Robert Follett. How to Keep Score in Business: Accounting and Financial Analysis for the Non-Accountant. Second Edition. Upper Saddle River, New Jersey: FT Press, 2012. 168 pages.
Financial statements can be a riddle. Loaded down with numbers and sometimes-confusing terminology, they can obscure rather than illuminate if you don’t know how to read them. If you’ve got a degree in accounting, it’s a snap, of course, but not everyone who needs to do financial analysis has that degree–or has even taken a course in the subject. Robert Follett’s HOW TO KEEP SCORE IN BUSINESS isn’t the equivalent of an accounting degree, but it’s a short, readable guide that will make balance sheets, income statements, and other financial analyses comprehensible to the uninitiated.
Follett is a good teacher: he starts off by explaining what he’s going to do, then provides a chapter-length glossary that includes important terms. This part is important, because words on a balance sheet don’t necessarily mean the same as they do elsewhere. For example, we all understand what a “loss” is. If I put $20 into a video poker machine and play it until it’s gone, I’ve “lost” it–the money is gone at that moment, and it’s not coming back. On a balance sheet, however, a loss does not necessarily represent a reduction in cash during the accounting period covered. It might seem like a subtle distinction, but it’s an important one.
After the glossary, Follett spends two chapters explaining the balance sheet, which is really the crux of the book. Here’s where the reader has to get active: Follett has you create your own balance sheet instead of just reading about it. And here’s where readers who put more work into the book by actually doing so will end up getting more out of it. Then there are chapters on the income statement, various ways to calculate return on investment, changes in financial position, and the cash flow budget. At the end, Follett summarizes what he’s presented.
This is an excellent beginner’s guide that doubles as a continuing reference work. Both the glossary and the other chapters will get a lot of use as the reader returns to them when wading through actual financial statements. It’s easy to read and does a fine job of making those pages of numbers less intimidating. Highly recommended.