Finance for Nonfinancial Managers, Second Edition (Briefcase Books Series)

More than 700,000 Briefcase Books sold! One of the top-selling books in the series has been updated to help managers make the best financial decisions possible

AN INTRODUCTION TO FINANCIAL REPORTS--WITH NEW TACTICSFOR BUDGETING AND PINPOINTING KEY FINANCIAL AREAS Financial decisions impact virtually every area of your company. As a manager, it's up to you to understand how and why. Finance for Nonfinancial Managers helps you understand the information in essential financial reportsand then shows you how to use that understanding to make informed, intelligent decisions. It provides a solid working knowledge of: Basic Financial Reports--All about balance sheets, income statements, cash flow statements, and more Cost Accounting--Methods to assess which products or services are most profitable to your firm Operational Planning and Budgeting--Ways to use financial knowledge to strengthen your company Briefcase Books , written specifically for today's busy manager, feature eye-catching icons, checklists, and sidebars to guide managers step-by-step through everyday workplace situations. Look for these innovative design features to help you navigate through each page: Key Terms: Clear defi nitions of key terms and concepts Smart Managing: Tactics and strategies for managing change Tricks of the Trade: Tips for executing the tactics in the book Mistake Proofing: Practical advice for minimizing the possibility of error Caution: Warning signs for when things are about to go wrong For Example: Examples of successful change-management tactics Tools: Specific planning procedures, tactics, and hands-on techniques

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Introduction ix

1. Counting the Beans: Why Good Financial InformationIs Critical to You 1
   Managing a Company in Today's Business Environment 1
   The Role of the Finance Department 4
   The Wonder Widget Company Is Our Guide 7
   The "Rules" of Financial Reporting 8
   The Relationship of Finance and Accounting tothe Other Departments 10
   Manager's Checklist for Chapter 1 11
2. The Structure and Interrelationship of Financial Statements 13
   Tracking a Company's Lifecycle 15
   Accounting Is Like a Football Game on Your DVR 16
   The Chart of Accounts: A Collection of Buckets 20
   The General Ledger: Balancing the Buckets 23
   Accrual Accounting: Say What? 25
   The Principal Financial Statements Defined 27
   Manager's Checklist for Chapter 2 29
3. The Balance Sheet: A Basic Summary of Value and Ownership 31
   Assets and Ownership: They Really Do Balance! 31
   Current Assets: Liquidity Makes Things Flow 33
   Fixed Assets: Property and Possessions 39
   Other Assets: The "Everything Else" Category 40
   Current Liabilities: Repayment Is Key 41
   Long-Term Liabilities: Borrowed Capital 44
   Ownership Comes in Various Forms 45
   Capital Stock Comes in Several Flavors 46
   Using This Report Effectively 48
   Manager's Checklist for Chapter 3 48
4. The Income Statement: The Flow of Progress 51
   They Say Timing Is Everything-And They're Right! 51
   Sales: Grease for the Engine 55
   Cost of Sales: What It Takes to Earn the Sale 55
   Gross Profit: The First Measure of Profitability 58
   Operating Expenses: Running the Business 58
   Operating Income: The Basic Business Bottom Line 60
   EBITDA-He Bit Who? 61
   Other Income and Expenses: Not Just Odds and Ends 62
   Income Before Taxes, Income Taxes, and Net Income 63
   Earnings per Share, Before and After Dilution-What? 63
   Using This Report Effectively 66
   Manager's Checklist for Chapter 4 66
5. Profit vs. Cash Flow: What's the Difference-and Who Cares? 67
   The Cash Flow Cycle 68
   Cash Basis vs. Accrual Basis 74
   Net Profit vs. Cash Flow in Your Financial Reports 75
   Manager's Checklist for Chapter 5 78
6. The Statement of Cash Flow: Tracking the King 81
   Beginning Where the Income Statement Ends 83
   Cash from Operations: Running the Business 86
   Cash for Investing: Building the Business 90
   Cash from Financing: Capitalizing the Business 92
   Using This Report Effectively 94
   Manager's Checklist for Chapter 6 95
7. Key Performance Indicators: Finding the"Hidden" Information 97
   What Are KPIs? Do They Mix with Water? 98
   Measures of Financial Condition and Net Worth 98
   Measures of Profitability 103
   Measures of Financial Leverage 106
   Measures of Productivity Metrics 109
   Trend Reporting: Using History to Predict the Future 113
   Manager's Checklist for Chapter 7 117
8. Cost Accounting: A Really Short Course inManufacturing Productivity 119
   The Purpose of Cost Accounting-Strictly for Insiders 120
   Fixed and Variable Expenses in the Factory 124
   Controllable and Uncontrollable Expenses 127
   Standard Costs-Little Things Mean a Lot 129
   Manufacturing Cost Variances: Analysis for Action 130
   Manager's Checklist for Chapter 8 133
9. Good Investment or Bad? How Do You Decide? 135
   Capital Investment: A Game of Choices, Risks, andHoped-For Outcomes 136
   Return on Investment: The Concept and the Purpose 137
   Payback Period: A Quick and Easy Way to Understandthe Approach 138
   The Time Value of Money: Today and in the Future 139
   Discounted Cash Flow: Evaluating Long-Term Investments 141
   Weighted Average Cost of Capital: Enhancing theReturn to Shareholders 143
   Internal Rate of Return: Deciding What ReturnIs Good Enough 145
   Risk Management: Assessing the Probability ThatWe Might Be Wrong 146
   Manager's Checklist for Chapter 9 147
10. Get to Breakeven First! 149
    What Does "Breakeven Point" Really Mean? 150
    Why Is This a Critical Factor in Profitability? 151
    How to Calculate Breakeven for a New Product 152
    What to Do If You Don't Like the Answer 155
    Manager's Checklist for Chapter 10 156
11. Business Planning: Creating the Future You Want,Step by Step 159
    Why Take Time to Plan? 159
    Strategic Planning vs. Operational Planning 162
    Vision and Mission: The Starting Point 164
    Strategy: Setting Direction 165
    Long-Term Goals: The Path to the Mission 167
    Short-Term Goals and Milestones: The Operating Plan 168
    Manager's Checklist for Chapter 11 174
12. The Annual Budget: Financing Your Plans 177
    Tools for Telling the Future: Budgets, Forecasts,Projections, and Tea Leaves 178
    How to Budget for Revenues: The "Unpredictable"Starting Point 179
    Budgeting Costs: Understanding RelationshipsThat Affect Costs 182
    The Budgeting Process: Trial and Error 184
    Flexible Budgets: Whatever Happens, We've Got aBudget for It 187
    How to Live Within Your Budget 191
    Variance Reporting and Taking Action 192
    The Capital Expenditure Budget 193
    The Cash Flow Budget 194
    Integrating the Entire Operating Budget 195
    Manager's Checklist for Chapter 12 196
13. Financing the Business: Understanding the Debtvs. Equity Options 199
    The Strategy of Borrowing Money 199
    How a Business Gets Financed: In the Beginningand Over Time 202
    Short-Term Debt: Balancing Working Capital Needs 203
    Long-Term Debt: Semipermanent Capital or AssetAcquisition Financing 209
    Convertible Debt: The Transition from Debt to Equity 213
    Capital Stock: Types and Uses 214
    Manager's Checklist for Chapter 11 218
14. Attracting Outside Investors: The Entrepreneur's Path 221
    The Start-Up Company: Seed Money and Its Sources 223
    Professional Investors: Angels on a Mission 224
    Venture Capitalists: What You Need to Know toAttract Them 226
    The Initial Public Offering: Heaven or Hell? 230
    Strategic Investors: The Path to a Different Party 232
    Acquisition: The Strategic Exit 233
    Manager's Checklist for Chapter 14 236
    Index