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In How to Keep Score in Business, Second Edition, long-time CEO Robert Follett shows you exactly how to "keep score" in business by reading and interpreting company financials. Step by step, Follett helps you capture crucial insights buried in balance sheets, income statements, and other key reports. Follett shows how to apply core tools for analyzing financial reports and investment opportunities, and demystifies key accounting terms every business decision-maker and investor needs to know. You'll learn how to uncover a company's true financial position through its balance sheet and income statements–and identify crucial information those documents may not be showing. Follett demonstrates how to use modern ROI tools to evaluate performance or analyze potential investments; how to track ongoing changes in a company's financial position; how to build cash flow budgets for more effective planning; and how to use common analysis ratios (without misusing them). Practical from start to finish, this fully updated book won't transform you into an accountant–but it will help you work more confidently with financial professionals, make smarter business decisions, and choose better investments.
Chapter 1 Introduction 1
The First Lesson: Scores Are Not Real Dollars 5
The Accrual Method 6
But Scores Are Important 7
Chapter 2 Glossary of Key Financial Accounting Terms 9
Chapter 3 The Balance Sheet 31
The Balance Sheet Balances 31
Acme Widget Company 35
Acme Widget’s Year-End Balance Sheet 38
A “Trial Balance” 43
Constructing the Balance Sheet 45
Chapter 4 More Balance Sheet 47
Cost Versus Value 47
Intangible Assets 48
Reserves and Allowances 51
The Going Concern Assumption 52
Estimates Are Everywhere 53
Purpose and Perspective 53
Current Versus Noncurrent Balance Sheet Items 55
Working Capital 55
Average Collection Period 58
Inventory Turnover 60
Chapter 5 Still More Balance Sheet 63
The Worksheet for Transactions 65
Trial Balance Worksheet 68
The Balance Sheet 68
Analyzing the Balance Sheet 69
Balance Sheet Summary 71
Chapter 6 The Income Statement 75
The Basic Income Statement 76
Acme Widget’s First-Year Income Statement 80
More on Cost of Sales 83
Nonoperating Income and Expense 86
Acme Widget’s Second-Year Income Statement 87
Reconciliation of Retained Earnings 89
Analyzing Income Statements 90
Complicating Cost of Sales 91
Summary of the Income Statement 94
Chapter 7 Return on Investment (ROI) 99
Return on Equity (ROE) 101
Return on Invested Capital (ROIC) 102
Return on Assets Used (ROAU) 103
Cash-on-Cash Return 105
Payback Method 106
Discounted Cash Flow or Present Value Method 106
Chapter 8 Changes in Financial Position 117
Chapter 9 Cash Flow Budget 123
Chapter 10 Other Analysis Ratios and Tools 131
Profit as a Percentage of Sales 131
Current Ratio 135
Acid Test or Quick Ratio 135
Debt-Equity Ratio 135
Earnings Per Share 136
Price-Earnings Ratio 136
Chapter 11 A Summary of What You Have Learned 139
The Balance Sheet 140
The Income Statement 144
Statement of Changes in Financial Position 146
Cash Flow Budget 147
Analyzing Financial Reports 147
Appendix A Acme Widget Company 153
Appendix B Present Value Tables 169
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