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Readers reviews of Magic Numbers

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All magic is based on illusion, and these ‘magic’ numbers are no exception. They are presented as the essential ratios and calculations required to assess the health of companies prior to investment decisions. All the calculations are based on figures which Temple describes as “objective” but which he concedes include “accounting distortions which must be stripped out” and admits that “the numbers can be fudged, smoothed and manipulated.” Price doesn’t lie, but accountant’s and auditor’s figures have a very poor history of accuracy.

 

Despite this, the book is an excellent coverage of the 33 key ratios and calculations used by investors and fund managers. This book should be in the library of every one of them as it explains the concepts clearly and accurately. It is a very good reference book.

 

It groups these ratios into five sections -  Market based numbers; Income numbers; Balance sheet numbers; Cash flow numbers; and risk, return and volatility numbers. It is this final grouping that is of most interest to traders.

 

Each set of  numbers contains a definition, where to find the necessary information, a theoretical example of the calculation, a practical example, and a short section of the significance of the number. 

This is a basic reference book for fundamental investors.

 

 

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