BS2203 Master Summary Financial Statements, Ratios, and
Valuation
Kingstone Business Community College
May 2025
Introduction
This Master Summary for BS2203 Financial Analysis at Kingstone Business Community College is
designed for exam preparation. It covers financial statements, ratio analysis, and valuation techniques,
with interactive examples and exam-style questions to ensure mastery of key concepts. This document
is approximately 5 pages, providing a concise yet comprehensive review.
1 Financial Statements
Financial statements are critical for analyzing a companys performance:
• Balance Sheet: Assets (current, non-current), liabilities (short-term, long-term), and equity
at a point in time.
• Income Statement: Revenue, expenses, and net income over a period.
• Cash Flow Statement: Cash flows from operating (core business), investing (capital expen-
ditures), and financing (debt/equity) activities.
Interactive Example 1: A companys balance sheet shows current assets of $600,000 and current
liabilities of $300,000. Calculate the current ratio.
Current Assets 600,000
• Step 1 : Current Ratio = Current Liabilities = 300,000 = 2.
• Step 2 : A ratio of 2 indicates the company can cover short-term liabilities twice, suggesting
strong liquidity.
2 Ratio Analysis
Ratios assess 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 365
• Efficiency: Receivables Turnover = Average Accounts Receivable , Days to Collect = Receivables Turnover .
Interactive Example 2: A company has net income of $400,000 and average equity of $2,000,000.
Calculate ROE.
400,000
• Step 1 : ROE = 2,000,000 = 0.2 or 20%.
• Step 2 : An ROE of 20% indicates strong profitability relative to equity.
3 Valuation Techniques
Valuation estimates a companys worth:
1
Valuation
Kingstone Business Community College
May 2025
Introduction
This Master Summary for BS2203 Financial Analysis at Kingstone Business Community College is
designed for exam preparation. It covers financial statements, ratio analysis, and valuation techniques,
with interactive examples and exam-style questions to ensure mastery of key concepts. This document
is approximately 5 pages, providing a concise yet comprehensive review.
1 Financial Statements
Financial statements are critical for analyzing a companys performance:
• Balance Sheet: Assets (current, non-current), liabilities (short-term, long-term), and equity
at a point in time.
• Income Statement: Revenue, expenses, and net income over a period.
• Cash Flow Statement: Cash flows from operating (core business), investing (capital expen-
ditures), and financing (debt/equity) activities.
Interactive Example 1: A companys balance sheet shows current assets of $600,000 and current
liabilities of $300,000. Calculate the current ratio.
Current Assets 600,000
• Step 1 : Current Ratio = Current Liabilities = 300,000 = 2.
• Step 2 : A ratio of 2 indicates the company can cover short-term liabilities twice, suggesting
strong liquidity.
2 Ratio Analysis
Ratios assess 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 365
• Efficiency: Receivables Turnover = Average Accounts Receivable , Days to Collect = Receivables Turnover .
Interactive Example 2: A company has net income of $400,000 and average equity of $2,000,000.
Calculate ROE.
400,000
• Step 1 : ROE = 2,000,000 = 0.2 or 20%.
• Step 2 : An ROE of 20% indicates strong profitability relative to equity.
3 Valuation Techniques
Valuation estimates a companys worth:
1
