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Reading Financial Reports For Dummies, 3rd Edition

Book Description

Discover how to decipher financial reports

Especially relevant in today's world of corporate scandals and new accounting laws, the numbers in a financial report contain vitally important information about where a company has been and where it is going.

Packed with new and updated information, Reading Financial Reports For Dummies, 3rd Edition gives you a quick but clear introduction to financial reports-and how to decipher the information in them.

  • New information on the separate accounting and financial reporting standards for private/small businesses versus public/large businesses

  • New content to match SEC and other governmental regulatory changes

  • New information about how the analyst-corporate connection has actually changed the playing field

  • The impact of corporate communications and new technologies

  • New examples that reflect current trends

  • Updated websites and resources

  • Reading Financial Reports For Dummies is for investors, traders, brokers, managers, and anyone else who is looking for a reliable, up-to-date guide to reading financial reports effectively.

    Table of Contents

      1. Introduction
        1. About This Book
        2. Conventions Used in This Book
        3. What You're Not to Read
        4. Foolish Assumptions
        5. Icons Used in This Book
        6. Beyond the Book
        7. Where to Go from Here
      2. Part I: Getting Started with Reading Financial Reports
        1. Chapter 1: Opening the Cornucopia of Reports
          1. Figuring Out Financial Reporting
            1. Preparing the reports
            2. Seeing why financial reporting counts (and who's counting)
          2. Checking Out Types of Reporting
            1. Keeping everyone informed
            2. Following the rules: Government requirements
            3. Going global
            4. Staying within the walls of the company: Internal reporting
          3. Dissecting the Annual Report to Shareholders
            1. Breaking down the parts
            2. Getting to the meat of the matter
            3. Keeping the number crunchers in line
        2. Chapter 2: Recognizing Business Types and Their Tax Rules
          1. Flying Solo: Sole Proprietorships
            1. Keeping taxes personal
            2. Reviewing requirements for reporting
          2. Joining Forces: Partnerships
            1. Partnering up on taxes
            2. Meeting reporting requirements
          3. Seeking Protection with Limited Liability Companies
            1. Taking stock of taxes
            2. Reviewing reporting requirements
          4. Shielding Your Assets: S and C Corporations
            1. Paying taxes the corporate way
            2. Getting familiar with reporting requirements
        3. Chapter 3: Public or Private: How Company Structure Affects the Books
          1. Investigating Private Companies
            1. Checking out the benefits
            2. Defining disadvantages
            3. Figuring out reporting
          2. Understanding Public Companies
            1. Examining the perks
            2. Looking at the negative side
            3. Filing and more filing: Government and shareholder reports
          3. Entering a Whole New World: How a Company Goes from Private to Public
            1. Teaming up with an investment banker
            2. Making a public offering
        4. Chapter 4: Digging into Accounting Basics
          1. Making Sense of Accounting Methods
            1. Cash-basis accounting
            2. Accrual accounting
            3. Why method matters
          2. Understanding Debits and Credits
            1. Double-entry accounting
            2. Profit and loss statements
            3. The effect of debits and credits on sales
            4. Depreciation and amortization
          3. Checking Out the Chart of Accounts
            1. Asset accounts
            2. Liability accounts
            3. Equity accounts
            4. Revenue accounts
            5. Expense accounts
          4. Differentiating Profit Types
            1. Gross profit
            2. Operating profit
            3. Net profit
      3. Part II: Checking Out the Big Show: Annual Reports
        1. Chapter 5: Exploring the Anatomy of an Annual Report
          1. Everything but the Numbers
            1. Debunking the letter to shareholders
            2. Making sense of the corporate message
            3. Meeting the people in charge
            4. Finding basic shareholder information
            5. Getting the skinny from management
            6. Getting guarantees from management
            7. Bringing the auditors’ answers to light
          2. Presenting the Financial Picture
          3. Summarizing the Financial Data
            1. Finding the highlights
            2. Reading the notes
        2. Chapter 6: Balancing Assets against Liabilities and Equity
          1. Understanding the Balance Equation
          2. Introducing the Balance Sheet
            1. Digging into dates
            2. Nailing down the numbers
            3. Figuring out format
          3. Ogling Assets
            1. Current assets
            2. Long-term assets
            3. Accumulated depreciation
          4. Looking at Liabilities
            1. Current liabilities
            2. Long-term liabilities
          5. Navigating the Equity Maze
            1. Stock
            2. Retained earnings
            3. Capital
            4. Drawing
        3. Chapter 7: Using the Income Statement
          1. Introducing the Income Statement
            1. Digging into dates
            2. Figuring out format
          2. Delving into the Tricky Business of Revenues
            1. Defining revenue
            2. Adjusting sales
            3. Considering cost of goods sold
            4. Gauging gross profit
          3. Acknowledging Expenses
          4. Sorting Out the Profit and Loss Types
            1. EBITDA
            2. Nonoperating income or expense
            3. Net profit or loss
          5. Calculating Earnings per Share
        4. Chapter 8: The Statement of Cash Flows
          1. Digging into the Statement of Cash Flows
            1. The parts
            2. The formats
          2. Checking Out Operating Activities
            1. Depreciation
            2. Inventory
            3. Accounts receivable
            4. Accounts payable
            5. The cash flow from activities section, summed up
          3. Investigating Investing Activities
          4. Understanding Financing Activities
            1. Issuing stock
            2. Buying back stock
            3. Paying dividends
            4. Incurring new debt
            5. Paying off debt
          5. Recognizing the Special Line Items
            1. Discontinued operations
            2. Foreign currency exchange
          6. Adding It All Up
        5. Chapter 9: Scouring the Notes to the Financial Statements
          1. Deciphering the Small Print
          2. Accounting Policies Note: Laying out the Rules of the Road
            1. Depreciation
            2. Revenue
            3. Expenses
          3. Figuring out Financial Borrowings and Other Commitments
            1. Long-term obligations
            2. Short-term debt
            3. Lease obligations
          4. Mergers and Acquisitions: Finding Noteworthy Information
          5. Pondering Pension and Retirement Benefits
          6. Breaking Down Business Breakdowns
          7. Reviewing Significant Events
          8. Finding the Red Flags
            1. Finding out about valuing assets and liabilities
            2. Considering changes in accounting policies
            3. Decoding obligations to retirees and future retirees
        6. Chapter 10: Considering Consolidated Financial Statements
          1. Getting a Grip on Consolidation
          2. Looking at Methods of Buying up Companies
          3. Reading Consolidated Financial Statements
          4. Looking to the Notes
            1. Mergers and acquisitions
            2. Goodwill
            3. Liquidations or discontinued operations
      4. Part III: Analyzing the Numbers
        1. Chapter 11: Testing the Profits and Market Value
          1. The Price/Earnings Ratio
            1. Figuring out earnings per share
            2. Calculating the P/E ratio
            3. Practicing the P/E ratio calculation
            4. Using the P/E ratio to judge company market value (stock price)
            5. Understanding variation among ratios
          2. The Dividend Payout Ratio
            1. Determining dividend payout
            2. Digging into companies’ profits with dividends
          3. Return on Sales
            1. Figuring out ROS
            2. Reaching the truth about profits with ROS
          4. Return on Assets
            1. Doing some dividing to get ROA
            2. Ranking companies with the help of ROA
          5. Return on Equity
            1. Calculating ROE
            2. Reacting to companies with ROEs assistance
          6. The Big Three: Margins
            1. Dissecting gross margin
            2. Investigating operating margin
            3. Catching the leftover money: Net profit margin
        2. Chapter 12: Looking at Liquidity
          1. Finding the Current Ratio
            1. Calculating the current ratio
            2. What do the numbers mean?
          2. Determining the Quick Ratio
            1. Calculating the quick ratio
            2. What do the numbers mean?
          3. Investigating the Interest Coverage Ratio
            1. Calculating the interest coverage ratio
            2. What do the numbers mean?
          4. Comparing Debt to Shareholders’ Equity
            1. Calculating debt to shareholders’ equity
            2. What do the numbers mean?
          5. Determining Debt-to-Capital Ratio
            1. Calculating the debt-to-capital ratio
            2. What do the numbers mean?
        3. Chapter 13: Making Sure the Company Has Cash to Carry On
          1. Measuring Income Success
            1. Calculating free cash flow
            2. Figuring out cash return on sales ratio
          2. Checking Out Debt
            1. Determining current cash debt coverage ratio
            2. Computing cash debt coverage ratio
          3. Calculating Cash Flow Coverage
            1. Finding out the cash flow coverage ratio
            2. Mattel
            3. Hasbro
            4. What do the numbers mean?
      5. Part IV: Understanding How Companies Optimize Operations
        1. Chapter 14: How Reports Help with Basic Budgeting
          1. Peering into the Budgeting Process
            1. Understanding who does what
            2. Setting goals
          2. Building Budgets
          3. Providing Monthly Budget Reports
          4. Using Internal Reports
        2. Chapter 15: Turning Up Clues in Turnover and Assets
          1. Exploring Inventory Valuation Methods
          2. Applying Three Inventory Valuation Methods
            1. Average costing
            2. FIFO
            3. LIFO
            4. How to compare inventory methods and financial statements
          3. Determining Inventory Turnover
            1. Calculating inventory turnover
            2. What do the numbers mean?
          4. Investigating Fixed Assets Turnover
            1. Calculating fixed assets turnover
            2. What do the numbers mean?
          5. Tracking Total Asset Turnover
            1. Calculating total asset turnover
            2. What do the numbers mean?
        3. Chapter 16: Examining Cash Inflow and Outflow
          1. Assessing Accounts Receivable Turnover
            1. Calculating accounts receivable turnover
            2. What do the numbers mean?
          2. Taking a Close Look at Customer Accounts
          3. Finding the Accounts Payable Ratio
            1. Calculating the ratio
            2. What do the numbers mean?
          4. Determining the Number of Days in Accounts Payable
            1. Calculating the ratio
            2. What do the numbers mean?
          5. Deciding Whether Discount Offers Make Good Financial Sense
            1. Calculating the annual interest rate
            2. What do the numbers mean?
        4. Chapter 17: How Companies Keep the Cash Flowing
          1. Slowing Bill Payments
          2. Speeding Up Collecting Accounts Receivables
          3. Borrowing on Receivables
          4. Reducing Inventory
          5. Getting Cash More Quickly
      6. Part V: The Many Ways Companies Answer to Others
        1. Chapter 18: Finding Out How Companies Find Errors: The Auditing Process
          1. Inspecting Audits and Auditors
            1. Looking for mistakes
            2. Meeting Mr. or Ms. Auditor
          2. Examining Records: The Role of the Auditor
            1. Preliminary review
            2. Fieldwork
            3. Audit report
          3. Filling the GAAP
            1. Accounting standards: Four important qualities
            2. Changing principles: More work for the FASB
        2. Chapter 19: Digging into Government Regulations
          1. Checking Out the 10-Q
            1. Financial information
            2. Other critical matters
          2. Introducing the 10-K
            1. Business operations
            2. Financial data
            3. Information about directors and executives
            4. The extras
          3. Investigating Internal Controls
          4. Uncovering the Ways Companies Keep in Compliance
          5. Digging into Board Operations
            1. Understanding the nominating process
            2. Contacting board members
          6. Finding Out about Insider Ownership
        3. Chapter 20: Creating a Global Financial Reporting Standard
          1. Why Develop a Worldwide Financial Standard?
          2. Key Moves to Reshape Global Financial Reporting
          3. Who Benefits from a Global Standard and How?
            1. Investors
            2. Capital Markets
            3. Companies
          4. Key Differences between GAAP and the IFRS
            1. Accounting framework
            2. Financial statements
            3. Revenue recognition
            4. Assets
            5. Inventory
            6. Related-party transactions disclosures
            7. Discontinued operations
            8. Impairment charges
        4. Chapter 21: Checking Out the Analyst–Corporation Connection
          1. Typecasting the Analysts
            1. Buy-side analysts
            2. Sell-side analysts
            3. Independent analysts
            4. Bond analysts
          2. Regarding Bond-Rating Agencies
          3. Delving into Stock Rating
          4. Taking a Look at How Companies Talk to Analysts
            1. Analyst calls
            2. Press releases
            3. Mobile apps
            4. Road shows
        5. Chapter 22: How Companies Communicate with Shareholders
          1. Making the Most of Meetings
          2. Checking Out How the Board Runs the Company
            1. Watching the directors
            2. Speaking out at meetings
            3. Moving away from duking it out
          3. Sorting through Reports
          4. Catching Up on Corporate Actions
          5. Culling Information from Analyst Calls
            1. Listening between the lines
            2. Knowing when to expect analyst calls
          6. Staying Up-to-Date Using Company Websites
          7. Regarding Reinvestment Plans
            1. Dividend reinvestment plans
            2. Direct stock purchase plans
        6. Chapter 23: Keeping Score When Companies Play Games with Numbers
          1. Getting to the Bottom of Creative Accounting
            1. Defining the scope of the problem
            2. Seeing through cooked books
          2. Unearthing the Games Played with Earnings
            1. Reading between the revenue lines
            2. Detecting creative revenue accounting
          3. Exploring Exploitations of Expenses
            1. Advertising expenses
            2. Research and development costs
            3. Patents and licenses
            4. Asset impairment
            5. Restructuring charges
          4. Finding Funny Business in Assets and Liabilities
            1. Recognizing overstated assets
            2. Looking for undervalued liabilities
          5. Playing Detective with Cash Flow
            1. Discontinued operations
            2. Income taxes paid
      7. Part VI: The Part of Tens
        1. Chapter 24: en (+1) Financial Scandals That Rocked the World
          1. Enron
          2. Madoff
          3. Citigroup
          4. Adelphia
          5. WorldCom/MCI
          6. Sunbeam
          7. Tyco
          8. Waste Management
          9. Bristol-Meyers Squibb
          10. Halliburton
          11. Arthur Andersen
        2. Chapter 25: Ten Signs That a Company's in Trouble
          1. Lower Liquidity
          2. Low Cash Flow
          3. Disappearing Profit Margins
          4. Revenue Game Playing
          5. Too Much Debt
          6. Unrealistic Values for Assets and Liabilities
          7. A Change in Accounting Methods
          8. Questionable Mergers and Acquisitions
          9. Slow Inventory Turnover
          10. Slow-Paying Customers
      8. Glossary
      9. About the Authors
      10. Cheat Sheet
      11. More Dummies Products