Understanding Financial Statements

by Fraser, Lyn M.; Ormiston, Aileen

• ISBN13: 9780130277824
• ISBN10: 0130277827
• Format: Paperback
• Copyright: 2000-06-01
• Publisher: PRENTICE HALL

Summary

A supplementary text for a variety of Business courses, including Principles of Financial Accounting, Intermediate Accounting, Investments, Personal Finance, and Financial Planning and Analysis. In Understanding Financial Statements 6/e, Lyn Fraser and Aileen Ormiston teach students how to work through the obstacle course of data that make up a company's financial statements. They show what paths to follow in order to glean out the information needed to ultimately determine the financial health of a business. By using examples, illustrations, and explanations, the authors get behind the numbers and accounting policies to assess how well companies are actually performing. And, with an emphasis on analysis, the book breaks financial statements into parts for individual study so that students better understand the whole of their content as a map to intelligent decision-making. Adopt the new edition of Fraser/Ormiston and your students will have financial statements at their command!

Table of Contents

Preface	xiii
Uses of the Sixth Edition	xiv
Features of the Sixth Edition	xv
Acknowledgments	xvii
Financial Statements: An Overview	1	(49)
Map or Maze	1	(4)
Organization	3	(1)
Usefulness	4	(1)
Volume of Information	5	(12)
The Financial Statements	5	(4)
Notes to the Financial Statements	9	(4)
Auditor's Report	13	(2)
Other Required Information	15	(1)
Pandora (A.K.A. ``PR Fluff'')	16	(1)
Complexity	17	(5)
Alphabet Soup	17	(2)
A Global Marketplace	19	(1)
Mythical Mountain	19	(3)
Other Discretionary Issues	22	(1)
More Complications	22	(2)
Quality of Financial Reporting	24	(6)
Accounting Policies, Estimates---Choices and Changes	25	(1)
Timing of Revenue and Expense Recognition	26	(1)
Discretionary Items	27	(1)
Non-recurring and Non-operating Items	28	(2)
Impact of Inflation	30	(1)
Missing and Hard-to-Find Information	31	(2)
Self-Test	33	(3)
Study Questions and Problems	36	(2)
La-Z-Boy Mini-Case	38	(4)
Chambers Development Company Mini-Case	42	(8)
The Balance Sheet	50	(40)
Financial Condition	51	(2)
Consolidation	51	(1)
Balance Sheet Date	51	(2)
Comparative Data	53	(1)
Assets	53	(10)
Current Assets	53	(1)
Cash and Marketable Securities	54	(1)
Accounts Receivable	55	(1)
Inventories	56	(1)
Inventory Accounting Methods	57	(3)
Prepaid Expenses	60	(1)
Property, Plant, and Equipment	60	(2)
Other Assets	62	(1)
Liabilities	63	(6)
Current Liabilities	63	(1)
Accounts Payable	64	(1)
Notes Payable	64	(1)
Current Maturities of Long-Term Debt	64	(1)
Accrued Liabilities	64	(1)
Unearned Revenue or Deferred Credits	65	(1)
Deferred Federal Income Taxes	65	(3)
Long-Term Debt	68	(1)
Other Liabilities	68	(1)
Stockholders' Equity	69	(3)
Common Stock	69	(1)
Additional Paid-In Capital	69	(1)
Retained Earnings	70	(1)
Other Equity Accounts	70	(1)
Other Balance Sheet Items	71	(1)
Self-Test	72	(4)
Study Questions and Problems	76	(3)
Intel Corporation Mini-Case	79	(4)
The Rival Company Mini-Case	83	(7)
Income `Statement and Statement of Stockholders' Equity	90	(29)
The Income Statement	91	(9)
Net Sales	93	(1)
Cost of Goods Sold	94	(1)
Gross Profit	95	(1)
Operating Expense	95	(1)
Depreciation and Amortization	96	(1)
Operating Profit	97	(1)
Other Income (Expense)	98	(1)
Earnings Before Income Taxes	98	(1)
Net Earnings	98	(1)
Earnings Per Common Share	99	(1)
Comprehensive Income	99	(1)
The Statement of Stockholders' Equity	100	(6)
Earnings Quality, Inflation, Cash Flow, Segmental Accounting	106	(1)
Self-Test	106	(4)
Study Questions and Problems	110	(3)
Time Warner Mini-Case	113	(3)
Compaq Computer Corporation Mini-Case	116	(3)
Statement of Cash Flows	119	(35)
Preparing a Statement of Cash Flows	120	(5)
Calculating Cash Flow from Operating Activities	125	(5)
Direct Method	125	(3)
Indirect Method	128	(2)
Cash Flow from Investing Activities	130	(1)
Cash Flow from Financing Activities	130	(1)
Change in Cash	131	(2)
Analyzing the Statement of Cash Flows	133	(5)
Cash Flow from Operations	133	(1)
Nocash Corporation	134	(2)
Help from a Statement of Cash Flows	136	(1)
Summary Analysis of the Statement of Cash Flows	137	(1)
Self-Test	138	(4)
Study Questions and Problems	142	(6)
PETsMART Mini-Case	148	(3)
Royal Appliance Mfg. Co. and Subsidiaries Mini-Case	151	(3)
The Analysis of Financial Statements	154	(65)
Objective of Analysis	154	(2)
Sources of Information	156	(2)
Auditor's Report	156	(1)
Management Discussion and Analysis	156	(1)
Supplementary Schedules	156	(1)
Form 10-K and Form 10-Q	156	(1)
Other Sources	157	(1)
Tools and Techniques	158	(13)
Common Size Financial Statements	158	(3)
Key Financial Ratios	161	(1)
Liquidity Ratios: Short-Term Solvency	161	(3)
Activity Ratios: Asset Liquidity, Asset Management Efficiency	164	(3)
Leverage Ratios: Debt Financing and Coverage	167	(2)
Profitability Ratios: Overall Efficiency and Performance	169	(2)
Analyzing the Data	171	(14)
Background: Economy, Industry, and Firm	172	(1)
Short-Term Liquidity	173	(2)
Net Trade Cycle	175	(1)
Capital Structure and Long-Term Solvency	176	(1)
Example of Financial Leverage	176	(3)
Operating Efficiency and Profitability	179	(1)
Relating the Ratios---The Du Pont System	180	(2)
Projections, Pro Forma Statements, and Market Ratios	182	(1)
Summary of Analysis	183	(1)
Map	184	(1)
Self-Test	185	(5)
Study Questions and Problems	190	(15)
First Team Sports Inc. Mini-Case	205	(8)
L.A. Gear Inc. Mini-Case	213	(6)
Appendixes	219	(44)
A A Guide to Earnings Quality	219	(15)
B The Analysis of Segmental Data	234	(7)
C Understanding Bank Financial Statements	241	(10)
D Solutions to Self-Tests	251	(2)
E Summary of Financial Ratios	253	(2)
F Glossary	255	(8)
Index	263