,Contents
Preface
ix
1. Counting th.e. Beans: How Critical Is Good Financial
Information, Anyway? 1
Managing a Company in Today’s Business Environment 1
th.e. Role of th.e. Finance Department 5
GAAP: th.e. “Rules” of Financial Reporting 7
th.e. Relationship of Finance an.d Accounting to th.e. Oth.e.r Departments 9
Manager’s Checklist for Chapter 1 11
2. th.e. Structure an.d Interrelationship of Financial
Statements
12
Tracking th.e. Life Cycle of a Company 14
Accounting Is Like a Football Game on Videotape 16
th.e. Chart of Accounts—A Collection of Buckets 20
th.e. General Ledger—Balancing th.e. Buckets 23
Accrual Accounting—Say What? 25
th.e. Principal Financial Statements Defined 27
Manager’s Checklist for Chapter 230
3. th.e. Balance Sheet: Basic Summary of Value
an.d Ownership
31
Assets an.d Ownership—th.e.y Really Do Balance! 31
Current Assets—Liquidity Makes Things Flow 34
Fixed Assets—Property an.d Possessions 39
Oth.e.r Assets—th.e. “Everything Else” Category 41
Current Liabilities—Repayment Is Key 41
Long-Term Liabilities—Borrowed Capital 45
v Ownership Comes in Various Forms 46
Using This Report Effectively 49
Manager’s Checklist for Chapter 3 49
4. th.e. Income Statement: th.e. Flow of Progress 51
th.e.y Say Timing Is Everything—an.d th.e.y’re Right! 51
Sales: th.e. Grease for th.e. Engine 54
Cost of Sales: What It Takes to Earn th.e. Sale 55
Gross Profit: th.e. First Measure of Profitability 56
Operating Expenses: Running th.e. Business 57
Operating Income: th.e. Basic Business Bottom Line 60
EBITDA—He Bit Who? 61
Oth.e.r Income an.d Expenses—Not Just Odds an.d Ends 61
Income Before Taxes, Income Taxes, an.d Net Income 62
Earnings per Share, Before an.d After Dilution—What? 63
Using This Report Effectively 65
Manager’s Checklist for Chapter 4 66
5. A Profit vs. Cash Flow: What’s th.e. Difference—
an.d Who Cares? 67
th.e. Cash Flow Cycle 68
Cash Basis vs. Accrual Basis 74
Net Profit vs. Net Cash Flow in Your Financial Reports 76
Manager’s Checklist for Chapter 5 81
6. th.e. Cash Flow Statement: Tracking th.e. King 83
Beginning whe.r.e th.e. Income Statement Ends 85
Cash from Operations—Running th.e. Business 87
Cash for Investing—Building th.e. Business 93
Cash from Financing—Capitalizing th.e. Business 95
Using This Report Effectively 97
Manager’s Checklist for Chapter 6 98
7. Critical Performance Factors: Finding th.e.
“Hidden” Information 99
What Are CPFs? Do th.e.y Mix with Water? 100
Measures of Financial Condition an.d Net Worth 101
Measures of Profitability
105
,Measures of Financial Leverage 108
Measures of Productivity
112
Trend Reporting: Using History to Predict th.e. Future 115
Manager’s Checklist for Chapter 7 119
Contents
vi8. Cost Accounting: A Really Short Course in
Manufacturing Productivity 121
th.e. Purpose of Cost Accounting—Strictly for Insiders 122
Fixed an.d Variable Expenses in th.e. Factory 128
Controllable an.d Uncontrollable Expenses 130
Stan.dard Costs—Little Things Mean a Lot 132
Manufacturing Cost Variances—Analysis for Action 134
Manager’s Checklist for Chapter 8 136
9. Business Planning: Creating th.e. Future
You Want, Step by Step 138
Why Take Time to Plan?
138
Strategic Planning vs. Operational Planning 141
Vision an.d Mission—th.e. Starting Point 143
Strategy—Setting Direction 145
Long-Term Goals—th.e. Path to th.e. Mission 145
Short-Term Goals an.d Milestones—th.e. Operating Plan 147
Manager’s Checklist for Chapter 9 153
10. th.e. Annual Budget: Financing Your Plans 155
Tools for Telling th.e. Future: Budgets, Forecasts,
Projections, an.d Tea Leaves 156
How to Budget for Revenues—th.e. “Unpredictable”
Starting Point
157
Budgeting Costs—Understan.ding Relationships
That Affect Costs
160
th.e. Budgeting Process—Trial an.d Error 162
Flexible Budgets—Whatever Happens, We’ve Got
a Budget for It
166
Variance Reporting an.d Taking Action 169
Manager’s Checklist for Chapter 10 171
11. Financing th.e. Business: Understan.ding th.e. Debt
vs. Equity Options
173
How a Business Gets Financed—In th.e. Beginning
an.d Over Time
173
Short-Term Debt—Balancing Working Capital Needs 175
Long-Term Debt—Semi-Permanent Capital or
Asset Acquisition Financing 181
Convertible Debt—th.e. Transition from Debt to Equity 185
Capital Stock—Types an.d Uses 186
Manager’s Checklist for Chapter 11 191
Contents
vii12. Attracting Outside Investors: th.e.
Entrepreneur’s Path 193
th.e. Start-up Company: Seed Money an.d Its Sources 194
Professional Investors: Angels on a Mission 195
Venture Capitalists: What You Need to Know to
Attract th.e.m 198
th.e. Initial Public Offering—Heaven or Hell? 203
Strategic Investors: th.e. Path to a Different Party 204
Acquisition: th.e. Strategic Exit 206
Manager’s Checklist for Chapter 12208
Index
209
, Contents
Preface
ix
1. Counting th.e. Beans: How Critical Is Good Financial
Information, Anyway? 1
Managing a Company in Today’s Business Environment 1
th.e. Role of th.e. Finance Department 5
GAAP: th.e. “Rules” of Financial Reporting 7
th.e. Relationship of Finance an.d Accounting to th.e. Oth.e.r Departments 9
Manager’s Checklist for Chapter 1 11
2. th.e. Structure an.d Interrelationship of Financial
Statements
12
Tracking th.e. Life Cycle of a Company 14
Accounting Is Like a Football Game on Videotape 16
th.e. Chart of Accounts—A Collection of Buckets 20
th.e. General Ledger—Balancing th.e. Buckets 23
Accrual Accounting—Say What? 25
th.e. Principal Financial Statements Defined 27
Manager’s Checklist for Chapter 230
3. th.e. Balance Sheet: Basic Summary of Value
an.d Ownership
31
Assets an.d Ownership—th.e.y Really Do Balance! 31
Current Assets—Liquidity Makes Things Flow 34
Fixed Assets—Property an.d Possessions 39
Oth.e.r Assets—th.e. “Everything Else” Category 41
Current Liabilities—Repayment Is Key 41
Long-Term Liabilities—Borrowed Capital 45
v Ownership Comes in Various Forms 46
Using This Report Effectively 49
Manager’s Checklist for Chapter 3 49
4. th.e. Income Statement: th.e. Flow of Progress 51
th.e.y Say Timing Is Everything—an.d th.e.y’re Right! 51
Sales: th.e. Grease for th.e. Engine 54
Cost of Sales: What It Takes to Earn th.e. Sale 55
Gross Profit: th.e. First Measure of Profitability 56
Operating Expenses: Running th.e. Business 57
Operating Income: th.e. Basic Business Bottom Line 60
EBITDA—He Bit Who? 61
Oth.e.r Income an.d Expenses—Not Just Odds an.d Ends 61
Income Before Taxes, Income Taxes, an.d Net Income 62
Earnings per Share, Before an.d After Dilution—What? 63
Using This Report Effectively 65
Manager’s Checklist for Chapter 4 66
5. A Profit vs. Cash Flow: What’s th.e. Difference—
an.d Who Cares? 67
th.e. Cash Flow Cycle 68
Cash Basis vs. Accrual Basis 74
Net Profit vs. Net Cash Flow in Your Financial Reports 76
Manager’s Checklist for Chapter 5 81
6. th.e. Cash Flow Statement: Tracking th.e. King 83
Beginning whe.r.e th.e. Income Statement Ends 85
Cash from Operations—Running th.e. Business 87
Cash for Investing—Building th.e. Business 93
Cash from Financing—Capitalizing th.e. Business 95
Using This Report Effectively 97
Manager’s Checklist for Chapter 6 98
7. Critical Performance Factors: Finding th.e.
“Hidden” Information 99
What Are CPFs? Do th.e.y Mix with Water? 100
Measures of Financial Condition an.d Net Worth 101
Measures of Profitability
105
,Measures of Financial Leverage 108
Measures of Productivity
112
Trend Reporting: Using History to Predict th.e. Future 115
Manager’s Checklist for Chapter 7 119
Contents
vi8. Cost Accounting: A Really Short Course in
Manufacturing Productivity 121
th.e. Purpose of Cost Accounting—Strictly for Insiders 122
Fixed an.d Variable Expenses in th.e. Factory 128
Controllable an.d Uncontrollable Expenses 130
Stan.dard Costs—Little Things Mean a Lot 132
Manufacturing Cost Variances—Analysis for Action 134
Manager’s Checklist for Chapter 8 136
9. Business Planning: Creating th.e. Future
You Want, Step by Step 138
Why Take Time to Plan?
138
Strategic Planning vs. Operational Planning 141
Vision an.d Mission—th.e. Starting Point 143
Strategy—Setting Direction 145
Long-Term Goals—th.e. Path to th.e. Mission 145
Short-Term Goals an.d Milestones—th.e. Operating Plan 147
Manager’s Checklist for Chapter 9 153
10. th.e. Annual Budget: Financing Your Plans 155
Tools for Telling th.e. Future: Budgets, Forecasts,
Projections, an.d Tea Leaves 156
How to Budget for Revenues—th.e. “Unpredictable”
Starting Point
157
Budgeting Costs—Understan.ding Relationships
That Affect Costs
160
th.e. Budgeting Process—Trial an.d Error 162
Flexible Budgets—Whatever Happens, We’ve Got
a Budget for It
166
Variance Reporting an.d Taking Action 169
Manager’s Checklist for Chapter 10 171
11. Financing th.e. Business: Understan.ding th.e. Debt
vs. Equity Options
173
How a Business Gets Financed—In th.e. Beginning
an.d Over Time
173
Short-Term Debt—Balancing Working Capital Needs 175
Long-Term Debt—Semi-Permanent Capital or
Asset Acquisition Financing 181
Convertible Debt—th.e. Transition from Debt to Equity 185
Capital Stock—Types an.d Uses 186
Manager’s Checklist for Chapter 11 191
Contents
vii12. Attracting Outside Investors: th.e.
Entrepreneur’s Path 193
th.e. Start-up Company: Seed Money an.d Its Sources 194
Professional Investors: Angels on a Mission 195
Venture Capitalists: What You Need to Know to
Attract th.e.m 198
th.e. Initial Public Offering—Heaven or Hell? 203
Strategic Investors: th.e. Path to a Different Party 204
Acquisition: th.e. Strategic Exit 206
Manager’s Checklist for Chapter 12208
Index
209
, Contents
