BUSINESS WEEK

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Book Briefs

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Accounting:

The Language of Business

By Davidson, Stickney and Weil

Horton

 

    For the businessman who is befuddled by accounting and financial jargon or for the investor who’s looking for help in deciphering all those fancy, fine-print financial footnotes in corporate annual reports, this readable primer is the most useful we have seen,  Its handy glossary explains everything you’ve never understood about the numbers game from “breakeven analysis” to the “rule of 69.”

     But it is the book’s final four sections that really shine. A tersely written chapter on “accounting magic” explains how it is that two companies with identical revenues, inventories, research expenditures, and equipment can wind up with earnings that differ by more than 100% — simply from choosing different but perfectly “acceptable” accounting alternatives.

    Another chapter analyzes Penn Central Transportation Co.’s financial statements issued on the eve of its bankruptcy and indicates how an alter investor could have known trouble was afoot.

     And still another section conjures up a three-part, corporate-style annual report for the U.S. government, complete with income statement, balance sheet, and changes in financial position.

     The book’s most comprehensive chapter is a 15-page analysis, line by line, of General Electric’s financial statements. More important, the authors explain just how the various pieces, including the footnotes, fit together.