Tage C. Tracy - Business Financial Information Secrets: How a Business Produces and Utilizes Critical Financial Information

1. Chapter 1
2. Chapter 3
3. Chapter 4
4. Chapter 7
5. Chapter 10
6. Chapter 11
7. Chapter 13

Tage C. Tracy

Copyright 2021 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress CataloginginPublication Data:

Names: Tracy, Tage C., author.

Title: Business financial information secrets : how a business produces and utilizes critical financial information / Tage C. Tracy.

Description: Hoboken, New Jersey : Wiley, [2021] | Includes index.

Identifiers: LCCN 2021014561 (print) | LCCN 2021014562 (ebook) | ISBN 9781119779001 (paperback) | ISBN 9781119779032 (adobe pdf) | ISBN 9781119779056 (epub)

Subjects: LCSH: Financial statements. | Business enterprisesFinance.

Classification: LCC HF5681.B2 T735 2021 (print) | LCC HF5681.B2 (ebook) | DDC 658.15/12dc23

LC record available at https://lccn.loc.gov/2021014561

LC ebook record available at https://lccn.loc.gov/2021014562

Cover Design: Wiley

Cover Image: mucahiddinsenturk/Shutterstock

When we first entertained the idea of writing Business Financial Information Secrets, we were a bit apprehensive about the idea but not for the reasons you might think. There is no question that the financial, accounting, and strategic business content and concepts covered in this book represent essential knowledge that business owners, executives, board members, managers, external analysts, lenders, investors, and similar parties must know and understand how to utilize as a strategic weapon in today's rapidly evolving and changing global economy. In fact, we have never been more bullish on the material presented in this book, along with our companion book, How to Read a Financial Report, ninth edition, as it represents evergreen business knowledge covering the subjects of business accounting, financing, capital management, and planning.

Rather, our concerns lay more with the macroeconomic and political environments that have, since the start of 2020, gripped and consumed the world, which has seen an unprecedented response by governments and central banks across the globe. To drive home our point, think about this fact for a moment: Since the birth of the United States of America's Central Bank, known as the Federal Reserve System (or simply the Fed) in 1913, it took approximately 95 years to accumulate approximately $1 trillion in assets on its balance sheet (and basically the same amount of currency). Over the past 12 years, from 2008 through 2020, the Fed's balance sheet has grown from roughly $1 trillion to approximately $7 trillion (7x growth) to combat two major economic corrections, including the Great Recession from 2008 through 2010 and the COVID19 economic shock experienced starting in 2020. If this does not gain your attention (and concern), then layer on this fact as well: Total global debt was approximately $87 trillion at the end of the 2000 compared to a global GDP of roughly $50 trillion (representing a ratio of 174%). By the end of 2020, total global debt had risen to an unbelievable estimated figure of $277 trillion compared to an estimated global GDP of approximately $88 trillion for 2020 (representing a ratio of 315%). These trends are simply not sustainable, as the only real reason more and more debt can be absorbed is via historically low interest rates (now less than 1% for most of the world's public debt issued by developed countries) combined with ultraaccommodative terms.

So why our apprehension, you may ask, as it would appear now more than ever that the material presented in this book represents critical knowledge? The answer lies in the fact that between Wall Street (via the Fed) and Washington (not to mention countries and their respective banks from around the world), the current mindset seems to be centered on giving away free money.

That is, if you believe the Fed and the federal government are on the right path by handing out free money via loans (if you can call them that) with no regard for whether a company, individual, public entity, and so on can repay the loan, then this book is not for you. There is no point in understanding critical financial information, reports, analyses, sources and uses of capital, cash flow, and so on, as with free money raining down like there is no tomorrow, why even bother? Just load up on debt, spend it rapidly in unproductive ventures, cry poor or blame someone else, and then request another loan (i.e., wash, rinse, repeat). Better yet, why even bother with having accountants, business analysts, financial officers, or even the IRS, as in this bizarre new world financial accountability is not required?

Okay, we know this is a certainly a reach and yes, we are being sarcastic, but given the current policies being implemented at both the monetary and fiscal levels, the question does have to be asked about the financial viability not just of businesses but, even more importantly, at the governmental and country levels as well. This is where we became enthralled with writing this book, as the concepts and material presented are even more important and relevant today than ever before for individuals, businesses, governments, and countries alike. Our position is simple in that proper accounting and financial reporting will always be an essential and critical function of every business operating in free markets and economies around the globe.