Cover image for Understanding the corporate annual report : nuts, bolts, and a few loose screws
Understanding the corporate annual report : nuts, bolts, and a few loose screws
Fraser, Lyn M.
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Publication Information:
Upper Saddle River, N.J. : Prentice Hall, [2003]

Physical Description:
xix, 133 pages : illustrations ; 24 cm
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HG4028.B2 F73 2003 Adult Non-Fiction Non-Fiction Area

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For courses in Financial Accounting, Financial Reporting, Financial Statement Analysis, Introduction to Business, or MBA finance courses.

Understanding the Corporate Annual Report: Nuts, Bolts, and A Few Loose Screws provides a clearly written, step-by-step guide to understanding corporate annual reports. Authors Fraser and Ormiston instruct readers on how to ignore the PR letters from the corporate management team, engaging graphics, and other "garnishes" that typically accompany current annual reports in order to focus on what really counts--a company's performance and financial health! Throughout the text, the authors examine management's attempts to manipulate earnings and other performance measures, and they explain what the numbers in the report really mean.

Author Notes

Lyn M. Fraser has taught undergraduate and graduate classes in financial statement analysis at Texas A&M University and has conducted numerous seminars on the subject for executive development and continuing education courses. A Certified Public Accountant, she is the co-author with Aileen Ormiston of Understanding Financial Statements (Prentice Hall, 6th edition, 2001) and has published articles in the Journal of Accountancy, the Journal of Commercial Bank Lending, the Magazine of Bank Administration, and the Journal of Business Strategies. She has been recognized for Distinguished Achievement in Teaching by the Former Students Association at Texas A&M University and is a member of Phi Beta Kappa.

Aileen Ormiston teaches accounting in the Business Department of Mesa Community College in Mesa, Arizona. She received her bachelor's degree in accounting from Michigan State University and a master's degree in finance from Texas A&M University. She is a member of the American Institute of Certified Public Accountants, the Accounting Association, and the Institute, of Management Accountants. Mesa Community College was one of 13 universities and colleges that received a grant from the Accounting Education Change Commission, and Aileen was actively involved in developing the new accounting curriculum.

The authors' book, Understanding Financial Statements, has sold more than 140,000 copies.



It is increasingly evident that those who rely on reported financial information-such as investors, creditors, employees, suppliers, customers, and competitors-cannot depend exclusively on the reports of so-called "independent" auditors or on the recommendations of market analysts in evaluating a company's financial health and prospects. To make informed choices, those involved in financial decision-making need a basic understanding of a company's financial reports and the ability to evaluate the information they contain. The primary resource for assessing a company's financial condition and performance is the set of financial statements, notes, management discussion, auditors' report, and other information presented in its annual report to shareholders. (The companion documents to the corporate annual report are the 10-K report filed annually and the 10-Q reports filed quarterly with the Securities and Exchange Commission.) The purpose of this book is to help readers understand and evaluate the information presented in a corporate annual report for purposes of making financial decisions relating to that company. HOW THIS BOOK CAN HELP This book provides a clearly written, step-by-step guide through the corporate annual report. The authors show readers how to cut through the window dressing and attempts by management to manipulate earnings and other performance measures. They explain what the numbers and other information mean for purposes of making practical business decisions. Examples based on actual company reports are used throughout the book. The material is presented on a level that can be read and understood by any reader-regardless of background-who is interested in making sense of the information contained in a corporate annual report. Chapter 1 lays out the basic content of anannual report,discusses what to use and what to ignore, and provides a personal example of how the approach taken in the book can help readers. The personal example is based on the experience of one of the book's authors and her daughter, who worked at Enron Corporation (and did not lose her 401(k) investment). Chapter 2 provides a brief introduction to accounting methods, takes readers step-by-step through thestatement of earnings (income statement),discusses various measures of "earnings," and shows readers how to assess the quality of reported earnings by illustrating techniques for earnings management and abuses in the recognition of revenue, expenses, and profits. Chapter 3 covers thestatement of financial condition (balance sheet)and thestatement of shareholders' equity,including the accounting principles and management choices that affect their presentation. Chapter 4 discusses thestatement of cash flowswith a focus oncash flow from operations(and related analytical concepts) to measure performance. Chapter 5 shows readers how to utilize the material in a corporate annual report for practical decision-making by presenting a comprehensive analysis using financial ratios and other analytical tools; the chapter also discusses additional resources for evaluating company reports. Throughout the book, examples are based on actual company reports. The 2000 Annual Report for Eastman Kodak Company provides the basic background, and other companies' reports are used to illustrate specific additional issues. Each chapter includes a list of caution flags relating to the material presented in the chapter. The caution flags are useful in highlighting areas that require additional analysis and in helping readers spot potential problems. A supplement to Chapter 5 illustrates how the caution flags could have been used to identify problems in the WorldCom Inc. 2001 annual report. A Test Yourself section is available at the conclusion of each chapter (with Solutions at the end of the book), offering an opportu Excerpted from Understanding the Corporate Annual Report: Nuts, Bolts and a Few Loose Screws by Lyn M. Fraser, Aileen Ormiston All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.

Table of Contents

1 I Told My Daughter Not to Invest in Enron
2 Earnings-Real and Imagined
3 Assets, Liabilities, and Equity: What a Firm Owes and Owns
4 Cash Flows-Operating, Financing, Investing
5 A Comprehensive Analysis
Supplement: Caution Flags and WorldCom
Solutions to Test Yourself