Review: The Interpretation of Financial Statements

by Benjamin Graham

Benjamin Graham has served as an inspiration to such legendary investors as Warren Buffett and Walter Schloss. His classic book on investment The Intelligent Investor is considered a classic.

In 1934, Graham wrote, in conjunction with David Dodd, what is considered to be the standard book on stock investment principles, Security Analysis. Its size and complexity make it difficult reading for the lay investor but Graham has overcome this to some extent with his explanatory book, the subject of this review.

In The Interpretation of Financial Statements, Graham explains, and illustrates, the meaning of those financial terms and principles that need to be understood by anyone considering a stock market investment. Complex concepts like current ratio, intangible assets and book value become much clearer after a reading of this book. Graham takes the reader through balance sheets, profit and loss accounts, and financial statements, chatting comfortably to the reader about the complexities of debt accrual and amortisation with humor and common sense.

As Warren Buffett has said on many occasions, if you don’t understand the business, don’t invest in it. This 115-page book makes it all that much easier to look beyond a company’s financial statements and discover the truth.

There is an excellent glossary that defines essential financial and investment terms.

While several of Graham’s examples may be dated, the text is not and remains as current as today’s Dow Jones Index.

This is a book that nobody seriously considering a stock investment should be without. Even non-stock investors with an indirect interest in the stock market through retirement and mutual funds can benefit from a reading of this book. It can help them understand what their fund managers are doing with their money.

An essential work for the investor’s bookshelf.

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