Cambridge Business Association
How to Read a Financial Report
Book

How to Read a Financial Report

Wringing Vital Signs out of the Numbers

John A. Tracy
Wiley, 2004
First Edition: 1980
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Editorial Rating

8

Qualities

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  • Applicable

Recommendation

Taking the time to learn the basics of reading corporate financial statements can help you become more informed about your investments, your job and your business decisions. John A. Tracy provides a clearly written guide to core financial reports. He shows you how they fit together and why they matter. You will gain confidence as you work through the concepts he explains and begin to use what you learn to dig into the financials of familiar companies. In the hands of a lesser teacher than Tracy, these concepts could be confusing. In fact, the whole discussion could become a powerful soporific that descends on your mind like a fog. Instead, this book makes it interesting and clear. Everyone needs some financial awareness. getAbstract believes that this valuable introduction is a good starting point for learning to read real business data. New managers may find that Tracy opens a door and invites you to come into a room that was previously locked.

Summary

Core Financial Reports

Managers often have a feel for how their businesses are doing, but sometimes their impressions are off the mark. When you learn to decode well-prepared financial reports, you will be much better equipped to understand the realities of a business’s position, what it has been doing correctly and where it faces challenges. Reading financial reports with an understanding of how the accountant prepared them will give you an even clearer picture. When you compare reports from several companies in an industry, you will know their conditions and how they rank among their competitors.

The statement of cash flows shows exact cash inflows and outflows to present a firm’s cash needs. The report shows the cash received from customers and other sources, and how it was used. Most managers focus on this report. However, you cannot use it to determine profitability or financial condition. Profitability is reported on the income statement, which begins with total revenue from sales and then steps through a series of deductions: cost of goods, operating expenses, depreciation, taxes and other business costs. This report also lists certain key numbers, such as gross...

About the Author

John A. Tracy is emeritus professor of accounting at the University of Colorado at Boulder. He has written several books on accounting issues.

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