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Copyright, ii
Preface, xi
Organization of the Ninth Edition, xii
Uses for the Ninth Edition, xiv
Features of the Ninth Edition, xv
Acknowledgments, xvii
About the Authors, xviii
Chapter 1. Financial Statements: An Overview, 1
Map or Maze, 1
Usefulness, 3
Volume of Information, 3
Where to Find a Company’s Financial Statements, 6
The Financial Statements, 7
Notes to the Financial Statements, 7
Auditor’s Report, 10
Sarbanes-Oxley Act of 2002, 16
Management Discussion and Analysis, 17
Five-Year Summary of Selected Financial Data and Market Data, 19
Pandora (A.K.A. “PR Fluff”), 19
Proxy Statement, 19
Missing and Hard-to-Find Information, 20
Complexities, 21
Accounting Choices, 21
The Future of Financial Statements, 22
Quality of Financial Reporting, 22
Timing of Revenue and Expense Recognition, 22
Discretionary Items, 23
The Journey Through the Maze Continues, 23
Self-Test, 24
Study Questions, Problems, and Cases, 27
Chapter 2. The Balance Sheet, 36
Financial Condition, 36
Consolidation, 37
Balance Sheet Date, 37
Comparative Data, 37
Common-Size Balance Sheet, 37
Assets, 40
Current Assets, 40
Cash and Marketable Securities, 41
Accounts Receivable, 42
Inventories, 44
Inventory Accounting Methods, 45
Prepaid Expenses, 48
Property, Plant, and Equipment, 49
Other Assets, 52
Liabilities, 52
Current Liabilities, 52
Accounts Payable, 52
Notes Payable, 53
Current Maturities of Long-Term Debt, 54
Accrued Liabilities, 54
Unearned Revenue or Deferred Credits, 55
Deferred Federal Income Taxes, 55
Long-Term Debt, 59
Capital Lease Obligations, 60
Postretirement Benefits Other Than Pensions, 60
Commitments and Contingencies, 61
Hybrid Securities, 61
Stockholders’ Equity, 62
Common Stock, 62
Additional Paid-In Capital, 62
Retained Earnings, 62
Other Equity Accounts, 63
Other Balance Sheet Items, 64
Self-Test, 65
Study Questions, Problems, and Cases, 70
Chapter 3. Income Statement and Statement of Stockholders’ Equity, 78
The Income Statement, 79
Common-Size Income Statement, 81
Net Sales, 81
Cost of Goods Sold, 83
Gross Profit, 83
Operating Expense, 85
Depreciation and Amortization, 86
Operating Profit, 87
Other Income (Expense), 88
Equity Earnings, 88
Earnings Before Income Taxes/Effective Tax Rate, 90
Special Items, 91
Accounting Changes, 92
Net Earnings, 92
Earnings Per Common Share, 92
Comprehensive Income, 93
The Statement of Stockholders’ Equity, 94
Earnings Quality and Cash Flow, 96
Self-Test, 96
Study Questions, Problems, and Cases, 101
Chapter 4. Statement of Cash Flows, 107
Preparing a Statement of Cash Flows, 108
Calculating Cash Flow from Operating Activities, 113
Indirect Method, 114
Cash Flow from Investing Activities, 116
Cash Flow from Financing Activities, 117
Change in Cash, 118
Analyzing the Statement of Cash Flows, 119
Cash Flow from Operations, 119
Nocash Corporation, 120
R.E.C. Inc.: Analysis of the Statement of Cash Flows, 122
R.E.C. Inc. Analysis: Cash Flow from Operating Activities, 122
Summary Analysis of the Statement of Cash Flows, 124
Analysis of Cash Inflows, 125
Analysis of Cash Outflows, 126
Are We There Yet?, 126
Self-Test, 127
Study Questions, Problems, and Cases, 131
Appendix 4A Statement of Cash Flows—Direct Method, 144
Direct Method, 144
Chapter 5. A Guide to Earnings and Financial Reporting Quality, 148
Using the Checklist, 150
I. Sales or Revenues, 150
II. Cost of Goods Sold, 156
III. Operating Expenses, 159
IV. Nonoperating Revenue and Expense, 166
V. Other Issues, 169
What Are the Real Earnings?, 171
Quality of Financial Reporting—The Balance Sheet, 171
Quality of Financial Reporting—The Statement of Cash Flows, 172
Self-Test, 173
Study Questions, Problems, and Cases, 178
Chapter 6. The Analysis of Financial Statements, 180
Objectives of Analysis, 180
Sources of Information, 182
Proxy Statement, 182
Auditor’s Report, 182
Management Discussion and Analysis, 182
Supplementary Schedules, 182
Form 10-K and Form 10-Q, 183
Other Sources, 183
Tools and Techniques, 185
Common-Size Financial Statements, 185
Key Financial Ratios, 186
Liquidity Ratios: Short-Term Solvency, 188
Cash Conversion Cycle or Net Trade Cycle, 191
Activity Ratios: Asset Liquidity, Asset Management Efficiency, 192
Leverage Ratios: Debt Financing and Coverage, 194
Profitability Ratios: Overall Efficiency and Performance, 197
Market Ratios, 199
Analyzing the Data, 200
Background: Economy, Industry, and Firm, 202
Short-Term Liquidity, 203
Operating Efficiency, 205
Capital Structure and Long-Term Solvency, 205
Profitability, 209
Relating the Ratios—The Du Pont System, 211
Projections and Pro Forma Statements, 212
Summary of Analysis, 213
Self-Test, 215
Study Questions, Problems, and Cases, 221
Appendix A. Summary of Financial Ratios, 251
Appendix B. Solutions to Self-Tests, 254
Appendix C. Glossary, 256
Index, 265

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