Financial Analysis isn’t about Financial Statements.
It’s about Understanding Businesses.
Stop doing busywork. Start focusing on the numbers that matter.
The commonly understood message is that financial analysis is a theoretical, numbers driven exercise. It can be intimidating. For non professionals, non-CFA’s it takes time and commitment to fit the puzzle together. Spending hours poring over financial statements can be a chore, paralyzing us with information overload. Are you over-extended, over-distracted, and overwhelmed?
MAKING FINANCIAL ANALYSIS ACCESSIBLE
In former private equity professional Martin Hoffmann’s book, “The Logic Behind The Numers”, he makes the case that financial analysis is quite accessible once the journey is started from a common sense understanding of the workings of a business which will then build a bridge towards the financial statements.
You don’t have to work in the financial field to understand and apply the teachings of the book. Quite the contrary, it can build on your confidence to start broadening your financial skills.
HELPING YOU FIND THE FOCUS
The book is written like a mantra to teach you how to keep focus, dive in to understand the business behind the financial statements to build a level of knowledge that can be the basis to enhance your investment expertise. It removes the complexity of the subject by teaching it in a systematic and logical way.
DELIVERING A BLUE PRINT
Once it has explained the basic workings, it then goes into depth, guiding the reader step by step through the process of financial analysis and valuation. It puts particular emphasis on teaching the reader how to avoid boiling the ocean by focusing on the right metrics, based on that understanding of the underlying business.
Here is a book that no investor should be without. Written by an investment professional, it contains the wisdom that funds use to generate superior returns for their investors.
AND THAT’S JUST THE BEGINNING
The book also explains how business models and accordingly metrics have changed in the 21st century, requiring a different approach to investing than the one which emerged from the industrial age.
However the book doesn’t stop there. Next to explaining the workings of Financial Analysis, it puts emphasis on helping readers focus on the most relevant parts. It helps readers adjust the analysis for the type of business and it shows them how they have to adjust the analysis for an era of constant transformation.
Martin Hoffmann is a private equity professional turned founder and mentor.
He is not the typical Wall Street guy. Having graduated in law, he spent most of his career as a private equity professional. The mid market private equity funds that he worked for invested funds on behalf of Tier One investment banks as well as Ivy League university endowments. He now focuses on providing insights and education through Business & Investor Labs and on mentoring startups as a side activity.
Martin’s path from law to investing formed his structured approach to analysis, which forms the basis for a balanced decision making.
Even more important, Martin’s journey from the abstract law to the hands-on private equity and then to the even more operational entrepreneurship is reflected in his dual perspective to investment analysis. He combines the ability to reveal the big picture while narrowing in on the operations of a business. In particular working in the private equity mid-market enabled him to work closely with both senior as well as second level management of portfolio companies and with seasoned industry executives and experts who supported due diligences. This experience formed his hands-on, operational investment approach, adding the operational view and a sound understanding of the economics of a business to the investor’s helicopter perspective.
But these are just the foundations. Building on his ability to combine various perspectives, he describes the patterns of change that are happening in business and in how companies operate.
The majority of business thinking was formed in the industrial age. Similarly, most investors analyze companies the same way it was done since the Industrial Age. The problem with that is, we don’t live in that world anymore. The success factors of businesses have changed since then. With the information age we have entered an era of transformation, driven by the rapid pace of technological and social change. As markets have become more dynamic than ever, this has a huge impact on the success factors of businesses. Accordingly our approach to analyzing companies has to change as well. Understanding change has become the great need of our time.
Martin sets out to elevate the discussion from one, which was founded in a stable and predictable world to one suited for a world of accelerated change. His aim is to help investors organize their thinking about changes, giving them a clearer picture of where success factors of businesses are heading. And he wants you to get up to the speed of change.
Parts of the Book
This chapter explains how the system of the financial statements works and how it is anchored in the underlying business Readers will be provided with a basic overview of the financial structure of a company. They will learn what each part of the financial statements tells them, and how the three parts work together to reflect the underlying business activity. By providing readers with an understanding of the bigger picture of how a company’s performance is measured, this chapter will bring them up to speed for the main part of the book, the Masterclass.
Setting the Focus
Before we dig into all of the details, we make sure that readers learn to set the right focus. They will learn how to adjust their analysis for the type of business they are looking at. And even more important, they will also learn how to adjust the analysis for the transformed environment of the 21st century.
Here comes a step by step guide to analyzing the financials of a company. Readers will learn how to identify the drivers of a company’s performance, a company’s recurring, long-term profitability, and its financial health.
This chapter is a guide to valuation. By focusing on comparables valuation the chapter provides an understanding of the logic of valuation. It illustrateswhy valuation is not a mathematical exercise, and it teaches investors how to determine what drives the value of a business. Most importantly, it will help investors get ahead of the crowd by teaching them to identify those metrics that help them assess where the company will stand not today, but in the future.
Graphic Credits: Graphicriver (darrenwhi, Olivier Le Moal, lucadp)
Photo Credits: Unsplash (Vladimir Kudinov), Martin Hoffmann