Analysis of Financial Statements, 3rd Edition

Preface

In Analysis of Financial Statements, Third Edition, we introduce you to the tools and techniques of financial analysis. We provide a foundation for financial analysis with the goal of assisting you in the analysis of the financial condition and operating performance of a company.

This book was first published in 1999. The most significant difference between the previous two editions and this third edition is the role of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which affects disclosures and regulation of many entities and brought attention to the importance of credit analysis. We have incorporated the changes from the Dodd-Frank Act throughout this book—and we emphasize, too, the importance of assessing the quality of financial data. Although it is important to understand how to calculate financial ratios, look at trends, use credit models, and the like, it is even more important to understand the data that you are working with. The recent financial crisis, which tested the financial condition and performance of companies, has brought to the forefront the need to understand the quality of the data as well as the risk.

Financial analysis and the reliance on financial data quality are important for both traditional fundamental equity investing and quantitative equity investing—the two major styles of equity investing. In traditional fundamental equity investing, a portfolio manager—and any like analyst—begins with a broad universe of stocks and ...