Financial Statement Analysis

48 Posts

Exploring Cross-Sectional Effects of Inflation

Financial Analysts Journal (November/December 2013)

The US generally accepted accounting principles (GAAP) do not require adjustments for inflation, so financial statements are reported in nominal terms. This struck Yaniv Konchitchki as problematic. In his recently published article “Accounting and the Macroeconomy: The Case of Aggregate Price-Level Effects on Individual Stocks,” Konchitchki examines stock-valuation effects of aggregate price-level changes on individual companies. Read more

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Weekend Reads for Investors: Tryptophan Edition

Weekend Reads

US investors are celebrating Thanksgiving this week, and the soaring stock market continues to serve nothing but humble pie to the thinning ranks of market bears. Hedge fund manager Hugh Hendry was the latest high profile investor to capitulate, recently advising, “I may be providing a public utility here, as the last bear to capitulate. You are well within your rights to say ‘sell.’” Indeed, we may see cautious investors look to secure some of their gains in the closing weeks of the year, but the trend for now remains positive. Read more

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Poll: Where Are Profit Margins Headed?

Since bottoming in 2009, corporate profits as a percentage of GDP have rebounded sharply and currently stand at about 11%, or approximately 70% above the long-term average. Warren Buffett once said, “You have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%.” And Jeremy Grantham has called profits margins “the most mean-reverting series in finance.” Read more

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