List of Exhibits vii

Preface to the Tenth Edition ix

Part One—Fundamentals 1

1 Arming You with Essential Knowledge 3

2 Starting with Cash Flows 13

3 Bedrock Financial Statement #1: The Income Statement 23

4 Bedrock Financial Statement #2: The Balance Sheet 31

5 Reporting Cash Flows 39

Part Two— Connections 49

6 Fitting Together Financial Statements 51

7 Sales Revenue and Accounts Receivable 59

8 Cost of Sales Revenue, Inventory, and Accounts Payable 65

9 Operating Expenses and Prepaid Expenses 77

10 Depreciation and Amortization Expense, and Fixed and Other Long- Term Assets 83

11 Operating Expenses and Accounts Payable 95

12 Accruing Liability for Unpaid Expenses 101

13 Income Tax Expense and Its Liability 107

14 Interest Expense, Accrued Liabilities, and Loans Payable 113

15 Net Income, Retained Earnings, and Earnings per Share (EPS) 123

16 Connecting the Cash Flow Dots 129

Part Three— Using and Analyzing Financial Statements 145

17 Footnotes and Management Discussions 147

18 Financial Statement Ratios and Analysis: Strength 159

19 Financial Statement Ratios and Analysis: Performance 173

20 Financial Engineering 187

21 Financial Fraud, aka Cooking the Books 199

22 CPAs and Financial Reports 211

23 Basic Questions, Basic Answers 219

About the Author 235

Index 237

THE NEWEST EDITION OF THE MOST ACCESSIBLE GUIDE TO READING AND UNDERSTANDING FINANCIAL REPORTS

In the newly revised and updated 10th Edition of How to Read a Financial Report, and in keeping with the legacy established by his father, the late professor emeritus John “TOP” Tracy, veteran financial consultant Tage C. Tracy teaches readers how to comprehend, analyze, and interpret financial reports, using easy-to-understand and jargon-free language to make the information accessible to all. Hands-on tools, highly relevant exhibits, and end-of-chapter real-world guidance are included to assist readers in understanding and integrating concepts. This book offers a wide range of invaluable new material but never loses its primary objective of educating readers on the critical concepts of understanding cash flows and the connectivity of the big three financial statements, the balance sheet, the income statement, and the statement of cash flows.

Along with presenting foundational aspects of financial reports and how they differ from financial statements, this book explores the various meaningful connections between different financial metrics, reports, and statements, such as how loans, interest expense, and accrued liabilities are connected to the income statement, balance sheet, and statement of cash flows. The book concludes with key insight on how financial information can be used to tell a story, focusing on different KPIs that can be presented or omitted, as well as ways in which financial data can be manipulated, and used to detect fraud.

Completely thorough in its coverage and accessible regardless of finance or accounting background, How to Read a Financial Report is an essential reference for a wide range of parties seeking to better understand basic financial information or learn how financial information can be packaged by Wall Street to persuade external parties.