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The Investor's Guide to Understanding Accounts

10 crunch questions to ask before investing in a company

By Robert Leach
Cover of The Investor's Guide to Understanding Accounts (Paperback) by Robert Leach

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About the Author

Robert Leach

Robert Leach FCCA FIPPM ACertCM is a certified accountant, private investor and author of over 30 books. His titles include How to Make Money on the Stock Exchange (Foulsham), Financial Times Guide to Your Company Pension, Allied Dunbar Guide to Financial Planning for the Over 50's and The Investor's Guide to Understanding Accounts. For two years he was a judge of the Stock Exchange Awards for ... Read more on Robert Leach

Contents Listing

I. WHY YOU CANNOT AFFORD TO IGNORE COMPANY ACCOUNTS

Introduction
Aim of this book


II. THE 10 TESTS THAT A SET OF ACCOUNTS MUST PASS

1. Is the company growing?

- Sources of sales
- Business focus
- The future sales outlook

2. Are costs under control?

- Comparison to sales
- Extraordinary and exceptional items
- Depreciation
- Working capital
- Tax
- Research & development

3. Does it make a profit?

- Profit margins
- Gross profit
- What is the return on capital employed?
- What is EBITDA?

4. How much cash does it have?

- Cash generation and consumption
- Paying suppliers
- Getting paid by customers

5. Is its market value supported by assets?

- Market value
- Enterprise value
- Fixed assets
- Current assets

6. Is it using debt wisely?

- The level and type of debt
- Paying off debt

7. Are there any hidden nasties?

- The level of liabilities
- Contingent liabilities
- Tax
- Pension liabilities

8. Is management good enough?

- The Combined Code
- Incumbents
- Strategy
- Directors' salaries
- Shareholdings
- Employment contracts

9. Can I expect a reliable income?

- Dividend policy
- The 'price' of dividend income

10. Are there any threats to my interests?

- Who owns the company?
- Other issues
- External threats to shareholders
- The ultimate threat


III. APPLYING THE 10 TESTS TO DIFFERENT TYPES OF BUSINESS

Aerospace, AIM companies, Airlines, Alcohol and breweries, Automobiles, Banks, Business Services, Chemicals, Construction, Construction materials, Engineering, Food manufacturing, Food retailing, Football clubs, Household goods, Insurance, Internet companies, Investment trusts, Leisure industry, Media, Mines, Oil industry, Pharmaceuticals, Property, Retailers, Shell companies, Technology companies, Telephone companies, Television companies, Tobacco companies, Utilities, Wholesalers & distributors


IV. THE RELIABILITY OF REPORTS AND ACCOUNTS

- The main financial statements
- Are accounts reliable?
- The Auditor's report
- Legitimate ways for companies to 'improve' their results
- Fraud


V. SUPPORTING INFORMATION FROM OUTSIDE THE ACCOUNTS

- Updating the information in accounts
- Independent research
- Directors' dealings

VI. SUMMARY
- 10 signs of a company in good health
- 10 signs of a company in trouble
- Key accounting ratios and measures

APPENDICES

1. Sources of company accounts
2. Software for investors
3. Glossary of accounting terms
4. Common abbreviations in accounts and investment
5. Companies mentioned in this book
6. Further reading on company accounts

INDEX
I. WHY YOU CANNOT AFFORD TO IGNORE COMPANY ACCOUNTS

Introduction
Aim of this book


II. THE 10 TESTS THAT A SET OF ACCOUNTS MUST PASS

1. Is the company growing?

- Sources of sales
- Business focus
- The future sales outlook

2. Are costs under control?

- Comparison to sales
- Extraordinary and exceptional items
- Depreciation
- Working capital
- Tax
- Research & development

3. Does it make a ...

Jacket Text

Many investors ignore company accounts because they think they are too difficult. But, as the great investor Peter Lynch said "Investing without looking at the numbers is like playing bridge without looking at the cards".

The mission of this book is to explain to ordinary investors, with no accounting knowledge, what to look for in a set of accounts and how to interpret what you find - so that you have an accurate 'health check' on a company in ten simple steps.

Robert Leach considers the entire subject from an investor's point of view, by asking - and then answering - the questions which matter most. He also looks at the techniques which companies sometimes use to flatter their accounts, and shows how accounts for companies in different sectors have to be looked at differently.

The 10 Crunch questions:

1. Is the company growing?
2. Are costs under control?
3. Does it make a profit?
4. How much cash does it have?
5. Is its market value supported by assets?
6. Is it using debt wisely?
7. Are there any hidden nasties?
8. Is management good enough?
9. Can I expect a reliable income?
10. Are there any threats to my interests?

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Media Coverage

Media Review

Once read and it is a good read as an investor, you'll probably reach for it a few times a weekMartin Fagan, UK-Analyst25th June 2007

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