Working Capital Management

APPENDIX I Basic Financial Concepts

THE THREE FINANCIAL REPORTS OR statements required under accounting rules are the balance sheet, the income statement, and the statement of cash flows. These rules are established by the Financial Accounting Standards Board (FASB), a self-regulating organization managed by the accounting profession, with oversight by the Public Company Accounting Oversight Board (PCAOB) for companies traded on stock exchanges (“public companies”). FASB oversees GAAP (generally accepted accounting principles), which provides accounting standards that are considered as the foundation of financial reporting.

Public companies are required to publish annual reports containing an explanation of the past year's activities, nonconfidential plans for the future, and financial reports including an opinion letter by external auditors as to their accuracy. In addition, they must file detailed financial analyses with the primary regulatory agency, the Securities and Exchange Commission (SEC). The annual version of this report is called a 10-K; quarterly reports are known as 10-Qs. Most public companies provide them on their websites.

GENERAL BALANCE SHEET ISSUES

Several issues relate to the entire balance sheet:

• Date. The balance sheet in Exhibit 1.1 is as of December 31 for two recent years. All balance sheets are as of a particular date and are valid only for that date. This particular business uses a calendar year reporting period. However, any date can be used ...