Review – Financial Warnings
Financial Warnings, by Charles W. Mulford and Eugene E Comiskey, is the best financial statement analysis book ever written. If you have any interest in crunching a company’s numbers, you need this book.
Financial Warnings zeroes in on one vital topic for investors – detecting and avoiding negative earnings surprises. If you’ve ever owned a stock that delivered a lousy quarter, you know that a negative earnings surprise can cost you big money.
This book will not help you pick stocks that go up a lot, but it will help you avoid the big blow-ups, and find candidates for shorting. I first came across it after a high-profile hedge fund manager recommended it to me as “the Bible of fundamental analysis.”
The scope of Financial Warnings is enormous, with many topics I’ve never seen in any other book. One chapter included a survey of 191 bank lenders, who listed the major early warning signs of earnings declines – that section alone was worth the book’s price. In addition, the authors go into detail on topics ranging from analyzing deferred tax assets to detecting misreported assets to calculating true earnings power.
All along the way, the focus is on reading between the lines. An entry-level finance or accounting course may teach you how to calculate metrics like days’ sales outstanding or interest coverage ratios – but they don’t teach you anything about actually applying that knowledge.
After you read this book, you won’t take any company’s CEO or CFO word for granted – you’ll have the technical knowledge to get to the truth yourself.
Financial Warnings is not a particularly easy read. You need some base level of accounting and finance to understand it, and it is incredibly dense. It can’t be read in one sitting – it’s must easier digested in small bites.
It is also a very expensive book at $100+ brand new, or about $50-60 used on Amazon