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statements don't have to sort through multiple layers of common stock, preferred stock, and several complex debt instruments; and a debt burden that is manageable in size, not overly exposed to interest rate changes, and not overly burdened with covenants that jeopardize the common shareholders.
Final Note
This series is designed to help you spot red and green flags in your potential stock investments. Keep in mind the limitations of financial statements: they are backward-looking by definition, and you almost never want to dwell on a single statistic or metric.
Finally, U.S. accounting rules are always in flux. At any given time, the Financial Accounting Standards Board (FASB) is working on several accounting projects. You can see the status of the projects at their website. But even as rules change and tighten in their application, companies will continue to have plenty of choices in their accounting. So, if there is a single point to this tutorial, it is that you should not accept a single number, such as basic or diluted earnings per share (EPS), without looking "under the hood" at its constituent elements.
Related Tutorials:
Accounting and Valuing ESOs - Learn the different accounting and valuation treatments of ESOs, and discover the best ways to incorporate these techniques into your analysis of stock.
Introduction to Fundamental Analysis - Here's an easy-to-understand tutorial on the techniques of analyzing a company's financial statements, including the annual and quarterly reports, the auditor's report, and much more.
Guide to Stock Picking Strategies - Every stock investor needs a strategy that fits his or her outlook and style. Here you will learn abut the most popular stock picking strategies, including their philosophies, methods, and tools.
Advanced Bond Concepts - This detailed tutorial explains some of the more complex concepts and calculations you need to know for trading bonds, including bond pricing, yield, term structure of interest rates, duration, and much more.
This tutorial can be found at: http://www.investopedia.com/university/financialstatements/ (Page 66 of 66)
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