Gleaning Key Information from Financial Statements

The whole point of reporting financial statements is to provide important information to people who have a financial interest in the business mainly its outside investors and lenders. From that information, investors and lenders are able to answer key questions about the financial performance and condition of the business. I discuss some of these key questions in this section. In Chapters 13 and 17, I discuss a longer list of questions and explain financial statement analysis. Investors use two...

Offering different classes of stock shares

Before you invest in stock shares, you should ascertain whether the corporation has issued just one class of stock shares. A class is one group, or type, of stock shares all having identical rights every share is the same as every other share. A corporation can issue two or more different classes of stock shares. For example, a business may offer Class A and Class B stock shares, where Class A stockholders are given the vote in elections for the board of directors but Class B stockholders do...

Taking a Peek into the Back Office

Every business and not-for-profit entity needs a reliable bookkeeping system see Chapter 3 . Keep in mind that accounting is a much broader term than bookkeeping. For one thing, accounting encompasses the problems in measuring the financial effects of economic activity. Furthermore, accounting includes the function of financial reporting of values and performance measures to those that need the information. Business managers and investors, and many other people, depend on financial reports for...

Reporting Extraordinary Gains and Losses

I have a small confession to make The income statement example shown in Figure 4-1 is a sanitized version as compared with actual income statements in external financial reports. If you took the trouble to read 100 income statements, you'd be surprised at the wide range of things you'd find in these statements. But I do know one thing for certain you would discover. Many businesses report unusual, extraordinary gains and losses in addition to their usual revenue, income, and expenses. In these...

Conventions Used in This Book

Learning accounting requires learning the fundamentals of financial statements. You get accounting information in other forms of communication in bank statements and in business newspaper articles, for example , but financial statements occupy center stage. To understand financial statements you don't have to be an expert. But you should know how to extract the main messages from financial statements. Serious investors, investment analysts, lenders, and business managers, in particular, need a...

Table of Contents

Conventions Used in This What You're Not To Foolish Part I Opening the Books on Part II Figuring Out Financial Part III Accounting in Managing a Part IV Preparing and Using Financial Part I Opening the Books on Accounting 11 Chapter 1 Accounting The Language of Business, Investing, Finance, and Accounting Is Not Just for Affecting both insiders and Overcoming the stereotypes of Relating accounting to your personal financial life 16 Looking for Accounting in All the Right Taking a Peek into the...