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Lita Epstein. Reading Financial Reports For Dummies
Reading Financial Reports For Dummies® To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Reading Financial Reports For Dummies Cheat Sheet” in the Search box. Table of Contents
List of Tables
List of Illustrations
Guide
Pages
Introduction
About This Book
Conventions Used in This Book
What You're Not to Read
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Getting Started with Financial Reports
Opening the Cornucopia of Reports
Figuring Out Financial Reporting
Preparing the reports
Seeing why financial reporting counts (and who's counting)
Checking Out Types of Reporting
Keeping everyone informed
Quarterly reports
Annual reports
Following the rules: Government requirements
Going global
Staying within the walls of the company: Internal reporting
THE ROOTS OF FINANCIAL REPORTING
Dissecting the Annual Report to Shareholders
Breaking down the parts
Getting to the meat of the matter
The balance sheet
The income statement
The statement of cash flows
Keeping the number crunchers in line
Recognizing Business Types and Their Tax Rules
Flying Solo: Sole Proprietorships
Keeping taxes personal
Reviewing requirements for reporting
Joining Forces: Partnerships
Partnering up on taxes
Meeting reporting requirements
Seeking Protection with Limited Liability Companies
Taking stock of taxes
Reviewing reporting requirements
Shielding Your Assets: S and C Corporations
Paying taxes the corporate way
Getting familiar with reporting requirements
Public or Private: How Company Structure Affects the Books
Investigating Private Companies
KEEPING IT IN THE FAMILY
Checking out the benefits
Defining disadvantages
Figuring out reporting
PRIVATE OR PUBLIX?
Understanding Public Companies
GOING PUBLIC, LOSING JOBS
Examining the perks
Looking at the negative side
Filing and More Filing: Government and Shareholder Reports
Quarterly reports
Yearly report
The rules of the Sarbanes-Oxley Act
Other key improvements to corporate reporting
Impact of the establishment of the PCAOB
Dodd-Frank’s impact on financial industry regulation
WHAT LED TO DODD-FRANK?
Entering a Whole New World: How a Company Goes from Private to Public
Teaming up with an investment banker
Making a public offering
Digging into Accounting Basics
Making Sense of Accounting Methods
Cash-basis accounting
Accrual accounting
Why method matters
INCENTIVES AND THE BOTTOM LINE
Understanding Debits and Credits
Double-entry accounting
Profit and loss statements
The effect of debits and credits on sales
Depreciation and amortization
Checking Out the Chart of Accounts
THE GRANDDADDY OF BOOKKEEPING
Asset accounts
Tangible assets
Intangible assets
Liability accounts
Current liabilities
Long-term liabilities
Equity accounts
Revenue accounts
Revenue
Cost of goods sold
Expense accounts
Differentiating Profit Types
Gross profit
Operating profit
Net profit
The Big Show: Annual Reports
Exploring the Anatomy of an Annual Report
Everything but the Numbers
Debunking the letter to shareholders
TRANSLATING THE LANGUAGE OF LETTERS TO SHAREHOLDERS
Making sense of the corporate message
Meeting the people in charge
Finding basic shareholder information
Getting the skinny from management
Company operations
Capital resources
Liquidity
Getting guarantees from management
Bringing the auditors’ answers to light
Presenting the Financial Picture
Summarizing the Financial Data
Finding the highlights
Reading the notes
Balancing Assets against Liabilities and Equity
Understanding the Balance Equation
Introducing the Balance Sheet
Digging into dates
Nailing down the numbers
WHEN A YEAR IS MORE THAN A YEAR
Figuring out format
Account format
Report format
Financial position format
Ogling Assets
Current assets
Cash
Accounts receivable
Marketable securities
Inventory
Long-term assets
Land and buildings
Capitalized leases
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Tools, dies, and molds
Intangible assets
Other assets
Accumulated depreciation
Looking at Liabilities
Current liabilities
Short-term borrowings
Current portion of long-term debt
Accounts payable
Accrued liabilities
Long-term liabilities
Navigating the Equity Maze
Stock
Retained earnings
Capital
Drawing
Using the Income Statement
Introducing the Income Statement
Digging into dates
Figuring out format
Single-step format
Multistep format
Delving into the Tricky Business of Revenues
Defining revenue
Adjusting sales
Considering cost of goods sold
Gauging gross profit
Acknowledging Expenses
Sorting Out the Profit and Loss Types
EBITDA
Nonoperating income or expense
Net profit or loss
Calculating Earnings per Share
The Statement of Cash Flows
Digging into the Statement of Cash Flows
The parts
The formats
Checking Out Operating Activities
FINDING OUT THE IMPORTANCE OF CASH THE HARD WAY
Depreciation
Inventory
Accounts receivable
Accounts payable
The cash flow from activities section, summed up
Investigating Investing Activities
Understanding Financing Activities
Issuing stock
Buying back stock
Paying dividends
Incurring new debt
Paying off debt
Recognizing the Special Line Items
Discontinued operations
Foreign currency exchange
Adding It All Up
Scouring the Notes to the Financial Statements
Deciphering the Small Print
Accounting Policies Note: Laying out the Rules of the Road
Depreciation
Revenue
Expenses
Figuring out Financial Borrowings and Other Commitments
Long-term obligations
Short-term debt
Lease obligations
Mergers and Acquisitions: Finding Noteworthy Information
Pondering Pension and Retirement Benefits
Breaking Down Business Breakdowns
Reviewing Significant Events
Finding the Red Flags
Finding out about valuing assets and liabilities
Considering changes in accounting policies
Decoding obligations to retirees and future retirees
Considering Consolidated Financial Statements
Getting a Grip on Consolidation
Looking at Methods of Buying Up Companies
Reading Consolidated Financial Statements
Looking to the Notes
Mergers and acquisitions
Goodwill
Liquidations or discontinued operations
Analyzing the Numbers
Testing the Profits and Market Value
The Price/Earnings Ratio
Figuring out earnings per share
Calculating the P/E ratio
Practicing the P/E ratio calculation
Using the P/E ratio to judge company market value (stock price)
Understanding variation among ratios
The Dividend Payout Ratio
Determining dividend payout
Digging into companies’ profits with dividends
WHO HAS THE HIGHEST DIVIDEND PAYOUT RATIOS?
Return on Sales
Figuring out ROS
Reaching the truth about profits with ROS
Return on Assets
Doing some dividing to get ROA
Ranking companies with the help of ROA
Return on Equity
Calculating ROE
Testing companies using ROE
The Big Three: Margins
Dissecting gross margin
Investigating operating margin
Catching the leftover money: Net profit margin
LOOKING TO THE FUTURE
Looking at Liquidity
Finding the Current Ratio
Calculating the current ratio
Mattel
Hasbro
What do the numbers mean?
Determining the Quick Ratio
Calculating the quick ratio
Mattel
Hasbro
What do the numbers mean?
Investigating the Interest Coverage Ratio
Calculating the interest coverage ratio
Mattel
Hasbro
What do the numbers mean?
Comparing Debt to Shareholders’ Equity
Calculating debt to shareholders’ equity
Mattel
Hasbro
What do the numbers mean?
WHY DO COMPANIES BUY BACK STOCK?
Determining Debt-to-Capital Ratio
Calculating the debt-to-capital ratio
Mattel
Hasbro
What do the numbers mean?
Making Sure the Company Has Cash to Carry On
Measuring Income Success
Calculating free cash flow
Mattel
Hasbro
What do the numbers mean?
Figuring out cash return on sales ratio
Mattel
Hasbro
What do the numbers mean?
Checking Out Debt
Determining current cash debt coverage ratio
Mattel
Hasbro
What do the numbers mean?
Computing cash debt coverage ratio
Mattel
Hasbro
What do the numbers mean?
Calculating Cash Flow Coverage
Finding out the cash flow coverage ratio
Mattel
Hasbro
What do the numbers mean?
How Companies Optimize Operations
Turning Up Clues in Turnover and Assets
Exploring Inventory Valuation Methods
TRACKING INVENTORY
Applying Three Inventory Valuation Methods
Average costing
FIFO
LIFO
How to compare inventory methods and financial statements
Determining Inventory Turnover
Calculating inventory turnover
Mattel
Hasbro
What do the numbers mean?
Investigating Fixed Assets Turnover
Calculating fixed assets turnover
Mattel
Hasbro
What do the numbers mean?
Tracking Total Asset Turnover
Calculating total asset turnover
Mattel
Hasbro
What do the numbers mean?
Examining Cash Inflow and Outflow
Assessing Accounts Receivable Turnover
Calculating accounts receivable turnover
Mattel
Hasbro
What do the numbers mean?
FINDING THE RIGHT CREDIT POLICY
Taking a Close Look at Customer Accounts
Finding the Accounts Payable Ratio
Calculating the ratio
Mattel
Hasbro
What do the numbers mean?
Determining the Number of Days in Accounts Payable
Calculating the ratio
Mattel
Hasbro
What do the numbers mean?
Deciding Whether Discount Offers Make Good Financial Sense
Calculating the annual interest rate
For terms of 2/10 net 30
For terms of 3/10 net 60
What do the numbers mean?
How Companies Keep the Cash Flowing
Slowing Bill Payments
Speeding Up Collecting Accounts Receivables
Borrowing on Receivables
Reducing Inventory
Getting Cash More Quickly
The Many Ways Companies Answer to Others
How Companies Find Errors: The Auditing Process
Inspecting Audits and Auditors
Looking for mistakes
Meeting Mr. or Ms. Auditor
Examining Records: The Role of the Auditor
Preliminary review
Fieldwork
Audit report
Filling the GAAP
Accounting standards: Four important qualities
EXPLORING THE FASB
Changing principles: More work for the FASB
Getting more involved internationally
Government Regulations and Reporting Requirements
Checking Out the 10-Q
Financial information
Other critical matters
Introducing the 10-K
Business operations
Financial data
Information about directors and executives
The extras
Investigating Internal Controls
Uncovering the Ways Companies Keep in Compliance
Digging into Board Operations
Understanding the nominating process
Contacting board members
Finding Out about Insider Ownership
Creating a Global Financial Reporting Standard
Why Develop a Worldwide Financial Standard?
Key Moves to Reshape Global Financial Reporting
Who Benefits from a Global Standard and How?
Investors
Capital Markets
Companies
Key Differences between GAAP and IFRS
Accounting framework
Financial statements
Balance sheet
Income statement
Statement of recognised income and expense (SoRIE)
Statement of changes in shareholders’ equity
Cash flow statement
Revenue recognition
Assets
Inventory
Related-party transactions disclosures
Discontinued operations
Impairment charges
Understanding the Analyst–Corporation Connection
Typecasting the Analysts
Buy-side analysts
Sell-side analysts
ANALYZING THE ANALYSTS
Independent analysts
Bond analysts
Regarding Bond-Rating Agencies
BUILDING BOND RATING'S BIG GUNS
Delving into Stock Rating
Taking a Look at How Companies Talk to Analysts
Analyst calls
Press releases
Mobile apps
Road shows
How Companies Communicate with Shareholders
Making the Most of Meetings
Checking Out How the Board Runs the Company
Watching the directors
Composition of the board of directors
Compensation packages for board members and CEOs
Takeover defenses and protections
Audits
CEOs GET BETTER RAISES
Speaking out at meetings
HEWLETT-PACKARD'S COSTLY CLASH
Moving away from duking it out
Sorting through Reports
Catching Up on Corporate Actions
INTRODUCING FAIR DISCLOSURE
Culling Information from Analyst Calls
DECODING ANALYST-CALL-SPEAK
Listening between the lines
Earnings expectations
Revenue growth
Analysts’ moods
The right facts
An eye to the future
Employee satisfaction
Knowing when to expect analyst calls
Staying Up-to-Date Using Company Websites
Regarding Reinvestment Plans
Dividend reinvestment plans
Direct stock purchase plans
Keeping Score When Companies Play Games with Numbers
Getting to the Bottom of Creative Accounting
Defining the scope of the problem
Seeing through cooked books
Big-bath charges
Creative acquisition accounting
Miscellaneous cookie jar reserves
Materiality
Revenue recognition
Unearthing the Games Played with Earnings
Reading between the revenue lines
Goods ordered but not shipped
Goods shipped but not ordered
Extended reporting period
Pure fiction
Channel stuffing
Side letters
Rights of return
Related-party revenue
Bill-and-hold transactions
Up-front service fees
Detecting creative revenue accounting
Reviewing revenue-recognition policies
Evaluating revenue results
Monitoring accounts receivable
Assessing physical capacity
Exploring Exploitations of Expenses
Advertising expenses
Research and development costs
Patents and licenses
Asset impairment
Restructuring charges
Finding Funny Business in Assets and Liabilities
Recognizing overstated assets
Accounts receivable
Inventory
Undeveloped land
Artwork
Looking for undervalued liabilities
Accounts payable
Accrued expenses payable
Contingent liabilities
Pay-down liabilities
Playing Detective with Cash Flow
Discontinued operations
Income taxes paid
SEEKING INFORMATION ON QUESTIONABLE REPORTING
The Part of Tens
Ten Financial Scandals That Rocked the World
Enron
Madoff
Citigroup
Adelphia
WorldCom/MCI
Tyco
Waste Management
Bristol-Myers Squibb
Halliburton
Arthur Andersen
Ten Signs That a Company's in Trouble
Lower Liquidity
Low Cash Flow
Disappearing Profit Margins
Revenue Game Playing
Too Much Debt
Unrealistic Values for Assets and Liabilities
A Change in Accounting Methods
Questionable Mergers and Acquisitions
Slow Inventory Turnover
Slow-Paying Customers
Glossary
Index. A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
Y
About the Authors
Dedication
Authors' Acknowledgments
WILEY END USER LICENSE AGREEMENT
