JOEL G. SIEGEL, PHD, CPA, is the author of over fifty books and has written hundreds of articles for accounting and financial journals. Dr. Siegel has acted as consultant in accounting issues to many organizations, including IT&T, Citicorp, and Person-Wolinsky CPA Review.

ALLISON I. SHIM, MS, is CFO of Delta Consulting Co. She is a finance expert and a PhD candidate at the University of California, Irvine.

PART ONE: REPORTS AND FILINGS

1: Chief Financial Offi cer’s Role and Reports 3

Role of the Chief Financial Offi cer 3

Governmental Reporting 12

Reporting under the Sarbanes-Oxley Act 12

XBRL Reporting 13

Other Reporting 14

2: Securities and Exchange Commission Filings 15

SEC Rules 15

S Forms 16

SEC Regulations 17

SOX Reporting Requirements 19

PART TWO: FINANCIAL REPORTING

3: Financial Statement Reporting: The Income Statement 27

How Is the Income Statement Presented? 27

Revenue Recognition 30

Construction Contracts 31

Expense Recognition 37

4: Financial Statement Reporting: The Balance Sheet 45

Assets 45

Accounts Receivable 46

Inventory 49

Fixed Assets 54

Disclosure 62

Liabilities 65

Accounting for Compensated Absences 72

Environmental Obligations 74

Exit or Disposal Activities 75

Fair Value Measurements 76

Fair Value Option for Financial Assets and Financial Liabilities 78

Statement of Cash Flows 80

Available-for-Sale and Held-to-Maturity Securities 82

5: Statement of Cash Flows 95

Classifi cations of Cash Flow 95

Analysis of the Statement of Cash Flows 100

6: Accounting and Disclosures 107

Accounting Changes 107

Futures Contracts 119

Various Disclosures 122

7: Key Financial Accounting Areas 125

Consolidation 125

Investments in Stocks and Bonds 127

Leases 138

Pension Plans 147

Postretirement Benefi ts Excluding Pensions 158

Income Tax Allocation 161

Deferred Tax Liability versus Deferred Tax Asset 164

Tax Rates 167

Foreign Currency Accounting 169

Translation of Foreign Currency Statements When the Foreign

Currency Is the Functional Currency 172

International Financial Reporting Standards 177

8: Interim and Segmental Reporting 185

Interim Reporting 185

Segmental Reporting 188

PART THREE: COST MANAGEMENT AND IT SYSTEMS

9: Cost Management and Analysis 197

What Is Cost Management and Analysis? 197

Strategic Cost Management 198

Overhead Costing 199

Activity-Based Costing 205

Activity-Based Management 210

Target Costing and Pricing 214

10: Cost-Volume-Profi t Analysis and Leverage 219

Cost-Volume-Profi t Analysis 219

What-If Analysis 223

Sales-Mix Analysis 225

CVP Analysis for Nonprofit Organizations 227

Leverage 228

11: Short-Term Decisions 233

Relevant Costs 233

Best Use of Scarce Resources 241

Theory of Constraints 242

12: Financial Forecasting, Planning, and Budgeting 245

Financial Forecasting: The Percent-of-Sales Method 245

Budgeting 247

Some Financial Calculations 257

Budgeting Software 257

Using an Electronic Spreadsheet to Develop a Budget Plan 257

Latest Generation of Budgeting and Planning Software and E-Budgeting 259

13: Risk Management 261

Enterprise Risk Management 261

An Approach to Risk Management 263

A Close Look at Risk Management 264

How to Reduce Investment Risk: Diversify 267

Beta—The Capital Asset Pricing Model 271

Arbitrage Pricing Model 272

14: Capital Budgeting and Real Options 275

Time Value Fundamentals 276

Popular Evaluation Techniques 280

Limited Funds for Capital Spending 286

Real Options 289

Discovery-Driven Planning 290

Effect of Income Taxes on Capital Budgeting Decisions 290

15: The What and Why of Responsibility Accounting 297

Responsibility Accounting Basics 297

Cost Center Performance and Standard Costs 298

Flexible Budgets and Performance Reports 304

Production Mix and Yield Variances 308

16: Control of Profit Centers 313

How Do You Evaluate Profit Centers? 313

Profit Variance Analysis 315

17: Performance of Investment Centers and Transfer Pricing 323

Rate of Return on Investment 323

Residual Income 324

Investment Decisions under ROI and RI 324

Transfer Pricing 325

18: How to Analyze and Improve Corporate Profitability and Shareholder Value 331

Measures of Managerial Performance and Shareholder Return 331

Sustainable Rate of Growth 339

Economic Value Added 340

Balanced Scorecard 345

19: Information Technology and IT Systems 349

Computer Technologies Available for Business 349

Role of Information Systems in the Strategic Plan 350

Management Information Systems 351

Who Uses Executive Information Systems? 351

Value Chain Management Software 353

Extensible Business Reporting Language 356

Web 2.0 357

Cloud Computing and Competitive Advantage 358

Mobile Computing (Wireless Technology) 360

Handheld Device Security and Contingency Planning 362

Disaster Recovery and Business Continuity Planning 363

CFO’s View of Information Technology: A Current Survey 364

PART FOUR: MANAGEMENT OF ASSETS AND LIABILITIES

20: Working Capital and Cash Management 369

Evaluating Working Capital 369

Cash Management 370

Cash Management Models 378

Banking Relationships 381

International Cash Management 382

21: Management of Accounts Receivable 385

Managing Receivables 385

Investment in Accounts Receivable 388

22: Inventory Management 395

Inventory Recording and Control 395

Inventory Costs 401

Economic Order Quantity 402

Reorder Point 403

How to Find the Optimal Safety Stock Size 406

ABC Inventory Control 409

Service Business 409

23: Management of Payables 411

Accounts Payable System 411

Managing Payables 413

PART FIVE: FINANCING THE BUSINESS

24: Short-Term and Intermediate-Term Financing 417

Short-Term Financing 417

Intermediate-Term Financing 433

25: Long-Term Financing 439

Types of Long-Term Debt and When Each Should Be Used 440

Issuance of Equity Securities 448

Financing Strategy 456

26: Warrants and Convertibles 465

Warrants 465

Convertible Securities 467

27: Cost of Capital and Capital Structure Decisions 475

Individual Costs of Capital 475

Weights 479

EBIT–EPS Approach to Capital Structure Decisions 482

Analysis of Corporate Cash Flows 485

Coverage Ratios 485

Capital Structure Decisions 487

28: Dividend Policy 489

Types of Dividend Policies 489

Variables to Be Considered 491

29: Financial Management of Multinational Corporations 495

Financial Management Essentials for MNCs 495

Foreign Exchange Market 496

Financial Strategies 499

Types of Foreign Exchange Exposure 499

Interest Rate Parity 505

Purchasing Power Parity 506

Appraising Foreign Investments 507

Financing 509

Analysis of Foreign Investments 512

PART SIX: FINANCIAL ANALYSIS, INSURANCE AND LEGAL CONSIDERATIONS, AND ECONOMICS

30: Financial Statement Analysis 521

Financial Analysis Essentials 521

Balance Sheet Analysis 523

Potential for Business Failure 540

Income Statement Analysis 543

Market Value Ratios 549

Analyzing the Financial Structure of the Firm 550

Product Line Measures 553

Industry Characteristics Indicative of Greater Risk 555

Considerations in Foreign Operations 556

31: Analysis, Evaluation, and Control of Revenue and Costs 557

Control Reports 557

Control of Costs 560

Performance Measures 562

Business Processes 564

32: Insurance and Legal Considerations 567

Insurance Protection 567

Types of Insurance 569

Medical and Catastrophe Coverage 573

Liability Insurance Coverage for CFOs 575

Business Law 575

33: Reading Economic Indicators 577

How Can You Keep Track of the Economy with Economic and Monetary Indicators? 577

Housing-Related Measures 582

Indices of Leading, Coincident, and Lagging Economic Indicators 583

Other Important Economic Indices 585

Monetary Indicators and How They Impact the Economy 586

Understanding Economic Data and Indicators 592

Economic Indicators and Stocks and Businesses 593

Economic Indicators and Bond Yields 593

PART SEVEN: LIQUIDITY AND TREASURY

34: Corporate Investments in Securities 597

Cash and Liquidity Management 597

Terms and Features of Bonds 600

Other Fixed Income Investments 609

Money Market Preferred Stock 614

Private Equity 615

Current Trends in Liquidity Management Strategy 616

PART EIGHT: TAXATION

35: Tax Factors in Financial Decision Making 621

What Should You Know about Taxes? 621

Gross Income 622

Depreciation 624

Amortization 624

Tax Planning 626

PART NINE: MERGERS AND ACQUISITIONS, DIVESTITURES, FAILURE, AND REORGANIZATION

36: Mergers and Acquisitions 631

Valuation 631

Fair Market Value of Net Assets 639

Capitalization of Revenue 640

Price/Earnings Ratio 641

Similar Businesses 642

Sales of Stock 643

Combination of Methods 643

Successful Strategy for Mergers and Acquisitions 644

37: Divestiture 645

Why Divest? 645

Asset Valuation Methods 647

Profi tability Methods 648

Market-Based Comparisons 648

Discounted Cash Flow Analysis 649

Divestiture with Uncertainty 651

38: Forecasting Corporate Financial Distress 655

Prediction Models 656

Z-Score Model 656

Applications 657

39: Failure and Reorganization 667

Business Failure 667

Reorganization 669

40: Valuation of Bonds and Stocks 679

How to Value a Security 679

How to Value Bonds 680

How to Value Preferred Stock 683

How to Value Common Stock 684

Price/Earnings Ratio Approaches 688

Other Pragmatic Approaches 693

The Bottom Line 694

41: Financial Statement Analysis: Key Financial Ratios and Metrics for Nonprofits 697

Trend Analysis 698

Analysis of the Balance Sheet 699

Liquidity Analysis 699

Appraisal of Solvency, Capital Structure, and Net Assets (Fund Balance) 704

Evaluation of the Statement of Activities 704

Performance Metrics 707

Spotting Potential Bankruptcy and Avoiding Financial Problems 711

Case Study in Financial Statement Analysis 714

Appendix 725

About the Authors 729

Index 731

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