How to Read a Financial Statement (2009)
Written by R.D. Norton, Ph.D.
If you think that financial statements are only for experts, you are mistaken -- financial statements are for you. Financial statements are prepared and made available to you by every company you invest in, every charity you support, your employer, your bank, your place of worship, your state and town or city, even your customers and suppliers. In short, everyone with whom you have any financial relationship "keeps books" that can help you better control your financial relationships.
Statements as thick and glossy as the Annual Report of a multinational corporation or as simple as the typed Treasurer's Report of a small club all provide information of considerable potential value to you. Getting that important information out of statements, however, can be confusing, especially when management "insiders" are hiding something.
Our best-selling book, How to Read a Financial Statement, concisely describes for the nonaccountant the purposes and arrangement of balance sheets, income, and cash flow statements and how to judge them. For example, we tell you where to find questionable items in audited statements. Our glossary contains definitions of terms.
The 2008 edition of “How to Read a Financial Statement” includes two new chapters that delve into the accounting scandals of 2001 and 2002 and the accounting issues that contributed to the current sub-prime lending crisis. The book also includes a comprehensive glossary to help readers understand the technical terms used in the book.
About the Author
Dr. R.D. Norton is a senior fellow and Research Advisor at the American Institute for Economic Research. He is the author or editor of a dozen books on economics and finance and holds a Ph.D. from Princeton University. He was formerly Executive Director of the Eastern Economic Association and an economics professor at the University of Texas at Dallas, Mount Holyoke College, and Bryant University, where he had an endowed chair in business economics.
“Investors can learn more about corporate finances thanks to an updated self-help book, ‘How to Read a Financial Statement.’”
David Burge, El Paso Times, El Paso, TX
“Want to learn how to analyze a company's balance sheet, cash flow, income, and owner's equity statements? A 100-page paperback, How to Read a Financial Statement, will show you how.”
“’How to Read A Financial Statement’ … is a 102-page, easy-to-understand book that should help you decipher company financial reports …”
Jay Goldinger, former personal finance columnist, The Patriot Ledger, Quincy, MA
I. WHY READ A FINANCIAL STATEMENT?
The Auditors’ Report
II. THE BALANCE SHEET
Assets and Valuation
Types of Assets
III. ANALYSIS OF THE BALANCE SHEET
IV. THE INCOME STATEMENT
Earnings per Share
Statements of Equity and Net Assets
V. ANALYSIS OF THE INCOME STATEMENT
The Operating Cycle and Short-Term Solvency
Turnover, Efficiency, and Flexibility
Leverage and Return on InvestmenT
VI. THE CASH FLOW STATEMENT
Cash Flows from Operations
Cash Flows from Investing and Financing
VII. ANALYSIS OF THE CASH FLOW STATEMENT
Earnings Quality and Operating Cash Flows
Solvency and Financing Cash FlowS
Cash Flow Adequacy
Earnings Quality, Cash Flow, and Enron
VIII. ACCOUNTING FRAUD: ENRON’S LINGERING SHADOW
“Managed Earnings”: Why Companies Routinely Massage the Books
Tricks of the Trade
The Accounting Fraud Crisis of 2001 and 2002
Enron, the SEC, and Mark-to-Market Valuation
Where Were the Auditors?
What Did the Sarbanes-Oxley Act Do?
Backdated Stock Options: OK as Long as They Are Expensed
IX. ACCOUNTING IN THE SUBPRIME MELTDOWN
Too Much of a Good Thing: From Securitization to Liquidity Puts
Easy Money, January 2002-July 2004
Throwing Caution to the Wind: Countrywide, 2004-2007
What About the Auditors?
Write-Downs: Global Reach
The Bond-Rating Agencies: Building a House of Cards
Where Were the Bank Regulators?
Do Regulators Contribute to Financial Crises?
New Rules for Banks?