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       The Best Book on Financial Statements, Period! Wow, what a great book! I’m a technical professional and now no longer in the financially confused majority.

       Simply the Best! Clearly the first introductory book one should read. This book – a must on every managers shelf – adds value by providing clear and concise definitions and relates them visually to the changing financial statements. A tremendous bang for buck. Simply go get it and read it.

       The author has a gift that few experts have . He anticipates all my newbie/beginner stupid questions… As soon as the little voice in my head asks, “But why did they do it this way?” the author gives me the answer. This book has been of enormous value to me. It is an essential reference for anyone who needs to understand what business finances are about.

       A Masterpiece. Every single financial term is clarified with a layman’s language. Moreover, for every single term, there is a very understandable example. Likewise, in every page there is a sheet explaining all the transactions. I strongly believe that this book is a masterpiece for non-financial managers.

       Excellent! I purchased this book for an MBA course and ended up using it more than the assigned text. The author makes a complicated subject seem like child’s play!

       Perfect book when first learning… This is a wonderfully clear and concise introduction to the interpretation of financial statements… Read this if you are not a CPA or MBA, but must “get a handle” on Balance Sheets, Income Statements and Cash Flow Statements. This should be the first book you buy.

       Outstanding!! Looking to understand how financial statements work?..then purchase this book —there’s none better. I am a graduate student nearing the completion of my MBA degree. The author speaks in basic terms about what financial statements mean and how they work. This book puts it all together for the reader.

       A very useful book . While the book gets only skin deep on accounting concepts, it does an excellent job in deconstructing how the Income Statement, Statement of Cash Flows, and Balance Sheet are changed. Very few accounting related books make explicit what happens the way this book does.

       Want to understand financial statements? I took an accounting class…and I had difficulty interpreting financial statements. So I gambled and bought this book with a hope to unravel the mystery on financial statements. It really worked! Overall, the knowledge gained exceeds multiple folds of the time and money invested on this book!

       Excellent, buy it!! If you are in the finance business, of any kind, and you are not an accountant, this book is for you.

       WOW, Incredible. I took an accounting course at University, I now wish that my professor used this book in the course. So easy to understand and with great examples. Suitable for anyone who wants to learn accounting the fast and easy way.

      Acknowledgments

      Many people helped make this book possible. My special thanks go to Isay Stemp, who first showed me that knowing a little finance and accounting could be fun; to my agent, Michael Snell, who taught me how to write a book proposal; and to Lisa Berkman, whose encouragement was invaluable as I drafted this revised and expanded edition.

      Many thanks to my publisher, Ronald Fry of Career Press, for seeing promise in a preliminary version of this book and to Kristen Parkes, editorial director for Career Press, for her guiding of this book through to publication.

      Again with this second edition, as was the case with the first, I am indebted to my colleague Jack Turner for his thoughtful review of the words and numbers in this book. Also a special thanks to Graham Eacott for his careful reading and correction of the first edition.

      These clients, colleagues and friends at one time or another helped me to develop (whether they realized it or not) the concepts presented in this book. My thanks to Gwen Acton, Marci Anderson, Molly Downer, Tim Duncan, Cavas Gobhai, Jack Haley, Katherine Leahey, Paul McDonough, Lita Nelsen, Paul O’Brien, Mel Platte, and Iruna and Chris Simmons.

      Preface

      If the first edition of this book was an entrepreneurial business, it would be a huge success. Now over 100,000 copies of Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports are in-press and helping non-financial managers and students of accounting and finance cope with the “numbers of business.”

      With this new revised second edition, we have expanded the book into five sections from the original three. Many readers of the first edition wanted to better understand capital investment decision-making, which is the focus of our two new sections.

      Capital is often a company’s scarcest resource, and using capital wisely is essential for success. The chief determinant of what a company will become is the capital investments it makes today. So in this new edition, we will use the financial analysis techniques of net present value (NPV) and internal rate of return (IRR) as capital investment decision-making tools

      Preface to the First Edition:

      We needed to hire an accountant to keep the books at a venture-capital backed, high-technology startup of which I was a founder and CEO. I interviewed a young woman – just out of school – for the job and asked her why she wanted to become an accountant. Her answer was a surprise to all of us,

      “Because accounting is so symmetrical, so logical, so beautiful and it always comes out right,” she said.

      We hired her on the spot, thinking it would be fun to have almost-a-poet keeping our books. She worked out fine.

      I hope you take away from this book a part of what my young accountant saw. Knowing a little accounting and financial reporting can be very, very satisfying. Yes, it does all come out right at the end, and there is real beauty and poetry in its structure.

      But let’s discuss perhaps the real reason you’ve bought and are now reading this book. My bet is that it has to do with power. You want the power you see associated with knowing how numbers flow in business.

      Be it poetry or power, this accounting and financial reporting stuff is not rocket science. You’ve learned all the math required to master accounting by the end of the fourth grade – mostly addition and subtraction with a bit of multiplication and division thrown in to keep it lively.

      The specialized vocabulary, on the other hand, can be confusing. You will need to learn the accounting definitions of revenue, income, cost and expense. You’ll also need to understand the structure and appreciate the purpose of the three major numeric statements that describe a company’s financial condition.

      Here’s a hint: Watch where the money flows; watch where goods and services flow. Documenting these movements of cash and product is all that financial statements do. It is no more complicated than that. Everything else is details.

      But why is it all so boring, you ask? Well, it’s only boring if you do not understand it. Yes, the day-to-day repetitive accounting tasks are boring. However, how to finance and extract cash from the actions of the enterprise is not boring at all. It is the essence of business and the generation of wealth.

      Not

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