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The Comprehensive Guide on How to Read a Financial Report: Wringing Vital Signs Out of the Numbers, + Website

Book Description

A comprehensive guide to reading and understanding financial reports

Financial reports provide vital information to investors, lenders, and managers. Yet, the financial statements in a financial report seem to be written in a foreign language that only accountants can understand. This comprehensive version of How to Read a Financial Report breaks through that language barrier, clears away the fog, and offers a plain-English user's guide to financial reports. The book features new information on the move toward separate financial and accounting reporting standards for private companies, the emergence of websites offering financial information, pending changes in the auditor's report language and what this means to investors, and requirements for XBRL tagging in reporting to the SEC, among other topics.

  • Makes it easy to understand what financial reports really say

  • Updated to include the latest information financial reporting standards and regulatory changes

  • Written by an author team with a combined 50-plus years of experience in financial accounting

  • This comprehensive edition includes an ancillary website containing valuable additional resources

With this comprehensive version of How to Read a Financial Report, investors will find everything they need to fully understand the profit, cash flow, and financial condition of any business.

Table of Contents

  1. Cover
  2. Contents
  3. Title
  4. Copyright
  5. List of Exhibits
  6. Preface
  7. Part One: Financial Report Fundamentals
    1. Chapter 1: Financial Statement Basics
      1. The Big Three—Financial Condition, Profit Performance, and Cash Flows
      2. Additional Financial Statement Considerations and Concepts
      3. An Important Concept to Understand Throughout This Book
    2. Chapter 2: Starting with Cash Flows
      1. Cash Flows—Just How Important Is It for a Business?
      2. Cash Flows—What Does It Not Tell You?
      3. Profit and Losses Cannot Be Measured by Cash Flows
      4. Cash Flows Do Not Reveal Financial Condition
    3. Chapter 3: Mastering the Balance Sheet
      1. Solvency versus Liquidity
      2. Balance Sheet Basics—Left and Right, Top to Bottom
      3. The Balance Sheet Message
    4. Chapter 4: Understanding Profit
      1. Why Discuss Profits Last?
      2. An Important Question
      3. Nature of Profit
      4. Recording Revenue and Expenses
      5. Winding Up
    5. Chapter 5: Profit Isn’t Everything and All Things
      1. Remember—Everything’s Connected
      2. Threefold Financial Task of Business Managers
      3. One Problem in Reporting Financial Statements
      4. Interlocking Nature of the Three Financial Statements
      5. Connecting the Dots and Expanding Your Knowledge of Financial Reports
  8. Part Two: Working Capital Connections
    1. Chapter 6: Our Case Study—Company Introductions
      1. Company Overviews
      2. HareSquared, Inc.
      3. TortTech, Inc.
      4. Friendly Reminders
    2. Chapter 7: Sales Revenue, Trade Accounts Receivable, and Deferred Revenue
      1. Exploring One Link at a Time
      2. How Sales Revenue Drives Accounts Receivable
      3. A Special Link – How Accounts Receivable Drives Deferred Revenue
      4. Accounting Issues and Our Case Study
    3. Chapter 8: Cost(s) of Goods Sold Expense and Inventory
      1. Exploring Our Second Critical Link
      2. What Is in Costs of Goods Sold Expense?
      3. Holding Products in Inventory before They Are Sold
      4. Accounting Issues and Our Case Study
    4. Chapter 9: Inventory and Accounts Payable
      1. Examining Our Third Link, with a Twist
      2. Acquiring Inventory on the Cuff
      3. Accounting Issues and Our Case Study
    5. Chapter 10: Operating Expenses and Accounts Payable
      1. The Connection Is Important but Let’s Start with the Basics
      2. Recording Expenses before They Are Paid
      3. Accounting Issues and Our Case Study
    6. Chapter 11: Accruing Liabilities for Incurred but Unpaid Expenses
      1. Understanding Hidden Risks with This Connection
      2. Recording the Accrued Liability for Operating Expenses
      3. Accounting Issues and Our Case Study
    7. Chapter 12: Income Tax Expense—A Liability and Asset?
      1. Why the Income Tax Connection Can Be Very Confusing
      2. Taxation of Business Profit
      3. Accounting Issues and Our Case Study
  9. Part Three: Financial Capital Connections and Cash Flows
    1. Chapter 13: Our Case Study—Company Updates and Assessments
      1. The Big Picture—Comparing Both Companies
      2. HareSquared, Inc. Update
      3. TortTech, Inc. Update
      4. What’s Next?
    2. Chapter 14: Long-Term Assets and Depreciation, Amortization, and Other Expenses
      1. A Brief Review of Expense Accounting
      2. Fixed Assets and Depreciation Expense
      3. Intangible Assets and Amortization Expense
      4. Accounting Issues and Our Case Study
    3. Chapter 15: Long-Term Liabilities, Interest, and Other Expenses
      1. Debt, Debt, and More Debt—Multiple Financial Report Connections
      2. Understanding Debt Basics and Its Location in the Balance Sheet
      3. Bringing Interest Expense Up to Snuff
      4. Accounting Issues and Our Case Study
    4. Chapter 16: Net Income, Retained Earnings, Equity, and Earnings per Share (EPS)
      1. The All-Important EPS
      2. Net Income into Retained Earnings
      3. Earnings per Share (EPS)
      4. Accounting Issues and Our Case Study
    5. Chapter 17: Cash Flow from Operating (Profit-Making) Activities
      1. A Different Type of Connection
      2. Profit and Cash Flow from Profit: Not Identical Twins!
      3. A Quick Word about the Direct Method for Reporting Cash Flow from Operating Activities
      4. Accounting Issues and Our Case Study
    6. Chapter 18: Cash Flows from Investing and Financing Activities
      1. Understanding the Real Capital Structure and Needs of a Business
      2. Rounding Out the Statement of Cash Flows
      3. Seeing the Big Picture of Cash Flows
      4. Accounting Issues and Our Case Study
  10. Part Four: Financial Report Analysis
    1. Chapter 19: Expansion and Contraction Impacts on Cash Flow
      1. Setting the Stage
      2. Cash Flows in the Steady-State Case
      3. Cash Flow Growth Penalty
      4. Cash Flow “Reward” from Decline
      5. Red Ink and Cash Flow
      6. Final Comment
    2. Chapter 20: What Is EBITDA and Why Is It Important?
      1. EBITDA—An Alternative View of Cash Flow or Operating Income?
      2. Relying on EBITDA—The Pros and Cons
    3. Chapter 21: Financial Statement Footnotes—The Devil’s in the Details
      1. The Meat of the Financial Report
      2. Financial Statements—Brief Review
      3. Why Footnotes?
      4. Two Types of Footnotes
      5. Management Discretion in Writing Footnotes
      6. Analysis Issues
    4. Chapter 22: Financial Statement Ratios—Calculating and Understanding
      1. Financial Reporting Ground Rules
      2. Financial Statement Preliminaries
      3. Benchmark Financial Ratios
      4. Final Comments
    5. Chapter 23: Profit Analysis for Business Managers
      1. Why All Businesses Should Produce and Use Two Types of Financial Statements
      2. Managerial Accounting
      3. Beyond the Income Statement
      4. Classifying Operating Expenses
      5. Comparing Changes in Sales Prices and Sales Volume
      6. Breakeven Point
      7. Final Point
    6. Chapter 24: Our Case Study and the Moral of the Story—The Good, the Bad, and the Ugly
      1. The Changing Economic Environment
      2. HareSquared, Inc.’s Financial Results and Ending Position
      3. TortTech, Inc.’s Financial Results and Ending Position
      4. The Good, the Bad, and the Ugly
  11. Part Five: Financial Report Truthfulness
    1. Chapter 25: Choosing Accounting Methods and Massaging the Numbers
      1. Chapter Preamble
      2. Choosing Accounting Methods
      3. Massaging the Numbers
      4. Business Managers and Their Accounting Methods
      5. Consistency of Accounting Methods
      6. Quality of Earnings
    2. Chapter 26: Audits of Financial Reports
      1. External Examinations of Financial Statements—What Types and Why
      2. Why Audits?
      3. Certified Public Accountant (CPA)
      4. Are Audits Required?
      5. Clean Audit Opinion
      6. Do Auditors Discover Accounting Fraud?
      7. Reading an Auditor’s Report
      8. Post-Sox
    3. Chapter 27: Small Business Financial Reporting
      1. Identifying a Small Business
      2. Different Standards for Different Businesses
      3. The Challenges of Reading a Small Business Financial Report
    4. Chapter 28: Basic Questions, Basic Answers, No BS
      1. No Question Is Out of the Question!
      2. A Very Short Summary
  12. About the Authors
  13. About the Companion Website
  14. Index