The Basics of Understanding Financial Statements

Published on April 24, 2010

In a more perfect world, no high school student would be permitted to graduate without understanding the basics of personal finance.  Required material would include elementary topics such as balancing a checkbook, creating and monitoring a budget, and above all else, the power (and peril) of compound interest.  Part of achieving basic financial literacy should also include a working understanding of accounting and financial statements.

Since the primary goal of such a program would be to provide Americans with basic knowledge, a comprehensive accounting text book may be overkill.  Instead, a basic introductory guide to reading financial statements is needed.  Such a guide would cover the three main financial reports:  Balance Sheet, Income Statement, and Cash Flow Statement.  Mariusz Skonieczny, President of Classic Value Investors has written a concise primer on financial statements that allows the reader to gain a basic understanding of these key financial reports.  The e-book is being offered free of charge to readers who subscribe to the Classic Value Investors Blog.

Mr. Skonieczny is also the author of Why Are We So Clueless about the Stock Market? which we reviewed in December.  The author has a talent for simplifying potentially confusing topics for readers who are new to investing and are looking for basic information that will help to build the foundation for further study of accounting topics.

In some ways, Mr. Skonieczny’s e-book may remind the reader of Benjamin Graham’s classic book The Interpretation of Financial Statements which was discussed in one of the earliest book reviews presented on The Rational Walk. In a concise 120 page book, Ben Graham provided the reader with all of the basics required to navigate a financial statement and the book is still very relevant today, more than 70 years after its initial publication.

Neither of these brief surveys of financial statements are sufficient for an individual who is interested in allocating his own capital, but they are solid starts and highly recommended for new investors.

To receive a copy of The Basics of Understanding Financial Statements, visit the Classic Value Investors blog and enter your name and email to subscribe to the blog.  You will then receive an email with a download link.

The Basics of Understanding Financial Statements