CONTENTS Introduction ix 1 Financial Statements 1 The Elements of Managerial Finance Why Financial Statements? 2 The Balance Sheet 3 The Income Statement 11 The Cash Flow Statement 14 Where to Find It 18 Summing Up 19 2 Finding Meaning in Financial Statements 21 A Look behind the Numbers Ratio Analysis 22 Percentage-Format Financial Statements 30 From Financial Measures to a Balanced Scorecard 31 Summing Up 34 3Important Accounting Concepts 37 The Rules That Shape Financial Statements Generally Accepted Accounting Principles 38 Accrual versus Cash Accounting 39 Accounting for Inventory 40 Depreciation 46 Accounting for Leases 51 Historic Cost and Its Implications 54 Cost Accounting 55 Summing Up 59 4Taxes 61 Important Detail You Should Know Taxes and the Legal Form of the Business 63 Progressive Tax Rates 69 Marginal Tax Rate 71 Credits versus Deductions 72 Tax Loss Carryback and Carryforward 73 Summing Up 73 5Financing Operations and Growth 75 Funding the Different Stages of Growth Start-Up Financing 76 Financing Growth 80 Other Forms of External Financing 85 The Matching of Assets and Financing 86 A Life-Cycle View of Financing 88 Summing Up 93 6Money and Capital Markets 95 Another Option for Funding Growth Money Markets 97 Capital Markets 98 Capital Market Securities 103 Summing Up 107 7Budgeting 109 Forecasting Your Company's Financial Future What Is Budgeting? 111 Budget Functions 111 Types of Budgets 115 The Master Budget 118 The Human Side of Budgeting 128 Summing Up 135 8Practical Tools for Management Decisions 137 Making the Numbers Work for You Cost/Benefk Analysis 138 Accounting Return on Investment 140 Payback Period 141 Breakeven Analysis 142 Estimating Nonquantifiable Benefits and Costs 146 Tracking Performance 146 Summing Up 147 9 The Time Value of Money 149 Calculating the Real Value of Your Investment What Is Time Value? 150 Net Present Value 153 Internal Rate of Return 162 Sensitivity Analysis 165 Economic Value Added 167 Summing Up 169 10 Valuation Concepts 171 Evaluating Opportunity Asset-Based Valuations 174 Earnings-Based Valuation 177 Discounted Cash Flow Method 181 Summing Up 184 Appendix: Activity-Based Budgeting 185 Notes 189 Glossary 191 For Further Reading 200 Index 203 About the Subject Adviser 209 About the Writer 210