We Study Billionaires - The Investor’s Podcast Network

chevron_right

TIP672: Quality of Earnings: Uncovering Hidden Red Flags w/ Clay Finck

whatshot 76 snips

Nov 1, 2024

01:06:51

forum

Ask episode

web_stories

AI Snips

view_agenda

Chapters

menu_book

Books

auto_awesome

Transcript

info_circle

Episode notes

volunteer_activism

ADVICE

Scrutinize Reported Earnings

Don't take company-provided numbers at face value.
Consider motivations for overstating or understating earnings.

insights

INSIGHT

Analyst Bias and Short Selling

Analysts often have a bullish bias, potentially leading to overvalued stocks.
Short sellers can provide a valuable, contrarian perspective in the market.

question_answer

ANECDOTE

Chanos' Baldwin United Call

At 24, Jim Chanos made a sell recommendation on Baldwin United, facing strong industry pushback.
Despite warnings, Baldwin's stock fell 90%, proving Chanos correct.

Get the Snipd Podcast app to discover more snips from this episode

Get the app

#36006

Quality of Earnings

Uncovering Hidden Red Flags and Ensuring Accuracy in M&A

Thornton O’Glove

The concept of Quality of Earnings involves a detailed analysis of a company's financial records to determine the accuracy, sustainability, and quality of its earnings. This includes verifying stated EBITDA, examining projected financial performance, and assessing the sustainability of revenue and earnings. It also involves identifying and adjusting for accounting gimmicks, one-time events, and other factors that could misrepresent a company's true financial health. This analysis is crucial in M&A transactions to ensure that buyers and sellers have a clear understanding of the target company's financial situation and to mitigate potential disputes and financial risks.

#23344

Quality of Earnings

Thornton L. O'glove

Published in 1987, 'Quality of Earnings' by Thornton L. O'glove is a comprehensive guide for investors to read between the lines of corporate financial reports. The book teaches how to spot red flags, unmask inflated earnings, and recognize the differences between shareholder and tax reporting. It provides practical tools for analyzing financial statements, including accounts receivable, inventories, debt, and cash flow. Despite being published over 35 years ago, the principles and concepts remain relevant, making it a valuable resource for both novice and experienced investors.

#15283

• Mentioned in 2 episodes

How Do You Know? A Guide to Clear Thinking About Wall Street, Investing, and Life

A Guide to Clear Thinking About Wall Street, Investing, and Life

Christopher Mayer

In this book, Christopher W. Mayer explores the concept of general semantics and its application to investing and life. He discusses the work of Alfred Korzybski and the importance of understanding the limits of our knowledge. The book delves into tools for effective transmission and retention of knowledge, the differences between facts and inferences, and the need for a nuanced view of the world beyond binary perspectives. Mayer emphasizes the importance of continuous learning and critical thinking in investing and life.

#7658

• Mentioned in 4 episodes

The Investment Checklist

Michael Schoen

Many investors who analyze stocks take the numbers provided by the company at face value, but there are times when this can be a massive investing mistake.

To help shed light on what the earnings provided by a company really mean for us as investors, we reviewed the book — Quality of Earnings by Thornton O'Glove. Thornton is a Wall Street veteran known for pioneering red flag deviation analysis.

This book is an indispensable guide to determining how much money a company is really making to help us avoid making costly blunders.

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro

07:26 - Why you shouldn’t trust your analyst or the auditors.

15:13 - What to keep an eye on when reading an annual report.

22:35 - Red flags to look out for when analyzing a company’s filings.

31:13 - How managers and accountants can legally manipulate earnings per share, however they see fit.

34:06 - Tools we can use to help determine the quality of earnings for a company.

35:55 - How we can make use of accounting items like accounts receivable and inventory.

49:36 - The impact of dividends on your returns as an investor.

53:11 - The shortfalls of GAAP accounting.

And so much more!

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members.
Quality of Earnings book.
Quality of Earnings in M&A.
Related Episode: TIP667: Why Most Stocks Will Lose You Money w/ Hendrik Bessembinder, or watch the video.
Related Episode: TIP601: Junk to Gold by Billionaire Willis Johnson, or watch the video.
Related Episode: TIP656: Mastering Stock Selection with an Investment Checklist w/ Clay Finck, or watch the video.
Follow Clay on Twitter.
Check out all the books mentioned and discussed in our podcast episodes here.
Enjoy ad-free episodes when you subscribe to our Premium Feed.

NEW TO THE SHOW?

Follow our official social media accounts: X (Twitter) | LinkedIn | Instagram | Facebook | TikTok.
Check out our We Study Billionaires Starter Packs.
Browse through all our episodes (complete with transcripts) here.
Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool.
Enjoy exclusive perks from our favorite Apps and Services.
Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets.
Learn how to better start, manage, and grow your business with the best business podcasts.

SPONSORS

Support our free podcast by supporting our sponsors:

Bluehost
Fintool
PrizePicks
Vanta
Onramp
SimpleMining
Fundrise
TurboTax

HELP US OUT!

Help us reach new listeners by leaving us a rating and review on Spotify! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it!

Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

Learn more about your ad choices. Visit megaphone.fm/adchoices

Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

Home Top podcasts Popular guests Top books