Review
In Financial Statement Analysis: A Practitioner?s Guide, Third Edition (New York: John Wiley & Sons, Inc., 2002), Martin Fridson and Fernando Alvarez detail a number of gimmicks that companies have employed, including:

• Booking deliveries of computer software to resellers as sales, despite undisclosed agreements permitting the return of unsold merchandise for refunds.
• Helping managers to achieve their annual sales targets by announcing a price increase, effective January 2, to induce customers to order before year-end, even though the hike puts the company out of line with the competition.
• Taking credit for volume-based rebates from suppliers before purchases of merchandise reach the level needed to qualify for the rebates.

Surprisingly, to many readers, the slipperiness depicted in Financial Statement Analysis is not limited to penny-stock companies or high-flying initial public offerings. A number of the book?s case studies involve widely respected Fortune 500 corporations. The authors quote an official of one such company who freely admits that when a division is in danger of missing its quarterly profit goal, management tries to make an acquisition in the waning days so that it can count the unit?s earnings for the entire period.

Fridson and Alvarez do not merely describe and deplore opaque financial reporting practices. They document a number of cases in which analysts successfully anticipated stock and bond price shocks, using financial ratios and publicly available information from outside the statements. The authors also provide practical advice on making financial projections. (Extra Credit, The Journal of Global High Yield Bond Research)

Financial Statement Analysis, by junk bond guru Martin Fridson, is my No. 1 pick for those at an intermediate level. Fridson does a great job of explaining the various forces at work in corporate financial statement preparation, and also has valuable insights into issues such as pro form a income statements and revenue recognition practices. - Street.com

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Praise for Financial Statement Analysis
A Practitioner’s Guide
Third Edition

"This is an illuminating and insightful tour of financial statements, how they can be used to inform, how they can be used to mislead, and how they can be used to analyze the financial health of a company."
–Professor Jay O. Light
Harvard Business School

"Financial Statement Analysis should be required reading for anyone who puts a dime to work in the securities markets or recommends that others do the same."
–Jack L. Rivkin
Executive Vice President (retired)
Citigroup Investments

"Fridson and Alvarez provide a valuable practical guide for understanding, interpreting, and critically assessing financial reports put out by firms. Their discussion of profits–‘quality of earnings’–is particularly insightful given the recent spate of reporting problems encountered by firms. I highly recommend their book to anyone interested in getting behind the numbers as a means of predicting future profits and stock prices."
–Paul Brown
Chair–Department of Accounting
Leonard N. Stern School of Business, NYU

"Let this book assist in financial awareness and transparency and higher standards of reporting, and accountability to all stakeholders."
–Patricia A. Small
Treasurer Emeritus, University of California
Partner, KCM Investment Advisors

"This book is a polished gem covering the analysis of financial statements. It is thorough, skeptical and extremely practical in its review."
–Daniel J. Fuss
Vice Chairman
Loomis, Sayles & Company, LP

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