Warren Buffett and the Interpretation of Financial Statements

Warren Buffett and the Interpretation of Financial Statements, by Mary Buffett and David ClarkWarren Buffett is, without a doubt, one of the best investors in his history. In fact, it has become a reference and a case worth studying for many investors, including myself. The book Warren Buffett and the Interpretation of Financial Statements tries to offer a starting point for those who want to learn to invest like “the oracle of Omaha”. In this article you have my analysis and opinion of the book Warren Buffett and the Interpretation of Financial Statements, written by Mary Buffett and David Clark.

Warren Buffett Fact Sheet and Interpretation of Financial Statements

  • Title: Warren Buffett and the Interpretation of Financial Statements. Invest in companies with competitive advantage.
  • Authors: Mary Buffett and David Clark
  • Publisher: Gestión 2.000
  • Año:009
  • Page: 212

Analysis and opinion

It is not the first time that I comment on this blog a book written by Mary Buffett and David Clark. Once again, I have not been completely disappointed. However, they have not made me particularly happy either.

As you make clear from the outset, the goal of this book is to answer the following questions based on the knowledge and experience of Warren Buffett:

  • How can you identify an exceptional company with a lasting competitive advantage?
  • How do you assign value to a company with a lasting competitive advantage?

Do the authors achieve their purpose? In my opinion, they are only half successful. I believe that their orientation is good, although insufficient, especially with regard to competitive advantages. The problem with the book is that it focuses on competitive advantages from a quantitative point of view, with a qualitative analysis being much more important in practice.

The book is structured in 5 parts:

  • Introducción
  • Profit and loss account
  • Situation balance
  • Cash flow statement
  • Valuing the company with lasting competitive advantage

One of the strengths of the book is that it is packed with real examples of investments Buffett has made throughout his professional career. This makes it more didactic and the concepts it explains in a subject such as the analysis of ratios that can be somewhat arid are understood much better.

I have detected a rather serious error in the following sentence on page 32 of the book, which has subtracted points from its final grade:

“The balance sheet: it tells us how much money the company has in the bank and how much money it owes. You just have to subtract the second from the first and we will know the net worth "

This is totally wrong. The result of subtracting the cash on hand minus the money you owe is the net cash or net debt. Net worth is the result of subtracting total assets from total liabilities, which are very different things.

The error may not be very relevant for the purposes of the book, but I have to admit that I am a bit fed up with these kinds of errors in the translations of the English books. What I don't know is if we are facing a translation error or if this error comes from the original version.

NOTE: As my friend Ezra says in the comments, this is not a translation error, it was already in the original. A mistake, in my opinion, totally inexcusable.

The book is simple and easy to read. This becomes a double-edged sword, as it can be a good thing for people who are just beginning to learn to invest in the stock market, while, on the other hand, it can be somewhat simplistic for investors with intermediate or advanced knowledge.

Warren Buffett's Valuation and Interpretation of Financial Statements

The book Warren Buffett and the interpretation of financial statements it offers an acceptable starting point to enter accounting analysis and business valuation.

  • Score: 6
  • Level: Basic
  • Recommended for: Investors with basic knowledge of the stock market and accounting who want to be introduced to financial analysis and business valuation.