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also Production capacity 236“237, 255, 260
Capital, sources of, 67“69, 76, Control. See Management control
99, 100, 191“192, 227 Corporation (type of business
Capital budgeting, 210 entity), 85“86
Capital expenditures, 98, 100, Cost allocation, 171“172, 262,
103, 271 266“270, 280
Capital invested in assets, 80, Cost driver, 140n, 268“269
95, 99, 100, 165, 192, Cost of capital, 192“195, 206,
202“203 210, 214, 215, 218, 219,
Capital investment, 191“192, 224“227
195“199, 213, 215“224 Cost of equity capital, 194
Capitalization of costs, Cost of goods sold, 17, 28, 29,
280“281 30, 77, 140, 182“183,
Capital needs planning, 97, 232“233, 234, 241, 258,
99“105, 165 259, 278n
Capital recovery (return of Cost/sales volume trade-offs,
invested capital), 199“206, 164“165, 167“169
220, 221, 223 Current assets, 55“56
Capital stock (shares, or units of Current liabilities, 55“56
ownership), 85“86 Current ratio, 55“56
Capital structure (capitalization), Current replacement value of
82“83, 192, 193, 206, assets, 40
214
Capital structure model, 88 Debt (interest-bearing liabilities),
Cash dividends. See Dividends 20, 55, 68, 76, 79, 81“84,
Cash flow, 3, 7, 251 92, 94, 95, 98, 192, 193,
Cash flow breakeven volume, 226, 227
119“120 Debt-to-equity ratio, 57, 206
Cash flow from operating activi- Depreciation expense, 20, 24,
ties (also called cash flow 33, 40, 70, 73, 103“104,
from profit, and operating 113“115, 129, 146,
cash flow), 14, 16“17, 23, 172“173, 180, 196,
100, 101, 104“106, 179, 204“205, 283
184“185, 196 Diluted earnings per share,
Cash flow from profit. See Cash 52“53
flow from operating activi- Direct (variable) costing, 289n
ties Direct labor costs of manufactur-
Cash flows, statement of, 7, 12, ing, 276“277, 289
21“24, 45, 271 Direct method (for reporting
Cash working balance, 18, cash flow from operating
73“74, 81, 83, 100, 103 activities), 23
Coca-Cola Company, 29 Disclosure in financial reports,
Common stock, 85 9, 17, 22, 39“40, 48, 118,

316
INDEX


255, 257, 258, 260. See purposes and types, 7“8,
also External versus inter- 11“12, 24, 39“46, 241, 246
nal financial report-ing Financing activities (basic type
Discounted cash flow (DCF), of cash flows), 22
217, 218“221, 224, 227 Finished goods inventory
Dividends, 51, 82, 86, 89, 104 account, 278n
Dividend yield ratio, 53“54 Fixed assets, 70, 81, 114. See
Double-entry bookkeeping, 65 also Property, plant, and
equipment
Earnings. See Net income Fixed manufacturing overhead
Earnings before interest and costs, 278, 283, 289
income tax (EBIT), 17, 68, Fixed operating expenses (costs),
88“89, 90, 93, 95, 109, 31, 33, 35“36, 112“113,
112, 116, 192, 194 117, 122, 123, 129, 133,
Earnings multiplier, 94 134, 136, 139“140, 143,
Earnings per share (EPS). See 146, 149, 150, 155, 159,
Basic earnings per share; 169, 171“172, 236, 239,
Diluted earnings per share 255, 266
Equity. See Owners™ equity Footnotes (to financial state-
Ethics, 10 ments), 7, 29, 43
Expenses (in general), 12, 14, Fraud, 41, 79, 248, 250“252,
16, 17, 20, 28, 76 273
External versus internal finan-
Generally accepted accounting
cial reporting, 25
principles (GAAP), 7, 8, 28,
Extraordinary gains and losses,
41
46“47, 256
Going-concern premise of finan-
cial statement accounting,
Feedback information, 244, 245,
50
253. See also Management
Graham, Benjamin, and Dodd,
control information
David (authors of Security
Financial condition, 3, 12. See
Analysis), 49
also Balance sheet
Gresham, Sir Thomas, 10
Financial condition, statement
Gross margin (profit), 17, 28“31,
of. See Balance sheet
232“233, 234, 241
Financial leverage (and financial
Gross margin ratio, 29, 30, 49
leverage gain or loss), 79,
92“94, 95
How to Read a Financial Report
Financial reporting and reports,
(John A. Tracy), 43, 278n
4“8, 9, 24. See also Finan-
Hurdle rate, 224
cial statements
Financial statement manipula- Idle capacity, 283“285, 288
tion, 40“41 Income statement (external
Financial statement ratios, 39, profit report), 12, 17, 24,
47“53, 59“60, 242 27“28, 32, 36, 40, 42, 43,
Financial statements, nature, 232“233, 271

317
INDEX


Income statement, connections Limited liability company (type
with balance sheet, 75“76 of business entity), 85
Income tax (factor in capitaliza- Lower of cost or market (LCM),
tion structure of business), 154n
89“91, 193“194, 218
Management by exception, 254
Income tax expense, 33,
Management control, 4,
116“117, 192
243“274
Index, The Fast Forward MBA in
Management control informa-
Finance, 2nd edition, Tracy,
tion, 244“247
11
Management control reports,
Indirect method (for reporting
4“5, 6, 243“274, 285
cash flow from operating
Management discussion and
activities), 23“24
analysis (MD&A), 9
Interest expense, 12, 33, 67, 68,
Management (internal) profit
81, 83, 88“89, 98“99, 116,
reports, 4“5, 6, 31“32, 36,
192, 210, 225
109“110, 119, 126“127,
Internal accounting controls,
140, 170“171, 234“235
247“249, 259, 273
Management responsibility for
Internal rate of return (IRR),
external financial reports,
218, 222“224, 227
40“42
Inventories (inventory), 12, 19,
Management stewardship
20, 34, 66, 70“71, 77, 81,
responsibility, 9
104, 165, 183, 188, 232,
Manufacturers and manufactur-
241, 251“252, 278, 281
ing processes, 275, 276, 285
Inventory, excessive accumula-
Manufacturing accounting,
tion, 287“289
275“289
Inventory shrinkage, 34,
Manufacturing capacity. See Pro-
258“259
duction capacity
Inventory stock-outs, 260
Manufacturing costs, 276“278,
Inventory turnover and inven-
281
tory turnover ratio, 29,
Manufacturing costs, misclassifi-
58“59
cation of, 280“282
Inventory write-down, 40, 154
Manufacturing overhead costs,
Investing activities (basic type of
278, 279“280
cash flows), 21“22
Margin of safety, 120
Market cap (capitalization), 83
Job order costing, 276
Market share, 36, 137, 157,
159, 160
Land (cost not depreciated),
Melicher, Ron, 94
113“114
Leasing (alternative to pur- Nasdaq, 42
chase), 206, 208“209 Net earnings. See Net income
Liabilities, 12, 18, 65 Net income, 13, 16“17, 23, 32,
connections with expenses, 33, 40, 48, 68, 76, 81“82,
69“73, 100, 101“102 104, 192

318
INDEX


Net income available for com- Profit and loss statement, 12.
mon stockholders, 51 See also Income Statement
Net present value (NPV), 222 Profit and profit accounting, 3,
Net worth, 82 7, 8, 9“10, 12, 32, 76, 109,
New York Stock Exchange, 42 180, 188, 255. See also Net
Notes payable, 13, 20, 76 income
Profit center, 126. See also Profit
Operating activities (basic type module
of cash flows), 23 Profit change analysis, 256
Operating cash flow. See Cash Profit improvement planning
flow from operating activi- and analysis, 98“99,
ties 170“177
Operating earnings (profit). See Profit margin, 155, 255
Earnings before interest Profit module, 126, 127
and income tax (EBIT) Profit pathways and models,
Operating expenses, 28, 31, 116“122, 128, 150“151
140“142, 146 Profit ratios, 47“49, 97
Operating leverage, 132“133 Profit reporting:
Operating liabilities, 20, 23, 63, external (see Income state-
66, 67, 69, 71“72, 75, 76, ment)
79“80, 81, 95, 99“100 internal (see Management
Opportunity cost of capital, 92 profit reports)
Overhead costs, 112. See also Property, plant, and equipment,
Manufacturing overhead 19, 20, 70, 81, 103“104,
costs 114. See also Fixed as-
Owners™ equity, 20, 65, 68, 76, sets
80, 81, 84“86, 91, 192,
Quick ratio. See Acid test ratio
226, 227
Raw materials manufacturing
Partnership (type of business costs, 183, 276, 289
entity), 84“85 Research and development
Preferred stock, 51, 52, 85“86 costs, 28, 279
Prepaid expenses, 20, 70, 72“73 Retained earnings, 20, 68
Present value (PV), 213, Return on assets (ROA), 65,
214“215, 218, 219, 221, 87“89, 95, 196“197
222, 226 Return on equity (ROE), 88“89,
Price/earnings (P/E) ratio, 54 91“92, 97, 174“175, 192,
Prime costs of manufacturing, 193, 210, 225
279 Return on investment (ROI),
Process costing, 276 86“87
Product cost, 30, 146, 149, 161, Return on sales, 47, 97
162“163, 166, 177, Returns (from capital invest-
275“276, 278“279, 282, ment), 87, 191, 199“206,
284, 285“286, 289 210, 213, 214, 220, 225,
Production capacity, 278, 283 227

319
INDEX


Revenue-driven expenses and Spreadsheet (model for capital
costs, 31“33, 149, 163 investment analysis), 191,
215, 217, 226, 228
Sales backlog, 260 Standard costs, 286
Sales capacity, 112“113, 173 Statement of financial condition.
Sales commission expense, 142, See Balance sheet
149 Stockholders™ equity, statement
Sales mix, 111, 262“266, 269 of changes in, 46
Sales price and revenue nega- Stock options, 52
tives, 256“258 Straight-line depreciation
Sales price changes: method, 33, 205, 206,
cash flow impact, 185“188 225“226
profit impact, 140“142, Sunk costs, 154
144“146, 148, 237“239
Tax returns, 4“5, 6, 261
Sales prices and pricing, 27,
Times interest earned, 57
130, 139, 144, 149, 150,
Time value of money, 214
155, 157, 159, 161“162,
Total quality control (TQM), 167,
163, 165“166, 177, 188,
285

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