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Reading Between the Lines of Corporate Financial Reports

In Search of Financial Misstatements

  • Book
  • © 2020

Overview

Authors:
  1. Jacek Welc

    1. SRH Berlin University of Applied Sciences, Berlin, Germany

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  • Outlines practical analytical techniques to reading between the lines of corporate financial reports in order to better evaluate company performance
  • Presents real-life case studies and examples of previous accounting scandals and corporate collapses
  • Examines the reliability of corporate financial reports and demonstrates the many pitfalls that investors, managers and analysts often encounter when analysing them

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Table of contents (10 chapters)

  1. Front Matter

    Pages i-xl
    Download chapter PDF

  2. Most Common Distortions in a Financial Statement Analysis Caused by Objective Weaknesses of Accounting and Analytical Methods

    • Jacek Welc
    Pages 1-39

  3. Other “Distortions” in a Financial Statement Analysis Caused by Objective Weaknesses of Accounting and Analytical Methods

    • Jacek Welc
    Pages 41-75

  4. Deliberate Accounting Manipulations: Introduction and Revenue-Oriented Accounting Gimmicks

    • Jacek Welc
    Pages 77-101

  5. Deliberate Accounting Manipulations: Expense-Oriented Accounting Gimmicks and Intentional Profit Understatements

    • Jacek Welc
    Pages 103-137

  6. Evaluation of Financial Statement Reliability and Comparability Based on Auditor’s Opinion, Narrative Disclosures and Cash Flow Data

    • Jacek Welc
    Pages 139-168

  7. Problems of Comparability and Reliability of Reported Cash Flows

    • Jacek Welc
    Pages 169-215

  8. Evaluation of Financial Statement Reliability and Comparability Based on Quantitative Tools Other Than Cash Flows: Primary Warning Signals

    • Jacek Welc
    Pages 217-265

  9. Evaluation of Financial Statement Reliability and Comparability Based on Quantitative Tools Other Than Cash Flows: Additional Warning Signals

    • Jacek Welc
    Pages 267-319

  10. Techniques of Increasing Comparability and Reliability of Reported Accounting Numbers: Selected Simple Tools

    • Jacek Welc
    Pages 321-365

  11. Techniques of Increasing Comparability and Reliability of Reported Accounting Numbers: Some More Advanced Tools

    • Jacek Welc
    Pages 367-415

  12. Back Matter

    Pages 417-431
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Keywords

About this book

This book provides a digestible step-by-step guide to reading corporate financial reports, drawing upon real-life case studies and examples of corporate collapses and accounting scandals, and applying practical tools to financial statement analysis. Appealing to a range of practitioners within corporate finance including investors, managers, and business analysts, this book is the first to specifically address the challenges facing those who are not professional accountants and auditors when examining corporate financial reports.



Corporate financial reports are used widely by managers, investors, creditors, and government agencies to examine company performance and evaluate potential risks. However, although seemingly an invaluable source of information for managerial decision-making, financial reports are often based on rough simplifications of a very complex reality. With no way of avoiding deliberate manipulations and fraudulent activity, these statements cannot be relied on completely when selecting stocks or evaluating credit risk, and therefore poor analysis can lead to potentially disastrous investment decisions.

The author suggests that in order to effectively interpret corporate financial reports, we must 'read between the lines' to accurately assess a company's economic performance and predict its long-term viability.




Reviews

“Research about accounting failures in academic literature is very often linked to thousands of data and regression analyses with little interest from practitioners. This book fills an important gap. The author knows exactly how companies use both recognition and measurement principles as well as words to lead the reader into a certain direction of interpretation. Figures and disclosures are used like a marketing instrument to influence the behaviour of stakeholders. In this book, those measures are discovered. Short theoretical introductions are illustrated by numerous practical examples from published financial statements. Therefore, this book should be read not only by students as it is theoretically well based but also by managers and investors from practice. They will all learn to read between the lines of financial statements.”—Edgar Loew, Professor of Accounting,Frankfurt School of Finance & Management

 “This book by Jacek Welc comes at the right moment as weare facing the proliferation and rapid growth and harvest of new companies out from plethora of ever-new startups, exorbitant valuations based on future promises, etc. As a long term, seasoned chairman of a number of Audit Committees (be it in the banking and manufacturing industries) such guidance as provided by Jacek’s writing is priceless. My recommendation will be to make the book obligatory reading to all who deal with accounting, financial analysis, and supervision of the financials of any company. Regulators may as well learn a thing or two, not to mention auditors. A useful tool also for the new and seasoned investor.”

—Hubert A. Janiszewski, PhD (Econ), former Deputy Chairman of the Supervisory Board of Deutsche Bank Polska S.A.; current and former chairman of audit committees of companies listed on Warsaw Stock Exchange


“Jacek Welc’s new book addresses accounting quality which is the basis for both financial and sustainability analysis. It is an excellent read for investment professionals which helps them to have a critical look at corporate financial reports before using those data to draw investment conclusions. Moreover, reading it sharpens analysts curiosity as it addresses a broad array of possible known and less known areas of accounting quality.”

 —Olivier P. Müller, CFA, investment professional, Member of the Board, CFA Society Switzerland 


Authors and Affiliations

  • SRH Berlin University of Applied Sciences, Berlin, Germany

    Jacek Welc

About the author

Jacek Welc is an Assistant Professor at Wroclaw University of Economics, Poland, and a Lecturer in Corporate Finance at SRH Berlin University of Applied Sciences, Germany. From 2003 to 2007, he was an independent consultant in the areas of corporate valuation, management accounting, and financial accounting. Having also been Head of the Corporate Finance Department at Dexus Partners, Jacek now co-owns a consultancy specialising in corporate financial services called WNP Ekspert. He has written and published a number of articles, as well as a book entitled Applied Regression Analysis for Business: Tools, Traps and Applications (Springer, 2017).

Bibliographic Information

  • Book Title: Reading Between the Lines of Corporate Financial Reports

  • Book Subtitle: In Search of Financial Misstatements

  • Authors: Jacek Welc

  • DOI: https://doi.org/10.1007/978-3-030-61041-8

  • Publisher: Palgrave Macmillan Cham

  • eBook Packages: Economics and Finance, Economics and Finance (R0)

  • Copyright Information: The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2020

  • Hardcover ISBN: 978-3-030-61040-1Published: 29 November 2020

  • Softcover ISBN: 978-3-030-61043-2Published: 30 November 2021

  • eBook ISBN: 978-3-030-61041-8Published: 28 November 2020

  • Edition Number: 1

  • Number of Pages: XL, 431

  • Number of Illustrations: 276 b/w illustrations, 3 illustrations in colour

  • Topics: Business Finance, Accounting/Auditing, Financial Services

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