Reading annual reports

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Financial Shenanigans is also a good book on catching red flags. I'm reading the 3rd edition at the moment. However it does presume you already know how to read and interpret financial statements.

I haven't found a book yet that explains how accounting differs across industries.

However one potential pitfall I know of is leasing. Without a thorough understanding of how the leasing company recognizes income, you can get tripped up. There are different methods to recognize income, all legitimate, but they can front-load the income, spread it out, or back-load it. At steady state it makes no difference, but when the company is doing better or worse than normal, you need to know whether the improvement/deterioration is already reflected in recent results or is yet to come.

Likewise with off-balance sheet items. You need to read the notes to the financial statements carefully to figure out whether there are hidden liabilities. Sometimes they take the form of leases (sale-leasebacks, rental contracts), other times they take the form of purchase/sale commitments (raw materials, mine output, traded commodities).

But mostly, it's about experience. Only after looking through hundreds of companies can you get a sense of what type of numbers are typical for various industries. It's like any other activity - the more you do it, the faster you get, and the better your intuition.
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Messages In This Thread
Reading annual reports - by nitro - 04-03-2012, 03:35 PM
RE: Reading annual reports - by lonewolf - 05-03-2012, 01:49 PM
RE: Reading annual reports - by FFNow - 05-03-2012, 02:11 PM
RE: Reading annual reports - by d.o.g. - 05-03-2012, 03:04 PM
RE: Reading annual reports - by freedom - 05-03-2012, 04:29 PM
RE: Reading annual reports - by nitro - 05-03-2012, 08:36 PM
RE: Reading annual reports - by FFNow - 05-03-2012, 09:30 PM
RE: Reading annual reports - by kazukirai - 05-03-2012, 09:54 PM
RE: Reading annual reports - by dreamybear - 26-08-2019, 10:28 PM
RE: Reading annual reports - by weijian - 27-08-2019, 03:00 PM
RE: Reading annual reports - by Temperament - 27-08-2019, 04:17 PM
RE: Reading annual reports - by dreamybear - 27-08-2019, 07:08 PM
RE: Reading annual reports - by weijian - 29-08-2019, 10:04 AM
RE: Reading annual reports - by pencilin - 29-08-2019, 08:06 AM
RE: Reading annual reports - by Temperament - 27-08-2019, 04:19 PM
RE: Reading annual reports - by Temperament - 27-08-2019, 04:23 PM
RE: Reading annual reports - by karlmarx - 27-08-2019, 09:50 PM
Micro-Mechanics Holdings 5DD - by chialc88 - 27-08-2019, 10:32 PM
RE: Reading annual reports - by pencilin - 28-08-2019, 08:17 AM
RE: Reading annual reports - by pencilin - 28-08-2019, 08:20 AM
RE: Reading annual reports - by Temperament - 28-08-2019, 10:35 AM

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