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How to Read a Financial Report: Wringing Vital Signs Out of the Numbers

Book Description

How to Read a Financial Report Seventh Edition

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 Seventh Edition of How to Read a Financial Report breaks through the language barrier, clears away the fog, and offers a plain-English user's guide to financial reports. The book helps you get a sure-handed grip on the profit, cash flow, and financial condition of any business.

Here's what's new in the Seventh Edition:

  • Discussion of the transition to international accounting and financial reporting standards

  • A streamlined centerpiece exhibit used throughout the book to explain connections between the three financial statements

  • An integrated section on analyzing profit, cash flow, and solvency for investors, lenders, and managers (now Part Two in this edition)

  • Reflection on financial reporting and auditing in the post-Enron era

  • "What distinguishes Tracy's efforts from other manuals is an innovative structure that visually ties together elements of the balance sheet and income statement by tracing where and how a line item in one affects an entry in another."

    Inc.

    "An excellent job of showing how to separate the wheat from the chaff without choking in the process."

    The Miami Herald

    "A wonderful book organized logically and written clearly. For a Fool to be an effective investor, she has to know her way around a financial statement. This book will help you develop that skill. It's the clearest presentation of many accounting concepts that this Fool has seen."

    Selena Maranjian, The Motley Fool

    Table of Contents

    1. How to Read a Financial Report: Wringing Vital Signs Out of the Numbers, Seventh Edition
      1. Copyright
      2. PREFACE TO THE SEVENTH EDITION
      3. CONTENTS
      4. Part I: Components and Connections in Financial Statements
        1. Chapter 1: Starting with Cash Flows (1/2)
        2. Chapter 1: Starting with Cash Flows (2/2)
          1. Importance of Cash Flows: Cash Flows Summary for a Business
          2. What Does Cash Flows Summary NOT Tell You?
          3. Profit Cannot Be Measured by Cash Flows
          4. Cash Flows Do Not Reveal Financial Condition
        3. Chapter 2: The Three Financial Statements (1/2)
        4. Chapter 2: The Three Financial Statements (2/2)
          1. Reporting Financial Condition, Profit Performance, and Cash Flows
          2. Income Statement
          3. Balance Sheet
          4. Statement of Cash Flows
        5. Chapter 3: Profit Isn’t Everything (1/2)
        6. Chapter 3: Profit Isn’t Everything (2/2)
          1. The Threefold Task of Business Managers: Profit, Financial Condition, and Cash Flows
          2. One Problem in Reporting Financial Statements
          3. The Interlocking Nature of the Three Financial Statements
          4. Connecting the Dots
        7. Chapter 4: Sales Revenue and Accounts Receivable (1/2)
        8. Chapter 4: Sales Revenue and Accounts Receivable (2/2)
          1. Exploring One Link at a Time
          2. How Sales Revenue Drives Accounts Receivable
          3. Accounting Issues
        9. Chapter 5: Cost of Goods Sold Expense and Inventory (1/2)
        10. Chapter 5: Cost of Goods Sold Expense and Inventory (2/2)
          1. Holding Products in Inventory Before They Are Sold
          2. Accounting Issues
        11. Chapter 6: Inventory and Accounts Payable (1/2)
        12. Chapter 6: Inventory and Accounts Payable (2/2)
          1. Acquiring Inventory on the Cuff
          2. Accounting Issues
        13. Chapter 7: Operating Expenses and Accounts Payable (1/2)
        14. Chapter 7: Operating Expenses and Accounts Payable (2/2)
          1. Recording Expenses Before They Are Paid
          2. Accounting Issues
        15. Chapter 8: Operating Expenses and Prepaid Expenses (1/2)
        16. Chapter 8: Operating Expenses and Prepaid Expenses (2/2)
          1. Paying Certain Operating Costs Before They Are Recorded as Expenses
          2. Accounting Issues
        17. Chapter 9: A Unique Expense: Depreciation (1/2)
        18. Chapter 9: A Unique Expense: Depreciation (2/2)
          1. Brief Review of Expense Accounting
          2. Depreciation Expense
          3. Accumulated Depreciation and Book Value of Fixed Assets
          4. Book Values and Current Replacement Values
          5. Intangible Assets
          6. Accounting Issues
        19. Chapter 10: Accruing the Liability for Unpaid Expenses (1/2)
        20. Chapter 10: Accruing the Liability for Unpaid Expenses (2/2)
          1. Recording the Accrued Liability for Operating Expenses
          2. Bringing Interest Expense Up to Snuff
          3. Accounting Issues
        21. Chapter 11: Income Tax Expense and Its Liability (1/2)
        22. Chapter 11: Income Tax Expense and Its Liability (2/2)
          1. Federal and State Income Taxation of Business Profit
          2. Accounting Issues
        23. Chapter 12: Net Income and Retained Earnings; Earnings per Share (EPS) (1/2)
        24. Chapter 12: Net Income and Retained Earnings; Earnings per Share (EPS) (2/2)
          1. Net Income into Retained Earnings
          2. Earnings per Share (EPS)
          3. Accounting Issues
        25. Chapter 13: Cash Flow from Operating (Profit-Making) Activities (1/2)
        26. Chapter 13: Cash Flow from Operating (Profit-Making) Activities (2/2)
          1. Profit and Cash Flow from Profit: Not Identical Twins!
          2. An Alternative View of Cash Flow
          3. Accounting Issues
        27. Chapter 14: Cash Flows from Investing and Financing Activities (1/2)
        28. Chapter 14: Cash Flows from Investing and Financing Activities (2/2)
          1. Rounding Out the Statement of Cash Flows
          2. Seeing the Big Picture of Cash Sources and Uses
          3. Accounting Issues
        29. Chapter 15: Footnotes to Financial Statements (1/2)
        30. Chapter 15: Footnotes to Financial Statements (2/2)
          1. Financial Statements—Brief Review
          2. Why Footnotes?
          3. Two Types of Footnotes
          4. Management Discretion in Writing Footnotes
          5. Accounting Issues
      5. Part II: Financial Statement Analysis
        1. Chapter 16: Impact of Growth and Decline on Cash Flow (1/3)
        2. Chapter 16: Impact of Growth and Decline on Cash Flow (2/3)
        3. Chapter 16: Impact of Growth and Decline on Cash Flow (3/3)
          1. Setting the Stage for Cash Flow Analysis
          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
        4. Chapter 17: Financial Statement Ratios (1/4)
        5. Chapter 17: Financial Statement Ratios (2/4)
        6. Chapter 17: Financial Statement Ratios (3/4)
        7. Chapter 17: Financial Statement Ratios (4/4)
          1. Purpose of Financial Statements
          2. Overview of Financial Statements
          3. Debt-Paying Ability, Liquidity, and Solvency Ratios
          4. Return on Sales and Return on Equity Ratios
          5. Earnings per Share (EPS) and Price/Earnings (P/E) Ratios
          6. Final Comments
        8. Chapter 18: Profit Analysis for Business Managers (1/2)
        9. Chapter 18: Profit Analysis for Business Managers (2/2)
          1. First, a Word about Managerial Accounting
          2. Classification of Operating Expenses in Management Profit Reports
          3. Comparing Equal Percent Changes in Sales Prices and Sales Volume
      6. Part III: Reliability of Financial Reports
        1. Chapter 19: Accounting and Financial Reporting Standards (1/2)
        2. Chapter 19: Accounting and Financial Reporting Standards (2/2)
          1. Importance of Financial Reports
          2. Moving Toward International Financial Reporting and Accounting Standards
          3. A Fly in the Ointment
          4. Do Private Companies Need Separate Standards?
          5. Stock Options
          6. Unfinished Business
        3. Chapter 20: Accounting Methods and Massaging the Numbers (1/3)
        4. Chapter 20: Accounting Methods and Massaging the Numbers (2/3)
        5. Chapter 20: Accounting Methods and Massaging the Numbers (3/3)
          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
          7. Restatements of Financial Reports
        6. Chapter 21: Audits of Financial Reports in the Post-Enron Era (1/3)
        7. Chapter 21: Audits of Financial Reports in the Post-Enron Era (2/3)
        8. Chapter 21: Audits of Financial Reports in the Post-Enron Era (3/3)
          1. Opening Comments
          2. Why Audits?
          3. Certified Public Accountants
          4. Are Audits Required?
          5. Clean Audit Opinion
          6. Do Auditors Discover Accounting Fraud?
          7. Reading the Auditor’s Report
          8. Post-SOX
        9. Chapter 22: Parting Comments (1/2)
        10. Chapter 22: Parting Comments (2/2)
          1. Basic Questions and Answers
          2. A Very Short Summary
      7. Index