Using accounting & financial information : analyzing, forecasting & decision making

152 Pages·2015·23.04 MB·English

by  Mark S

The Financial Accounting
and Auditing Collection
Scott Showalter and Jan Williams, Editors
Using
Accounting
& Financial
Information
Analyzing,
Forecasting &
Decision-Making
Mark S. Bettner
Using Accounting
& Financial Information
Analyzing, Forecasting,
& Decision Making
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Using Accounting
& Financial Information
Analyzing, Forecasting,
& Decision Making
Mark S. Bettner, Ph.D
Christian R. Lindback Professor
Bucknell University
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Using Accounting & Financial Information
Copyright © Business Expert Press, LLC, 2015.
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form or by any
means—electronic, mechanical, photocopy, recording, or any other
except for brief quotations, not to exceed 400 words, without the prior
permission of the publisher.
First published in 2015 by
Business Expert Press, LLC
222 East 46th Street, New York, NY 10017
www.businessexpertpress.com
ISBN-13: 978-1-60649-640-4 (paperback)
ISBN-13: 978-1-60649-641-1 (e-book)
Business Expert Press Financial Accounting and Auditing Collection
Collection ISSN: 2151-2795 (print)
Collection ISSN: 2151-2817 (electronic)
Cover and interior design by S4Carlisle Publishing Services Private Ltd.,
Chennai, India
First edition: 2015
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America
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Abstract
Accounting often is referred to as the language of business; unfortunately,
many business professionals lack the fluency in this unique language
required to perform basic financial analysis, prepare budgetary forecasts,
or compare competing capital investment alternatives. And while there
is no shortage of financial-related textbooks or reference manuals, most
assume that readers have educational backgrounds – and/or have had
years of professional experience – in accounting, financial analysis, or cor-
porate finance.
This book targets professionals with limited exposure to – or formal
training in – accounting or related finance disciplines. These individu-
als often include – but certainly are not limited to – engineers, infor-
mation technology specialists, retail managers, entrepreneurs, marketing
directors, construction contractors, attorneys, and even bankers who are
making career transitions from consumer lending positions to become
commercial loan officers.
The primary purpose of this book is to help managers and busi-
ness owners from diverse professional and educational backgrounds to:
(1) converse more effectively with their accounting and finance col-
leagues; (2) understand the structure and the elements of general-purpose
financial statements, (3) identify both the usefulness and the limitations
of accounting information; (4) prepare basic financial forecasts; and
(5) make sense of commonly used decision-making models.
Keywords
Accruals, accounting, financial statements, balance sheet, income state-
ment, statement of cash flows, assets, deferrals, liabilities, equity, revenue,
expenses, cash flow, financial analysis, financial management, profitabil-
ity, solvency, liquidity, budgeting, decision-making, financial forecasting,
pro forma financial statements, cost–volume–profit analysis, breakeven,
capital budgeting, payback period, discounted present-value, internal rate
of return, net present value, time-value of money.
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Contents
Dedication .........................................................................................viii
Chapter 1 Users of Accounting & Financial Information ...................1
Chapter 2 Corporate Financial Statements .......................................13
Chapter 3 Accrual & Deferral Timing Differences ...........................35
Chapter 4 Financial Statement Analysis ...........................................47
Chapter 5 Long-Term Financial Forecasting ....................................67
Chapter 6 Operating Budgets ..........................................................87
Chapter 7 Cost–Volume–Profit Relationships ................................101
Chapter 8 Capital Budgeting .........................................................119
Index .................................................................................................135
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Dedication
Dedicated to the wonderful Batalden family
of Lamberton, Minnesota.
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CHAPTER 1
Users of Accounting &
Financial Information
Accounting is often referred to as the language of business; unfortunately,
many business professionals lack fluency in this unique language, making
it difficult for them to perform basic financial analysis, prepare budget-
ary forecasts, or compare competing capital investment alternatives.
Although there is no shortage of well-written accounting textbooks, bud-
geting manuals, or finance publications, most require that readers have
educational backgrounds and/or professional experience in accounting
and financial management.
This book targets individuals in management positions with limited
exposure to—or formal training in—the disciplines of accounting and
finance. These professionals include engineers, information technology
specialists, entrepreneurs, marketing managers, construction contractors,
attorneys, and even bankers who have transitioned from consumer-lending
positions to become commercial loan officers.
Throughout this book accounting and financial reporting subjects
are addressed from a user’s perspective. Thus, topics such as transaction
analysis, journal entries, and numerous other recordkeeping procedures
associated with financial statement preparation are avoided. Its purpose is
to help managers from diverse professional and educational backgrounds
to (1) converse more effectively with their accounting and finance col-
leagues; (2) appreciate the usefulness and limitations of general purpose
financial statements; (3) use accounting information in decision-making
processes; (4) develop short- and long-term financial forecasts; and (5)
make sense of commonly used decision-making models.
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