Investing Accounting Made Simple
In investing, accounting is an important topic. Accounting is the language of investing and business. If you are unfamiliar with financial statement analysis and how to interpret the financial statements, I highly recommend you to start with the financial statement analysis series because the topics on this page are focused on the actual accounting side of investing.
This is a series on aggressive accounting policies that companies may use. It is important to understand each one because it could be the difference between finding a company that is making up growth compared to one where the growth truly does exist.
- Aggressive and Conservative Accounting Policies
- How to Detect Aggressive Revenue Recognition Policy
- FIFO LIFO Inventory Valuation Methods
- Straight Line and Accelerated Depreciation Methods
- Aggressive Accounting: Reserves, Allowances, Contingent Liabilities
- How Companies Misuse Capitalizing of Expenses
Investing Accounting Methods and Investment Metrics
Accounting is not just book keeping and reporting numbers. It tells you a lot about a company and by analyzing the accounting methods and the numbers being reported, you can tell whether a company is fraudulent, understand the earnings quality and make an educated guess about a company’s product demand by analyzing inventory.
The below articles will lead you through various topics of how to utilize the concepts in investing accounting to your advantage.
- How to Analyze Receivables & Inventory
- DuPont Analysis Model and Spreadsheet
- Accounting Red Flags
- 15 Best Investing Metrics
- Top 10 Stock Valuation Ratios
- 20 Balance Sheet Ratios to Determine a Company’s Health
- Basics of a Dividend Payout Ratio
Everything You Need to Know about Free Cash Flow and Owner Earnings
Free cash flow is a big deal in value investing. While most investors will consider net income and EPS as earnings, to value investors, Free cash flow and owner earnings are considered earnings. Free cash flow and owner earnings can be used interchangeably and the definitions and formula differ slightly, but the goal and intention is the same.
Owner earnings is a term that Warren Buffett wrote about in his Berkshire letters, but I have tried to explain it in simpler terms.