Reading Financial Reports for Dummies (59 page)

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