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. [...]... 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 financial reports include footnotes that are an integral addendum to the financial statements... trade for analyzing business financial information Financial statements are one primary source of such information Therefore financial statements are the best framework to explain and demonstrate how managers analyze financial information for making decisions and keeping control Surprisingly, most books of this ilk do not use the financial statements framework My book offers many advantages in this respect... state and federal income taxes, payroll taxes, property taxes, and sales taxes Accountants have their hands full just keeping up with tax regulations and forms Accountants also have to stay abreast of changing accounting standards to prepare external financial reports 6 GETTING DOWN TO BUSINESS External Financial Reports In the next chapter I present an overview of external financial reports Please... 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 performance of the business Only a few brief comments about external financial reporting of particular importance... decision-making and control functions, managers need more information than is reported in the external profit report of the business GAAP are the point of departure for preparing the more informative financial statements and other internal accounting reports needed by business managers The “failing” of GAAP is not that these accounting rules are wrong for measuring profit, nor are they wrong for presenting the. .. managers are mentioned here The financial statements of a business that are the core of the external financial reports sent to its shareowners and lenders must conform with generally accepted accounting principles (GAAP) These are the authoritative guidelines, rules, and standards that govern external financial reporting to the outside investors and creditors of a business The main purpose of having... external income statement, which is more useful for decision-making analysis 17 FINANCIAL REPORTING THE BALANCE SHEET The usual explanation of the balance sheet is that it is the financial statement that summarizes a business’s assets and liabilities Well, yes and no If you have in mind a complete reckoning of all the assets of the business at their current market or replacement values you are off the mark... not manage the business External financial statements report results, but not how and why the results happened THREE FINANCIAL IMPERATIVES, THREE FINANCIAL STATEMENTS Without a doubt, managers should understand the external financial statements of their business that are reported to 11 FINANCIAL REPORTING shareowners and lenders, whether the managers own shares in the business or not Financial statements... revenue and expenses of the business A balance sheet in large part consists of the remains of the profit accounting process A balance sheet is not based on a complete survey of all the tangible and intangible assets of the business at their current values For example, a business may have developed a well known and trusted brand name and have a well trained and dedicated workforce But these two “assets” are... 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 profit and securing cash from other sources and putting the cash inflow to good use • Financial health—deciding on the financial structure for the entity and controlling its financial . 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. 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. 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