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Interpreting and Analyzing Financial Statements, 6th edition

Published by Pearson (July 6, 2012) © 2013

  • Karen P. Schoenebeck Southwestern College
  • Mark P. Holtzman Seton Hall University

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The text and activities format allow the instructor to use this book as a stand-alone text for the first accounting course.

This text helps students analyze real company financial statement information. Each activity in the book concentrates on only one aspect of the analysis and uses data from well-known corporations to pique students' interest and add relevancy.

The text and activities format allow the instructor to use this book as a stand-alone text for the first accounting course.

This text helps students analyze real company financial statement information. Each activity in the book concentrates on only one aspect of the analysis and uses data from well-known corporations to pique students' interest and add relevancy.


The text sections are engaging to read but also provide students with a useful reference tool.


The activity sections encourage students to learn accounting through real-life examples, to interact with the companies studied.

In Chapter 1, students immediately learn about the basic financial statements. At once they learn four basic financial analysis ratios, common-size analysis, and trend analysis. They will use these tools throughout the course. 

Chapters 2 through 5 cover the basic financial statements, with full chapters dedicated to the statement of cash flows and the statement of stockholders’ equity. 

Chapter 6 deals with topics that are traditionally covered in the first accounting course, such as inventory and property, plant and equipment. 

Chapter 7, students learn the accounting cycle, with the debit-credit system, adjusting, and closing journal entries. 

Chapter 8 offers a comprehensive review of all topics covered in previous chapters. Activities walk students through financial analyses of real companies, working with more than one financial statement and combining issues in profitability, efficiency, liquidity and solvency. 

Chapter 9 provides a project for each student to research, analyze, and prepare a comprehensive written report and presentation on the public corporation of their choice.

  • Crossword puzzles that reinforce accounting concepts and vocabulary.
  • The common-size Statement of Cash Flows is now introduced in Chapter 5.
  • Another comprehensive problem, featuring Chipotle Mexican Grill, is added to Chapter 8.
  • The Capstone Project is streamlined into only two activites--a written report and a presentation.
  • Throughout the text, financial statements have been updated to the most current amounts available on December 31, 2011.
Chapter 1: Introduction
Nike, Under Armour, Adidas
WHAT IS ACCOUNTING?
THE FOUR FINANCIAL STATEMENTS
THE BALANCE SHEET
THE INCOME STATEMENT
STATEMENT OF STOCKHOLDERS’ EQUITY
STATEMENT OF CASH FLOWS
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
Historical Cost Principle
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
RATIO ANALYSIS
Debt Ratio
Asset Turnover Ratio
Return on Sales (ROS) Ratio
Return on Assets (ROA) Ratio
TREND ANALYSIS
COMMON-SIZE STATEMENTS
ACTIVITIES

Chapter 2: Balance Sheet
The Walt Disney Company, News Corp, Time Warner
INTRODUCTION
UNDERSTANDING THE WALT DISNEY COMPANY’S BALANCE SHEET
Current Assets
Noncurrent Assets
Current Liabilities
Noncurrent Liabilities
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
DEBT VERSUS EQUITY
ANALYZING THE BALANCE SHEET
Liquidity: Current Ratio
Solvency: Debt Ratio
Trend Analysis
Common-size Balance Sheet
ACTIVITIES

Chapter 3: Income Statement
Amazon.com, Sears Holdings, eBay, Starbucks
INTRODUCTION
UNDERSTANDING AMAZON.COM’S INCOME STATEMENT
STEP ONE: REVENUES — COST OF SALES = GROSS PROFIT
Revenues and Revenue Recognition
Expenses and the Matching Principle
STEP TWO: GROSS PROFIT — OPERATING EXPENSES = OPERATING INCOME
STEP THREE: OPERATING INCOME +/- NONOPERATING REVENUES AND EXPENSES = INCOME BEFORE INCOME TAX
STEP FOUR: INCOME BEFORE INCOME TAX — PROVISION FOR INCOME TAX = INCOME FROM CONTINUING OPERATIONS
STEP FIVE: INCOME FROM CONTINUING OPERATIONS +/- NONRECURRING ITEMS = NET INCOME
ANALYZING THE INCOME STATEMENT
Return on Sales
Asset Turnover Ratio
Return on Assets
Gross Profit Margin
Trend Analysis
Common-Size Analysis
ACTIVITIES

Chapter 4: Statement of Stockholders’ Equity
Freeport-McMoRan Copper & Gold
INTRODUCTION
STOCKHOLDERS’ EQUITY ON THE BALANCE SHEET
STATEMENT OF STOCKHOLDERS’ EQUITY
TREASURY STOCK
RETAINED EARNINGS
OTHER COMPREHENSIVE INCOME
STOCK SPLITS & STOCK DIVIDENDS
RETURN ON EQUITY
FINANCIAL LEVERAGE RATIO
TIMES INTEREST EARNED RATIO
EARNINGS PER SHARE
DIVIDEND RATE
PRICE EARNINGS RATIO
ACTIVITIES

Chapter 5: Statement of Cash Flows
Cedar Fair, L.P.
INTRODUCTION
THREE CATEGORIES OF CASH FLOWS
Financing Activities
Investing Activities
Operating Activities
Operating Activities—The Direct Method
Operating Activities—The Indirect Method
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
ANALYZING THE STATEMENT OF CASH FLOWS
Free Cash Flow
Cash Flow Adequacy
Cash Flow Liquidity
Quality of Income
ACTIVITIES

Chapter 6: Specific Accounts
Research in Motion Limited, Motorola Mobility, Inc.
INTRODUCTION
CASH AND CASH EQUIVALENTS
INVESTMENTS
ACCOUNTS RECEIVABLE
Accounts Receivable Turnover
Accounts Receivable Days
INVENTORY
Specific Identification
First-In, First-Out
Last-In, First-Out
International Financial Reporting Standards
Gross Profit Margin
Inventory Turnover
Inventory Days
PROPERTY, PLANT, AND EQUIPMENT
Straight-Line Depreciation
Double-Declining Balance Depreciation
Comparing Straight-Line with Double-Declining Balance
Gains and Losses on Sale of PPE
International Financial Reporting Standards
CURRENT AND LONG-TERM LIABILITIES
ACTIVITIES

Chapter 7: The Accounting Cycle
INTRODUCTION
THE 10-STEP ACCOUNTING CYCLE
ANALYZE TRANSACTIONS USING THE ACCOUNTING EQUATION
PREPARE JOURNAL ENTRIES USING DEBITS AND CREDITS
Step 1: Analyze and Prepare Transaction Journal Entries (TJEs)
Step 2: Post TJEs to the Ledger
Step 3: Prepare the Unadjusted Trial Balance
Step 4: Prepare Adjusting Journal Entries (AJEs)
Step 5: Post AJEs to the Ledger
St

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