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Where to Get the Best Accounting Analysis
Websites New Constructs and GuruFocus help rnyesfors get the benefit of first-rate analysis of corporate accounting.
By tu1iKI F]iGril.l
Sept. 13, 20'14 2:48 a.m. ET

Fundamental investors lean heavily on corporate financial statements for the data needed to estimate stock values. That's no good, says New Constructs founder David Trainer-or at least not good enough at today's lofty valuations. "There's a whole lot of money chasing precious few decent stocks," claims Trainer, "and the rest of the money is pushing other stock prices too high." Of the 3,000 U.S.-listed stocks that New Constructs' {rcgie.qnstrueis*egm) analysts track closely, only about 10oh are "attractive" by the firm's estimates. Approximately two-thirds are "dangerous" because of risk factors not illuminated by financial statements, says Trainer, a forensic

accountant by profession. The rest are rated "neutral." Generally accepted accounting principles, the language of accrual accounting, can help prudent managers manage and lenders determine suitable levels of leverage. Expense and revenue are booked as they incur as opposed to when cash changes hands. As a result, ihere can be disparities between net profits reported and actual cash generated. GMP line items are backward looking and don't necessarily address future values that investors care most about. Then, too, key events, competitive advantages, and shortcomings often get buried in not-quiteforthcoming report notations. lnvesiors have to interpret them and adjust GAAP values to calculate return on capital and free cash flow-or pay someone like Trainer to do it. His analysts turn corporate financials into