The Comprehensive Guide on How to Read a Financial Report, + Website

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 comprehensive version of How to Read a Financial Report breaks through that language barrier, clears away the fog, and offers a plain-English user's guide to financial reports. The book features new information on the move toward separate financial and accounting reporting standards for private companies, the emergence of websites offering financial information, pending changes in the auditor's report language and what this means to investors, and requirements for XBRL tagging in reporting to the SEC, among other topics.

• Makes it easy to understand what financial reports really say
• Updated to include the latest information financial reporting standards and regulatory changes
• Written by an author team with a combined 50-plus years of experience in financial accounting
• This comprehensive edition includes an ancillary website containing valuable additional resources

With this comprehensive version of How to Read a Financial Report, investors will find everything they need to fully understand the profit, cash flow, and financial condition of any business.

List of Exhibits ix

Preface xv

Part One—Financial Report Fundamentals

1 Financial Statement Basics: The Real Meat and Potatoes of Financial Reports 3

2 Starting with Cash Flows 13

3 Mastering the Balance Sheet 21

4 Understanding Profit 31

5 Profit isn’t Everything and All Things 43

Part Two—Working Capital Connections

6 Our Case Study—Company Introductions 55

7 Sales Revenue, Trade Accounts Receivable, and Deferred Revenue 65

8 Cost(s) of Goods Sold Expense and Inventory 77

9 Inventory and Accounts Payable 89

10 Operating Expenses and Accounts Payable 99

11 Accruing Liabilities for Incurred but Unpaid Expenses 109

12 Income Tax Expense—A Liability and Asset? 117

Part Three—Financial Capital Connections and Cash Flows

13 Our Case Study—Company Updates and Assessments 129

14 Long-Term Assets and Depreciation, Amortization, and Other Expenses 139

15 Long-Term Liabilities, Interest, and Other Expenses 151

16 Net Income, Retained Earnings, Equity, and Earnings per Share (EPS) 163

17 Cash Flow from Operating (Profit-Making) Activities 173

18 Cash Flows from Investing and Financing Activities 183

Part Four—Financial Report Analysis

19 Expansion and Contraction Impacts on Cash Flow 195

20 What is EBITDA and Why is it Important? 211

21 Financial Statement Footnotes—The Devil’s in the Details 217

22 Financial Statement Ratios—Calculating and Understanding 229

23 Profit Analysis for Business Managers 245

24 Our Case Study and the Moral of the Story—The Good, the Bad, and the Ugly 259

Part Five—Financial Report Truthfulness

25 Choosing Accounting Methods and Massaging the Numbers 273

26 Audits of Financial Reports 285

27 Small Business Financial Reporting 299

28 Basic Questions, Basic Answers, No BS 309

About the Authors 319

About the Companion Website 321

Index 323

JOHN A. TRACY is a successful financial accounting author. In addition to all eight editions of this book, he is the author of a number of books including the best-selling Accounting For Dummies.

TAGE C. TRACY heads a consulting firm specializing in providing executive-level financial and accounting management resources on a project and/or interim basis. He has worked with companies in an array of industries ranging from web-based technology/solutions to manufacturing to retail to professional service organizations and finance. In addition, Tage has co-authored Cash Flow For Dummies and Small Business Financial Management Kit For Dummies with his father.

Whether you’re a manager attempting to get a clear picture of your company’s performance, an investor trying to determine if a business is a sound investment, or a lender who needs to measure an organization’s creditworthiness, the information contained in a financial report is the most valuable source of information at your disposal.

Now only if it was written in a language you could read!

For more than thirty years, the number-one resource professionals have turned to for help in cutting through the haze of accountantese and making sense of all those numbers has been How to Read a Financial Report.

Now this newly updated guide steers you painlessly through the basic accounting concepts and provides line-by-line explanations of a financial statement. It shows you how the three parts of a financial report—the balance sheet, the income statement, and the cash flow statement—fit together and the story they tell. Further, it provides invaluable insight on hot and trending accounting topics, expanded tools to help “root out” questionable and difficult to understand accounting concepts, and an array of tips, tidbits, and traps to take the readers’ understanding of financial statements and accounting to the next level.

What make this edition unique are several new features that take you beyond simply understanding financial reports to show you how to apply the information they contain, including:

• A website featuring hotlinks to significant current events, online resources that expand on critical concepts covered, and much more
• A Web-based “Test My Knowledge” section with thorough answers
• Guidelines on how to apply the information contained in reports to identify problems, errors, inconsistencies, and irregularities
• An in-depth case study comparing two companies’ performance over several years and showing the role accounting played in their differing outcomes

The Comprehensive Guide on How to Read a Financial Report is your plain-English guide to sorting out what all those numbers are really saying.