All-in-One Financial Analysis Notes BS2203 Module Guide
Department of Finance and Accounting, Kenyatta University
May 2025
Introduction
This Module Guide for BS2203 Financial Analysis at Kenyatta University provides a comprehensive
overview for advanced undergraduates. The course equips students with skills to analyze finan-
cial statements, compute and interpret ratios, evaluate cash flows, and apply advanced techniques
like forecasting and valuation. These notes include interactive examples, practice questions with
hints, and answers, designed to span 5 pages.[](https://www.studocu.com/en-ie/document/dublin-
city-university/fictions/summaries/bs2203-financial-analysis/3597935/view)
1 Financial Statement Analysis
Financial statements are the foundation of financial analysis:
• Balance Sheet: Lists assets (current and non-current), liabilities (short-term and long-term),
and equity at a specific time.
• Income Statement: Shows revenue, expenses, and net income over a period.
• Cash Flow Statement: Tracks cash inflows/outflows from operating, investing, and financing
activities.
Interactive Example 1: A companys balance sheet shows current assets of KSh 800,000 and current
liabilities of KSh 400,000. Calculate the current ratio and interpret it.
Current Assets 800,000
• Step 1 : Current Ratio = Current Liabilities = 400,000 = 2.
• Step 2 : A ratio of 2 means the company can cover its short-term liabilities twice with current
assets, indicating good liquidity.
2 Ratio Analysis
Ratios provide insights into liquidity, solvency, profitability, and efficiency:
Current Assets Current Assets−Inventory
• Liquidity: Current Ratio = Current Liabilities , Quick Ratio = Current Liabilities .
Total Debt EBIT
• Solvency: Debt-to-Equity = Total Equity , Interest Coverage = Interest Expense .
Net Income Net Income
• Profitability: Return on Equity (ROE) = Average Equity , Net Profit Margin = Revenue .
Net Credit Sales
• Efficiency: Receivables Turnover = Average Accounts Receivable .
Interactive Example 2: A company reports net income of KSh 500,000, preferred dividends of KSh
50,000, and average equity of KSh 2,000,000. Calculate ROE.
Net Income−Preferred Dividends 500,000−50,000
• Step 1 : ROE = Average Equity = 2,000,000 = 0.225 or 22.5%.
• Step 2 : An ROE of 22.5% indicates strong profitability relative to equity.
3 Cash Flow Analysis
The cash flow statement categorizes cash flows:
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Department of Finance and Accounting, Kenyatta University
May 2025
Introduction
This Module Guide for BS2203 Financial Analysis at Kenyatta University provides a comprehensive
overview for advanced undergraduates. The course equips students with skills to analyze finan-
cial statements, compute and interpret ratios, evaluate cash flows, and apply advanced techniques
like forecasting and valuation. These notes include interactive examples, practice questions with
hints, and answers, designed to span 5 pages.[](https://www.studocu.com/en-ie/document/dublin-
city-university/fictions/summaries/bs2203-financial-analysis/3597935/view)
1 Financial Statement Analysis
Financial statements are the foundation of financial analysis:
• Balance Sheet: Lists assets (current and non-current), liabilities (short-term and long-term),
and equity at a specific time.
• Income Statement: Shows revenue, expenses, and net income over a period.
• Cash Flow Statement: Tracks cash inflows/outflows from operating, investing, and financing
activities.
Interactive Example 1: A companys balance sheet shows current assets of KSh 800,000 and current
liabilities of KSh 400,000. Calculate the current ratio and interpret it.
Current Assets 800,000
• Step 1 : Current Ratio = Current Liabilities = 400,000 = 2.
• Step 2 : A ratio of 2 means the company can cover its short-term liabilities twice with current
assets, indicating good liquidity.
2 Ratio Analysis
Ratios provide insights into liquidity, solvency, profitability, and efficiency:
Current Assets Current Assets−Inventory
• Liquidity: Current Ratio = Current Liabilities , Quick Ratio = Current Liabilities .
Total Debt EBIT
• Solvency: Debt-to-Equity = Total Equity , Interest Coverage = Interest Expense .
Net Income Net Income
• Profitability: Return on Equity (ROE) = Average Equity , Net Profit Margin = Revenue .
Net Credit Sales
• Efficiency: Receivables Turnover = Average Accounts Receivable .
Interactive Example 2: A company reports net income of KSh 500,000, preferred dividends of KSh
50,000, and average equity of KSh 2,000,000. Calculate ROE.
Net Income−Preferred Dividends 500,000−50,000
• Step 1 : ROE = Average Equity = 2,000,000 = 0.225 or 22.5%.
• Step 2 : An ROE of 22.5% indicates strong profitability relative to equity.
3 Cash Flow Analysis
The cash flow statement categorizes cash flows:
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