In the previous chapters, we analyze how the activities of all of a
company's functions contribute to the value customers believe its
goods and services have. Dick's growing sales and profitability suggest that it has created
more value for customers than its competitors. Dick's has a competitive advantage
because its managers invested its capital to create a business model that attracts
more high-spending customers to its stores.
Accounting is the function in a company that records and analyzes the thousands of
transactions related to making and selling products that customers want to buy. The
information provided by accounting allows managers to measure how well a company’s
business model is working to create profit - and thus how profitable a company is
(Chapter 1 explained why profitability is such an important measure of performance).
In this chapter, we first examine the various kinds of activities involved in accounting
and the different types of accountants involved in the accounting process. Second,
we describe the terminology, or "language," of accounting, discuss the way in which
accountants record and measure a company's value-creation activities, and how they
present this information in financial statements. Third, we analyze the financial measures
and ratios a company's stakeholders use to evaluate its past, current, and future
performance and profitability. By the end of this chapter, you will understand the crucial
role the accounting function plays in helping a company generate more value,
cash, and profit from its operations - something that benefits all of its stakeholders.
