Friday, October 30, 2009

Book Review: Corporate Financial Analysis

I wish I had found this book years ago. Fundamental Analysis when done right requires a thorough understanding of every line item in every financial statement- what is it, what ratios use it, and most importantly, what does it tell you about the business you are trying to analyze.


I have read more than a few books on this subject, most take the approach of showing each line item of each statement and then providing an explanation of the ratios that use it and then how these ratios work. This approach of explanation has all the excitement of reading the dictionary and as a result when reading these books I often find myself staring off into nowhere or deciding that now is the perfect time to go out and clean those pesky rain gutters.



If you, like myself, learn better by doing then simply by seeing then Dr. Clauss's book Corporate Financial Analysis with Microsoft Excel is well worth picking up. In his unconventional approach he takes you step by step from the line items that make up the balance sheet, and income and cash flow statements all the way up to the creation of forecast models off of these same sheets.


Reading the book alone will gain you nothing- other than frustration. To truly get the value of the book requires that you take the financial statements of your favorite business and work with each chapter of Clauss's book. You will learn to create totals, ratios, and models- how to perform a true dissection of the business of your choice.


With all this positive said I do have one complaint about the book. I wish Clauss had provided a CD containing his examples and had provided an excel macro that can download the financial statements of a selected business off of Morningstar so the reader has a starting point. I understand why the statements are not included but many readers will likely be discouraged by the lack of a tool to download their favorite company's financial statements. This problem can be quickly remedied with a bit of searching on the internet. An excel macro that achieves this is fairly easy to find, I chose to stay true to the theme of the book of DIY (Do it Yourself) and write my own little macro.


Overall a great book and one that I would definitely recommend to anyone who learns by doing.

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