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For those who are interested in the accounting side, I highly recommend Financial Shenanigans by Howard Schilit [1]. If you don't have an accounting background,
by mierle 6y ago
For those who are interested in the accounting side, I highly recommend Financial Shenanigans by Howard Schilit [1]. If you don't have an accounting background, all you need to get value out of this book is a basic understanding of the double entry accounting method, and understand the four financial statements: balance sheets, income statements, cash flow statements, and statements of shareholders equity.
After reading this book, I found myself digging through earnings reports to look for signs of shenanigans, and have found cases that raise my armchair-accountant eyebrows.
[1] https://www.amazon.com/Financial-Shenanigans-Fourth-Accounting-Gimmicks/dp/126011726X/ https://www.amazon.com/Financial-Shenanigans-Fourth-Accounti...
- refurb 6y agoI took a class specifically on this - how company manipulate their financial statements to make things look better. It's really fascinating. If you're willing to dig into the financial statements (and ones from the past), you can learn a ton about how a company defines "performance" and whether or not it's reasonable. Despite GAAP accounting rules, there is enough gray area for companies to hide a lot of bad information.
- nickff 6y agoEnron being the classic example of what you're describing.
- refurb 6y agoYup we covered Enron. It's pretty interesting to study the mechanism of the fraud. Enron did a lot of things, but one of the big ones was how they booked revenue. Since they were a middleman, they should have booked their cut (i.e. fees) as revenue, but rather they booked the entire purchase as revenue, drastically inflating their growth.
- hippich 6y agoIf I remember correctly, at that time it was legal to book it this way. Perhaps that was "innovation" that allowed Enron to shoot to the moon?
- realtalk_sp 6y agoAny book you'd recommend to get a quick general grasp of accounting? Aside from the one referenced in the parent, which I'm probably going to buy.
- formalsystem 6y agoThank you for this, I just bought the book. Any books you'd recommend to go over the prerequisites you mentioned? I read this [1] ages ago but I honestly don't remember much at this point. [1] https://www.amazon.com/How-Read-Financial-Report-Wringing/dp/1118735846/ref=sr_1_3?crid=1FZ0D7EDB3Q99&dchild=1&keywords=how+to+read+financials&qid=1588719338&sprefix=how+to+read+financia%2Caps%2C199&sr=8-3 https://www.amazon.com/How-Read-Financial-Report-Wringing/dp...
- blackrock 6y agoSo, what can you actually do with this knowledge? Short their stock? Raise awareness of their fraud, while holding a short position?