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How to Keep Score in Business: Accounting and Financial Analysis for the Non-Accountant, CourseSmart eTextbook, 2nd Edition

By Robert Follett

Published by FT Press

Published Date: Oct 17, 2011

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In this classic book, 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 financial reports. Follett shows how to apply core tools for analyzing financial reports and investment opportunities, and demystifies key accounting terms every manager and investor needs to know.


This book won't turn you into an accountant, but it will enable you to work confidently with accountants, auditors, financial analysts, budget directors, controllers, treasurers, bankers, and brokers–and make more informed business decisions every single day. Thoroughly updated for current financial practices, How to Keep Score in Business, Second Edition covers all this, and much more:  

  • Discovering a company's true financial position through its balance sheet.
  • Identifying valuable information that isn't shown on the balance sheet.
  • Recognizing what income statements show–and what they hide.
  • Using ROI tools to evaluate performance or analyze potential investments.
  • Building cash flow budgets for effective planning.
  • Using common analysis ratios—and recognizing their limitations.

Table of Contents

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

Glossary     10

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

Summary     46

Chapter 4 More Balance Sheet    47

Cost Versus Value     47

Intangible Assets     48

Goodwill     50

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

Summary     115

Chapter 8 Changes in Financial Position     117

Summary     121

Chapter 9 Cash Flow Budget     123

Summary     129

Chapter 10 Other Analysis Ratios and Tools     131

Profit as a Percentage of Sales     131

Breakeven     132

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

Conclusion     151

Appendix A Acme Widget Company 153

Appendix B Present Value Tables 169