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. [...]... 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 financial condition of a business—not at all It’s just that GAAP do not deal with presenting financial information to managers In fact, much of this management information... liabilities was invested by the shareowners in the business and how much is attributable to the cumulative profit over the life of the business that was not distributed to its shareowners A business is profit-motivated, so its income statement (the financial statement that reports the profit or loss of the business for the period) occupies center stage The market value of the ownership shares in the business... reported in its balance sheet Having these two assets should be reflected in above-average profit performance, which is reported in the income statement of the business The chief executive can brag about these two assets in the company’s financial reports to shareowners and lenders, but don’t look for them in the company’s balance sheet The balance sheet at the start and end of the year for the business... report is directed to outside investors and creditors of the business who are not directly involved in the day-to-day affairs of the business Managers should already know most of the information disclosed in footnotes If managers prefer to have certain footnotes included in their internal accounting reports, the footnotes should be included—probably in much more detail and covering more sensitive matters... 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 for the same period; and one summarizes the assets of the business at the end of the period that are balanced by the claims against, and sources of, the assets *Without... 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 condition and solvency To continue in existence for any period of time, a business has to make profit, generate cash flow, and stay solvent Accomplishing these financial objectives depends on doing all the other management... 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 to managers are mentioned here The financial... 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... 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 cannot possibly cover the waterfront and deal in a comprehensive... 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 Footnotes are needed because the external financial . 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. 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. 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