“Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation.” Warren Buffett
Accounting is the language of business and for many people, it is the equivalent of getting a root canal. If you are one of the many millions of people who has spent multiple hours trying to figure out why the accounting software won’t take your debit or credit entry, don’t worry, you have plenty of company (yours truly included).
Now, for those of you who are not aware, there are different categories of accounting, basically managerial and financial. Financial accounting deals with financial statements and the different aspects of a company’s operations. The quote by our friend Mr. B is significant because it is important to remember the business is reflected by the numbers, and not vice versa. Still, accounting is like the plumbing in a house or the foundation of a building, the nuts and bolts of understanding what is going on in a business. If you want to know how a business is performing, the three financial statements are a good place to start. The reason why I bring this up is because in the click click world of investing, business analysis is often forgotten or never used, instead replaced by charting or algorithms. I would venture you are better off sharpening up your accounting skills, and thinking about competitive positioning instead.
Speaking of competition, in the market this week there were a few major stories which stood out. Mr. Trump gave his speech before Congress and the investment community loved it, sending markets skyrocketing on Wednesday. The day before, Target laid a stink bomb of a financial report and declared they will need three years to turn things around. When they said three years, investors said forget this, SELL! Target is probably the poster child for a company who is just that, a target, for Amazon. The big A continues to wreak havoc all over the corporate landscape, but especially in retail.
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