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With new examples, an expansion of IFRS/GAAP discussion, and more exercises, the Second Edition equips novices with the necessary tools to put basic accounting and financial statement analysis skills to immediate use in their careers.
About the Author:
Matan Feldman worked as an equity research associate at JPMorgan Chase & Co. and as a financial analyst in the M&A group at Chase Manhattan Bank
About the Author:
Arkady Libman worked as an equity research associate at Friedman, Billings, Ramsey & Co., Inc., and as an investment banking analyst at JPMorgan Chase & Co.
Chapter 1 Introduction to Accounting.
What Is Accounting?
Why Is Accounting Important?
Making Corporate Decisions.
Making Investment Decisions.
Accounting Facilitates Corporate and Investment Decisions.
Who Uses Accounting?
U.S. Accounting Regulations.
Generally Accepted Accounting Principles.
Overview of the Securities and Exchange Commission.
Overview of the Financial Accounting Standards Board.
International Accounting Regulations.
Convergence of U.S. GAAP and IFRS.
Chapter 2 Basic Accounting Principles.
Assumption 1: Accounting Entity.
Assumption 2: Going Concern.
Assumption 3: Measurement and Units of Measure.
Assumption 4: Periodicity.
Principle 1: Historical Cost.
Principles 2 and 3: Accrual Basis.
Principle 4: Full Disclosure.
Constraint 1: Estimates and Judgments.
Constraint 2: Materiality.
Constraint 3: Consistency.
Constraint 4: Conservatism.
Chapter 3 Financial Reporting.
Financial Reporting Overview.
Finding Financial Reports.
Form 10-K (Annual Filing).
Why Is the 10-K Important?
Form 10-Q (Quarterly Filing).
Other Important Filings.
Chapter 4 Reading the Annual Report.
Letter to Stockholders.
Management’s Discussion and Analysis.
Cash Flow Statement.
Notes to Consolidated Statements.
Report of Management’s Responsibilities.
Certification of Financial Statements.
Report of Independent Auditors.
Directors and Officers.
Chapter 5 Income Statement.
What is the Income Statement?
Why Is It Important?
Not All Income Is Revenue.
Bad Debt Expense.
What Is Bad Debt Expense?
Revenue Recognition: To Recognize and When?
Revenue Recognition: Long-Term Projects.
Expense Recognition and Accrual Basis of Accounting.
Basic Principles Revisited: Accrual Basis of Accounting and Matching Principle.
Putting It All Together: The Accrual Basis of Accounting.
Why Use Accrual Accounting?
Accrual versus Cash Accounting: What’s the Difference?
Cost of Goods Sold.
COGS Do Not Include Administrative Costs.
Selling, General and Administrative.
Research and Development.
Stock Options Expense.
Depreciation Is a “Phantom” Noncash Expense.
Straight-Line Depreciation Method.
Accelerated Depreciation Methods.
Depreciation Methods Compared.
Amortization Is a “Noncash” Expense (Like Depreciation).
What Is the Difference between Depreciation and Amortization?
Goodwill Not Amortized after 2001.
Other Nonoperating Income.
Income Tax Expense.
Equity Income in Affiliates.
Representation of Shares Outstanding in the Income Statement.
Earnings per Share.
Unusual or Infrequent Items.
Earnings before Interest, Taxes, Depreciation, and Amortization.
EBITDA: Popular Measure of a Company's Financial Performance.
EBITDA Has Several Shortcomings.
Chapter 6 Balance Sheet.
Assets Represent the Company’s Resources.
Liabilities and Shareholders’ Equity Represent the Company’s Sources of Funds (i.e., How It Pays for Assets).
Lemonade Stand and the Accounting Equation.
Why Is Double-Entry Accounting Important?
Income Statement Revisited: Links to Balance Sheet.
Retained Earnings: The Link Between Balance Sheet and Income Statement.
Impact of Revenues on the Balance Sheet.
Impact of COGS on the Balance Sheet.
Impact of SG&A on the Balance Sheet.
Impact of Depreciation on the Balance Sheet.
Impact of Interest Expense on the Balance Sheet.
Impact of Tax Expense on the Balance Sheet.
Total Impact of the Year on the Balance Sheet.
Order of Liquidity.
Current versus Noncurrent Assets.
Current versus Long-Term Liabilities.
LIFO Reserve: The Link between FIFO and LIFO Inventory Methods.
Writing Down Inventories.
PP&E, Net of Depreciation.
Reconciliation of PP&E.
Fixed Asset Impairments.
Fixed Asset Retirement and Disposal.
Summary: Intangible Assets and Goodwill.
Other Typical Current Liabilities.
Short-Term Debt versus Long-Term Debt.
Summary: Deferred Taxes.
Defined Benefit Plan.
Additional Paid-In Capital.
Summary: Shareholders’ Equity.
Chapter 7 Cash Flow Statement.
Cash Flow Statement to the Rescue!
Cash Flow from Operations.
Getting from Net Income to Cost from Operations.
Changes in Accounts Receivable.
Changes in Accounts Receivable and the Lemonade Stand.
Changes in Inventories.
Changes in Inventories and the Lemonade Stand.
Changes in Accounts Payable.
Accounts Payable and the Lemonade Stand.
Changes in Other Current Assets.
Changes in Other Current Liabilities.
Increases/Decreases in Deferred Taxes.
Summary: Cash Flow from Operations.
Cash Flow from Investing Activities.
Cash Flow from Financing Activities.
How the Cash Flow Is Linked to the Balance Sheet.
Chapter 8 Financial Ratio Analysis.
What Is Financial Ratio Analysis?
Quick (Acid) Test.
Current Cash Debt Coverage Ratio.
Gross Profit Margin.
Profit Margin on Sales.
Return on Assets.
Return on Equity.
Earnings per Share.
Days Sales Outstanding.
Days Sales of Inventory.
Debt to Total Assets.
Times Interest Earned.
Cash Debt Coverage Ratio.
Stock Options Expensing.
Then . . . .
. . . and Now.
How Are These Two Forms of Capital Raised?
Who Issues Debt?
Capital versus Operating Leases.