Key MBA Models

PART FIVE

Accounting

If you want to understand how a business works, the starting point is to look at its accounts (the profit and loss statement and the balance sheet). Most MBA programmes have a foundational course on accounting to make sure students understand how accounts are put together, and how they should be interpreted.

In this section of the book, we describe three basic models that have been in use for a hundred years or so. The ‘accrual method in accounting’, as opposed to cash-based accounting, is a way of ensuring that business activities are accounted for when they happen, rather than when money is paid out or received. ‘Ratio analysis’ is a methodology for analysing and making sense of a company’s financial statement. The ‘DuPont ...