Knowledge sharing initiative Book 4: "The interpretation of financial statements" by Benjamin Graham.
This book was published around 1937 by investing legend Ben Graham. Ben is also regarded as the guy under whom the great Warren Buffett started his investing journey.
This book teaches financial statement analysis in a very simple manner. It also focuses on the key relationship between P&L, B/s & Cash flow statements of a company.
Here are key takeaways from the book 👇👇
1.B/s shows how much a company owns (assets) & owes (liabilities) at a particular point in time mostly prepared on a semi-annual & annual basis.
2.Assets=Tangible (PP&E, inventories, accounts receivable, cash)+intangible Assets (trademark, lease rights, goodwill)
3.Liabilities=Short term debt (accounts payable,current portion of long term debt,advances from customers) + Long term Debt (bank loans,bonds,lease liability)
4.Tangible assets are written down through depreciation & intangibles are written down through amortization or impairment
5. Depreciation & amortization means normal wearing out assets over its typical lifespan. It allows the cost of the asset to be charged off (in the income statement) over a number of years.
6. Depletion gets applied in commodity businesses like cement, mining, and crude oil.