Prentice Hall's one-day MBA in finance & accounting (48 page)

172–173, 180, 196,

100, 101, 104–106, 179,

204–205, 283

184–185, 196

Diluted earnings per share,

Cash flow from profit.
See
Cash

52–53

flow from operating activi-

Direct (variable) costing, 289n

ties

Direct labor costs of manufactur-

Cash flows, statement of, 7, 12,

ing, 276–277, 289

21–24, 45, 271

Direct method (for reporting

Cash working balance, 18,

cash flow from operating

73–74, 81, 83, 100, 103

activities), 23

Coca-Cola Company, 29

Disclosure in financial reports,

Common stock, 85

9, 17, 22, 39–40, 48, 118,

316

I N D E X

255, 257, 258, 260.
See

purposes and types, 7–8,

also
External versus inter-

11–12, 24, 39–46, 241, 246

nal financial report-ing

Financing activities (basic type

Discounted cash flow (DCF),

of cash flows), 22

217, 218–221, 224, 227

Finished goods inventory

Dividends, 51, 82, 86, 89, 104

account, 278n

Dividend yield ratio, 53–54

Fixed assets, 70, 81, 114.
See

Double-entry bookkeeping, 65

also
Property, plant, and

equipment

Earnings.
See
Net income

Fixed manufacturing overhead

Earnings before interest and

costs, 278, 283, 289

income tax (EBIT), 17, 68,

Fixed operating expenses (costs),

88–89, 90, 93, 95, 109,

31, 33, 35–36, 112–113,

112, 116, 192, 194

117, 122, 123, 129, 133,

Earnings multiplier, 94

134, 136, 139–140, 143,

Earnings per share (EPS).
See

146, 149, 150, 155, 159,

Basic earnings per share;

169, 171–172, 236, 239,

Diluted earnings per share

255, 266

Equity.
See
Owners’ equity

Footnotes (to financial state-

Ethics, 10

ments), 7, 29, 43

Expenses (in general), 12, 14,

Fraud, 41, 79, 248, 250–252,

16, 17, 20, 28, 76

273

External versus internal finan-

Generally accepted accounting

cial reporting, 25

principles (GAAP), 7, 8, 28,

Extraordinary gains and losses,

41

46–47, 256

Going-concern premise of finan-

cial statement accounting,

Feedback information, 244, 245,

50

253.
See also
Management

Graham, Benjamin, and Dodd,

control information

David (authors of
Security

Financial condition, 3, 12.
See

Analysis
), 49

also
Balance sheet

Gresham, Sir Thomas, 10

Financial condition, statement

Gross margin (profit), 17, 28–31,

of.
See
Balance sheet

232–233, 234, 241

Financial leverage (and financial

Gross margin ratio, 29, 30, 49

leverage gain or loss), 79,

92–94, 95

How to Read a Financial Report

Financial reporting and reports,

(John A. Tracy), 43, 278n

4–8, 9, 24.
See also
Finan-

Hurdle rate, 224

cial statements

Financial statement manipula-

Idle capacity, 283–285, 288

tion, 40–41

Income statement (external

Financial statement ratios, 39,

profit report), 12, 17, 24,

47–53, 59–60, 242

27–28, 32, 36, 40, 42, 43,

Financial statements, nature,

232–233, 271

317

I N D E X

Income statement, connections

Limited liability company (type

with balance sheet, 75–76

of business entity), 85

Income tax (factor in capitaliza-

Lower of cost or market (LCM),

tion structure of business),

154n

89–91, 193–194, 218

Management by exception, 254

Income tax expense, 33,

Management control, 4,

116–117, 192

243–274

Index,
The Fast Forward MBA in

Management control informa-

Finance,
2nd edition, Tracy,

tion, 244–247

11

Management control reports,

Indirect method (for reporting

4–5, 6, 243–274, 285

cash flow from operating

Management discussion and

activities), 23–24

analysis (MD&A), 9

Interest expense, 12, 33, 67, 68,

Management (internal) profit

81, 83, 88–89, 98–99, 116,

reports, 4–5, 6, 31–32, 36,

192, 210, 225

109–110, 119, 126–127,

Internal accounting controls,

140, 170–171, 234–235

247–249, 259, 273

Management responsibility for

Internal rate of return (IRR),

external financial reports,

218, 222–224, 227

40–42

Inventories (inventory), 12, 19,

Management stewardship

20, 34, 66, 70–71, 77, 81,

responsibility, 9

104, 165, 183, 188, 232,

Manufacturers and manufactur-

241, 251–252, 278, 281

ing processes, 275, 276, 285

Inventory, excessive accumula-

Manufacturing accounting,

tion, 287–289

275–289

Inventory shrinkage, 34,

Manufacturing capacity.
See
Pro-

258–259

duction capacity

Inventory stock-outs, 260

Manufacturing costs, 276–278,

Inventory turnover and inven-

281

tory turnover ratio, 29,

Manufacturing costs, misclassifi-

58–59

cation of, 280–282

Inventory write-down, 40, 154

Manufacturing overhead costs,

Investing activities (basic type of

278, 279–280

cash flows), 21–22

Margin of safety, 120

Market cap (capitalization), 83

Job order costing, 276

Market share, 36, 137, 157,

159, 160

Land (cost not depreciated),

Melicher, Ron, 94

113–114

Leasing (alternative to pur-

Nasdaq, 42

chase), 206, 208–209

Net earnings.
See
Net income

Liabilities, 12, 18, 65

Net income, 13, 16–17, 23, 32,

connections with expenses,

33, 40, 48, 68, 76, 81–82,

69–73, 100, 101–102

104, 192

318

I N D E X

Net income available for com-

Profit and loss statement, 12.

mon stockholders, 51

See also
Income Statement

Net present value (NPV), 222

Profit and profit accounting, 3,

Net worth, 82

7, 8, 9–10, 12, 32, 76, 109,

New York Stock Exchange, 42

180, 188, 255.
See also
Net

Notes payable, 13, 20, 76

income

Profit center, 126.
See also
Profit

Operating activities (basic type

module

of cash flows), 23

Profit change analysis, 256

Operating cash flow.
See
Cash

Profit improvement planning

flow from operating activi-

and analysis, 98–99,

ties

170–177

Operating earnings (profit).
See

Profit margin, 155, 255

Earnings before interest

Profit module, 126, 127

and income tax (EBIT)

Profit pathways and models,

Operating expenses, 28, 31,

116–122, 128, 150–151

140–142, 146

Profit ratios, 47–49, 97

Operating leverage, 132–133

Profit reporting:

Operating liabilities, 20, 23, 63,

external (
see
Income state-

66, 67, 69, 71–72, 75, 76,

ment)

79–80, 81, 95, 99–100

internal (
see
Management

Opportunity cost of capital, 92

profit reports)

Overhead costs, 112.
See also

Property, plant, and equipment,

Manufacturing overhead

19, 20, 70, 81, 103–104,

costs

114.
See also
Fixed as-

Owners’ equity, 20, 65, 68, 76,

sets

80, 81, 84–86, 91, 192,

Quick ratio.
See
Acid test ratio

226, 227

Raw materials manufacturing

Partnership (type of business

costs, 183, 276, 289

entity), 84–85

Research and development

Preferred stock, 51, 52, 85–86

costs, 28, 279

Prepaid expenses, 20, 70, 72–73

Retained earnings, 20, 68

Present value (PV), 213,

Return on assets (ROA), 65,

214–215, 218, 219, 221,

87–89, 95, 196–197

222, 226

Return on equity (ROE), 88–89,

Price/earnings (P/E) ratio, 54

91–92, 97, 174–175, 192,

Prime costs of manufacturing,

193, 210, 225

279

Return on investment (ROI),

Process costing, 276

86–87

Product cost, 30, 146, 149, 161,

Return on sales, 47, 97

162–163, 166, 177,

Returns (from capital invest-

275–276, 278–279, 282,

ment), 87, 191, 199–206,

284, 285–286, 289

210, 213, 214, 220, 225,

Production capacity, 278, 283

227

319

I N D E X

Revenue-driven expenses and

Spreadsheet (model for capital

costs, 31–33, 149, 163

investment analysis), 191,

215, 217, 226, 228

Sales backlog, 260

Standard costs, 286

Sales capacity, 112–113, 173

Statement of financial condition.

Sales commission expense, 142,

See
Balance sheet

149

Stockholders’ equity, statement

Sales mix, 111, 262–266, 269

of changes in, 46

Sales price and revenue nega-

Stock options, 52

tives, 256–258

Straight-line depreciation

Sales price changes:

method, 33, 205, 206,

cash flow impact, 185–188

225–226

profit impact, 140–142,

Sunk costs, 154

144–146, 148, 237–239

Tax returns, 4–5, 6, 261

Sales prices and pricing, 27,

Times interest earned, 57

130, 139, 144, 149, 150,

Time value of money, 214

155, 157, 159, 161–162,

Total quality control (TQM), 167,

163, 165–166, 177, 188,

285

282

Trading on the equity, 92.
See

Sales price/volume trade-offs,

also
Financial leverage

150–158, 239, 241

Sales ratios, 260–261

Unit-driven expenses and costs,

Sales revenue, 12, 13, 14,

31–33

15–16, 17, 20, 28, 29, 30,

Unit margin (contribution mar-

69, 76, 180–182, 255,

gin per unit), 111, 144,

260

146, 152, 157, 160,

Sales revenue contra accounts,

167–169, 175–176, 177,

257–258

183, 236, 255

Sales volume, 27, 109, 110–111,

Units-of-production depreciation

129–130, 137, 149, 255,

method, 115

259–260

Variable expenses and costs,

Sales volume changes:

30, 31, 32–33, 128, 140,

cash flow impact, 180–185

146, 163–164, 166, 177,

profit impact, 130–132,

183, 236, 255.
See also

133–136, 142, 148,

Revenue-driven expenses;

237–239

Unit-driven expenses

Securities and Exchange Com-

Variable manufacturing over-

mission (SEC), 42

head costs, 278, 289

Service businesses, 231–237

Volume-driven expenses.
See

Sole proprietorship (type of busi-

Unit-driven expenses and

ness entity), 84

costs

Solvency, 3, 55–57

Spontaneous liabilities.
See

Work-in-process inventory

Operating liabilities

account, 278n

320

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