Financial Reporting and Analysis : Using Financial Accounting Information

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  • Edition: 9th
  • Format: Nonspecific Binding
  • Copyright: 2003-07-15
  • Publisher: ITP (Manual)
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The ninth edition thoroughly involves students with financial statements by using real-world examples. It builds skills in analyzing real financial reports through statements, exhibits, and cases of actual companies. Emphasis is placed on the analysis and interpretation of the end result of financial reporting--financial statements.

Table of Contents

Introduction to Financial Reportingp. 1
Development of Generally Accepted Accounting Principles (GAAP)p. 2
American Institute of Certified Public Accountants (AICPA)
Financial Accounting Standards Board (FASB)
Operating Procedure for Statements of Financial Accounting Standards (SFAS)
FASB Conceptual Framework
Additional Input--American Institute of Certified Public Accountants (AICPA)p. 8
Emerging Issues Task Force (EITF)p. 9
Traditional Assumptions of the Accounting Modelp. 9
Business Entity
Going Concern or Continuity
Time Period
Monetary Unit
Historical Cost
Full Disclosure
Industry Practices
Transaction Approach
Cash Basis
Accrual Basis
Using the Internetp. 17
Companies' Internet Web Sites
Helpful Web Sites
Summaryp. 19
Questionsp. 19
To the Netp. 22
Problemsp. 22
Standards Overload?p. 27
Standard Setting: "A Political Aspect"p. 28
Standard Setting: "By the Way of the United States Congress"p. 31
Recognizing Revenue and Related Costs--Consider These Situations (Part I)p. 31
Recognizing Revenue and Related Costs--Consider These Situations (Part II)p. 33
Cash Basis--Accrual Basis?p. 34
Going Concern?p. 34
Economics and Accounting: The Uncongenial Twinsp. 35
I Often Paint Fakesp. 36
Introduction to Financial Statements and Other Financial Reporting Topicsp. 37
Forms of Business Entitiesp. 38
The Financial Statementsp. 38
Balance Sheet (Statement of Financial Position)
Statement of Stockholders' Equity (Reconciliation of Stockholders' Equity Accounts)
Income Statement (Statement of Earnings)
Statement of Cash Flows (Statement of Inflows and Outflows of Cash)
Footnotes (Notes)
The Accounting Cyclep. 42
Recording Transactions
Recording Adjusting Entries
Preparing the Financial Statements
Auditor's Reportp. 44
Management's Responsibility for Financial Statements
The SEC's Integrated Disclosure System
Summary Annual Reportp. 50
The Efficient Market Hypothesisp. 50
Ethicsp. 50
Harmonization of International Accounting Standardsp. 52
Consolidated Statementsp. 54
Accounting for Business Combinationsp. 54
Summaryp. 55
Questionsp. 56
To the Netp. 57
Problemsp. 58
The CEO Retiresp. 63
The Dangerous Morality of Managing Earningsp. 65
Frequent-Flier Awards--Tick-Tick, Tick-Tick, Tick-Tickp. 71
International Accounting--Harmonization in Practicep. 71
Materiality: In Practicep. 72
Who is Responsible?p. 73
Safe Harborp. 74
Balance Sheetp. 77
Basic Elements Of The Balance Sheetp. 78
Stockholders' Equity
Accumulated Other Comprehensive Income
Equity-Oriented Deferred Compensation
Employee Stock Ownership Plans (ESOPs)
Treasury Stock
Stockholders' Equity in Unincorporated Firms
Statement of Stockholders' Equityp. 107
Problems in Balance Sheet Presentationp. 108
Summaryp. 108
Questionsp. 108
To the Netp. 110
Problemsp. 111
Balance Sheet Reviewp. 117
Insight on Liabilities and Shareholders' Equityp. 121
Insight on Shareholders' Investmentp. 122
Insight on Assetsp. 123
Our Principal Asset Is Our Peoplep. 125
Brands Are Dead?p. 126
Advertising--Asset?p. 126
Income Statementp. 127
Basic Elements of the Income Statementp. 128
Net Sales (Revenues)
Cost of Goods Sold (Cost of Sales)
Other Operating Revenue
Operating Expenses
Other Income or Expense
Special Income Statement Itemsp. 131
Unusual or Infrequent Item Disclosed Separately
Equity in Earnings of Nonconsolidated Subsidiaries
Income Taxes Related to Operations
Discontinued Operations
Extraordinary Items
Cumulative Effect of Change in Accounting Principle
Minority Share of Earnings
Earnings Per Sharep. 138
Retained Earningsp. 138
Dividends and Stock Splitsp. 141
Legality of Distributions to Stockholdersp. 141
Comprehensive Incomep. 142
Summaryp. 145
Questionsp. 145
To the Netp. 146
Problemsp. 147
Electronic Solutionsp. 153
Conveniencep. 153
Runp. 154
The Big Orderp. 155
Celticsp. 156
Growthp. 157
Preparing For the Futurep. 158
Basics of Anaylsisp. 161
Ratio Analysisp. 162
Common-Size Analysis (Vertical and Horizontal)p. 162
Year-to-Year Change Analysisp. 163
Financial Statement Variations by Type of Industryp. 163
Review of Descriptive Informationp. 165
Comparisonsp. 165
Trend Analysis
Standard Industrial Classification (SIC) Manual
Industry Averages and Comparison with Competitors
Caution in Using Industry Averages
Relative Size of Firmp. 176
Other Library Sourcesp. 176
Standard and Poor's Reports
Standard and Poor's Register of Corporations, Directors, and Executives
Standard and Poor's Analyst's Handbook
Standard and Poor's Corporation Records
America's Corporate Families: The Billion Dollar Directory
Million Dollar Directory
Directory of Corporate Affiliations
Thomas Register of American Manufacturers
Moody's Investors' Services
Securities Owner's Stock Guide
Wall Street Transcript
The Wall Street Journal Index
The Official Index to The Financial Times
Predicasts F and S Index
Reference Book of Corporate Managements
Compact Disclosure
The Users of Financial Statementsp. 179
Summaryp. 180
Questionsp. 180
To the Netp. 182
Problemsp. 182
Liquidity of Short-Term Assets; Related Debt-Paying Abilityp. 185
Current Assets, Current Liabilities, and the Operating Cyclep. 186
Marketable Securities
Other Current Assets
Current Liabilities
Current Assets Compared with Current Liabilitiesp. 206
Working Capital
Current Ratio
Acid-Test Ratio (Quick Ratio)
Cash Ratio
Other Liquidity Considerationsp. 210
Sales to Working Capital (Working Capital Turnover)
Liquidity Considerations Not on the Face of the Statements
Summaryp. 212
Questionsp. 213
To the Netp. 216
Problemsp. 216
Rising Prices, a Time to Switch Off LIFO?p. 230
Onlinep. 231
The Other Side of LIFOp. 233
Network Supremep. 234
Booming Retailp. 236
Long-Term Debt-Paying Abilityp. 237
Income Statement Consideration when Determining Long-Term Debt-Paying Abilityp. 238
Times Interest Earned
Fixed Charge Coverage
Balance Sheet Consideration when Determining Long-Term Debt-Paying Abilityp. 241
Debt Ratio
Debt/Equity Ratio
Debt to Tangible Net Worth Ratio
Other Long-Term Debt-Paying Ability Ratios
Special Items that Influence A Firm's Long-Term Debt-Paying Abilityp. 248
Long-Term Assets Versus Long-Term Debt
Long-Term Leasing
Pension Plans
Postretirement Benefits Other than Pension
Joint Ventures
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk
Disclosures About Fair Value of Financial Instruments
Summaryp. 260
Questionsp. 262
To the Netp. 264
Problemsp. 265
Expensing Interest Now and Laterp. 273
Consideration of Leasesp. 273
Lockoutp. 276
Determine the Liabilityp. 277
Play It Safep. 278
Retirement Plans Revisitedp. 281
Fair Value of Financial Instrumentsp. 282
Profitabilityp. 285
Profitability Measuresp. 286
Net Profit Margin
Total Asset Turnover
Return on Assets
DuPont Return on Assets
Interpretation Through DuPont Analysis
Variation in Computation of DuPont Ratios Considering Only Operating Accounts
Operating Income Margin
Operating Asset Turnover
Return on Operating Assets
Sales to Fixed Assets
Return on Investment (ROI)
Return on Total Equity
Return on Common Equity
The Relationship Between Profitability Ratios
Gross Profit Margin
Trends in Profitabilityp. 298
Segment Reportingp. 298
Gains and Losses from Prior Period Adjustmentsp. 301
Comprehensive Incomep. 302
Interim Reportsp. 302
Summaryp. 303
Questionsp. 304
To the Netp. 305
Problemsp. 306
Johnny's Self-Service Stationp. 314
The Tale of the Segmentsp. 315
Insights on Geographic Areap. 317
Tide, Pampers, and Etc.p. 319
Vehicles and Housingp. 321
For the Investorp. 325
Leverage and its Effects on Earningsp. 326
Definition of Financial Leverage and Magnification Effects
Computation of the Degree of Financial Leverage
Summary of Financial Leverage
Earnings Per Common Sharep. 328
Price/Earnings Ratiop. 330
Percentage of Earnings Retainedp. 331
Dividend Payoutp. 331
Dividend Yieldp. 332
Book Value Per Sharep. 333
Stock Optionsp. 334
APB Opinion No. 25
SFAS No. 123
APB Opinion No. 25 Firms
SFAS No. 123 Firms
Stock Appreciation Rightsp. 336
Summaryp. 337
Questionsp. 338
To the Netp. 339
Problemsp. 340
Stock Splitp. 346
Why the Change?p. 348
Stock Split Revisitedp. 349
Stock Option Plansp. 353
View This Investmentp. 354
Statement of cash flowsp. 357
Basic Elements of the Statement of Cash Flowsp. 358
Financial Ratios and the Statement of Cash Flowsp. 364
Operating Cash Flow/Current Maturities of Long-Term Debt and Current Notes Payable
Operating Cash Flow/Total Debt
Operating Cash Flow per Share
Operating Cash Flow/Cash Dividends
Alternative Cash Flowp. 368
Procedures for Development of the Statement of Cash Flowsp. 368
Summaryp. 374
Questionsp. 375
To the Netp. 376
Problemsp. 377
Cash Flow Talesp. 392
Watch the Cashp. 394
Rapidly Expandingp. 396
The Retail Moverp. 403
Non-Cash Chargesp. 406
Cash Movements and Periodic Income Determinationp. 409
Summary Analysis Nike, Inc. (Includes 1999 Financial Statements)p. 411
Nike -- Background Informationp. 412
Analysis of Nikep. 412
Management Discussion and Analysis (See Annual Report) Highlights
Vertical Common-Size Statement of Income (Exhibit 1)
Horizontal Common-Size Statement of Income (Exhibit 2)
Three-Year Ratio Comparison (Exhibit 3)
Ratio Comparison with Selected Competitors (Exhibit 4)
Ratio Comparison with Industry (Exhibit 5)
Summaryp. 420
Expanded Analysisp. 465
Financial Ratios as Perceived by Commercial Loan Departmentsp. 466
Most Significant Ratios and Their Primary Measure
Ratios Appearing Most Frequently in Loan Agreements
Financial Ratios as Perceived by Corporate Controllersp. 468
Most Significant Ratios and Their Primary Measure
Key Financial Ratios Included as Corporate Objectives
Financial Ratios as Perceived by Cortified Public Accountantsp. 470
Financial Ratios as Perceived by Chartered Financial Analystsp. 470
Financial Ratios Used in Annual Reportsp. 471
Degree of Conservatism and Quality of Earningsp. 473
Fixed Assets
Intangible Assets
Forecasting Financial Failurep. 474
Univariate Model
Multivariate Model
Analytical Review Proceduresp. 477
Management's use of Analysisp. 477
Use of LIFO Reservesp. 478
Graphing Financial Informationp. 479
Summaryp. 482
Questionsp. 482
To the Netp. 484
Problemsp. 485
What Position?p. 502
Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companiesp. 507
Banksp. 508
Balance Sheet
Income Statement
Ratios for Banks
Electric Utilitiesp. 515
Financial Statements
Ratios for Electric Utilities
Oil and Gasp. 521
Successful Efforts Versus Full Cost
Supplementary Information on Oil and Gas Exploration, Development, and Production Activities
Cash Flow
Transportationp. 524
Financial Statements
Insurancep. 529
Balance Sheet Under GAAP
Income Statement Under GAAP
Real Estate Companiesp. 534
Summaryp. 535
Questionsp. 536
To the Netp. 538
Problemsp. 539
Allowance for Fundsp. 543
In Progressp. 546
Loans and Provision for Loansp. 549
You Can Bank on Itp. 550
Proved Reservesp. 553
Heavenly Flyingp. 555
Personal Financial Statements and Accounting for Governments and Not-for-Profit Organizationsp. 557
Personal Financial Statementsp. 558
Form of the Statements
Suggestions for Reviewing the Statement of Financial Condition
Suggestions for Reviewing the Statement of Changes in Net Worth
Illustration of Preparation of the Statement of Financial Condition
Illustration of Preparation of the Statement of Changes in Net Worth
Accounting for Governmentsp. 564
Accounting for Not-for-Profit Organizations Other Than Governmentsp. 568
SFAS No. 93, "Recognition of Depreciation by Not-for-Profit Organizations"
SFAS No. 116, "Accounting for Contributions Received and Contributions Made"
SFAS No. 117, "Financial Statements of Not-for-Profit Organizations"
SFAS No. 124, "Accounting for Certain Investments Held by Not-for-Profit Organizations"
Applicability of GAAP to Not-for-Profit Organizations
Budgeting by Objectives and/or Measures of Productivity
Summaryp. 577
Questionsp. 579
To the Netp. 581
Problemsp. 581
Governor Lucas--This is Your Countyp. 586
Glossaryp. 597
Bibliographyp. 621
Indexp. 629
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