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The Signs Were There: The clues for investors that a company is heading for a fall
When companies suffer a dramatic even catastrophic drop in their share price, it is the investors who lose their shirts and employees their jobs. But often, a company's published accounts offer clues to impending disaster, providing you know where to look. Through the forensic examination of more than 20 recent stock market disasters, Tim Steer reveals how companies hide or disguise worrying facts about the robustness of their business. In his lively style, he looks at the themes that underlie the ways companies hide the truth and he stresses that in an assessment of a company's accounts, investors should always bear in mind that the only fact is cash; everything else - profit, assets, etc - is a matter of opinion. Full of invaluable lessons for investors, the book concludes with some trenchant observations on what is wrong in the worlds of investment, audit and financial regulation, and what changes should be introduced.
272 pages, Paperback
Published November 29, 2018
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Displaying 1 - 14 of 14 reviews
August 14, 2019
OK content let down by poor presentation. To be fair, I'm a qualified accountant so this was little more than a reminder of my study days, a quick refresher course. To an outsider, this is probably more enlightening. I think however, the choice of structure made this overly repetitive. Each of the businesses were talked about with their problems stated in the intro, then again the intro to each section, then again in it's own chapter. I think it would probably have been more effective to do a more focused review of each issue, revenue recognition, intangibles, deteriorating liquidity and solvency, ratio analysis, referencing each of them briefly, then dive into 3 long case studies towards the end, ones that might help you to apply the techniques earlier in the book. This would be a more practical presentation and would make it easier to recap and absorb all the information. If we ignore the structural issues, I also feel that the language was not really consistent with the tone of the book, too many cringey puns, many of the sentences meandered in and out of the passive tense, some of the grammar was just bad. I understand that he felt the need to make it more accessible to the reader, but the way to achieve that is with very well written sentences, that make it easy to absorb the information, not awkward sentences with cliches and bad puns. Needed more editing before it hit the shelves. You might get something from the book, but you may have to exercise some patience to get to the good stuff.
January 6, 2020
Good book for its subject. Slightly 'discovery channel' in its format - each chapter has a preface which outlines the main signs of distress, decay or dodginess displayed by the companies to be covered in that chapter, and then each company has a separate introduction and summary. If you don't get the gist by the end of the chapter then there really is no hope...
The book is reminiscent of Accounting for Growth which I read 20 + years ago. The accounting practices are perhaps more restrained than they were but astonishingly there is still plenty leeway for window dressing.
The book is reminiscent of Accounting for Growth which I read 20 + years ago. The accounting practices are perhaps more restrained than they were but astonishingly there is still plenty leeway for window dressing.
February 7, 2020
Not for people new to investing, as this book probably requires you to be quite familiar with reading annual reports and financial statements.
The book covers several companies, that had their stock take a serious (sometimes terminal) dive. The author shows how management can massage numbers to make warning signs less apparent.
- Watch out for capitalised costs: If you spot questionable use of turning expenses into an asset on the balance sheet, which over years is amortized, thus lowering impact on reported earnings in a single year, be on alert!
- exceptional write-offs might not be so exceptional and be a recurring item, management wants you to ignore.
- management can write-down the value of an asset, in order to correct it next year, thus spiking 'earnings'.
- 'accrued income' on a company's balance sheet is un-invoiced income, which is an estimate of what the company is owed... It's easy to see why this can be misused.
- Receivables are not money in the bank! If a company is borrowing money against the security of receivables - watch out!
- insiders and management selling most/all their shares is probably bad
- large amounts of goodwill on the balance sheet: It's hard to figure out how much this is really worth
The book covers several companies, that had their stock take a serious (sometimes terminal) dive. The author shows how management can massage numbers to make warning signs less apparent.
- Watch out for capitalised costs: If you spot questionable use of turning expenses into an asset on the balance sheet, which over years is amortized, thus lowering impact on reported earnings in a single year, be on alert!
- exceptional write-offs might not be so exceptional and be a recurring item, management wants you to ignore.
- management can write-down the value of an asset, in order to correct it next year, thus spiking 'earnings'.
- 'accrued income' on a company's balance sheet is un-invoiced income, which is an estimate of what the company is owed... It's easy to see why this can be misused.
- Receivables are not money in the bank! If a company is borrowing money against the security of receivables - watch out!
- insiders and management selling most/all their shares is probably bad
- large amounts of goodwill on the balance sheet: It's hard to figure out how much this is really worth
May 23, 2019
I am not sure what an accountant or an auditor would think of this book. As an non-accountant I have throughly enjoyed it.
I liked the ‘iceberg principle’ described in the book as a guide for thinking about accounting issues.
I have worked to limit management discretion in the valuation of financial assets and liabilities but, as a non-accountant, I had not truly appreciated the extent to which management judgement feed into the accounts.
The book has also allowed me to appreciate the real (ideal?) role of the audit an assessment of management judgements to ensure that the accounts provide a fair and truthful representation of the business
The writing and the style of the book with extracts of the accounts make it much more readable and ‘real’.
I liked the ‘iceberg principle’ described in the book as a guide for thinking about accounting issues.
I have worked to limit management discretion in the valuation of financial assets and liabilities but, as a non-accountant, I had not truly appreciated the extent to which management judgement feed into the accounts.
The book has also allowed me to appreciate the real (ideal?) role of the audit an assessment of management judgements to ensure that the accounts provide a fair and truthful representation of the business
The writing and the style of the book with extracts of the accounts make it much more readable and ‘real’.
January 10, 2020
A brilliant book that illustrates the impact of accounting / finance fraud or misinterpretation on publicly listed companies in the UK. The author has used case studies that are concise and very instructive and leaves one wishing that B school classes that use case studies to illustrate accounting tools would be as crystal clear. A great accounting refresher for those familiar with the key aspects of double entry book keeping--as the stories are told in an engaging, lucid manner, it keeps the book from rising above what otherwise could have been dry content.
November 14, 2022
While the 250 page book could be summarized in 5 simple words - Where is the cash flow? - it is still worth a weekend read for avid investors looking to improve their pattern recognition; Tim Steer, without straying into laborious detail, hones down on identifiable red flags that investors could have caught on to with regards to infamous financial scandals - Northern Rock, Carillion, AO World, Toshiba, Autonomy..
December 25, 2020
Not a book to help a total beginner find their way around the basics of a balance sheet. More a warning that even if you did know your way around the basics, there's quite possibly something lurking just beyond the basics waiting to trip you up. Pretty niche, then, and rather repetitive, but an easy read, and the world and your money are surely a touch safer due to its existence.
February 7, 2019
Absolutely a must read
Modern version of Terry Smith’s Accounting For Growth, all very practical and relevant to today’s investment methodology.
Highly recommended for financial analysts.
Modern version of Terry Smith’s Accounting For Growth, all very practical and relevant to today’s investment methodology.
Highly recommended for financial analysts.
January 11, 2019
Thoroughly enjoyed this book. Well written, easy to follow and good to get an inside view of what went wrong
October 13, 2019
A very insightful book bout how annual reports can help you predict the future is mainly focused on UK based companies but nevertheless is a really good book.
April 27, 2022
Worth a read but the ‘pre-chapters’ are unnecessary. I think it would have also been better without the last chapter on Funds, as that lacked the same detail as the rest of the book.
December 30, 2020
I'm not an accountant, although I am fairly familiar with the basic concepts.
This book looks at a number of fairly corporate failures, and explains how in spite of the accounts showing that the companies were going concerns, they went under shortly afterwards, usually spectacularly. In some cases they didn't actually fail, but were purchased by bigger companies which then discovered they'd been sold a pup.
The book seemed rather repetitive. The usual culprits were fingered: optimistic accounts receivables, heroically optimistic provisions for bad debts etc. The author rather labours the fact that a lot that goes into published accounts is subjective, and that everyone has to rely on the judgement of the directors. Clearly, these directors are motivated to look on the bright side.
Tim Steer has a few harsh words about the accounting regulator, about its capture by representatives of the "big four" and cries some crocodile tears over the fact that there doesn't seem to be any alternative to the system we have, even though, clearly, it has failed spectacularly in a number of high profile cases, and probably fails in minor ways all the time.
There are a number of books on the general topic of creative accounting and although this is a moderately easy read, I cannot with a clear conscience say that it's one of the best.
This book looks at a number of fairly corporate failures, and explains how in spite of the accounts showing that the companies were going concerns, they went under shortly afterwards, usually spectacularly. In some cases they didn't actually fail, but were purchased by bigger companies which then discovered they'd been sold a pup.
The book seemed rather repetitive. The usual culprits were fingered: optimistic accounts receivables, heroically optimistic provisions for bad debts etc. The author rather labours the fact that a lot that goes into published accounts is subjective, and that everyone has to rely on the judgement of the directors. Clearly, these directors are motivated to look on the bright side.
Tim Steer has a few harsh words about the accounting regulator, about its capture by representatives of the "big four" and cries some crocodile tears over the fact that there doesn't seem to be any alternative to the system we have, even though, clearly, it has failed spectacularly in a number of high profile cases, and probably fails in minor ways all the time.
There are a number of books on the general topic of creative accounting and although this is a moderately easy read, I cannot with a clear conscience say that it's one of the best.
February 25, 2020
Could be better. Too much reliance on ad hoc analysis and loud judgments.
February 6, 2022
Includes a good list of signs to look out for and many real-life examples but I felt some signs/examples started to get repetitive. So the book could have been shorter.
Displaying 1 - 14 of 14 reviews