**spoiler alert** This book goes really deep into valuation of firms and accounting and it definetly gave me some new ways of seeing businesses and th**spoiler alert** This book goes really deep into valuation of firms and accounting and it definetly gave me some new ways of seeing businesses and the way they create value !
Some very interesting points:
- when evaluating a company always take into account the residual earnings of that company over a period of time. If a company has more sells it doesnt mean its more profitable. If i sell 2 dognut and then i but machinery and sell 10 dognuts i am not more profitable...i just invested more money into equipemnt , my operation is not more profitable. Some very important measures: RNOA- return on operating assets NOA- net operating assets OI- operating income Residual earnings Abnormal growth
- take into account the required rate of return when evaluating profits. If i invest in Microsoft and it has a growth of 10% /per year , i also should take into account that my money is locked for one year and therefore i should get paid for the cost of capital. Lets say my required rate of return is 10% , and MSFT grows with 10% per year , than it means there is no residual earnings/abnormal growth...i could keep my money elsewhere.
- try to get to the core earnings of the operation, the earnings that are made from the usual activities of the company ! If MSFT makes 10 dollars/year but it makes 6 from financing operations ( interest on some buildings it has leased) , 1 from selling a one time deal item (like a building) and only 3 from selling software...then i am interested in only those 3 dollars. We should take out profits made from non-core operations , or from one time deals the company made
- how stock options of employees deteriorate value for shareholders in the future when the right of exercising said options is used
This book is deep and solid but its calculations are hard to follow (even for someone that has read his share of financial/accounting books , though without a degree in accounting) without a pen and a paper. Even without the arithmetics it still has quite alot of value and it digs deep into the components that generate value within a company !
The book is separated within 4 parts each with a couple of chapters. Each chapter comtains a theory and mini cases followed by exercises. The exercises part is the hard one to follow.
Would have been a 4 star if the calculus part was more concise and a bit more simplified....more
Short book focusing on fundamentals of accounting valuation with some key points: - income from operating assets , return on operating assets and , assShort book focusing on fundamentals of accounting valuation with some key points: - income from operating assets , return on operating assets and , asset turnover should be paramount in any valuation - never include price of stock in valuation - use redidual income in order to challenge market price when assesing a company - make sure to include YOUR required return when assesing if you want to buy a stock or not - discard write-downs, one time payments , income generated from sale of property and equipment , deferred revenue from the balance sheet - beware of inventory dipping , back-bleeding and other shenaningans used in accounting
Overall a pretty hard read , with a limited number of ideas , but really really solid ones.
I marked it 4/5 because i think some explanations would have been required when presenting some data samples....more
This is indeed the work of a titan. While i started the book thinking it would be mostly about these particular types **spoiler alert** Stellar work !
This is indeed the work of a titan. While i started the book thinking it would be mostly about these particular types of securities and how to invest in them.... i was in for a treat.
The book covers in depth topics that could benefit a multitude of categories of readers starting from fund managers, company officers , accountants , lawyers in the financial domain as well as investors.
The book starts with the definition of distressed investing. Very interesting , it builds up on the reasons companies get distressed ; it follows with the not-known process of bankruptcy and liquidation and how all the parties fit in together and how the process moves forward, dividing the "pie" of assets.
The phrase that should stick with you regarding a bankruptcy process is: "It is a zero sum game" where a category of parties benefit on the lose of another.
Next we get a deep lesson on company health indicators such as EBIT(A) , EV , Debt , cash flows , how to measure them and how to spot red flags based on these indicators or , why not , investing opportunities.
We are then taken into the realm of capital structures , debt , equity , notes and all other kinds of securities , their sizing and most importantly their priority in the case of a default.
Next thing we get in the shoes of company management and their available moves in case the company ia going southward.
We then get in the shoes of the different types of creditors /stakeholders in a distressed firm and their moves.
Very interesting is the fact that the book also presents hypothetical as well as real cases of distressed conpanies.We are presented on how real companies acted when in unfavourable situations as well as how a hypothetical scenario might play out.
By the end we are also presented how a reorganization plays out and how each creditor is affected by the new capital structure, and also what to expect as a stakeholder with an interest in the new company.
Topics such as secured/unsecured debt , convenants , pledge provisions , trade claims , very interesting - tax returns , carryforwards and NOL's are also tackled !
My favourite part by far was chapter 6 , discussing leverage , which when taking a loan represents X times the EBIT.(e.g: my EBIT is 200, if i burrow 500 , the leverage is 2.5). It showed clearly based on a company EBIT what kind of debt it can sustain and manage to pay in a 5 year interval without going bankrupt. The author did an astounding job in proving through real data based charts and calculaltions that a leverage of more than 2.5 makes a company unable to ammortize the loan in a 5 year gap. In fact even a company that grows 8%/year can't do it and that considering a constant cash flow ! When the cash flow fluctuates it gets a lot worse. Even though i do not own a company this example sticked to me and i am planning to follow it on myself as if i am if i will ever consider taking a loan. Why are there people using leverages of 10 and more to buy houses/cars/stuff to show off is beyond my imagination !
This book is an enciclopedia in the fields of finance, investing and securities and i wholeheartedly recommend it to anyone interested in the aforementioned topics....more
The book was kind of a let down from the investors perspective.I was expecting some really brilliant ideas from the 'Oracle of Omaha'.The book was morThe book was kind of a let down from the investors perspective.I was expecting some really brilliant ideas from the 'Oracle of Omaha'.The book was more focused on managerial should's and shouldn'ts.It mostly boils down to Bufett's stance as to why Berkshire Hathaway is the greatest company and how awesome are their policies compared to the typical corporation.
Not pretty much to learn if you are interested in learning the in's and outs of the market.
I must admit however that the author did a great job in the last 3 chapters when discussing on subjects such as current accounting practices , goodwill and taxation.
Overall a book designsted torwards general managers or people with out of the ordinary financial resources.
If investing it is you are interested in then i suggest grab a copy of Peter Lynch's One up on Wall Street ASAP !...more
By far the best book i've read on investing so far.While there are a dozen books that cover the basics and and tell you what to look for when choosingBy far the best book i've read on investing so far.While there are a dozen books that cover the basics and and tell you what to look for when choosing stocks, this is the first one that tells me as a novice why a particular value on the financial statements matters.
Peter Lynch does an awesome job in splitting stocks into 6 categories (slow ,fast growers, stalwarts, cyclicals,turnarounds and asset plays).
After separating them , he goes on explaining what to expect from that category and what indices really matter on the financial statements.
On top of that he provides real decisions that he has made during his career as director of Magellan Fidelity investment fund.
There's one thing to read in a random book about the balance sheet and there's another to read on how he bought Ford stock in 1987 based on analysing Cash vs Long term Debt.
These examples are abundand and are godly for the novice investor to get the nuts and.bolts on how the stock market works.
Terrific read , i reccomend it wholeheartedly !...more
It is a shame actually that this is regarded as the go-to book for individuals that want to get into value investing . It is only a resume , or betterIt is a shame actually that this is regarded as the go-to book for individuals that want to get into value investing . It is only a resume , or better put a collection of ideas taken from a far greater book written by Graham : Security Analysis.That's where the honey is kept....more
**spoiler alert** A totally must read for anyone thst is considering investing in the stock market. This book covers everything from types of investmen**spoiler alert** A totally must read for anyone thst is considering investing in the stock market. This book covers everything from types of investments, balance sheets, management , subsidiaries, ammortization , and perhaps the most important is the variety of real world examples taken from the stock market (1920-1939) and illustrated as charts, spreadsheets ..and how the author is analyzing each company in that specific setup and draws conclusions. A totally must read !...more
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