Reading financial reports for dummies
Author(s)
Bibliographic Information
Reading financial reports for dummies
（--For dummies）
Wiley, c2009
2nd ed
- : pbk
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Note
Includes index
Description and Table of Contents
Description
The second edition includes over 25 percent new and updated information including: New information on the separate accounting and financial reporting standards for private/small businesses versus public/large businesses Updated information that reflects the 2007 law on international financial reporting standards New content to match SEC and other governmental regulatory changes over the past three years New information about how the analyst-corporate connection has actually changed the playing field The impact of corporate communications and new technologies New examples that reflect the current trends Updated websites and resources
Table of Contents
Introduction 1 Part I: Getting Down to Financial Reporting Basics 7 Chapter 1: Opening the Cornucopia of Reports 9 Chapter 2: Recognizing Business Types and Their Tax Rules 21 Chapter 3: Public or Private: How Company Structure Affects the Books 29 Chapter 4: Digging into Accounting Basics 43 Part II: Checking Out the Big Show: Annual Reports 59 Chapter 5: Exploring the Anatomy of an Annual Report 61 Chapter 6: Balancing Assets against Liabilities and Equity 75 Chapter 7: Using the Income Statement 91 Chapter 8: The Statement of Cash Flows 107 Chapter 9: Scouring the Notes to the Financial Statements 121 Chapter 10: Considering Consolidated Financial Statements 139 Part III: Analyzing the Numbers 151 Chapter 11: Testing the Profits and Market Value 153 Chapter 12: Looking at Liquidity 171 Chapter 13: Making Sure the Company Has Cash to Carry On 181 Part IV: Understanding How Companies Optimize Operations 193 Chapter 14: How Reports Help with Basic Budgeting 195 Chapter 15: Turning Up Clues in Turnover and Assets 205 Chapter 16: Examining Cash Inflow and Outflow 217 Chapter 17: How Companies Keep the Cash Flowing 227 Part V: The Many Ways Companies Answer to Others 235 Chapter 18: Finding Out How Companies Find Errors: The Auditing Process 237 Chapter 19: Digging into Government Regulations 247 Chapter 20: Creating a Global Financial Reporting Standard 259 Chapter 21: Checking Out the Analyst-Corporation Connection 269 Chapter 22: How Companies Communicate with Shareholders 281 Chapter 23: Keeping Score When Companies Play Games with Numbers 295 Part VI: The Part of Tens 317 Chapter 24: Ten Financial Scandals That Rocked the World 319 Chapter 25: Ten Signs That a Company's in Trouble 329 Glossary 335 Index 343 Table of Contents Introduction 1 About This Book 2 Conventions Used in This Book 2 What You're Not to Read 2 Foolish Assumptions 3 How This Book Is Organized 3 Part I: Getting Down to Financial Reporting Basics 4 Part II: Checking Out the Big Show: Annual Reports 4 Part III: Analyzing the Numbers 4 Part IV: Understanding How Companies Optimize Operations 4 Part V: The Many Ways Companies Answer to Others 5 Part VI: The Part of Tens 5 Icons Used in This Book 5 Where to Go from Here 6 Part I: Getting Down to Financial Reporting Basics 7 Chapter 1: Opening the Cornucopia of Reports 9 Figuring Out Financial Reporting 9 Preparing the reports 10 Why financial reporting counts (and who's counting) 11 Checking Out Types of Reporting 12 Keeping everyone informed 13 Following the rules: Government requirements 14 Going global 15 Staying within the walls of the company: Internal reporting 15 Dissecting the Annual Report to Shareholders 17 Breaking down the parts 17 The meat of the matter 18 How the number crunchers are kept in line 19 Chapter 2: Recognizing Business Types and Their Tax Rules 21 Flying Solo: Sole Proprietorships 21 Keeping taxes personal 22 Reviewing requirements for reporting 22 Joining Forces: Partnerships 23 Partnering up on taxes 23 Meeting reporting requirements 24 Seeking Protection with Limited Liability Companies 24 Taking stock of taxes 24 Reviewing reporting requirements 25 Reading Financial Reports For Dummies, 2nd Edition x Shielding Your Assets: S and C Corporations 25 Paying taxes the corporate way 26 Getting familiar with reporting requirements 27 Chapter 3: Public or Private: How Company Structure Affects the Books 29 Investigating Private Companies 29 Checking out the benefits 30 Defining disadvantages 31 Figuring out reporting 32 Understanding Public Companies 33 Examining the perks 35 Looking at the negative side 35 Filing and more filing: Government and shareholder reports 36 A Whole New World: How a Company Goes from Private to Public 39 Teaming up with an investment banker 40 Making a public offering 41 Chapter 4: Digging into Accounting Basics 43 Making Sense of Accounting Methods 43 Cash-basis accounting 43 Accrual accounting 44 Why method matters 44 Understanding Debits and Credits 46 Double-entry accounting 47 Profit and loss statements 47 The effect of debits and credits on sales 48 Digging into depreciation and amortization 49 Checking Out the Chart of Accounts 50 Asset accounts 51 Liability accounts 53 Equity accounts 54 Revenue accounts 55 Expense accounts 56 Differentiating Profit Types 57 Gross profit 57 Operating profit 58 Net profit 58 Part II: Checking Out the Big Show: Annual Reports 59 Chapter 5: Exploring the Anatomy of an Annual Report 61 Everything but the Numbers 62 Debunking the letter to shareholders 62 Making sense of the corporate message 63 Meeting the people in charge 64 Table of Contents xi Finding basic shareholder information 64 Getting the skinny from management 64 Bringing the auditors' answers to light 68 Presenting the Financial Picture 71 Summarizing the Financial Data 72 Finding the highlights 72 Reading the notes 73 Chapter 6: Balancing Assets against Liabilities and Equity 75 Understanding the Balance Equation 75 Introducing the Balance Sheet 76 Digging into dates 76 Nailing down the numbers 78 Figuring out format 78 Ogling Assets 80 Current assets 80 Long-term assets 83 Accumulated depreciation 86 Looking at Liabilities 87 Current liabilities 87 Long-term liabilities 88 Navigating the Equity Maze 89 Stock 89 Retained earnings 90 Capital 90 Drawing 90 Chapter 7: Using the Income Statement 91 Introducing the Income Statement 92 Digging into dates 93 Figuring out format 93 Delving into the Tricky Business of Revenues 96 Defining revenue 96 Adjusting sales 97 Considering cost of goods sold 99 Gauging gross profit 100 Acknowledging Expenses 101 Sorting Out the Profit and Loss Types 103 EBITDA 103 Nonoperating income or expense104 Net profit or loss 105 Calculating Earnings per Share 105 Chapter 8: The Statement of Cash Flows 107 Digging into the Statement of Cash Flows 107 The parts 108 The formats 109 Reading Financial Reports For Dummies, 2nd Edition xii Checking Out Operating Activities 111 Depreciation 111 Inventory 112 Accounts receivable 112 Accounts payable 113 Summing up the cash-flow-from-activities section 113 Investigating Investing Activities 114 Understanding Financing Activities 115 Issuing stock 115 Buying back stock 115 Paying dividends 116 Incurring new debt 116 Paying off debt 117 Recognizing the Special Line Items 117 Discontinued operations 117 Foreign currency exchange 118 Adding It All Up 118 Chapter 9: Scouring the Notes to the Financial Statements 121 Deciphering the Small Print 122 Accounting Policies Note: Laying Out the Rules of the Road 122 Depreciation 123 Revenue 124 Expenses 124 Figuring Out Financial Borrowings and Other Commitments 126 Long-term obligations 126 Short-term debt 129 Lease obligations 130 Mergers and Acquisitions: Noteworthy Information 131 Pondering Pension and Retirement Benefits 132 Breaking Down Business Breakdowns 133 Reviewing Significant Events 135 Finding the Red Flags 136 Finding out about valuing assets and liabilities 137 Considering changes in accounting policies 137 Decoding obligations to retirees and future retirees 138 Chapter 10: Considering Consolidated Financial Statements 139 Getting a Grip on Consolidation 139 Looking at Methods of Buying Up Companies 144 Reading Consolidated Financial Statements 146 Looking to the Notes 148 Mergers and acquisitions 149 Goodwill 149 Liquidations or discontinued operations 150 Table of Contents xiii Part III: Analyzing the Numbers 151 Chapter 11: Testing the Profits and Market Value 153 The Price/Earnings Ratio 154 Figuring out earnings per share 154 Calculating the P/E ratio 155 Practicing the P/E ratio calculation 156 Using the P/E ratio to judge company market value (stock price) 157 Understanding variation among ratios 159 The Dividend Payout Ratio 160 Determining dividend payout160 Digging into companies' profits with dividends 161 Return on Sales 163 Figuring out ROS 163 Reaching the truth about profits with ROS 164 Return on Assets 164 Doing some dividing to get ROA 165 Ranking companies with the help of ROA 165 Return on Equity 165 Calculating ROE 166 Reacting to companies with ROEs assistance 166 The Big Three: Margins 167 Dissecting gross margin 167 Investigating operating margin 168 Catching the leftover money: Net profit margin 169 Chapter 12: Looking at Liquidity 171 Finding the Current Ratio 172 Calculating the current ratio 172 What do the numbers mean? 173 Determining the Quick Ratio 173 Calculating the quick ratio 173 What do the numbers mean? 174 Investigating the Interest Coverage Ratio 175 Calculating the interest coverage ratio 175 What do the numbers mean? 176 Comparing Debt to Shareholders' Equity 176 Calculating debt to shareholders' equity 177 What do the numbers mean? 178 Determining Debt-to-Capital Ratio 178 Calculating the debt-to-capital ratio 178 What do the numbers mean? 180 Reading Financial Reports For Dummies, 2nd Edition xiv Chapter 13: Making Sure the Company Has Cash to Carry On 181 Measuring Income Success 181 Calculating free cash flow 182 Figuring out cash return on sales ratio 184 Checking Out Debt 185 Determining current cash debt coverage ratio 186 Computing cash debt coverage ratio 188 Calculating Cash Flow Coverage 190 Finding out the cash flow coverage ratio190 Hasbro 192 What do the numbers mean? 192 Part IV: Understanding How Companies Optimize Operations 193 Chapter 14: How Reports Help with Basic Budgeting 195 Peering into the Budgeting Process 196 Who does what 196 Setting goals 197 Building Budgets 199 Providing Monthly Budget Reports 201 Using Internal Reports 203 Chapter 15: Turning Up Clues in Turnover and Assets 205 Exploring Inventory Valuation Methods 206 Applying Three Inventory Valuation Methods 208 Average costing 209 FIFO 210 LIFO 210 Comparing inventory methods and financial statements 211 Determining Inventory Turnover 211 Calculating inventory turnover 212 What do the numbers mean? 213 Investigating Fixed Assets Turnover 214 Calculating fi xed assets turnover 214 What do the numbers mean? 215 Tracking Total Asset Turnover 215 Calculating total asset turnover 215 What do the numbers mean? 216 Chapter 16: Examining Cash Inflow and Outflow 217 Assessing Accounts Receivable Turnover 217 Calculating accounts receivable turnover 218 What do the numbers mean? 219 Table of Contents xv Taking a Close Look at Customer Accounts 220 Finding the Accounts Payable Ratio 222 Calculating the ratio 222 What do the numbers mean? 223 Determining the Number of Days in Accounts Payable 223 Calculating the ratio 223 What do the numbers mean? 224 Deciding Whether Discount Offers Make Good Financial Sense 225 Calculating the annual interest rate 225 What do the numbers mean? 226 Chapter 17: How Companies Keep the Cash Flowing 227 Slowing Down Bill Payments 227 Speeding Up Collecting Accounts Receivables 228 Borrowing on Receivables 230 Reducing Inventory 231 Getting Cash More Quickly 232 Part V: The Many Ways Companies Answer to Others 235 Chapter 18: Finding Out How Companies Find Errors: The Auditing Process 237 Inspecting Audits and Auditors 237 Looking for mistakes 238 Meeting Mr. or Ms. Auditor 238 Examining Records: The Role of the Auditor 239 Preliminary review 240 Fieldwork 240 Audit report 242 Filling the GAAP 242 Accounting standards: Four important qualities 243 Changing principles: More work for the FASB 244 Chapter 19: Digging into Government Regulations 247 Checking Out the 10-Q 248 Financial information 248 Other critical matters 249 Introducing the 10-K 250 Business operations 250 Financial data 250 Information about directors and executives 252 The extras 252 Investigating Internal Controls 253 Reading Financial Reports For Dummies, 2nd Edition xvi Uncovering the Ways Companies Keep in Compliance 254 Digging into Board Operations 256 The nominating process 256 Contacting board members 257 Finding Out about Insider Ownership 258 Chapter 20: Creating a Global Financial Reporting Standard 259 Why Develop a Worldwide Financial Standard? 259 Key Moves to Reshape Global Financial Reporting 260 Who Benefits from a Global Standard and How? 261 Investors 261 Capital Markets 262 Companies 262 Exploring Key Differences between GAAP and IFRS 262 Accounting framework 263 Financial statements 263 Revenue recognition 265 Assets 265 Inventory 266 Related-party transactions-disclosures 266 Discontinued operations 267 Impairment charges 267 Chapter 21: Checking Out the Analyst-Corporation Connection 269 Typecasting the Analysts 269 Buy-side analysts 270 Sell-side analysts 271 Independent analysts 273 Bond analysts 274 Regarding Bond Rating Agencies 274 Delving into Stock Rating 276 Taking a Look at How Companies Talk to Analysts 277 Analyst calls 277 Press releases 278 Road shows 279 Chapter 22: How Companies Communicate with Shareholders 281 Making the Most of Meetings 282 Checking Out How the Board Runs the Company 283 Watching the directors 283 Speaking out at meetings 284 Moving away from duking it out 285 Sorting through Reports 286 Catching Up on Corporate Actions 287 Culling Information from Analyst Calls 288 Listening between the lines 289 Knowing when to expect analyst calls 292 Table of Contents xvii Staying Up to Date Using Company Web Sites 292 Regarding Reinvestment Plans 293 Dividend-reinvestment plans 293 Direct-stock-purchase plans 294 Chapter 23: Keeping Score When Companies Play Games with Numbers 295 Getting to the Bottom of Creative Accounting 296 Defining the scope of the problem 296 Recipes for cooked books 297 Unearthing the Games Played with Earnings 298 Reading between the revenue lines 299 Detecting creative revenue accounting 303 Exploring Exploitations of Expenses 305 Advertising expenses 306 Research and development costs 306 Patents and licenses 307 Asset impairment 308 Restructuring charges 309 Finding Funny Business in Assets and Liabilities 309 Recognizing overstated assets 310 Looking for undervalued liabilities 312 Playing Detective with Cash Flow 314 Discontinued operations314 Income taxes paid 315 Part VI: The Part of Tens 317 Chapter 24: Ten Financial Scandals That Rocked the World 319 Enron 320 Citigroup 321 Adelphia 321 WorldCom/MCI 322 Sunbeam 323 Tyco 323 Waste Management 324 Bristol-Meyers Squibb 325 Halliburton 325 Arthur Andersen 326 Chapter 25: Ten Signs That a Company's in Trouble 329 Lower Liquidity 329 Low Cash Flow 330 Disappearing Profit Margins 330 Revenue Game-Playing 331 Reading Financial Reports For Dummies, 2nd Edition xvii Too Much Debt 332 Unrealistic Values for Assets and Liabilities 332 A Change in Accounting Methods 332 Questionable Mergers and Acquisitions 333 Slow Inventory Turnover 334 Slow-Paying Customers 334 Glossary 335 Index 343
by "Nielsen BookData"
