@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
PART 2 UNIT 1
PART 2
1
2A. Financial Statement Analysis
Module
1 A.1. Financial Statement Analysis 3
2 A.2. Financial Ratios: Part 1 13
3 A.2. Financial Ratios: Part 2 37
4 A.2. Financial Ratios: Part 3
A.3. Profitability Analysis 63
5 A.4. Special Issues 85
@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
,@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
NOTES
1–2 © Becker Professional Education Corporation. All rights reserved.
@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
,@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
MODULE
PART 2 UNIT 1
1 A.1. Financial
Statement Analysis
Part 2
Unit 1
This module covers the following content from the IMA Learning Outcome Statements.
CMA LOS Reference: Part 2—Section A.1. Financial Statement Analysis
The candidate should be able to:
a. for the balance sheet and income statement, prepare and analyze common-size
financial statements; i.e., calculate percentage of assets and sales, respectively; also
called vertical analysis
b. for the balance sheet and income statement, prepare a comparative financial
statement horizontal analysis; i.e., calculate trend year over year for every item on the
financial statement compared to the base year
c. calculate the growth rate of individual line items on the balance sheet and income
statement
1 Vertical and Horizontal Analysis
1.1 Vertical Analysis LOS 2A1a
Common-size financial statements, also called vertical analysis, show each item in the financial
statements as a percentage of a base account within each statement.
1.1.1 Income Statement: Vertical Analysis
All line items in the income statement are expressed as a percentage of net sales revenue
allowing comparison of operating performance between two differently sized entities, especially
those in the same industry. Entities in the same industry generally have similar percentages
during a period. Understanding the composition of costs enables users to identify significant
items that influence profitability.
Income statement line item
Common-size income statement
100
Net sales revenue
Vertical analysis can also be used by applying a different denominator within an income statement
account. For example, if general and administrative (G&A) costs are the focus, then total G&A expense
could be used as the denominator (base) for all expense line items that are included in that total.
The benefit of this is that it may make differences in some expense accounts more obvious by
using a smaller base, as opposed to being less obvious when using revenue as the sole base.
© Becker Professional Education Corporation. All rights reserved. Module 1 1–3 A.1
@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
,@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
1 A.1. Financial Statement Analysis PART 2 UNIT 1
Illustration 1 Income Statement Analysis
Taylen Inc. has an opportunity to invest either in an established restaurant in Big City (BC)
or in a locally owned restaurant in Taylen's hometown. To determine which investment is
better, Taylen reviews the income statement for each company for the most recent quarter:
Big City Restaurant Local Restaurant
Sales $1,000,000 Sales $40,000
Cost of goods sold 500,000 Cost of goods sold 10,000
Gross profit 500,000 Gross profit 30,000
Operating expenses 450,000 Operating expenses 24,000
Net income $ 50,000 Net income $ 6,000
While the numbers for the restaurant located in Big City are much larger and show a
greater profit than the numbers and profit for the local restaurant, a comparison using
vertical analysis, with each line item as a percentage of sales revenues, reveals that the
local restaurant had a higher operating margin:
Big City Restaurant Local Restaurant
Sales $1,000,000 100% Sales $40,000 100%
Cost of goods sold 500,000 50% Cost of goods sold 10,000 25%
Gross profit 500,000 50% Gross profit 30,000 75%
Operating expenses 450,000 45% Operating expenses 24,000 60%
Net income $ 50,000 5% Net income $ 6,000 15%
Based upon the vertical analysis, Taylen determines that the BC restaurant was less
profitable per sales dollar than the local restaurant. The BC restaurant's cost of goods
sold as a percentage of sales was double the rate for the local restaurant and therefore
diminished the profit potential for the BC restaurant. Although the local restaurant's
operating expenses as a percentage of sales were higher, the local restaurant generated
a 15 percent return for every dollar of sales revenue earned by the local restaurant,
compared to a 5 percent return for the BC restaurant.
1.1.2 Balance Sheet: Vertical Analysis
All line items in the balance sheet are expressed as a percentage of total assets (or the sum of
total liabilities and stockholders' equity, which equals total assets).
Balance sheet line item
Common-size balance sheet
100
ets
Total asse
1–4 Module 1 A.1. Financial
© Becker Professional Education Corporation. Statement
All rights Analysis
reserved.
@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
PART 2 UNIT 1
PART 2
1
2A. Financial Statement Analysis
Module
1 A.1. Financial Statement Analysis 3
2 A.2. Financial Ratios: Part 1 13
3 A.2. Financial Ratios: Part 2 37
4 A.2. Financial Ratios: Part 3
A.3. Profitability Analysis 63
5 A.4. Special Issues 85
@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
,@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
NOTES
1–2 © Becker Professional Education Corporation. All rights reserved.
@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
,@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
MODULE
PART 2 UNIT 1
1 A.1. Financial
Statement Analysis
Part 2
Unit 1
This module covers the following content from the IMA Learning Outcome Statements.
CMA LOS Reference: Part 2—Section A.1. Financial Statement Analysis
The candidate should be able to:
a. for the balance sheet and income statement, prepare and analyze common-size
financial statements; i.e., calculate percentage of assets and sales, respectively; also
called vertical analysis
b. for the balance sheet and income statement, prepare a comparative financial
statement horizontal analysis; i.e., calculate trend year over year for every item on the
financial statement compared to the base year
c. calculate the growth rate of individual line items on the balance sheet and income
statement
1 Vertical and Horizontal Analysis
1.1 Vertical Analysis LOS 2A1a
Common-size financial statements, also called vertical analysis, show each item in the financial
statements as a percentage of a base account within each statement.
1.1.1 Income Statement: Vertical Analysis
All line items in the income statement are expressed as a percentage of net sales revenue
allowing comparison of operating performance between two differently sized entities, especially
those in the same industry. Entities in the same industry generally have similar percentages
during a period. Understanding the composition of costs enables users to identify significant
items that influence profitability.
Income statement line item
Common-size income statement
100
Net sales revenue
Vertical analysis can also be used by applying a different denominator within an income statement
account. For example, if general and administrative (G&A) costs are the focus, then total G&A expense
could be used as the denominator (base) for all expense line items that are included in that total.
The benefit of this is that it may make differences in some expense accounts more obvious by
using a smaller base, as opposed to being less obvious when using revenue as the sole base.
© Becker Professional Education Corporation. All rights reserved. Module 1 1–3 A.1
@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
,@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
1 A.1. Financial Statement Analysis PART 2 UNIT 1
Illustration 1 Income Statement Analysis
Taylen Inc. has an opportunity to invest either in an established restaurant in Big City (BC)
or in a locally owned restaurant in Taylen's hometown. To determine which investment is
better, Taylen reviews the income statement for each company for the most recent quarter:
Big City Restaurant Local Restaurant
Sales $1,000,000 Sales $40,000
Cost of goods sold 500,000 Cost of goods sold 10,000
Gross profit 500,000 Gross profit 30,000
Operating expenses 450,000 Operating expenses 24,000
Net income $ 50,000 Net income $ 6,000
While the numbers for the restaurant located in Big City are much larger and show a
greater profit than the numbers and profit for the local restaurant, a comparison using
vertical analysis, with each line item as a percentage of sales revenues, reveals that the
local restaurant had a higher operating margin:
Big City Restaurant Local Restaurant
Sales $1,000,000 100% Sales $40,000 100%
Cost of goods sold 500,000 50% Cost of goods sold 10,000 25%
Gross profit 500,000 50% Gross profit 30,000 75%
Operating expenses 450,000 45% Operating expenses 24,000 60%
Net income $ 50,000 5% Net income $ 6,000 15%
Based upon the vertical analysis, Taylen determines that the BC restaurant was less
profitable per sales dollar than the local restaurant. The BC restaurant's cost of goods
sold as a percentage of sales was double the rate for the local restaurant and therefore
diminished the profit potential for the BC restaurant. Although the local restaurant's
operating expenses as a percentage of sales were higher, the local restaurant generated
a 15 percent return for every dollar of sales revenue earned by the local restaurant,
compared to a 5 percent return for the BC restaurant.
1.1.2 Balance Sheet: Vertical Analysis
All line items in the balance sheet are expressed as a percentage of total assets (or the sum of
total liabilities and stockholders' equity, which equals total assets).
Balance sheet line item
Common-size balance sheet
100
ets
Total asse
1–4 Module 1 A.1. Financial
© Becker Professional Education Corporation. Statement
All rights Analysis
reserved.
@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/19/2026,
f(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R@))(!))*)_~)~()@(@))U89010/
2026/10/19CMA 2.pdf(*&*@T*^#&*^&$^&^&*$^*&^@*&$@$*%*$&^+*&T@$^&$@**&$@^$*&@$^*&$@@^$@&$R^RF&V&EBD*&DBN(*OIU@R)(@+_R)R_(R
1:39:29 PM
