snapshot in time of present value performance to determine future performance).
- low P/B ratio shows how much investor pays for every £1 of company equity [MV price per Share / (Equity / no shares)] : equity is what the company owns (asset) less what the company has borrowed (liability). equity = book value. (WB lives PB less than 1.5, less than 1 is severe discount) (depends on specific industry)
- Set a safe discount rate: the riskier the investment, the higher the discount rate
-> use a benchmark like bond interest (10 yr has 3% return shouldn’t be lower than this)
- Estimate intrinsic value by using DCF model p.80 - p.122
- **Ch 6 Ratio Analysis for P&L**

GPM = Gross profit / Revenue : *how good at controlling costs directly to revenue?*

Operating Margin = Income from Ops / Revenue : *how efficient in daily running of business?*

Net Income Margin = Net Income / Revenue : *how efficient in bottom line so including paying for taxes, interest expenses etc.*

Interest Coverage = Income from Ops / Interest : *how many times can it pay interest expense?*

- **Ch 7 Ratio Analysis for Balance Sheet**

ROA = Net Income / Total Assets : only applicable if high DE ratio, others use ROE

Current Ratio = Current Assets / Current Liabilities : compares expected cash inflow vs outflow. Should be above 1.

Acid Test Ratio = CA - Inventory / CL : excludes whole inventory assuming no sales

Inventory Turnover = Cost of Sales / Inventory : how many times can inventory be fully replenished when comparison to all the costs in the PL? <2 is good. But fresh food even higher.

AR Days = ( Revenue / AR ) / 365 : how many days does it take for sales to turn into cash. Lower the better.

AP Days = ( Cost of Sales / AP ) / 365 : how many days does it take to pay vendors? Higher the better.

Debt to Equity = Long Term Debt + Notes Payable / Equity (WB less than 0.5 or 50% - only includes interest free liabilities such as AP)

Liabilities to Equity = Total Liabilities / Equity : for every £100 in equity the co would have to pay out X% in the future. Includes interest bearing debt (below 0.8 or 80%)

- **Ch 8 Cash Flow Statement**

Connects the income statement with the balance sheet.

Cash from operating activities should be the primary pump for company’s cash flow as from daily ops.

Cash from Investing activities = capex.

Cash from Financing activities = debt, dividends.

Free Cash Flow = Operating CF + PPE Capex Net : shows the cash that is flowing back to shareholders either by dividends, share buy backs or to pay off debt. It excludes Cash from Finance activities as these are funds the business has not earned.

Free Cash Flow to Revenue = (Operating Cash Flow + PPE Net) / Revenue : fopr every £100 sales, X% available to shareholders. Takes into account bad debt & actually how much goes back to shareholders. Since not all Dividends & most will remian in companies accounts should be looking for <5%.

Investing CF to Operating CF ratio = Investing CF / Operating CF : for every £100 cash made on operating, X spent on maintaining & investing in companies growth : should not be too small to be able to invest in future growth.

[Ulio · Rating 4 out of 5]

You won't necessarily get any ground breaking insight from this book but it will definitely help your fundamental analysis of companies. Preston/Stig also have a great youtube channel and podcast.

The book is a great read to anyone who has no account expertise but wants to learn how to read s1s 10ks, 10qs.

The book doesn't go too much in depth in valuation models but they do a great job of giving some basic ratios new investors should look for. I do think following Benjamin Graham or Warren Buffet's ratios to a T is a bad idea. One of the funniest part of this book is Preston/Stig taking Apple as a type stock that Warren Buffet wouldn't invest in. When actually Apple is considered one of Warren Buffet's great trades of the last decade and he is one of the largest owners of Apple stock.

I think developing your own investment thesis/philosophy is the most important thing but no book will teach you that. But this is a great intro to corporate finance and few macro things at the start such as ir/bond yields etc.

[Peter Fox · Rating 4 out of 5]

The Warren Buffett accounting book is one of the best guides that i have read on reading on financial statements. This is not the type of book that gives you life advice, instead it gives sound financial advice that will serve you for life.
Throughout the book there is a continuous reinforcement of the cautious value investor and when you read the book and go through the numbers there is an understandable reasoning behind the decision making. There were quite a few sections through the book that i highlighted as "do not forget this".
The book did reinforce the two beliefs that i have always had in myself and they are understanding something is important to me and the value of understanding will be the ultimate repayment. Secondly i would never want to be an accountant; no matter how much it paid.
If you are like myself a retail investor with no accounting background then this is the book you should read. The style is easy to read and the format is practicable in every conceivable way.
Enjoy and invest for the long term.

[Pureum Kim · Rating 4 out of 5]

Good book for rookie investors

Love their podcast. Super helpful and insightful. The book is great for beginners. It explains accounting, FSA, and investing well. Also, it does explain Buffetts approach reasonably well. However, I disagree with their assessment about leverage mostly being bad. In fact the high return from private equity comes from optimal leverage. Also, the book does not do a good job of explaining finding good moat. You really need to know the industry and the business model.
Still the book is a great book for beginner investors. Also, it is a good book for those who just started studying FSA.

[Jørgen Astrup · Rating 3 out of 5]

A good book for beginners in accounting and people that are unfamiliar with looking at annual reports. If you look at a company and are unsure of anything in regards to accounting, I think the book will help you understand, and can be used as a reminder of certain accounting principles.
I do not think the book add a lot a lot of value to those familiar with accounting. I think chapter 6,7,8 are important to understand, but the book could have been more focused for what to look for in regards to investing. There are some information off ratios and so on, but not a very enjoyable read.

[Maaz Ahmed · Rating 5 out of 5]

An easy to read guide on Warren Buffett's accounting methodology - covering how he looks for companies that make up good investments (consistent and increasing earnings, good management, competitive advantage, etc.). The authors also do well to explain basic value investing concepts such as the behaviour of the stock market and buying when the market is "cheap" rather than "expensive".

A good accessible read for anyone looking to get into value investing.

[Stelios peterson · Rating 5 out of 5]

Great in-depth review of the most important accounting metrics needed for analyzing financial statements. The author goes step-by-step and does a great job explaining the material.

Great in-depth review of the most important accounting metrics needed for analyzing financial statements. The author goes step-by-step and does a great job explaining the material.

[Ravi · Rating 5 out of 5]

One of of the best investment books I have ever read.

I am already a big fan The investors podcast and found the book also to be equally great. The language is simple and its uses examples with almost every topic to help readers understand the concepts. If that’s not enough, they have also have a big online big community to help you address all your unanswered queries.

Totally recommended.

[Victor Antonini · Rating 3 out of 5]

I really like how patient Brodersen is explaining financial statements line-by-line in this book. He goes beyond of what is easily found on the internet and grasps what people generally gets wrong when trying to read financial statements and answer questions effortlessly. Although the book is very informative and well written it falls far from its objective by focusing too much on the analyses of Equity.
Things as ROE, Book Value, P/E, P/B, D/E, ROA and many sorts of stock multiples are distorted and will only and mainly contribute for investors making bad decisions.

[Serge · Rating 5 out of 5]

Must read for future investors

The author explains a complex subject in a easy to understand manner. I have much better understanding of how to value a stock, how to read financial statements (which are the core of investing), whether to invest in certain companies or not. This book definitely worth the money you pay! Recommend

[Saumik Chakrabarti · Rating 5 out of 5]

Crisp and Insightful

A very dumbed down version rxplaining all relevant high finance concepts necessary for a layman to start value investing. The best part is that the advice applies to all markets and is not limited to American markets alone.

[Mir Mostafa Ahmad · Rating 5 out of 5]

Great Book !

Great Book for beginners, I enjoyed reading it, although I was confused in some chapters but overall now I have better understanding of the stocks and value investment.

Thank you

[NIRAJ KUMAR · Rating 5 out of 5]

Great book to understand Accounting

The author has done good job while explaining the financial statements with respect to Value Investing. I have gone through their educational videos and they are bonus after reading this book.

[Evelyn and Roberto Carrasquillo · Rating 5 out of 5]

Great read

This book provides a great introduction to understanding financial statements from a value investment perspective.
The Authors did an excellent job explaining each attribute (in details) of the financial statements.

[Ronny Blankenberg · Rating 4 out of 5]

A pedagogical introduction to financial statements and valuation of assets from an investors perspective.

Easy to read, to the point and relevant examples of the most basic (and most important) concepts.

A good introductory book to basic investor finance.

[Mahir · Rating 3 out of 5]

It's a standard accounting book with a few sprinkles of Buffett/Munger/Graham-specific advice. If you know accounting already, just sift through for those details. I enjoyed the consistent examples used at each chapter.

Warning: there are some occasional spelling and grammatical errors.

[Priyank · Rating 5 out of 5]

Easy Read, well Explained.