Skip to main content

Financial Reporting for Managers: A Value-Creation Perspective

Financial Reporting for Managers: A Value-Creation Perspective

Jamie Pratt, D. Eric Hirst

ISBN: 978-0-471-45749-7

Mar 2008

440 pages

In Stock

$160.95

Description

This brief textbook is designed for business students and managers, with little prior exposure to financial reporting, who wish to understand how financial statements can help them - and encourage others - to make decisions in the long run interest of the firm’s shareholders. 

Pratt/Hirst, Financial Reporting for Managers is targeted at thoughtful business students and managers, wishing to learn how financial statement use and analysis can be a path to business success. The text brings together financial reporting and management decision making in a thoughtful, creative and easy to understand manner. Additionally, this text links shareholder value creation and the financial accounting statements to the market value of the firm in a way that can be easily understood by practitioners.

Related Resources

1. Value Creation, Financial Statements, And The Environment Of Financial Reporting.

Value Creation and Successful Management.

Value Creation Through Operating, Investing and Financial Activities.

Return on Equity (ROE).

A Caution about Measures of Value Creation.

Estimating the Cost of Equity – An Intuitive Approach.

The Financial Statements – An Introduction.

The Balance Sheet.

Statement of Cash Flows.

Income Statement.

Statement of Changes in Shareholders Equity.

Did Lowe's Create Value in 2007?

The Economic Context in which Financial Reports are Prepared and Used.

Reporting Entities and Industries.

Corporate Governance.

Financial Information Users and Capital Markets.

Contracts: Debt Covenants and Management Compensation.

Financial Reporting Regulations and Standards.

Generally Accepted Accounting Principles.

Independent Auditors.

Board of Directors and Audit Committee.

Legal Liability.

Professional Reputation and Ethics.

Sarbanes-Oxley Act and Internal Controls.

Global Perspective: Accounting Practices Outside the U.S.

Summary.

Appendix 1A. Estimating the Cost of Equity.

Case and Review Questions.

2. The Financial Statements – A Closer Look.

Operating Activities, the Financial Statements, and Value Creation.

Operating Performance and the Income Statement.

Operating Performance and Cash Provided by Operating Activities.

Investing Activities, Asset Management, and Financial Statement and Value Creation.

Working Capital Management. 

Long-term (Producing) Assets.

Financing Activities, the Financial Statements, and Value Creation.

Transactions with Debt Holders.

Transactions with Equity Holders.

Financial Statement Differences Across Industries.

Global Perspective: Financial Statements and Analyses in Other Countries.

Summary.

Case and Review Questions.

3. Measurement Framework And Mechanics Of Financial Accounting.

Part 1: Measurement Framework for the Financial Statements.

Objectives of Financial Reporting.

Elements and Their Qualitative Characteristics.

Assumptions, Valuation Principles, and Exceptions.

Assumptions of Financial Accounting.

Markets and Valuations Bases.

Valuation Principles of Financial Accounting.

Exceptions of Financial Accounting.

Part 2: Mechanics of Financial Accounting.

Basic Accounting Equation and Financial Statements.

Transactions, Accounts, and the Accounting Equation.

Mechanics of Financial Accounting: An Illustration.

Global Perspective: Measurement Fundamentals and International Reporting Standards.

Case and Review Questions.

Appendix 3A. Debits, Credits, and Journal Entries.

Journal Entries and the Accounting Equation.

Permanent, Temporary Accounts, and the Closing Process.

4. Using Financial Statements To Analyze Value Creation.

Determinants of Value Creation: Analyzing Return of Equity.

Return on Assets (ROA).

Measures of Effective Sales and Expense Management.

Measures of Effective Assets Management.

Asset Turnover Ratios.

Solvency Ratios.

Measures of Effective Capital Structure Management.

Using Financial Ratios to Analyze Value Creation Structure – Summary.

Analyzing the Statement of Cash Flows.

Financial Statement Analysis – A Wrap-Up and Industry Comparison.

Global Perspective: Working Capital Management.

Case and Review Questions.

5. Return On Equity, Value Creation, And Firm Value.

A Model of Firm Value Based on ROE and Value Creation.

Market-to-Book Ratios.

Using the ROE Valuation Model to Estimate Firm Market Value.

Predicting Future ROE.

Incorporating ROE Predictions into the Valuation Model.

Using the Valuation Model to Estimate Nordstrom's Market Value.

Implications of Differences Between Actual and Estimated Market Values.

Using Financial Statements to Assess the Value of Non-US Firms.

Summary.

Case and Review Questions.

6. Earnings Management.

Incentives to Manage Earnings.

Common Forms of Earnings Management.

Overstating Operating Performance.

Understating Operating Performance.

Off-Balance Sheet Financing.

How Managers Use Accounting Judgments to Manage Earnings.

Materiality Judgments.

Recognition versus Disclosure Judgments.

Classification Judgments.

Measurement Judgments.

Measurement Judgments: Summary.

“Real” Earnings Management.

Earnings Management and Value Creation.

A Global Perspective on Earnings Management.

Case and Review Questions.

7. Operating Transactions – Revenues, Expenses And Working Capital.

Income Statement: Disclosure and Presentation.

Operating Revenues and Expenses.

Other Revenues and Expenses.

Interest Expense, net.

Disposal of a Business Segment – Discontinued Operations.

Extraordinary Items.

Changes in Accounting Methods.

Disclosure of Income Taxes.

Earnings-Per-Share Disclosure.

Working Capital.

Cash.

Cash Restrictions.

Cash Management.

Cash Control.

Revenue Recognition.

Managing Receivables.

Valuing Receivables on the Balance Sheet.

Accounting for Bad Debts (Uncollectibles).

Accounts Receivable Control and Aging Schedules.

Inventory.

Accounting for Inventory: Four Important Issues.

Acquiring Inventory: What Costs to Capitalize.

Carry Inventory: Perpetual Method.

Balance Sheet.

Income Statement.

Which Cost Flow Assumption.

Inventory Cost Flow Assumptions: Effects on the Financial Statement.

Observations about LIFO: Liquidations and LIFO Reserves.

Inventory Cost Flow Assumptions: Tradeoffs.

Ending Inventory: Applying the Lower-of-Cost-or-Market Rule.

Current Liabilities.

Determinable Liabilities.

Contingent Liabilities.

Statement of Cash Flows: Operating Section.

Direct Method.

Indirect Method.

Summary.

Cases and Review Questions.

8. Long-Term Producing Assets And Investments In Equity Securities.

Investments in Long-Term Producing Assets.

Accounting for Producing Assets: An Overview.

Acquisition: What Costs to Capitalize.

Post-acquisition Expenditures.

Cost Allocation.

Estimating Useful Life and Salvage Value.

Cost Allocation Methods

Disposal: Retirement, Sales, and Trade-In

Investments in Equity Securities.

Cost Method.

Mark-to-Market Method.

Equity Method.

Consolidated Financial Statements.

Investing Activities and Statement of Cash Flows.

Summary.

Cases and Review Questions.

Appendix A. Time Value Of Money.

Interest: The Price of Money.

Time Value.

Size of Time Value.

Time Value Computations.

Future Value.

Present Value.

An Illustration.

Equivalent Value.

Computing Implicit Rates of Return.

Time Value of Money and Financial Reporting.

Cases and Review Questions.

Glossary.

  • Shareholder Value Theme: The shareholder value creation theme is unique.  The text begins by making the point that the goal of management is long run shareholder value creation and then proceeds to explain how the financial reports can be used to measure, identify, and encourage value creation.  This theme pervades the entire text - from the first to the last chapter.
  • ROE Focus (Return On Equity): The text is organized around ROE, its determinants, and its relationship to the market value of the firm.
  • Real-World Cases: Each chapter contains a set of real-world cases, requiring the student to identify and use the concepts covered in the chapter.  These relatively short cases have been extensively class tested and well received, and involve a selection of both U.S. and non-U.S. companies and settings. 
  • Integrated Global Coverage: Each chapter contains a section on global accounting issues and a number of international examples and references sprinkled throughout the reading. Indeed, global accounting coverage is not treated as a separate after thought.  It is integrated throughout the discussion.
  • Boxed-in Features: Each chapter contains a large number of boxed-in features. These items provide commentary that is separated from – but related to – the text discussion including: “test your knowledge” review exercises, issues related to analysis of financial statements, definitions of key terms, insights on real-world situations, globalization, performance measurement, the ROE model, “red flags” to watch out for, and corporate governance.
  • Flexibility:  The text offers flexibility with respect to the nature and order of the mechanics coverage.