TEAMFLY Team-Fly ® The Fast Forward MBA in Finance The Fast Forward MBA in Finance SECOND EDITION The Fast Forward MBA Pocket Reference, Second Edition (0-471-22282-8) by Paul A. Argenti The Fast Forward MBA in Selling (0-471-34854-6) by Joy J.D. Baldridge The Fast Forward MBA in Financial Planning (0-471-23829-5) by Ed McCarthy The Fast Forward MBA in Negotiating and Dealmaking (0-471-25698-6) by Roy J. Lewicki and Alexander Hiam The Fast Forward MBA in Project Management (0-471-32546-5) by Eric Verzuh The Fast Forward MBA in Business Planning for Growth (0-471-34548-2) by Philip Walcoff The Fast Forward MBA in Business Communication (0-471-32731-X) by Lauren Vicker and Ron Hein The Fast Forward MBA in Investing (0-471-24661-1) by John Waggoner The Fast Forward MBA in Hiring (0-471-24212-8) by Max Messmer The Fast Forward MBA in Technology Management (0-471-23980-1) by Daniel J. Petrozzo The Fast Forward MBA in Marketing (0-471-16616-2) by Dallas Murphy The Fast Forward MBA in Business (0-471-14660-9) by Virginia O’Brien THE FAST FORWARD MBA SERIES The Fast Forward MBA Series provides time-pressed business profes- sionals and students with concise, one-stop information to help them solve business problems and make smart, informed business decisions. All of the volumes, written by industry leaders, contain “tough ideas made easy.” The published books in this series are: John Wiley & Sons, Inc. The Fast Forward MBA in Finance JOHN A. TRACY The Fast Forward MBA in Finance SECOND EDITION Copyright © 1996, 2002 by John A. Tracy. All rights reserved. Published by John Wiley & Sons, Inc., New York. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photo- copying, recording, scanning or otherwise, except as permitted under Sec- tions 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rose- wood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Requests to the Publisher for permission should be addressed to the Permis- sions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail: PERMREQ@WILEY.COM. This publication is designed to provide accurate and authoritative informa- tion in regard to the subject matter covered. It is sold with the understand- ing that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought. Wiley also publishes its books in a variety of electronic formats. Some con- tent that appears in print may not be available in electronic books. ISBN: 0-471-20285-1 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 for Richard and Robert, my dog track buddies, who have helped me more than they know. [...]... footnotes included in their internal accounting reports, the footnotes should be included—probably in much more detail and covering more sensitive matters than footnotes presented in external financial reports An external financial report includes three primary financial statements: One summarizes the profit-making activities of the business for the period; one summarizes the cash inflows and outflows... are in better condition 10 CHAPTER 2 Introducing Financial Statements T This chapter introduces the financial statements that are included in periodic financial reports from a business to its shareowners and lenders They are called external financial statements to emphasize that the information is released outside the business Let me stress the word introducing in the chapter title One brief chapter... TO BUSINESS External Financial Reports In the next chapter I present an overview of external financial reports Please bear in mind that this book does not examine in any great detail the external financial reports of business.* This book is mainly concerned with internal reports to managers and how managers analyze the information in these reports for making decisions and for controlling the financial... Cash Flows across Different Product Lines Cash Flow from Bumping Up Sales Prices End Point 161 161 163 165 166 169 170 177 179 179 180 185 185 188 PART 4 CAPITAL INVESTMENT ANALYSIS TE CHAPTER 14—DETERMINING INVESTMENT RETURNS NEEDED A Business as an Ongoing Investment Project Cost of Capital Short-Term and Long-Term Asset Investments The Whole Business versus Singular Capital Investments Capital Investment... Business managers earn their keep by developing new products and services, expanding markets, improving productivity, anticipating changes, adapting to new technology, clarifying the business model, thinking out clear strategies, hiring and motivating people, making tough choices, solving problems, and arbitrating conflicts of interests between different constituencies (e.g., 3 FINANCIAL REPORTING... resulted in complete uniformity and consistency from one business to the next, or even among companies in the same industry Businesses can choose from among different but equally acceptable accounting methods, which can cause a material difference in the profit (net income) reported for the year and in the values of certain assets, liabilities, and owners’ equity accounts reported in the financial statements... accounting system is to accumulate a complete, accurate, and up-to-date base of data and information needed to perform essential functions for a business Figure 1.1 presents a broad overview of the internal and external functions of business accounting Note the Janus, or two-faced, nature of an accounting system that looks in two different directions—internal and external, or inside and outside the business... 2002 xv PA R T Financial Reporting Outside and Inside a Business 1 CHAPTER Getting Down to Business 1 E Every business has three primary financial tasks that determine the success or failure of the enterprise and by which its managers are judged: • Making profit—avoiding loss and achieving profit goals by making sales or earning other income and by controlling expenses • Cash flow—generating cash from... Control Information Internal Accounting Controls Independent Audits and Internal Auditing Fraud Management Control Reporting Guidelines Sales Mix Analysis and Allocation of Fixed Costs Budgeting Overview End Point CHAPTER 18—MANUFACTURING ACCOUNTING Product Makers versus Product Resellers Manufacturing Business Example Misclassification of Manufacturing Costs Idle Production Capacity Manufacturing Inefficiencies... reporting to the outside investors and creditors of a business The main purpose of having financial statements audited by an independent CPA firm is to test whether the statements have been prepared according to GAAP If there are material departures from these ground rules of financial statement accounting and disclosure, the CPA auditor says so in the audit opinion on the financial statements External . easy.” The published books in this series are: John Wiley & Sons, Inc. The Fast Forward MBA in Finance JOHN A. TRACY The Fast Forward MBA in Finance SECOND. Fast Forward MBA in Selling (0-471-34854-6) by Joy J.D. Baldridge The Fast Forward MBA in Financial Planning (0-471-23829-5) by Ed McCarthy The Fast Forward