Foundations · Module 02

Accounting: Reading a Business

Accounting is the language every other module speaks. You do not need to prepare statements; you need to read them adversarially.

By the end of this module

You can open any company's annual report and know within minutes how it makes money and how it might die.

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02

Cash flow versus profit

How does a profitable company go bankrupt?

InteractiveFree
EDGAR — every US filing, free ↗

U.S. Securities and Exchange Commission

Read real 10-Ks. This is the primary source; everything else is commentary.

03

Ratio analysis and its limits

Which ratios reveal something, and which just restate the obvious?

InteractiveFree
Industry datasets — margins, betas, multiples ↗

Aswath Damodaran, NYU Stern

Updated annually, free. Benchmark any company against its sector.

04

Reading a report adversarially

What is management choosing not to show me?

Reading★ LandmarkFree
Berkshire Hathaway shareholder letters ↗

Warren Buffett

Decades of a practitioner explaining how he reads a business.

Check yourself

End-of-module quiz

Every answer comes with the reasoning, not just a verdict. Getting one wrong and reading why is the point.

  1. 01A company reports rising profit and falling operating cash flow. The most likely explanation is:

  2. 02Depreciation appears on the income statement but not as a cash outflow because:

  3. 03The balance sheet must balance because:

Answer all 3 to finish the module.