How to Read and Interpret Financial Statements; Second Edition: A Guide to Understanding What the Numbers Really Mean

This course teaches students how to read and analyze reports that are fundamental to gauging the health of any business. It explains how to interpret balance sheets, income statements, and statements of cash flows and considers the numbers in the context of external economic conditions. Topics include: basic concepts and principles of financial accounting and reporting; key financial statements--the balance sheet, income statement, and the statement of cash flows--from the perspective of senior management; applying the right type of analysis--ratio, vertical, or horizontal--to the right statement; recent changes in legislation, rules, and standards of practice that affect accounting and finance; provisions of the Sarbanes-Oxley Act and its impact on auditing processes and financial statement value chain; industry statistics, competitive considerations, and other nonfinancial information. -- � Read more... Abstract: This course teaches students how to read and analyze reports that are fundamental to gauging the health of any business. It explains how to interpret balance sheets, income statements, and statements of cash flows and considers the numbers in the context of external economic conditions. Topics include: basic concepts and principles of financial accounting and reporting; key financial statements--the balance sheet, income statement, and the statement of cash flows--from the perspective of senior management; applying the right type of analysis--ratio, vertical, or horizontal--to the right statement; recent changes in legislation, rules, and standards of practice that affect accounting and finance; provisions of the Sarbanes-Oxley Act and its impact on auditing processes and financial statement value chain; industry statistics, competitive considerations, and other nonfinancial information Cover 1 Title 4 Copyright 5 Contents 6 About This Course 10 How to Take This Course 12 Pre-Test 14 1 Understanding Financial Statements 20 Introduction 20 Accounting Is More an Art Than a Science 21 Internal Users 21 External Users 22 Basic Concepts and Principles of Financial Accounting and Financial Statements 25 Generally Accepted Accounting Principles (GAAP) 27 Auditor's Reports 28 Limitations of Financial Statements 31 Recap 33 Review Questions 34 Answers to "Think About It..." Questions from This Chapter 35 2 Types of Financial Statements 38 Introduction 38 Elements of Financial Statements 39 Assets 39 Liabilities 39 Equity 39 Investments by Owners 39 Distributions to Owners 39 Revenues 40 Expenses 40 Gains 40 Losses 40 The Balance Sheet 41 Assets 41 Liabilities 44 Owners' Equity 45 Income Statement 47 Sales 48 Cost of Goods Sold 49 Statement of Retained Earnings 51 Statement of Cash Flows 53 Notes to the Financial Statements and Supplemental Information 53 Management's Discussion and Analysis of Financial Condition and Results of Operation 55 Recap 55 Review Questions 57 Answers to "Think About It..." Questions from This Chapter 58 3 The Balance Sheet: Assets 60 Introduction 60 Current Assets 61 Cash 61 Marketable Securities 61 Receivables 62 Inventories 63 Prepaid Expenses 65 Long-Term Investments 65 Cost Method of Valuation 66 Equity Method of Valuation 66 Property, Plant, and Equipment 67 Tangible Fixed Assets 67 Intangible Assets 69 Wasting Assets 71 Other Assets 72 Recap 73 Review Questions 74 Answers to "Think About It..." Questions from This Chapter 75 4 The Balance Sheet: Liabilities and Owners' Equity 76 Introduction 76 Liabilities 76 Current Liabilities 77 Long-Term Liabilities 80 Off-Balance-Sheet Financing 82 Owners' (or Shareholders') Equity 82 Capital Stock 83 Additional Paid-In Capital 83 Retained Earnings 84 Treasury Stock 84 Recap 86 Review Questions 87 Answers to "Think About It..." Questions from This Chapter 88 5 The Income Statement 90 Introduction 90 Income Statement Format 90 Components of an Income Statement 92 Comprehensive Income 94 Cash Versus Accrual Basis of Accounting 96 Cash Basis 96 Accrual Basis 96 Apportionment of Revenues and Expenses 96 Prepaid Expenses Requiring Apportionment 97 Unearned and Recorded Revenues Requiring Apportionment 97 Unrecorded Accrued Revenues 97 Unrecorded Accrued Expenses 98 Valuation of Accounts Receivable and Investments 98 Valuation of Marketable Securities 98 Recap 99 Review Questions 100 Answers to "Think About It..." Questions from This Chapter 101 6 The Statement of Cash Flows 102 Introduction 102 The Usefulness of the Statement of Cash Flows 103 The Nature of the Statement of Cash Flows 103 Significant Noncash Financing and Investing Activities 104 Statement of Cash Flows: Format Alternatives 105 The Direct Method 105 The Indirect Method 106 Free Cash Flow 108 Recap 109 Review Questions 110 Answers to "Think About It..." Questions from This Chapter 111 7 Balance Sheet Analysis 112 Introduction 112 Ratios in Financial-Statement Analysis 113 Limitations of Financial Ratios 113 Categories of Financial Ratios 114 Liquidity Ratios 114 Activity Ratios 116 Leverage Ratios 123 Vertical and Horizontal Analysis 125 Recap 127 Review Questions 128 Answers to "Think About It..." Questions from This Chapter 129 8 Income Statement Analysis 130 Sales 130 Cost of Goods Sold 130 Gross Profit 131 Operating Expenses 132 Operating Income 133 Profitability Ratios 134 Gross Profit Margin 134 Operating Profit Margin 134 Profit Margin 134 Return on Assets 135 Return on Equity 135 Earnings Per Share 135 Limitations of Financial Ratios 136 Horizontal and Vertical Analysis 137 Recap 139 Review Questions 140 Answers to "Think About It..." Questions from This Chapter 141 9 Analysis of Operational Results 142 Introduction 142 Cost Behavior 143 Fixed Costs 143 Variable Costs 143 Mixed Costs 143 Cost-Volume-Profit Analysis 144 Break-Even Point 144 The Graphic Presentation of Break-Even 146 Using Break-Even Analysis 147 Contribution Margin 148 Advantages of Cost-Volume-Profit Analysis 150 Limitations of Cost-Volume-Profit Analysis 151 The Profit-Volume Graph 151 Plotting a Profit Line 151 Recap 153 Review Questions 154 Answers to "Think About It..." Questions from This Chapter 155 Bibliography 156 Glossary 158 A 158 B 159 C 159 D 160 E 161 F 161 G 162 H 162 I 162 L 162 M 163 N 163 O 164 P 164 R 158 S 165 T 165 U 165 V 165 X 158 Z 165 Online Resources 166 Post-Test 168 Index 174 A 174 B 174 C 175 D 175 E 175 F 176 G 176 H 176 I 176 J 177 L 177 M 177 N 177 O 177 P 178 Q 178 R 178 S 178 T 178 U 178 V 179 W 179 Y 179 Z 179 The ability to understand financial statements is an essential skill for success today. This comprehensive course teaches students how to read and analyze the reports that are fundamental to gauging the health of any business. It explains how to interpret balance sheets, income statements, and statements of cash flows— and consider the numbers in the context of external economic conditions. Students will learn to: • Grasp the basic concepts and principles of financial accounting and reporting • View key financial statements—the balance sheet, the income statement, and the statement of cash flows—from the perspective of senior management • Uncover essential data by applying the right type of analysis—ratio, vertical, or horizontal—to the right statement • Understand recent changes in legislation, rules, and standards of practice that affect accounting and finance • Follow the provisions of the Sarbanes-Oxley Act and track its impact on the auditing process and the financial statement value chain • Review industry statistics, competitive considerations, and other nonfinancial information to achieve a deeper understanding of a company's financial statements Now completely revised and updated, the second edition of How to Read and Interpret Financial Statements includes a section on the Statement of Comprehensive Income, expanded coverage of off-balance-sheet financing, a glossary of important terms, and updated information on the difference between marketable securities and investments and the impact of changes in fair value on a company's financial statements. In each chapter, exhibits, examples, and exercises reinforce lessons and give readers the chance to apply new concepts and practice new skills. This course teaches students how to read and analyze reports that are fundamental to gauging the health of any business. It explains how to interpret balance sheets, income statements, and statements of cash flows and considers the numbers in the context of external economic conditions. Topics include: basic concepts and principles of financial accounting and reporting; key financial statements--the balance sheet, income statement, and the statement of cash flows--from the perspective of senior management; applying the right type of analysis--ratio, vertical, or horizontal--to the right statement; recent changes in legislation, rules, and standards of practice that affect accounting and finance; provisions of the Sarbanes-Oxley Act and its impact on auditing processes and financial statement value chain; industry statistics, competitive considerations, and other nonfinancial information. -- Edited summary from book