Chapter 5

Reading a Financial Report


check Looking after your investments

check Using ratios to interpret profit performance

check Using ratios to interpret financial condition

check Scanning footnotes and sorting out important ones

check Checking out the auditor’s report

This chapter focuses on the external financial report that a business sends to its lenders and shareowners. Many of the topics and ratios explained in the chapter apply to not-for-profit (NFP) entities as well. But the main focus is reading the financial reports of profit-motivated business entities. External financial reports are designed for the non-manager stakeholders in the business. The business’s managers should definitely understand how to read and analyze its external financial statements, and managers should do additional financial analysis. This additional financial analysis by managers uses confidential accounting information that is not circulated outside the business.

You could argue that this chapter goes beyond ...

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