The Writer’s Coin

A long long time ago before I knew what I was doing with money or investing or even saving and budgeting, I read Peter Lynch’s Beating the Street and One up On Wall Street. Granted, this was a while ago, but I remember coming away from those books with a desperate need to learn how to read financial statements.

For those that don’t know, “financial statements” are three basic documents that a company uses to show investors (and the Securities and Exchange Commission) that everything is on the up and up. The three of them are the balance sheet, the income statement, and the statement of cash flows.

These are the keys to knowing how a company is doing. To use a sports analogy, this is the back of the baseball card—all the stats and numbers are here and can give those that know how to read them the information they need to decide whether this is a good investment opportunity or not.

Hence why they are so important.

The SEC’s own website (if you are a public company, the SEC demands that you come up with and publish these documents) actually has a pretty good explanation of what each one of these documents shows.

And speaking of sports analogies, check out that first line on the SEC’s site:

If you can read a nutrition label or a baseball box score, you can learn to read basic financial statements.

They go on:

The basics aren’t difficult and they aren’t rocket science.

Then why I am here, over two years after reading Lynch’s books, still not able to decipher and bring meaning to these things? First I printed out all of About.com’s tutorial (which I thought was good and very thorough, as far as I can remember) on financial statements. I read through it and gradually forgot it all. Why? I wasn’t practicing. Then I moved and threw those papers out.

So now I’m here in the middle of a tanking market—the perfect time to invest—and I’m panicking because I have no clue what to look for in the financial statements of companies I am interested in.

So I’m asking all the seasoned veterans out there for help: Can you guys recommend a good strategy or book to help me become proficient at reading and interpreting these things?

So far I have these two books in mind:

• The Interpretation of Financial Statements, by Benjamin Graham
• Financial Statements, by Thomas R. Ittelson

Any ideas/help?

Tags: Financial statements, Investing