Security Analysis by Benjamin Graham is probably the bible for value investors around the world. The principles explained in the book are still applicable in today’s investors. But it will be a good learning experience to find relevant examples in recent times of the concepts explained in the book. I intend to write my understanding of the concepts. I would appreciate comments, examples, and experiences on the same. It will clear our own concepts of value investing. I hope it will be a good experience. Let me directly jump to the equity investments where Graham talks about the analysis of income accounts. It is chapter 31 in the book.

Before going into the details of the income account Graham discusses how most investors approaches earnings power of a company wrongly. Investor should study balance sheet in addition to operating results. He asserts that the sole emphasis on earning power has some disadvantages. Looking at the balance sheet provides him a twofold litmus test of the value of the business- earnings and assets. Earnings are subject to more rapid changes. So the stock values will have more instability than present. He emphasizes more on the last disadvantage of misrepresentation of the earnings.

Wall Street’s method of appraising common stocks is very simple. They find the earnings of the stock and multiply by suitable factor which reflects many parameters. As earnings are subject to arbitrary determination, it is quite likely that this approach brings in some arbitrary factor in which is not a sound way of analyzing a business. Security analyst should scrutinize the publicized earnings per share. Author makes one solid procedure to study income account-.............

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