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The Manager's Pocket Calculator: A Quick Guide to Essential Business Formulas and Ratios

by
ISBN13:

9780814416358

ISBN10:
0814416357
Format:
Paperback
Pub. Date:
10/6/2010
Publisher(s):
Amacom Books

Summary

Your success or failure is reflected in one number: the bottom line. So you'd better get a handle on the numbers that influence it. The Manager's Pocket Calculator gives you the essentials of budgeting and forecasting, financial analysis, reporting, interest and rate-of-return calculation, statistics, and more. Not just an overview, the book contains more than 100 formulas and ratios with numerical examples, spreadsheet entries, and step-by-step calculations. The Manager's Pocket Calculator trains you in the application of mission-critical business fundamentals, better preparing you to: prepare and justify budgets; excel in planning meetings concerning financial performance; create reports and presentations demonstrating financial outcomes; communicate with internal and external accounting, auditing and other financial entities. An indispensible, everyday business tool, The Manager's Pocket Calculator makes you more than a manager. It makes you a powerful architect of your organization's financial stability.

Author Biography

MICHAEL C. THOMSETT is the author of several books including The Little Black Book of Project Management, The Real Estate Investor’s Pocket Calculator, The Stock Investor’s Pocket Calculator, and Getting Started in Options. He is a former accounting and financial services professional and consultant.

Table of Contents

Introduction: The Basic Problem with Numbersp. ix
Compound Interest: The Power of Moneyp. 1
Time Value of Money: The Conceptp. 2
Accumulated Value of a Series of Depositsp. 19
Looking Aheadp. 22
Present Value and Sinking Fundsp. 23
Present Value of a Single Depositp. 24
Sinking Fund Payments and Present Value per Periodp. 27
Loan Amortizationp. 31
Reading Loan Amortization Tablesp. 38
Annual Percentage Ratep. 44
Looking Aheadp. 45
Rates of Returnp. 46
Return on Revenue and Equityp. 46
Cash Return and Cash Flowp. 53
Returns on Purchases and Salesp. 58
Investment-Based Returnsp. 61
Annualized Returnp. 65
Looking Aheadp. 67
Calculating Breakeven and After-Tax Profitp. 68
Hidden Costsp. 68
The Inflation Effectp. 73
Taxes in the Profitability Equationp. 76
Breakeven Calculations: Inflation and Taxesp. 79
Calculating Cash Flowp. 83
Looking Aheadp. 86
Financial Reporting Formulas: The Balance Sheetp. 87
Balance Sheet Basicsp. 87
Working Capital Ratiosp. 91
Ratios Showing Management of Working Capitalp. 94
Capitalization Ratiosp. 99
Combined Ratiosp. 105
Looking Aheadp. 108
Financial Reporting Formulas: The Income Statementp. 109
Income Statement Basicsp. 111
Dollar and Percentage Reportingp. 115
Cost of Goods Sold Relationshipsp. 121
Revenue and Profitability Trendsp. 125
Core Earningsp. 127
Looking Aheadp. 128
Depreciation Calculationsp. 130
Basic Depreciation Rulesp. 131
Straight-Line and Declining Balance Depreciationp. 132
Class Lives and Recovery Periodsp. 136
Depreciation Calculations for Real Estatep. 140
Home Office Depreciationp. 145
Amortizationp. 147
Looking Aheadp. 149
Bringing Reports to Life: Powerful Arguments with the Numbersp. 150
Picking Your Report Formatp. 151
Narrative Sectionsp. 153
Financial Sectionsp. 158
Combining Narrative and Financial Contentp. 161
Graphics in Reportsp. 164
Looking Aheadp. 166
Budgeting Calculations: Assumptions and Prorationsp. 168
Documenting Your Assumptionsp. 169
Addressing the Expense Issuesp. 172
Prorating Expense Estimatesp. 175
Calculating Variancesp. 177
Revising Budgetsp. 180
The Nature of Revenue Forecastsp. 182
Looking Aheadp. 185
Statics for Effective Reportingp. 186
Management Application of Statisticsp. 186
Statistical Averagesp. 190
Dispersion, Variance, and Deviationp. 196
Accuracy in Statisticsp. 202
Looking Aheadp. 206
Incredible Math Shortcutsp. 207
Addition Shortcutsp. 207
Subtraction Shortcutsp. 211
Logical Rulesp. 214
Multiplication Shortcutsp. 216
Division Shortcutsp. 225
Looking Aheadp. 226
Incredible Conversion, Measurement, and Time Shortcutsp. 227
Conversionp. 227
Measurementsp. 236
Time Shortcutsp. 241
Appendix: Summary of Formulasp. 245
Indexp. 269
Table of Contents provided by Ingram. All Rights Reserved.

Excerpts

<html><head></head><body><p style="margin-top: 0">I N T R O D U C T I O N </p><p style="margin-top: 0"></p><p style="margin-top: 0">The Basic Problem with </p><p style="margin-top: 0">Numbers </p><p style="margin-top: 0"></p><p style="margin-top: 0">It&#8217;s all in the numbers. Everyone has heard this statement and it is </p><p style="margin-top: 0">true. Your performance is invariably judged by how much profit you </p><p style="margin-top: 0">create or by how much cost you incur in your segment, team, or </p><p style="margin-top: 0">department. The so-called bottom line&#8212;profit or loss&#8212;is the universal </p><p style="margin-top: 0">means for monitoring performance and for determining whether an initiative </p><p style="margin-top: 0">was worthwhile. </p><p style="margin-top: 0"></p><p style="margin-top: 0">With the dominance of the bottom line in every aspect of how your </p><p style="margin-top: 0">performance is graded, you have a distinct advantage if you are skilled </p><p style="margin-top: 0">at conveying information in terms of profitability. Conversely, you are at </p><p style="margin-top: 0">a distinct disadvantage if you cannot communicate the profit or loss </p><p style="margin-top: 0">aspects of your work to management. On a most basic level, just asking </p><p style="margin-top: 0">management for something is less effective than demonstrating how an </p><p style="margin-top: 0">approval is going to create additional profits or cut costs (related directly </p><p style="margin-top: 0">to revenues) and expenses (overhead, not related directly to revenues). </p><p style="margin-top: 0">This is the rudimentary distinction between managers with communication </p><p style="margin-top: 0">skills and those who struggle every day trying to find the best way </p><p style="margin-top: 0">to communicate what they know and what they have achieved. </p><p style="margin-top: 0"></p><p style="margin-top: 0">If you do not have background and education in finance, you probably </p><p style="margin-top: 0">struggle with these issues on a daily basis. Even those with training </p><p style="margin-top: 0">in accounting may find it difficult to summarize their requests in plain, </p><p style="margin-top: 0">simple, and clear terms for management. No one is immune from the </p><p style="margin-top: 0">difficulty in matching numerical information with a request or recommendation. </p><p style="margin-top: 0"></p><p style="margin-top: 0">For some, even if the numerical aspects of the job are comfortable, </p><p style="margin-top: 0">conveying their significance to management can be very </p><p style="margin-top: 0">difficult. For others, even those with exceptional communication skills, </p><p style="margin-top: 0">reducing the numbers (&#8216;&#8216;crunching&#8217;&#8217;) to the basics is the real challenge. </p><p style="margin-top: 0"></p><p style="margin-top: 0">Your purpose in making effective use of numerical information is to </p><p style="margin-top: 0">convey the essential data that management needs to make an informed </p><p style="margin-top: 0">decision&#8212;and to make your case convincingly. Faced with an unending </p><p style="margin-top: 0">array of choices, management&#8217;s desire is to make choices that are not </p><p style="margin-top: 0">only the most profitable but that also involve the least risk. It is not </p><p style="margin-top: 0">enough to demonstrate that a decision is likely to be profitable if it also </p><p style="margin-top: 0">incurs unacceptable risks: potential liability, supply chain losses, reduced </p><p style="margin-top: 0">customer satisfaction, or damage to brand and reputation. When an </p><p style="margin-top: 0">esteemed company like Mattel contracted for its manufacturing in China </p><p style="margin-top: 0">but failed to properly supervise quality control, toys were sold in the </p><p style="margin-top: 0">United States containing harmful lead. The product cost aspects of this </p><p style="margin-top: 0">mistake were easily rectified. However, the reputation to the company, </p><p style="margin-top: 0">while less tangible, is likely to affect profits at an unknown level and for </p><p style="margin-top: 0">an unknown period of time. So the analysis of risk involves both tangible </p><p style="margin-top: 0">and intangible considerations, making it difficult to know how much risk </p><p style="margin-top: 0">is really involved in creating x profits as the result of y decisions. </p><p style="margin-top: 0"></p><p style="margin-top: 0">What this means for you is that any communication is going to be </p><p style="margin-top: 0">based on an evaluation of profit and loss, many forms of risk, and the </p><p style="margin-top: 0">time required for return on investment, just to name a few considerations. </p><p style="margin-top: 0">How do you communicate the relevant facts to management? </p><p style="margin-top: 0">How do you reduce the research to well-supported recommendations or </p><p style="margin-top: 0">to caution statements? These are only a few of the issues you face in </p><p style="margin-top: 0">managing information and in massaging it to create an effective, simple, </p><p style="margin-top: 0">and honest method of communication. </p></body></html>


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