Reading Financial Reports for Dummiesby Lita Epstein
The U.S. government began standardizing and regulating financial reporting in 1929 when the stock market crash made it painfully clear that businesses often made absurd claims and that investors were either gullible, unable to verify information, or both. Now, financial reports are used by a company’s management to measure profitability (or lack of it), optimize operations and guide the company, by banks and other lenders to gauge the company’s financial health, and by institutional or individual investors interested in purchasing stock.
Unless you’re financially savvy, annual reports with all those figures, frustrating footnotes, and fine print are boring and intimidating. However, once you have a fundamental knowledge of finance and its basic terminology, you can find the juicy parts. Reading Financial Reports For Dummies by Lita Epstein, a teacher of online financial courses and author of Trading for Dummies, gets you up to speed so you can:
- Go past the prose that can maximize the positive and minimize the negative and get information in dollars and cents
- Get an overview from the big three—the balance sheet, income statement, and statement of cash flows
- Understand the lingo and read between the lines
- Calculate basics like PE, Dividend Payout Ratio, ROS, ROA, ROE, Operating Margin, and Net Margin
It pays for investors to be somewhat skeptical instead of gullible. Pressured to please Wall Street, companies are sometimes tempted to use “creative” accounting. You’ll discover how to:
- Detect red flags (that, unfortunately, aren’t emphasized in red) such as lawsuits, changes in accounting methods, and obligations to retirees and future retirees
- Understand the different reporting requirements for public companies and private companies with various types of business structures
- Analyze a company’s cash flow, a prime indicator of its financial health
- Scrutinize deals such as mergers, acquisitions, liquidations and other major changes in key assets
Organized so you can start where you’re comfortable and proceed at your own pace, Reading Financial Reports for Dummies helps managers prepare annual reports and use financial reporting to budget more efficiently and helps investors base their decisions on knowledge instead of hype. Whether you’re in business or in the stock market, knowledge is always an asset.
Meet the Author
Lita Epstein is a writer and a designer and teacher of online financial courses, as well as the coauthor of Trading For Dummies.
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One of the things I don't like about the "dummies" books is that frequently, in order to be politically correct, they will automatically seek out a woman to write the book instead of just seeking out the most qualified person they can find. From reading the "about the author" section in the book, it appears that she doesn't have very much actual work experience in the field of corporate finance. "After receiving her MBA, she managed finances for a small nonprofit organization and the facilities management section of a large medical clinic." That's all? The rest of her resume contains some impressive jobs, but none of them are directly related to studying financial statements. Surely there must be at least a thousand people out there that are more qualified to write this book. The author's lack of real world experience in this specific field makes me question the integrity of the information contained in the book. I'm not saying that it's all wrong, I just don't completely trust it. Having said that, I'll finish this review by quoting my favorite passage from the book, on page 105: "The calculation for earnings per share is relatively simple. You take the number of outstanding shares and divide it by the net earnings." Oops! Actually, to calculate earnings per share, you take net earnings and divide it by the number of outstanding shares. I guess it's not so simple after all!
I am reading this book to prepare myself for a Managerial Accounting course. It is a great primer for anyone who would like to become familiar with the terminology and jargon associated with managerial accounting. The error noted by the "Anonymous" reviewer from 2009 (The page 105 calculation of earnings per share) does not exist in the 2013 version of the book.
AN EXCELLENT TOOL. CONCISE AND WELL ORGANIZED. WILL PROBABLY USE THIS TOOL FOR YEARS. THE AUTHOR'S BEST FEATURE WAS EXPLAINING THE OUTCOME OR MEASUREMENT IN UNDERSTANDABLE REAL WORLD TERMS. ALLOWED ME TO CONSTRUCT A UNIVERSAL SPREADSHEET FOR ANALYSIS OF ANY PUBLIC COMPANY'S FINANCIAL CONDITION IN JUST MINUTES WITHOUT A LOT OF STRESS. REALLY HELPS TO SHINE A LIGHT IN THE CORNERS SO I CAN COMPARE TWO UNRELATED ENTITIES AND WEITGH THE STRENGTHS AND WEAKNESSES. MOST BOOKS OF THIS TYPES ARE FILLED WITH TOO MUCH UNUSABLE TECHNICAL DETAIL.
This book came as a total surprise to me. I did not expect the level of detail, and the simplicity with which things were explained.
I must warn you that I bought this book 3 days ago, and now at chapter 12 - Liquidity, can be quite a brain drain.
Using real world Statements on Yahoo along with this book makes it a good read for every one who understands stock markets but lacking the details.