Read Reading Financial Reports for Dummies Online
Authors: Lita Epstein
businesses.
See
companies
bill-paying-delay strategy, 228
buy-side analysts, 270–271, 335
bills, paying, 227–228
bylaws, changes in, 255
Bizstats Web site, 213
Blodget, Henry (Merrill Lynch analyst), 272
• C •
board meetings, 27–28
board members, contacting, 257–258
C corporations, 26–27, 336
board of accountancy, in each state, 238
calls, with analysts, 277–278
board of directors
capital, 90
composition of, 283
capital expenditures, 114, 182, 336
of a corporation, 25
capital gains, 161, 336
346
Reading Financial Reports For Dummies, 2nd Edition
capital improvements, 108
CFOs, responsibilities under Sarbanes-
capital leases, 130
Oxley, 38
capital markets, 262
channel stuffi ng, 301, 323, 325
capital resources, 67–68
charges, restructuring, 65
capitalized leases, 84
Chart of Accounts, 50–57, 336
capitalizing, expenses, 306
charter
cash
for the nominating committee, 257
control of, 36
reporting changes in, 255
described, 80–81
Chartered Financial Analyst, 269
equivalents, 118, 182, 336
Chinese Wall, for sell-side analysts, 272
importance of, 111
Citigroup, 321–322
locations for, 80
class-action lawsuits, 287
as the most liquid asset, 329
code of ethics, 256
options for getting more quickly, 232–233
collectibility, 124
raising by selling stock, 35
collection methods, 221
raising for private companies, 31–32
collection period, 229
tracking, 16
commercial paper, 275
cash budget, 201
common stock, 89, 336
cash debt coverage ratio, 188–190
common stock account, 55
cash dividends paid, 182
companies
cash drawers, counting, 81
benefi ts from IFRS, 262
cash EPS, 160
buying smaller, 144–146
cash fl ow
buying stock directly from, 294
defi ned, 10, 336
communicating with shareholders,
impact on dividends, 162
281–294
improving, 227–233
compared to corporations, 2
key ratios for gauging, 217
criteria for going public, 34
low, 330
going from private to public, 39–41
operating, 339
history, 37
from operating activities, 111–114, 182
in more than one country, 260
from operations, 314–315, 336
operations, 67
overstating, 322
parent, 340
cash fl ow coverage ratio, 190–192
private, 13, 29–33
cash fl ow statement.
See
statement of cash
public, 13
fl ows
signs of trouble, 329–334
cash return on sales ratio, 184–185
value of public, 35
cash-basis accounting, 43–45, 336
Web sites of, 292–293
centralized accounting system, 80
Compaq, HP merger with, 285
CEOs
comparability, 243
raises for, 38
compensation packages, 252, 284
responsibilities under Sarbanes-
competition data, 198
Oxley, 283
competitors, need for fi nancial reports, 12
certifi ed public accountants (CPAs),
concept release, 261
13, 238–239
confi dentiality, 30–31
Index
347
consistency
credit research, investor-oriented, 275
of accounting information, 243
credit standards, 228–229
of dividend payouts, 162
Credit Suisse First Boston, 272
consolidated fi nancial statements
creditors, need for fi nancial reports, 11
defi ned, 336
credits, 46, 48
notes explaining, 148–150
currency, moving from one country to
reading, 146–148
another, 118
consolidation, methods of, 139–140
current accounts, 51
contingent liabilities, 313, 336
current assets, 18, 80–86, 172, 336
convertibles, 106, 336
current cash debt coverage ratio, 186–187
cookie jars, 298
current debt, 126
cooling-off period, 41
current liabilities, 18, 54, 87–88, 172,
copyrights, 85
188, 336
corporate governance, 283, 336
current P/E ratio, 155
corporate minutes, 27–28
current ratio, 172–173
corporations, 2, 25–28, 287.
See also
current-asset accounts, 51–52
C corporations; companies;
customer accounts, 220–221
S corporations
customers
cost of goods sold
cutting off, 221
accounts, 56
largest, 134
calculating, 208–209
slow-paying, 334
considering, 99–100
defi ned, 336
• D •
number, 206
part of an income statement, 92
dates
cost of services sold, 100
covered by fi nancial statements, 76–77
cost overruns, income from, 325
in income statements, 93
cost-plus contracts, 325
Dean Witter & Co., 272
costs
debits, 46, 48
defi ned, 10
debt.
See also
liabilities; short-term
fi xed, 100, 337
borrowings
as a public company disadvantage, 36
comparing to shareholders’ equity,
variable, 100, 342
176–178
Covidien, 324
funding, 165
Cox, Christopher (SEC Chairman), 261
having too much, 332
CPAs (certifi ed public accountants), 13,
incurring new, 116–117
238–239
levels, 185–190
creative accounting, 296–298, 303–305
long-term, 88, 339
credit, in-store, 338
paying off, 117
credit card payable account, 54
ratios, 130
credit cards
secured, 341
handling like cash, 218
short-term, 129
using to conserve cash, 232
debt to shareholders’ equity, 177–178
credit policies
debtors, secured, 89
changing, 228–230
debt-to-capital ratio, 177–180
setting, 220
348
Reading Financial Reports For Dummies, 2nd Edition
defi ned benefi t plans, 132
distributors, large discounts to, 301
defi ned contribution plans, 132
dividend payout ratio, 160–163
delisting, from a stock exchange, 255
dividend revenue and expenses, 147
depreciation
dividend-reinvestment plans, 293
accumulated, 86–87
dividends
of assets, 123–124
accrued, 89
of buildings, 84
declared per share, 106
defi ned, 337
defi ned, 337
described, 49
described, 89
expenses of, 57
paying, 116
shifting the reporting of, 306
reporting, 287
depreciation expenses
documentation, added by Sarbanes-
described, 102
Oxley, 39
recording, 49
dollar exchange rate, 118
in statements of cash fl ows, 111–112
dot.com companies, 111
treatment of, 124
double-entry accounting, 10, 46–47, 337
development costs, under IFRS, 265
doubtful accounts, allowance for, 66, 310
dies, on the balance sheet, 85
Dow Corning, 135
diluted earnings per share (EPS), 106,
drawing account, 90
156, 159
Dunlap, Albert (Sunbeam CEO), 323
diluted value, of stock, 149
durable goods, 337
direct method, for a statement of cash
fl ows, 109–110
• E •
directors.
See
board of directors
direct-response advertising, 306
early-payment terms, 225–226
direct-stock-purchase plans, 294
earnings
disagreements, with accountants, 37, 251
expectations, 289–290
discontinued operations
games played with, 298–305
compared to continuing, 95
growth, 291
defi ned, 337
managed, 297
described, 117–118
managing, 339
IFRS compared to GAAP, 267
reinvested in a company, 161
impact on cash fl ow, 314–315
restating, 296, 340
notes on, 136
retained, 90, 340
notes on the impact of, 150
earnings per share (EPS), 105–106, 154,
discount rate, for pension obligations, 133
156, 159–160, 337
discounts
Ebbers, Bernard (WorldCom founder), 322
analyzing, 226
EBITDA (earnings before interest, taxes,
offering, 229
depreciation, and amortization), 58,
offering for early payment, 225
103–104, 175, 337
tracking, 98–99
economic conditions, 198
discretionary cash, 182
Edgar Web site, 15, 93, 247, 331
Disney, Roy (Disney Board of
effective date, for a stock offering, 41
Directors), 284
8-K form.
See
Form 8-K
disposal of assets, 255
Index
349
Eisner, Michael (Disney CEO), 281, 284
expense accounts, 56–57
electronic bill payment, 233
expenses
Emerging Issues Task Force, 16
acknowledging, 101–102
employee benefi t plans, 256
categories of, 56
employees
charging recurring operating to
attracting or retaining, 292
restructuring, 309
need for fi nancial reports, 11
defi ned, 10, 337
participation in the budgeting
described, 56–57
process, 196
differences in the reporting of, 124–125
revenue per, 305
effect of debits and credits on, 48
stock purchase and savings plans, 37
exploitations of, 305–309
ending inventory value, 207–208
on the income statement, 92, 101
end-of-period revenue-booking
from nonoperating activities, 104–105
practices, 46
operating, 56–57, 339
Enron scandal, 237, 296, 320
other, 102
environmental and product liabilities
types of, 101–102
section, 66
expenses payable, 312–313
environmental concerns, 136
extraordinary items, on income
EPS (earnings per share), 105–106, 154,
statements, 264
156, 159–160, 337
equipment account, 53.
See also
machinery
• F •
and equipment accounts
equity
factories, age of, 87
accounts, 54–55
Fair Disclosure (Regulation FD), 288
on a balance sheet, 18
families, owning companies, 30
defi ned, 10, 76, 89, 337
FASB (Financial Accounting Standards
described, 47
Board)
holdings, 37
characteristics of accounting
refl ecting changes in, 92
information, 243
equity investing, before stock market
creation of, 16
crashes, 16
defi ned, 337
errors and omissions insurance, 102
described, 243, 244
events
income statement specifi cations, 92
impacting company operations, 125
Norwalk Agreement, 260
reviewing signifi cant, 135–136
statement of cash fl ows, 109
Everything about Arithmetic, Geometry and
Web site, 332
Proportions
(Pacioli), 16
Fastow, Andrew S. (Enron executive), 320
Executive Pay Watch database, 283
fees, for direct-stock-purchase plans, 294
executives
FICO (Social Security) taxes, 57
information about in Part III of the 10-K
fi eldwork, 240–242
form, 252
FIFO (fi rst in, fi rst out) inventory tracking
need for fi nancial reports, 11
system, 82, 207, 210–211, 266
unsure or responding slowly, 291
Financial Accounting Standards Board.
exhibits, 250
See
FASB (Financial Accounting
expectations, of a company, 195
Standards Board)
350
Reading Financial Reports For Dummies, 2nd Edition
fi nancial analysts
fi xed costs, 100, 337
companies talking to, 277–279
fi xtures.
See
furniture and fi xtures account
moods of, 291
foreign exchange, 117–118
need for fi nancial reports, 12
Form 10-K, 14, 250–252
roles of, 269–270
formal investigation, 331
types of, 270–274
formats
fi nancial commitments, 126–130
for a balance sheet, 79–80
fi nancial data
for income statements, 93–95
in Part II of the 10-K form, 250–251
for a statement of cash fl ows, 109–110
summarizing in an annual report, 72–73
forms
fi nancial freedom, of private companies, 31
fi led with SEC, 14–15
fi nancial position format, 79–80
Form 8-K
fi nancial problems, hiding, 295–316
as an exhibit on the 10-Q, 250
fi nancial reports
described, 15
comparing on Web sites, 121
reporting material changes, 254–256
described, 9
required for public companies, 37
fi led by public companies, 36–39
Form 10, 33
fraudulent, 337
Form 10-Q
for the government, 14–15
described, 14
internal, 12, 15–16, 338
Part II, 249–250
numbers in, 9–10
parts of, 248