The Comprehensive Guide to How to Read a Financial Report Wringingal vital Signs Out of the Numbers 1st Edition by John Tracy, Tage Tracy ISBN 9781118820834 1118820835

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ISBN 10: 1118820835
ISBN 13: 9781118820834
Author: John Tracy, Tage Tracy

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.

The Comprehensive Guide to How to Read a Financial Report Wringingal vital Signs Out of the Numbers 1st Edition Table of contents:

Part One: Financial Report Fundamentals

Chapter 1: Financial Statement Basics: The Real Meat and Potatoes of Financial Reports

The Big Three—Financial Condition, Profit Performance, and Cash Flows

First Up, the Balance Sheet

Next in Line, the Income Statement

Bringing Up the Rear, the Statement of Cash Flows

Additional Financial Statement Considerations and Concepts

An Important Concept to Understand Throughout This Book

Chapter 2: Starting with Cash Flows

Cash Flows—Just How Important Is It for a Business?

Cash Flows—What Does It Not Tell You?

Profit and Losses Cannot Be Measured by Cash Flows

Cash Flows Do Not Reveal Financial Condition

Chapter 3: Mastering the Balance Sheet

Solvency versus Liquidity

Balance Sheet Basics—Left and Right, Top to Bottom

The Balance Sheet Message

Chapter 4: Understanding Profit

Why Discuss Profits Last?

An Important Question

Nature of Profit

Recording Revenue and Expenses

Recording Revenue

Recording Cost of Goods Sold Expense

Recording Selling, General, and Administrative (SG&A) Expenses

Recording Depreciation Expense

Recording Interest Expense

Recording Income Tax Expense

Recording Net Income into Retained Earnings

Winding Up

Chapter 5: Profit Isn’t Everything and All Things

Remember—Everything’s Connected

Threefold Financial Task of Business Managers

One Problem in Reporting Financial Statements

Interlocking Nature of the Three Financial Statements

Connecting the Dots and Expanding Your Knowledge of Financial Reports

Part Two: Working Capital Connections

Chapter 6: Our Case Study—Company Introductions

Company Overviews

HareSquared, Inc.

TortTech, Inc.

Friendly Reminders

Chapter 7: Sales Revenue, Trade Accounts Receivable, and Deferred Revenue

Exploring One Link at a Time

How Sales Revenue Drives Accounts Receivable

A Special Link – How Accounts Receivable Drives Deferred Revenue

Accounting Issues and Our Case Study

Chapter 8: Cost(s) of Goods Sold Expense and Inventory

Exploring Our Second Critical Link

What Is in Costs of Goods Sold Expense?

Holding Products in Inventory before They Are Sold

Accounting Issues and Our Case Study

Chapter 9: Inventory and Accounts Payable

Examining Our Third Link, with a Twist

Acquiring Inventory on the Cuff

Accounting Issues and Our Case Study

Chapter 10: Operating Expenses and Accounts Payable

The Connection Is Important but Let’s Start with the Basics

Recording Expenses before They Are Paid

Accounting Issues and Our Case Study

Chapter 11: Accruing Liabilities for Incurred but Unpaid Expenses

Understanding Hidden Risks with This Connection

Recording the Accrued Liability for Operating Expenses

Accounting Issues and Our Case Study

Chapter 12: Income Tax Expense—A Liability and Asset?

Why the Income Tax Connection Can Be Very Confusing

Taxation of Business Profit

Accounting Issues and Our Case Study

Part Three: Financial Capital Connections and Cash Flows

Chapter 13: Our Case Study—Company Updates and Assessments

The Big Picture—Comparing Both Companies

HareSquared, Inc. Update

The Income Statement

The Balance Sheet

The Statement of Cash Flows

TortTech, Inc. Update

The Income Statement

The Balance Sheet

The Statement of Cash Flows

What’s Next?

Chapter 14: Long-Term Assets and Depreciation, Amortization, and Other Expenses

A Brief Review of Expense Accounting

Fixed Assets and Depreciation Expense

Intangible Assets and Amortization Expense

Accounting Issues and Our Case Study

Chapter 15: Long-Term Liabilities, Interest, and Other Expenses

Debt, Debt, and More Debt—Multiple Financial Report Connections

Understanding Debt Basics and Its Location in the Balance Sheet

Bringing Interest Expense Up to Snuff

Accounting Issues and Our Case Study

Chapter 16: Net Income, Retained Earnings, Equity, and Earnings per Share (EPS)

The All-Important EPS

Net Income into Retained Earnings

Earnings per Share (EPS)

Accounting Issues and Our Case Study

Chapter 17: Cash Flow from Operating (Profit-Making) Activities

A Different Type of Connection

Profit and Cash Flow from Profit: Not Identical Twins!

Changes in Assets and Liabilities that Impact Cash Flow from Operating Activities

A Quick Word about the Direct Method for Reporting Cash Flow from Operating Activities

Accounting Issues and Our Case Study

Chapter 18: Cash Flows from Investing and Financing Activities

Understanding the Real Capital Structure and Needs of a Business

Rounding Out the Statement of Cash Flows

Seeing the Big Picture of Cash Flows

Accounting Issues and Our Case Study

Part Four: Financial Report Analysis

Chapter 19: Expansion and Contraction Impacts on Cash Flow

Setting the Stage

Cash Flows in the Steady-State Case

Cash Flow Growth Penalty

Cash Flow “Reward” from Decline

Red Ink and Cash Flow

Final Comment

Chapter 20: What Is EBITDA and Why Is It Important?

EBITDA—An Alternative View of Cash Flow or Operating Income?

Relying on EBITDA—The Pros and Cons

Chapter 21: Financial Statement Footnotes—The Devil’s in the Details

The Meat of the Financial Report

Financial Statements—Brief Review

Why Footnotes?

Two Types of Footnotes

Management Discretion in Writing Footnotes

Analysis Issues

Chapter 22: Financial Statement Ratios—Calculating and Understanding

Financial Reporting Ground Rules

Financial Statement Preliminaries

Extraordinary Gains and Losses

No Cash Flow Ratios, But . . .

A New Financial Statement

Benchmark Financial Ratios

Current Ratio

Acid Test Ratio (aka Quick Ratio)

Debt to Equity Ratio

Debt Service Coverage Ratio

Return on Sales Ratio

Return on Equity (ROE)

Earnings per Share (EPS)

Price/Earnings (P/E) Ratio

Market Cap

Final Comments

Chapter 23: Profit Analysis for Business Managers

Why All Businesses Should Produce and Use Two Types of Financial Statements

Managerial Accounting

Beyond the Income Statement

Classifying Operating Expenses

Comparing Changes in Sales Prices and Sales Volume

Breakeven Point

Final Point

Chapter 24: Our Case Study and the Moral of the Story—The Good, the Bad, and the Ugly

The Changing Economic Environment

HareSquared, Inc.’s Financial Results and Ending Position

TortTech, Inc.’s Financial Results and Ending Position

The Good, the Bad, and the Ugly

Part Five: Financial Report Truthfulness

Chapter 25: Choosing Accounting Methods and Massaging the Numbers

Chapter Preamble

Choosing Accounting Methods

Massaging the Numbers

Business Managers and Their Accounting Methods

Consistency of Accounting Methods

Quality of Earnings

Chapter 26: Audits of Financial Reports

External Examinations of Financial Statements—What Types and Why

Why Audits?

Certified Public Accountant (CPA)

Are Audits Required?

Clean Audit Opinion

Do Auditors Discover Accounting Fraud?

Reading an Auditor’s Report

Post-Sox

Chapter 27: Small Business Financial Reporting

Identifying a Small Business

Different Standards for Different Businesses

The Challenges of Reading a Small Business Financial Report

Chapter 28: Basic Questions, Basic Answers, No BS

No Question Is Out of the Question!

When You Sell a Stock Does the Company Get Your Money?

Are Financial Reports Reliable and Trustworthy?

Nevertheless, Are Some Financial Statements Misleading and Fraudulent?

Is It Worth Your Time to Compute Financial Statement Ratios?

Why Read Financial Statements, Then, If You Won’t Find Information That Has Been Overlooked by Oth

The Financial Statements and Footnotes of Large Public Companies Would Take Several Hours to Read Ca

Is There Any One Basic Litmus Test for a Quick Gauge of a Company’s Financial Performance?

Do Financial Statements Report the Truth, the Whole Truth, and Nothing but the Truth?

Does Its Financial Report Explain the Basic Profit-Making Strategy of the Business?

Does the Market Price of a Public Company’s Stock Shares Depend Directly and Only on the Informati

Does the Balance Sheet of a Private Business Tell the Market Value of the Business?

Do Books on Investing and Personal Finance Refer to Financial Statements?

A Very Short Summary

About the Authors

About the Companion Website

Index

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