• The Investor's Guide to Understanding Accounts

• 10 crunch questions to ask before investing in a company

• by Robert Leach

Reviews

• "Investing without looking at the numbers is like playing bridge without looking at the cards." Peter Lynch WHAT’S IT ABOUT? Trawling through company accounts is not the way many of us like to spend our spare time. But as Peter Lynch would agree, if you want to invest in a company, you need to know exactly what you are getting yourself into. If you want the pay-off you have to put in a bit of work. This new book from Robert Leach makes this task a lot easier. He shows investors, with little or no accounting knowledge, what to look for in a company's set of accounts, and how to interpret the results; only then should the decision to invest be made. Reading a set of company accounts is made simple by setting out the key things to look for, in simple terms, so they can be ‘ticked off’, like a check-list. As well as general advice on choosing a company there is a great deal of specific information on the analysis of the set of accounts. Leach approaches company accounts by asking ten 'crunch' questions that any investor should ask about a company before making an investment. These include: “is the company growing?”; “Does it make a profit?”; “How much cash does it have?”; “Are there any threats to my interests?”; and “are there any hidden nasties?”. He then answers them, and here is where the crucial information is found. Each question is answered methodically by using and explaining key terms, ratios and formulae, all of which are found in financial reports. TEN KEY QUESTIONS After the ten key questions have been dealt with, the book tackles specific areas of investment, such as AIM companies, construction and technology companies, and how the ‘crunch’ questions can be applied to different types of business. Here Leach highlights the key points relevant to each sector, such as the impact of international politics on the airline sector, and the popularity of certain football clubs pushing share prices far above their commercial value, a worrying fact that isn’t helped by the ever-rising pay cheques given to the players! We also find two useful tables towards the end of the book: ten signs of a company in good health; and ten signs of a company in trouble. Each of these provides potential investors with a basic list of things to look for and understand, ensuring no investor is lured into a bad investment by the distraction of meaningless calculations and unrealistic claims. INDICATORS OF SUCCESS Leach suggests that there are certain indicators which show that a company is successful. These include: the financial highlights being within the first two pages of the report; equal prominence being given to both sales and finance; and it owing less than half the amount it is worth. A company that had all of these should be well on the way to success, taking its investors with it. However, there are some tell tale signs of a company which might not be all it’s trying to make you believe it is. He also implies that, despite all the apparently ‘positive’ statements a company might make, if the accounts in the report are difficult to find, follow or read, or there are more than three photographs of the chairman or chief executive in the reports, these are merely diversionary tactics and the company should be avoided at all costs. And a company to be treated with the most extreme caution is one where you find a flagpole or fountain at its head office! All the ratios that you will find mentioned in company accounts, and how they are calculated, are found in this book. With a glossary of accounting terms and definitions, and common abbreviations found in accounts and investment, everything you need in order to read a set of company accounts is found here in one book, leaving you to make the next step - investing in your chosen company.
  Pa Watkins