Chapter 20
Ten Tips for Reading a Financial Report
IN THIS CHAPTER
Judging profit performance
Bumping into unusual gains and losses
Distinguishing cash flow from profit
Looking for signs of financial distress
Recognizing the limits of financial reports
You can compare reading a business’s financial report with shucking an oyster: You have to know what you’re doing and work to get to the meat. You need a good reason to pry into a financial report. The main reason to become informed about the financial performance and condition of a business is because you have a stake in the business. The financial success or failure of the business makes a difference to you.
Shareowners have a major stake in a business, of course. The lenders of a business also have a stake, which can be substantial. Shareowners and lenders are the two main audiences of a financial report. But others also have a financial stake in a business. For example, our books are published by John Wiley & Sons, Inc. (a public ...
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