TIP752: Financial Statements Explained Simply w/ Brian Feroldi

You're listening to TIP. On today's episode, I welcome back long time guest, Brian Feroldi, to educate our listeners on how to analyze financial statements. Brian Feroldi is the founder of Long Term Mindset, which creates educational content that can help anyone better understand how the stock market works. His newsletter has over 100,000 readers and he's one of the best at making investing as simple as possible to understand. We cover a lot during this conversation. We give an overview of the three financial statements, what GAAP accounting is and why The US is a good environment for investors from a regulatory perspective, why Bryan prefers that companies pay employees in cash rather than through stock based compensation, the role of financial statements in estimating a company's intrinsic value, why the PE ratio is a useless valuation metric for most growth businesses, why Brian prioritizes optionality in his investment process, red flags to look out for in the financial statements, why good investing is all about marrying the right side of your brain with the left side of your brain, and so much more. It's always a treat to bring Brian on the show. So with that, I really hope you enjoy our conversation. Since 2014 and through more than 180,000,000 downloads, we've studied the financial markets and read the books that influence self made billionaires the most. We keep you informed and prepared for the unexpected. Now for your host, Clay Finck. Welcome to The Investor's Podcast. I'm your host, Clay Finck. And today we welcome back long time guest, Brian Feroldi. Brian, so great to have you back. Clayton Thomas (3one 40: Clay, awesome to be back. Thank you for the invite. Clay Finck (3one 40: I've long wanted to do an episode touching on accounting and financial statements, but as you know, it can be so difficult to do just in a podcast format. So I thought there's no better person to bring onto the show to explain these concepts as simply as possible. So, to kick us off, how about we just start with talking about the role that analyzing financial statements plays in your investing process? Jeremy Schneider (3one thirty three): To me, it's a critical component. I like to think of financial statements as a company's report card to judge how well the business is executing against the story or the promise that the business inherently has. So, if you don't know how to read financial statements, I liken that to calling yourself a musician, but not knowing how to read music. It is that important and that fundamental. So for me, I would never make any investment into any stock without analyzing its financial statements deeply. Clay Finck (3zero 30: So I think the next place to go here is to talk about the Master Accounting Equation. I love the name of that. I'm not sure if you came up with it or not. What is the Master Accounting Equation and why …