Reading Financial Reports For Dummies
3rd Edition
Published on 18. December 2018
Book
Paperback/Softback
384 pages
978-1-119-54395-4 (ISBN)
Description
Reading Financial Reports For Dummies, 3rd Edition (9781119543954) was previously published as Reading Financial Reports For Dummies, 3rd Edition (9781118761939). While this version features a new Dummies cover and design, the content is the same as the prior release and should not be considered a new or updated product.
Discover how to decipher financial reports
Especially relevant in today's world of corporate scandals and new accounting laws, the numbers in a financial report contain vitally important information about where a company has been and where it is going.
Packed with new and updated information, Reading Financial Reports For Dummies, 3rd Edition gives you a quick but clear introduction to financial reports-and how to decipher the information in them.
New information on the separate accounting and financial reporting standards for private/small businesses versus public/large businesses
New content to match SEC and other governmental regulatory changes
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 current trends
Updated websites and resources
Reading Financial Reports For Dummies is for investors, traders, brokers, managers, and anyone else who is looking for a reliable, up-to-date guide to reading financial reports effectively.
Discover how to decipher financial reports
Especially relevant in today's world of corporate scandals and new accounting laws, the numbers in a financial report contain vitally important information about where a company has been and where it is going.
Packed with new and updated information, Reading Financial Reports For Dummies, 3rd Edition gives you a quick but clear introduction to financial reports-and how to decipher the information in them.
New information on the separate accounting and financial reporting standards for private/small businesses versus public/large businesses
New content to match SEC and other governmental regulatory changes
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 current trends
Updated websites and resources
Reading Financial Reports For Dummies is for investors, traders, brokers, managers, and anyone else who is looking for a reliable, up-to-date guide to reading financial reports effectively.
More details
Edition
3rd edition
Language
English
Place of publication
United States
Publishing group
John Wiley & Sons Inc
Dimensions
Height: 234 mm
Width: 188 mm
Thickness: 25 mm
Weight
522 gr
ISBN-13
978-1-119-54395-4 (9781119543954)
Copyright in bibliographic data and cover images is held by Nielsen Book Services Limited or by the publishers or by their respective licensors: all rights reserved.
Schweitzer Classification
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Lita Epstein
Reading Financial Reports For Dummies
Book
06/2022
4th Edition
Wiley
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Previous edition
Lita Epstein
Reading Financial Reports For Dummies
Book
02/2014
2nd Edition
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Person
Lita Epstein, MBA, helps people develop business and personal financial and investing skills. She designs and teaches online courses on bookkeeping, accounting, starting a business, and finance and investing for women. She is the author of more than 40 books, including Bookkeeping For Dummies, Stock Charts For Dummies, and Trading For Dummies.
Content
Introduction 1
About This Book 2
Conventions Used in This Book 2
What You're Not to Read 2
Foolish Assumptions 3
Icons Used in This Book 3
Beyond the Book 4
Where to Go from Here 4
Part 1: Getting Started with Reading Financial Reports 5
Chapter 1: Opening the Cornucopia of Reports 7
Figuring Out Financial Reporting 8
Preparing the reports 8
Seeing why financial reporting counts (and who's counting) 9
Checking Out Types of Reporting 10
Keeping everyone informed 11
Following the rules: Government requirements 12
Going global 13
Staying within the walls of the company: Internal reporting 13
Dissecting the Annual Report to Shareholders 15
Breaking down the parts 15
Getting to the meat of the matter 16
Keeping the number crunchers in line 17
Chapter 2: Recognizing Business Types and Their Tax Rules 19
Flying Solo: Sole Proprietorships 20
Keeping taxes personal 20
Reviewing requirements for reporting 21
Joining Forces: Partnerships 21
Partnering up on taxes 22
Meeting reporting requirements 22
Seeking Protection with Limited Liability Companies 22
Taking stock of taxes 23
Reviewing reporting requirements 23
Shielding Your Assets: S and C Corporations 23
Paying taxes the corporate way 24
Getting familiar with reporting requirements 26
Chapter 3: Public or Private: How Company Structure Affects the Books 27
Investigating Private Companies 28
Checking out the benefits 29
Defining disadvantages 30
Figuring out reporting 31
Understanding Public Companies 32
Examining the perks 33
Looking at the negative side 34
Filing and more filing: Government and shareholder reports 35
Entering a Whole New World: How a Company Goes from Private to Public 38
Teaming up with an investment banker 38
Making a public offering 39
Chapter 4: Digging into Accounting Basics 41
Making Sense of Accounting Methods 41
Cash-basis accounting 42
Accrual accounting 42
Why method matters 42
Understanding Debits and Credits 44
Double-entry accounting 45
Profit and loss statements 45
The effect of debits and credits on sales 46
Depreciation and amortization 47
Checking Out the Chart of Accounts 48
Asset accounts 49
Liability accounts 52
Equity accounts 52
Revenue accounts 53
Expense accounts 54
Differentiating Profit Types 55
Gross profit 55
Operating profit 56
Net profit 56
Part 2: Checking Out the Big Show: Annual Reports 57
Chapter 5: Exploring the Anatomy of an Annual Report 59
Everything but the Numbers 60
Debunking the letter to shareholders 60
Making sense of the corporate message 61
Meeting the people in charge 62
Finding basic shareholder information 62
Getting the skinny from management 62
Management as a whole? 65
Getting guarantees from management 66
Bringing the auditors' answers to light 67
Presenting the Financial Picture 70
Summarizing the Financial Data 70
Finding the highlights 71
Reading the notes 71
Chapter 6: Balancing Assets against Liabilities and Equity 73
Understanding the Balance Equation 73
Introducing the Balance Sheet 74
Digging into dates 74
Nailing down the numbers 76
Figuring out format 76
Ogling Assets 78
Current assets 78
Long-term assets 81
Accumulated depreciation 84
Looking at Liabilities 85
Current liabilities 85
Long-term liabilities 86
Navigating the Equity Maze 87
Stock 87
Retained earnings 88
Capital 88
Drawing 88
Chapter 7: Using the Income Statement 89
Introducing the Income Statement 90
Digging into dates 91
Figuring out format 91
Delving into the Tricky Business of Revenues 94
Defining revenue 94
Adjusting sales 95
Considering cost of goods sold 97
Gauging gross profit 98
Acknowledging Expenses 99
Sorting Out the Profit and Loss Types 101
EBITDA 101
Nonoperating income or expense 102
Net profit or loss 103
Calculating Earnings per Share 103
Chapter 8: The Statement of Cash Flows 105
Digging into the Statement of Cash Flows 106
The parts 106
The formats 107
Checking Out Operating Activities 109
Depreciation 110
Inventory 110
Accounts receivable 110
Accounts payable 111
The cash flow from activities section, summed up 111
Investigating Investing Activities 112
Understanding Financing Activities 113
Issuing stock 113
Buying back stock 114
Paying dividends 114
Incurring new debt 115
Paying off debt 115
Recognizing the Special Line Items 116
Discontinued operations 116
Foreign currency exchange 116
Adding It All Up 117
Chapter 9: Scouring the Notes to the Financial Statements 119
Deciphering the Small Print 120
Accounting Policies Note: Laying out the Rules of the Road 121
Depreciation 122
Revenue 122
Expenses 123
Figuring out Financial Borrowings and Other Commitments 124
Long-term obligations 124
Short-term debt 125
Lease obligations 126
Mergers and Acquisitions: Finding Noteworthy Information 127
Pondering Pension and Retirement Benefits 128
Breaking Down Business Breakdowns 130
Reviewing Significant Events 132
Finding the Red Flags 133
Finding out about valuing assets and liabilities 134
Considering changes in accounting policies 134
Decoding obligations to retirees and future retirees 135
Chapter 10: Considering Consolidated Financial Statements 137
Getting a Grip on Consolidation 137
Looking at Methods of Buying up Companies 142
Reading Consolidated Financial Statements 144
Looking to the Notes 146
Mergers and acquisitions 147
Goodwill 147
Liquidations or discontinued operations 148
Part 3: Analyzing the Numbers 149
Chapter 11: Testing the Profits and Market Value 151
The Price/Earnings Ratio 152
Figuring out earnings per share 152
Calculating the P/E ratio 153
Practicing the P/E ratio calculation 154
Using the P/E ratio to judge company market value (stock price) 155
Understanding variation among ratios 157
The Dividend Payout Ratio 158
Determining dividend payout 158
Digging into companies' profits with dividends 159
Return on Sales 161
Figuring out ROS 161
Reaching the truth about profits with ROS 162
Return on Assets 162
Doing some dividing to get ROA 163
Ranking companies with the help of ROA 163
Return on Equity 163
Calculating ROE 164
Reacting to companies with ROEs assistance 164
The Big Three: Margins 165
Dissecting gross margin 165
Investigating operating margin 166
Catching the leftover money: Net profit margin 167
Chapter 12: Looking at Liquidity 169
Finding the Current Ratio 170
Calculating the current ratio 170
What do the numbers mean? 171
Determining the Quick Ratio 171
Calculating the quick ratio 171
What do the numbers mean? 172
Investigating the Interest Coverage Ratio 173
Calculating the interest coverage ratio 173
What do the numbers mean? 174
Comparing Debt to Shareholders' Equity 174
Calculating debt to shareholders' equity 175
What do the numbers mean? 176
Determining Debt-to-Capital Ratio 176
Calculating the debt-to-capital ratio 176
What do the numbers mean? 178
Chapter 13: Making Sure the Company Has Cash to Carry On 179
Measuring Income Success 180
Calculating free cash flow 180
Figuring out cash return on sales ratio 182
Checking Out Debt 183
Determining current cash debt coverage ratio 184
Computing cash debt coverage ratio 186
Calculating Cash Flow Coverage 188
Finding out the cash flow coverage ratio 188
Mattel 189
Hasbro 190
What do the numbers mean? 190
Part 4: Understanding How Companies Optimize Operations 191
Chapter 14: How Reports Help with Basic Budgeting 193
Peering into the Budgeting Process 194
Understanding who does what 194
Setting goals 195
Building Budgets 197
Providing Monthly Budget Reports 199
Using Internal Reports 201
Chapter 15: Turning Up Clues in Turnover and Assets 203
Exploring Inventory Valuation Methods 203
Applying Three Inventory Valuation Methods 206
Average costing 207
FIFO 208
LIFO 208
How to compare inventory methods and financial statements 209
Determining Inventory Turnover 209
Calculating inventory turnover 210
What do the numbers mean? 211
Investigating Fixed Assets Turnover 212
Calculating fixed assets turnover 212
What do the numbers mean? 213
Tracking Total Asset Turnover 213
Calculating total asset turnover 213
What do the numbers mean? 214
Chapter 16: Examining Cash Inflow and Outflow 215
Assessing Accounts Receivable Turnover 215
Calculating accounts receivable turnover 216
What do the numbers mean? 217
Taking a Close Look at Customer Accounts 218
Finding the Accounts Payable Ratio 219
Calculating the ratio 220
What do the numbers mean? 221
Determining the Number of Days in Accounts Payable 221
Calculating the ratio 221
What do the numbers mean? 222
Deciding Whether Discount Offers Make Good Financial Sense 222
Calculating the annual interest rate 223
What do the numbers mean? 224
Chapter 17: How Companies Keep the Cash Flowing 225
Slowing Bill Payments 225
Speeding Up Collecting Accounts Receivables 226
Borrowing on Receivables 228
Reducing Inventory 229
Getting Cash More Quickly 230
Part 5: The Many Ways Companies Answer to Others 233
Chapter 18: Finding Out How Companies Find Errors: The Auditing Process 235
Inspecting Audits and Auditors 236
Looking for mistakes 236
Meeting Mr or Ms Auditor 236
Examining Records: The Role of the Auditor 237
Preliminary review 238
Fieldwork 238
Audit report 240
Filling the GAAP 240
Accounting standards: Four important qualities 240
Changing principles: More work for the FASB 241
Chapter 19: Digging into Government Regulations 245
Checking Out the 10-Q 246
Financial information 246
Other critical matters 247
Introducing the 10-K 248
Business operations 248
Financial data 248
Information about directors and executives 249
The extras 250
Investigating Internal Controls 250
Uncovering the Ways Companies Keep in Compliance 251
Digging into Board Operations 254
Understanding the nominating process 254
Contacting board members 255
Finding Out about Insider Ownership 255
Chapter 20: Creating a Global Financial Reporting Standard 257
Why Develop a Worldwide Financial Standard? 258
Key Moves to Reshape Global Financial Reporting 258
Who Benefits from a Global Standard and How? 259
Investors 260
Capital Markets 260
Companies 260
Key Differences between GAAP and the IFRS 261
Accounting framework 261
Financial statements 262
Revenue recognition 263
Assets 264
Inventory 264
Related-party transactions disclosures 265
Discontinued operations 265
Impairment charges 266
Chapter 21: Checking Out the Analyst-Corporation Connection 267
Typecasting the Analysts 268
Buy-side analysts 268
Sell-side analysts 269
Independent analysts 272
Bond analysts 272
Regarding Bond-Rating Agencies 273
Delving into Stock Rating 275
Taking a Look at How Companies Talk to Analysts 276
Analyst calls 276
Press releases 277
Mobile apps 278
Road shows 278
Chapter 22: How Companies Communicate with Shareholders 279
Making the Most of Meetings 280
Checking Out How the Board Runs the Company 281
Watching the directors 281
Speaking out at meetings 283
Moving away from duking it out 284
Sorting through Reports 284
Catching Up on Corporate Actions 285
Culling Information from Analyst Calls 287
Listening between the lines 288
Knowing when to expect analyst calls 291
Staying Up-to-Date Using Company Websites 291
Regarding Reinvestment Plans 292
Dividend reinvestment plans 292
Direct stock purchase plans 292
Chapter 23: Keeping Score When Companies Play Games with Numbers 293
Getting to the Bottom of Creative Accounting 294
Defining the scope of the problem 294
Seeing through cooked books 295
Unearthing the Games Played with Earnings 297
Reading between the revenue lines 297
Detecting creative revenue accounting 301
Exploring Exploitations of Expenses 304
Advertising expenses 305
Research and development costs 305
Patents and licenses 305
Asset impairment 306
Restructuring charges 307
Finding Funny Business in Assets and Liabilities 308
Recognizing overstated assets 308
Looking for undervalued liabilities 310
Playing Detective with Cash Flow 313
Discontinued operations 313
Income taxes paid 314
Part 6: The Part of Tens 315
Chapter 24: Ten (+1) Financial Scandals That Rocked the World 317
Enron 318
Madoff 319
Citigroup 319
Adelphia 320
WorldCom/MCI 320
Sunbeam 321
Tyco 322
Waste Management 322
Bristol-Meyers Squibb 323
Halliburton 324
Arthur Andersen 325
Chapter 25: Ten Signs That a Company's in Trouble 327
Lower Liquidity 327
Low Cash Flow 328
Disappearing Profit Margins 328
Revenue Game Playing 329
Too Much Debt 330
Unrealistic Values for Assets and Liabilities 330
A Change in Accounting Methods 330
Questionable Mergers and Acquisitions 331
Slow Inventory Turnover 331
Slow-Paying Customers 332
Appendix: Glossary 333
Index 341
About This Book 2
Conventions Used in This Book 2
What You're Not to Read 2
Foolish Assumptions 3
Icons Used in This Book 3
Beyond the Book 4
Where to Go from Here 4
Part 1: Getting Started with Reading Financial Reports 5
Chapter 1: Opening the Cornucopia of Reports 7
Figuring Out Financial Reporting 8
Preparing the reports 8
Seeing why financial reporting counts (and who's counting) 9
Checking Out Types of Reporting 10
Keeping everyone informed 11
Following the rules: Government requirements 12
Going global 13
Staying within the walls of the company: Internal reporting 13
Dissecting the Annual Report to Shareholders 15
Breaking down the parts 15
Getting to the meat of the matter 16
Keeping the number crunchers in line 17
Chapter 2: Recognizing Business Types and Their Tax Rules 19
Flying Solo: Sole Proprietorships 20
Keeping taxes personal 20
Reviewing requirements for reporting 21
Joining Forces: Partnerships 21
Partnering up on taxes 22
Meeting reporting requirements 22
Seeking Protection with Limited Liability Companies 22
Taking stock of taxes 23
Reviewing reporting requirements 23
Shielding Your Assets: S and C Corporations 23
Paying taxes the corporate way 24
Getting familiar with reporting requirements 26
Chapter 3: Public or Private: How Company Structure Affects the Books 27
Investigating Private Companies 28
Checking out the benefits 29
Defining disadvantages 30
Figuring out reporting 31
Understanding Public Companies 32
Examining the perks 33
Looking at the negative side 34
Filing and more filing: Government and shareholder reports 35
Entering a Whole New World: How a Company Goes from Private to Public 38
Teaming up with an investment banker 38
Making a public offering 39
Chapter 4: Digging into Accounting Basics 41
Making Sense of Accounting Methods 41
Cash-basis accounting 42
Accrual accounting 42
Why method matters 42
Understanding Debits and Credits 44
Double-entry accounting 45
Profit and loss statements 45
The effect of debits and credits on sales 46
Depreciation and amortization 47
Checking Out the Chart of Accounts 48
Asset accounts 49
Liability accounts 52
Equity accounts 52
Revenue accounts 53
Expense accounts 54
Differentiating Profit Types 55
Gross profit 55
Operating profit 56
Net profit 56
Part 2: Checking Out the Big Show: Annual Reports 57
Chapter 5: Exploring the Anatomy of an Annual Report 59
Everything but the Numbers 60
Debunking the letter to shareholders 60
Making sense of the corporate message 61
Meeting the people in charge 62
Finding basic shareholder information 62
Getting the skinny from management 62
Management as a whole? 65
Getting guarantees from management 66
Bringing the auditors' answers to light 67
Presenting the Financial Picture 70
Summarizing the Financial Data 70
Finding the highlights 71
Reading the notes 71
Chapter 6: Balancing Assets against Liabilities and Equity 73
Understanding the Balance Equation 73
Introducing the Balance Sheet 74
Digging into dates 74
Nailing down the numbers 76
Figuring out format 76
Ogling Assets 78
Current assets 78
Long-term assets 81
Accumulated depreciation 84
Looking at Liabilities 85
Current liabilities 85
Long-term liabilities 86
Navigating the Equity Maze 87
Stock 87
Retained earnings 88
Capital 88
Drawing 88
Chapter 7: Using the Income Statement 89
Introducing the Income Statement 90
Digging into dates 91
Figuring out format 91
Delving into the Tricky Business of Revenues 94
Defining revenue 94
Adjusting sales 95
Considering cost of goods sold 97
Gauging gross profit 98
Acknowledging Expenses 99
Sorting Out the Profit and Loss Types 101
EBITDA 101
Nonoperating income or expense 102
Net profit or loss 103
Calculating Earnings per Share 103
Chapter 8: The Statement of Cash Flows 105
Digging into the Statement of Cash Flows 106
The parts 106
The formats 107
Checking Out Operating Activities 109
Depreciation 110
Inventory 110
Accounts receivable 110
Accounts payable 111
The cash flow from activities section, summed up 111
Investigating Investing Activities 112
Understanding Financing Activities 113
Issuing stock 113
Buying back stock 114
Paying dividends 114
Incurring new debt 115
Paying off debt 115
Recognizing the Special Line Items 116
Discontinued operations 116
Foreign currency exchange 116
Adding It All Up 117
Chapter 9: Scouring the Notes to the Financial Statements 119
Deciphering the Small Print 120
Accounting Policies Note: Laying out the Rules of the Road 121
Depreciation 122
Revenue 122
Expenses 123
Figuring out Financial Borrowings and Other Commitments 124
Long-term obligations 124
Short-term debt 125
Lease obligations 126
Mergers and Acquisitions: Finding Noteworthy Information 127
Pondering Pension and Retirement Benefits 128
Breaking Down Business Breakdowns 130
Reviewing Significant Events 132
Finding the Red Flags 133
Finding out about valuing assets and liabilities 134
Considering changes in accounting policies 134
Decoding obligations to retirees and future retirees 135
Chapter 10: Considering Consolidated Financial Statements 137
Getting a Grip on Consolidation 137
Looking at Methods of Buying up Companies 142
Reading Consolidated Financial Statements 144
Looking to the Notes 146
Mergers and acquisitions 147
Goodwill 147
Liquidations or discontinued operations 148
Part 3: Analyzing the Numbers 149
Chapter 11: Testing the Profits and Market Value 151
The Price/Earnings Ratio 152
Figuring out earnings per share 152
Calculating the P/E ratio 153
Practicing the P/E ratio calculation 154
Using the P/E ratio to judge company market value (stock price) 155
Understanding variation among ratios 157
The Dividend Payout Ratio 158
Determining dividend payout 158
Digging into companies' profits with dividends 159
Return on Sales 161
Figuring out ROS 161
Reaching the truth about profits with ROS 162
Return on Assets 162
Doing some dividing to get ROA 163
Ranking companies with the help of ROA 163
Return on Equity 163
Calculating ROE 164
Reacting to companies with ROEs assistance 164
The Big Three: Margins 165
Dissecting gross margin 165
Investigating operating margin 166
Catching the leftover money: Net profit margin 167
Chapter 12: Looking at Liquidity 169
Finding the Current Ratio 170
Calculating the current ratio 170
What do the numbers mean? 171
Determining the Quick Ratio 171
Calculating the quick ratio 171
What do the numbers mean? 172
Investigating the Interest Coverage Ratio 173
Calculating the interest coverage ratio 173
What do the numbers mean? 174
Comparing Debt to Shareholders' Equity 174
Calculating debt to shareholders' equity 175
What do the numbers mean? 176
Determining Debt-to-Capital Ratio 176
Calculating the debt-to-capital ratio 176
What do the numbers mean? 178
Chapter 13: Making Sure the Company Has Cash to Carry On 179
Measuring Income Success 180
Calculating free cash flow 180
Figuring out cash return on sales ratio 182
Checking Out Debt 183
Determining current cash debt coverage ratio 184
Computing cash debt coverage ratio 186
Calculating Cash Flow Coverage 188
Finding out the cash flow coverage ratio 188
Mattel 189
Hasbro 190
What do the numbers mean? 190
Part 4: Understanding How Companies Optimize Operations 191
Chapter 14: How Reports Help with Basic Budgeting 193
Peering into the Budgeting Process 194
Understanding who does what 194
Setting goals 195
Building Budgets 197
Providing Monthly Budget Reports 199
Using Internal Reports 201
Chapter 15: Turning Up Clues in Turnover and Assets 203
Exploring Inventory Valuation Methods 203
Applying Three Inventory Valuation Methods 206
Average costing 207
FIFO 208
LIFO 208
How to compare inventory methods and financial statements 209
Determining Inventory Turnover 209
Calculating inventory turnover 210
What do the numbers mean? 211
Investigating Fixed Assets Turnover 212
Calculating fixed assets turnover 212
What do the numbers mean? 213
Tracking Total Asset Turnover 213
Calculating total asset turnover 213
What do the numbers mean? 214
Chapter 16: Examining Cash Inflow and Outflow 215
Assessing Accounts Receivable Turnover 215
Calculating accounts receivable turnover 216
What do the numbers mean? 217
Taking a Close Look at Customer Accounts 218
Finding the Accounts Payable Ratio 219
Calculating the ratio 220
What do the numbers mean? 221
Determining the Number of Days in Accounts Payable 221
Calculating the ratio 221
What do the numbers mean? 222
Deciding Whether Discount Offers Make Good Financial Sense 222
Calculating the annual interest rate 223
What do the numbers mean? 224
Chapter 17: How Companies Keep the Cash Flowing 225
Slowing Bill Payments 225
Speeding Up Collecting Accounts Receivables 226
Borrowing on Receivables 228
Reducing Inventory 229
Getting Cash More Quickly 230
Part 5: The Many Ways Companies Answer to Others 233
Chapter 18: Finding Out How Companies Find Errors: The Auditing Process 235
Inspecting Audits and Auditors 236
Looking for mistakes 236
Meeting Mr or Ms Auditor 236
Examining Records: The Role of the Auditor 237
Preliminary review 238
Fieldwork 238
Audit report 240
Filling the GAAP 240
Accounting standards: Four important qualities 240
Changing principles: More work for the FASB 241
Chapter 19: Digging into Government Regulations 245
Checking Out the 10-Q 246
Financial information 246
Other critical matters 247
Introducing the 10-K 248
Business operations 248
Financial data 248
Information about directors and executives 249
The extras 250
Investigating Internal Controls 250
Uncovering the Ways Companies Keep in Compliance 251
Digging into Board Operations 254
Understanding the nominating process 254
Contacting board members 255
Finding Out about Insider Ownership 255
Chapter 20: Creating a Global Financial Reporting Standard 257
Why Develop a Worldwide Financial Standard? 258
Key Moves to Reshape Global Financial Reporting 258
Who Benefits from a Global Standard and How? 259
Investors 260
Capital Markets 260
Companies 260
Key Differences between GAAP and the IFRS 261
Accounting framework 261
Financial statements 262
Revenue recognition 263
Assets 264
Inventory 264
Related-party transactions disclosures 265
Discontinued operations 265
Impairment charges 266
Chapter 21: Checking Out the Analyst-Corporation Connection 267
Typecasting the Analysts 268
Buy-side analysts 268
Sell-side analysts 269
Independent analysts 272
Bond analysts 272
Regarding Bond-Rating Agencies 273
Delving into Stock Rating 275
Taking a Look at How Companies Talk to Analysts 276
Analyst calls 276
Press releases 277
Mobile apps 278
Road shows 278
Chapter 22: How Companies Communicate with Shareholders 279
Making the Most of Meetings 280
Checking Out How the Board Runs the Company 281
Watching the directors 281
Speaking out at meetings 283
Moving away from duking it out 284
Sorting through Reports 284
Catching Up on Corporate Actions 285
Culling Information from Analyst Calls 287
Listening between the lines 288
Knowing when to expect analyst calls 291
Staying Up-to-Date Using Company Websites 291
Regarding Reinvestment Plans 292
Dividend reinvestment plans 292
Direct stock purchase plans 292
Chapter 23: Keeping Score When Companies Play Games with Numbers 293
Getting to the Bottom of Creative Accounting 294
Defining the scope of the problem 294
Seeing through cooked books 295
Unearthing the Games Played with Earnings 297
Reading between the revenue lines 297
Detecting creative revenue accounting 301
Exploring Exploitations of Expenses 304
Advertising expenses 305
Research and development costs 305
Patents and licenses 305
Asset impairment 306
Restructuring charges 307
Finding Funny Business in Assets and Liabilities 308
Recognizing overstated assets 308
Looking for undervalued liabilities 310
Playing Detective with Cash Flow 313
Discontinued operations 313
Income taxes paid 314
Part 6: The Part of Tens 315
Chapter 24: Ten (+1) Financial Scandals That Rocked the World 317
Enron 318
Madoff 319
Citigroup 319
Adelphia 320
WorldCom/MCI 320
Sunbeam 321
Tyco 322
Waste Management 322
Bristol-Meyers Squibb 323
Halliburton 324
Arthur Andersen 325
Chapter 25: Ten Signs That a Company's in Trouble 327
Lower Liquidity 327
Low Cash Flow 328
Disappearing Profit Margins 328
Revenue Game Playing 329
Too Much Debt 330
Unrealistic Values for Assets and Liabilities 330
A Change in Accounting Methods 330
Questionable Mergers and Acquisitions 331
Slow Inventory Turnover 331
Slow-Paying Customers 332
Appendix: Glossary 333
Index 341