These notes deal mainly with that part of the investigation of securities which involves the study of company accounts.
At the outset, it should be stressed that the figures of various companies are not computed on a common basis. In company accounts, as in an actuarial valuation, the same general principles can be modified to give varying results, with the important qualification that even the general basis does not have to be published. There is therefore plenty of scope for variations in accounting practice, and hard and fast conclusions cannot be drawn from figures alone. In this connexion, one cannot do better than quote the remarks made by Mr Arthur Chamberlain at a company meeting last year, when he said:
I do not suppose there are many of my audience who are simple enough to believe that a company's accounts, particularly those of a holding company, set forth the actual and exact profits earned in each year.… I do not think it would be too cynical to say that the ordinary shareholder is lucky if he can read from the figures of a balance sheet more than an idea of the general tendency forward or backward, unless the directors are themselves aware of it and wish him to.… It is possible within the law to present a more or less truthful but entirely misleading position of affairs.
In the present state of company law, therefore, it is of no use trying to produce complicated formulae or elaborate indices intended to indicate true share values at a glance.