Financial Statements: Economic Analysis and Interpretation

"Financial Statements: Economic analysis and interpretation", explains the logic of financial statements and how we use them to analyse firms in economic terms. The book is aimed both at practitioners and students and is fully international in scope. The approach and coverage are quite different to previous books on accounting. The book looks at financial statements from the perspective of users. It employs an economic model from investment theory to organize the discussion, leading to a focus on the integrity of the balance sheet - on the completeness of the balance sheet and on the valuation of assets and liabilities. This approach brings a remarkable amount of order and simplicity to an otherwise complex subject. So, though the book is quite short, it contains a comprehensive review of how financial statements are analysed in practice, and of 'GAAP' or Generally Accepted Accounting Principles, comparing the two dominant systems, US GAAP and IFRS. The book is in four parts: Part 1, Introduction to accounting, explain the logic of accounting and describes the content of a balance sheet and an income statement. It shows how a firm's income depends on the 'accounting model' it uses - that is, what assets and liabilities are recognized in the balance sheet and at what values. Part 2, Return on capital, shows how to calculate the return that a firm is earning on its capital. Using financial statement data to calculate a 'value metric', which is a measure of investment return that can be compared to the firm's cost of capital, is a stern test of accounting.

Chris Higson is a professor at London Business School, where he served for some years as chair of the accounting group. He holds degrees in philosophy and economics from University College London, and a doctorate in finance from London Business School. Chris publishes extensively on the financial performance and valuation of firms and on accounting policy and financial governance. He regularly comments on television, radio and in the international press on these issues. He has advised many of the world's leading financial institutions and industrial firms, as a consultant, and in senior management development. He also advises a number of governmental and not-for-profit organisations.