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Can anyone recommend a book to help a non-financial manager better understand financial reports?
I looked around a bit and found two books. One from Harvard Business School called "Reading Financial Reports, Business Fundamentals Series" and another called "Finance for Non-Financial Managers" by Gene Siciliano.
Any experience with either book?
I appreciate the help!
Thanks,
John

ugosavino's picture

John,

a fairly easy reading is:

[b]Understanding the Corporate Annual Report.
Nuts, bolts, and a few loose screws[/b]

Lyn M. Fraser - Aileen Ormiston

Prentice Hall

ISBN 0-13-100431-X

This book is a basic introduction to the mysterious world of the annual financial statement.

I hope it helps.

Ugo

frago's picture

Thanks Ugo!
I'll check that one out too.
John

ccleveland's picture

Not that I'm any great financial wiz... but here's my 2 cents:

What do you want to learn by reading the reports? I'm assuming you want to understand how "well" a company is doing overall; however, there are other areas such as cost accounting, tax liability, etc.

Here's how I learned to read and interpret public financial statements:

[list]1. Read the Wall Street Journal. Most of the articles provide some financial information as "evidence" for the article often including a description of what the information means.

2. Look up the financial information for companies covered in the WSJ article and compare. The SEC maintains financial records of publicly traded companies at [url]http://sec.gov/edgar.shtml[/url]. Most companies also provide a much easier to read version of their annual report (although sometimes more marketing than finance).

3. Look for trends in the statements. The books I've seen tell you what goes into statements and all about ratios/margins. They didn’t cover much on trend analysis. Even the WSJ usually keeps it simple by comparing numbers to one previous period (e.g., up 1.2% from yesterday). Looking at longer trends often creates interesting questions. Ex: Why did the profit margin suddenly drop off when it had been climbing at x% on average?

4. Find out the answers to changes is trends! Often this is obvious. Ex: AT&T profits nearly double because of its recent acquisition of Bell-South. Sometimes it's not so obvious: Canon net profit increases, in part, due to weak Yen. (Well, not obvious to me, anyway.)
[/list:u]
As you go through this more and more, you learn how internal/external events affect financial performance [u]and[/u] what to look for when there's an unexpected change in financial performance.

I hope that helps you some!

CC[/list]

Mark's picture

John-

The two you've pegged are excellent, relative to the other stuff (which is generally not very good).

I also like "The Accounting GAme"...search for "Lemonade Stand" on Amazon.

Mark

frago's picture

Yes Mark! Thank you.
The Accounting Game looks like the ticket.

ccleveland:
Thanks for the reply and I am not so much interested in reading annual reports as I am in understanding balance sheets, income statements, etc.

John

asteriskrntt1's picture

Frago,

My apologies in advance if this is blatantly obvious. As someone who teaches finance to non-financial managers (ie, marketing students), my students and other managers have the biggest problem moving from deriving the ratios to actualization.

Deriving the ratios, vertical and horizontal analysis is the easy part. Understanding why they change and relating it all back to your business strategy - is this what we want to do or not - and your competition is what is key. You can't do any of the understanding of income statements and balance sheets in isolation.

A simple example is your financing terms. Many companies will offer the discount as say a 2/10/30, meaning they offer a 2% discount if you pay within 10 days, otherwise you are due in the regular net 30. This is supposed to be a tactic that helps you win business and improve cash flow. However, many companies rarely check if anyone is taking advantage of it to see if it is an effective tactic.

So you get your ratios and find out that your average customer pays their bills in 50 days. That is a long time to wait for your cash and can cause you liquidity issues. You drill deeper and find out only 1% of your customers are taking advantage of this offer. So you have to look at what this is doing to your cashflows, what your competition is offering and can you make this a better marketing tool for you etc.

I hope keeping this concept helps with your learning.

*RNTT