P1: OTA/XYZ P2: ABC JWBT510-fm JWBT510-Fridson May 23, 2011 7:24 Printer: Yet to Come ib P1: OTA/XYZ P2: ABC JWBT510-fm JWBT510-Fridson May 23, 2011 7:24 Printer: Yet to Come Additional Praise for Financial Statement Analysis, Fourth 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.” —Jay O. Light, Dean Emeritus, 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, Director, Neuberger Berman Mutual Funds and Idealab “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 rec- ommend their book to anyone interested in getting behind the numbers as a means of predicting future profits and stock prices.” —Paul Brown, Associate Dean, Executive MBA Programs, Leonard N. Stern School of Business, New York University “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 ia P1: OTA/XYZ P2: ABC JWBT510-fm JWBT510-Fridson May 23, 2011 7:24 Printer: Yet to Come ib P1: OTA/XYZ P2: ABC JWBT510-fm JWBT510-Fridson May 23, 2011 7:24 Printer: Yet to Come Financial Statement Analysis Workbook i P1: OTA/XYZ P2: ABC JWBT510-fm JWBT510-Fridson May 23, 2011 7:24 Printer: Yet to Come Founded in 1807, John Wiley & Sons is the oldest independent publish- ing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding. The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation and fi- nancial instrument analysis, as well as much more. For a list of available titles, visit our Web site at www.WileyFinance.com. ii P1: OTA/XYZ P2: ABC JWBT510-fm JWBT510-Fridson May 23, 2011 7:24 Printer: Yet to Come Financial Statement Analysis Workbook Step-by-Step Exercises and Tests to Help You Master Financial Statement Analysis Fourth Edition MARTIN FRIDSON FERNANDO ALVAREZ John Wiley & Sons, Inc. iii P1: OTA/XYZ P2: ABC JWBT510-fm JWBT510-Fridson May 27, 2011 4:5 Printer: Yet to Come Copyright ⃝c 2011 by Martin Fridson and Fernando Alvarez. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. 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For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. ISBN 978-0-470-64003-6 (paperback); ISBN 978-1-118-09749-6 (ebk); ISBN 978-1-118-09747-2 (ebk); ISBN 978-1-118-09748-9 (ebk) Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 iv P1: OTA/XYZ P2: ABC JWBT510-fm JWBT510-Fridson May 23, 2011 7:24 Printer: Yet to Come In memory of my father, Harry Yale Fridson, who introduced me to accounting, economics, and logic, as well as the fourth discipline essential to the creation of this book—hard work! M. F. For Shari, Virginia, and Armando. F. A. v P1: OTA/XYZ P2: ABC JWBT510-fm JWBT510-Fridson May 23, 2011 7:24 Printer: Yet to Come vi