UNDERSTANDING FINANCIAL STATEMENTS AND CORPORATE ANNUAL REPORTS.
By Louis O. Foster. Philadelphia: Chilton, 1961. 135 pp. $3.95.
This book represents the distillation of a successful teacher's approach to the subjects of accounting and finance. Louis O. Foster, who retires this June after twenty-one years of teaching at the Tuck School, has written for the layman an admirable introduction to accounting and corporation finance, two subjects which are traditionally considered separately in the academic curriculum.
A study of corporation finance usually focuses on the major financial instruments and institutions, while courses in accounting typically concentrate on bookkeeping procedure and the preparation of financial statements. Professor Foster's integrated approach, 'field-tested" for several years at the Tuck School as part of the first-year course in accounting and finance, emphasizes the meaning and interpretation of financial statements. Readers whose personal or business affairs may require some understanding of corporate financial statements, even though they have little or no interest in the technical details of accounting and finance, should find this book an invaluable aid.
Many financial statements from wellknown corporations are reproduced and described in non-technical language. The accountant, like the lawyer, has adapted the English language to his own peculiar needs. The author clarifies the accountant's specialized use of such words as "depreciation," "reserve," "surplus," and others.
Professor Foster considers several questions whose answers are essential to an understanding and interpretation of financial statements. Some of these questions are: What resources or assets of the business can be quantified in a monetary sense? What are the sources of these assets? Is the choice of sources conservative or speculative? Is management using these assets efficiently? Some easily applied standards are suggested for coping with the last two questions. These should prove particularly helpful to stockholders or would-be stockholders in appraising the performance of corporate managers
In recent years, in addition to the custonary balance sheet and profit and loss statement, a third major type of financial statement relating to the sources and uses of cash or working capital has been included in corporate annual reports. The description, content, and format of statements of this type have not yet achieved the same degree of standardization as found in the older, more traditional balance sheet and profit and loss statement. However, these statements of sources and uses of cash or working capital reveal certain financial transactions, such as the retirement of debt, which do not directly affect the profit and loss statement and may not be apparent from an examination of the year-end balance sheet. Professor Foster's explanation of these statements and his suggestions for their analytical use are excellent.
