Understanding Financial Statements

Cover......Page 1
Title Page......Page 2
Copyright Page......Page 3
Acknowledgments......Page 15
About the Authors......Page 17
Contents......Page 6
Preface to the Eleventh Edition......Page 11
Organization of the Eleventh Edition......Page 12
Uses for the Eleventh Edition......Page 14
Map or Maze......Page 18
Volume of Information......Page 21
Global Economy......Page 24
Notes to the Financial Statements......Page 25
Auditor’s Report......Page 27
Financial Reporting Reforms......Page 28
Management Discussion and Analysis......Page 29
Pandora (a.k.a. “PR Fluff”)......Page 31
Missing and Hard-to-Find Information......Page 32
Characteristics, Assumptions, Principles and Basis of Accounting......Page 33
Accounting Choices......Page 34
Timing of Revenue and Expense Recognition......Page 35
The Journey Through the Maze Continues......Page 36
APPENDIX 1A: Sage Inc......Page 37
Self-Test......Page 49
Study Questions and Problems......Page 52
Case 1.1 Intel Case......Page 53
Case 1.2 Applied Materials Comprehensive Analysis Case Using the Financial Statement Analysis Template......Page 54
Case 1.3 Mattel Inc......Page 55
Case 1.4 Biolase, Inc......Page 56
CHAPTER 2 The Balance Sheet......Page 64
Balance Sheet Date......Page 65
Common-Size Balance Sheet......Page 67
Current Assets......Page 68
Accounts Receivable......Page 70
Inventories......Page 73
Inventory Accounting Methods......Page 74
Property, Plant, and Equipment......Page 77
Accelerated......Page 78
Other Assets......Page 80
Accounts Payable......Page 81
Accrued Liabilities......Page 82
Unearned Revenue or Deferred Credits......Page 83
Deferred Federal Income Taxes......Page 84
Capital Lease Obligations......Page 87
Pensions and Postretirement Benefits......Page 88
Stockholders’ Equity......Page 89
Additional Paid-In Capital......Page 90
Other Equity Accounts......Page 91
Quality of Financial Reporting—The Balance Sheet......Page 92
Self-Test......Page 93
Study Questions and Problems......Page 98
Case 2.1 Intel Case......Page 103
Case 2.2 Applied Materials Comprehensive Analysis Case Using the Financial Statement Analysis Template......Page 104
Case 2.3 Walgreen Co. and Subsidiaries......Page 105
Case 2.4 Hydrogenics Corporation......Page 109
CHAPTER 3 Income Statement and Statement of Stockholders’ Equity......Page 120
The Income Statement......Page 121
Net Sales......Page 123
Gross Profit......Page 125
Operating Expense......Page 128
Other Income (Expense)......Page 131
Equity Earnings......Page 132
Earnings Before Income Taxes/Effective Tax Rate......Page 133
Special Items......Page 134
Comprehensive Income......Page 135
The Statement of Stockholders’ Equity......Page 137
Earnings Quality, Cash Flow, and Segmental Accounting......Page 138
APPENDIX 3A: A Guide to Earnings Quality......Page 140
Self-Test......Page 158
Study Questions and Problems......Page 162
Case 3.1 Intel Case......Page 165
Case 3.2 Applied Materials Comprehensive Analysis Case Using the Financial Statement Analysis Template......Page 166
Case 3.3 Logitech International S.A......Page 167
Case 3.4 Hydrogenics Corporation......Page 171
CHAPTER 4 Statement of Cash Flows......Page 178
Why Cash Flow is Important: An Example......Page 179
Statement of Cash Flows: Basic Principle......Page 180
Preparing a Statement of Cash Flows......Page 182
Indirect Method......Page 187
Cash Flow from Financing Activities......Page 190
Change in Cash......Page 191
Cash Flow from Operations......Page 192
Nocash Corporation......Page 193
Sage Inc. Analysis: Cash Flow from Operating Activities......Page 195
Summary Analysis of the Statement of Cash Flows......Page 196
Analysis of Cash Inflows......Page 197
Analysis of Cash Outflows......Page 198
Qualitative Issues Relating to the Statement of Cash Flows......Page 199
Are We There Yet?......Page 200
APPENDIX 4A: Statement of Cash Flows—Direct Method......Page 201
Self-Test......Page 205
Study Questions and Problems......Page 208
Case 4.1 Intel Case......Page 215
Case 4.2 Applied Materials Comprehensive Analysis Case Using the Financial Statement Analysis Template......Page 216
Case 4.3 Avnet Inc......Page 217
Case 4.4 Hydrogenics Corporation......Page 219
CHAPTER 5 The Analysis of Financial Statements......Page 221
Objectives of Analysis......Page 222
Auditor’s Report......Page 223
Other Sources......Page 224
Tools and Techniques......Page 226
Key Financial Ratios......Page 227
Liquidity Ratios: Short-Term Solvency......Page 228
Activity Ratios: Asset Liquidity, Asset Management Efficiency......Page 233
Leverage Ratios: Debt Financing and Coverage......Page 235
Profitability Ratios: Overall Efficiency and Performance......Page 238
Market Ratios......Page 240
Analyzing the Data......Page 242
Background: Economy, Industry, and Firm......Page 243
Short-Term Liquidity......Page 244
Capital Structure and Long-Term Solvency......Page 246
Profitability......Page 250
Relating the Ratios—The Du Pont System......Page 251
Summary of Analysis......Page 253
Financial Statements: A Map......Page 254
APPENDIX 5A: The Analysis of Segmental Data......Page 256
Self-Test......Page 261
Study Questions and Problems......Page 267
Case 5.1 Intel Case......Page 273
Case 5.2 Applied Materials Comprehensive Analysis Case Using the Financial Statement Analysis Template......Page 274
Case 5.3 Facebook, Inc......Page 275
Case 5.4 Hydrogenics Corporation......Page 285
A: Summary of Financial Ratios......Page 286
B: Solutions to Self-Tests......Page 289
A......Page 291
C......Page 292
D......Page 293
G......Page 294
M......Page 295
P......Page 296
S......Page 297
U......Page 298
W......Page 299
B......Page 300
E......Page 301
J......Page 302
P......Page 303
S......Page 304
Z......Page 305