In my ebook The Bedokian Portfolio, I did not cover much on financial statements except for a brief description of the income statement, the balance sheet and the cash flow statement1. Short of reading up accounting and financial textbooks, it is not easy to explain the nooks and crannies of these statements in a simplistic form.
Fortunately, I have identified a couple of books that are light for reading (and light for your brain, too) in understanding some of, if not almost, the whole gist of things. Each of these books could be read over a lazy weekend and after reading them, I believe they will provide some form of enlightenment in understanding the financial statements.
Warren Buffett and The Interpretation of Financial Statements (ISBN 978-1-84983-319-6)
See book cover here.
Co-authored by Mary Buffett and David Clark, their aim is to provide “a straightforward and easy-to-understand book that would teach investors how to read a company’s financial statement”2. It also emphasizes on the search for companies with a durable competitive advantage, something that Warren Buffett, considered one of the greatest value investors of our time, would look for.
Buffett (Mary) and Clark introduced each line item in the financial statements in bite-sized chapters, and will disclose Warren Buffett’s strategies and viewpoints in some of them.
Buy Low, Sell High, The Simplicity of Business Finance (ISBN 978-0-9969433-7-6)
See book cover here.
Written by Dr. Philip Young, a consultant and former MBA professor, this book is originally meant for people with non-financial background to understand business finance better. However, this book is suitable for investors as well, as he has stated, “understanding business finance is a critical part of being an educated investor”3, something which I agree wholeheartedly.
Young explained the financial statements in a simple manner, using examples and figures. He also touched on some financial ratios and the time value of money. To top it off, at the end of each chapter he gave diagnostic questions as a form of learning check.
I hope the above would give you a jump-start in knowing and understanding financial statements more. For the already trained, take them as a light refresher read.
1 – The Bedokian Portfolio, p86
2 – Buffett, Mary & Clark, David. Warren Buffett and The Interpretation of Financial Statements (2011). Simon and Schuster U.K. pxvii
3 – Young, Philip. Buy Low, Sell High, The Simplicity of Business Finance (2017). LID Publishing. p3