📘 Title: Financial Statement Analysis Compiled by Rickie
Page 1 – Introduction & Overview
Financial Statement Analysis is the process of examining a company's financial statements to make
informed business and investment decisions.
Importance:
• Helps assess company performance and financial health
• Facilitates decision-making for investors, managers, and stakeholders
• Highlights trends and areas for improvement
Page 2 – Key Financial Statements
1. Income Statement: Shows revenues, expenses, and profit over a period.
2. Balance Sheet: Displays assets, liabilities, and owner’s equity at a point in time.
3. Cash Flow Statement: Tracks cash inflows and outflows from operating, investing, and
financing activities.
Diagram Placeholder: [Relationship between Financial Statements]
Page 3 – Key Financial Ratios
Liquidity Ratios: - Current Ratio = Current Assets / Current Liabilities - Quick Ratio = (Current Assets –
Inventory) / Current Liabilities
Profitability Ratios: - Net Profit Margin = Net Income / Revenue - Return on Assets (ROA) = Net
Income / Total Assets
Solvency Ratios: - Debt-to-Equity Ratio = Total Liabilities / Owner’s Equity
Table Example – Key Ratios: | Ratio Type | Formula | Purpose | |------------|--------|---------| | Liquidity |
Current Assets / Current Liabilities | Assess short-term ability to pay debts | | Profitability | Net
Income / Revenue | Measure profitability efficiency | | Solvency | Total Liabilities / Owner’s Equity |
Assess long-term financial stability |
Page 4 – Analyzing Financial Statements
• Trend Analysis: Comparing statements over multiple periods to identify patterns
• Common-Size Analysis: Converting statements into percentages to compare companies of
different sizes
• Vertical & Horizontal Analysis: Vertical = % of total, Horizontal = % change over time
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Page 1 – Introduction & Overview
Financial Statement Analysis is the process of examining a company's financial statements to make
informed business and investment decisions.
Importance:
• Helps assess company performance and financial health
• Facilitates decision-making for investors, managers, and stakeholders
• Highlights trends and areas for improvement
Page 2 – Key Financial Statements
1. Income Statement: Shows revenues, expenses, and profit over a period.
2. Balance Sheet: Displays assets, liabilities, and owner’s equity at a point in time.
3. Cash Flow Statement: Tracks cash inflows and outflows from operating, investing, and
financing activities.
Diagram Placeholder: [Relationship between Financial Statements]
Page 3 – Key Financial Ratios
Liquidity Ratios: - Current Ratio = Current Assets / Current Liabilities - Quick Ratio = (Current Assets –
Inventory) / Current Liabilities
Profitability Ratios: - Net Profit Margin = Net Income / Revenue - Return on Assets (ROA) = Net
Income / Total Assets
Solvency Ratios: - Debt-to-Equity Ratio = Total Liabilities / Owner’s Equity
Table Example – Key Ratios: | Ratio Type | Formula | Purpose | |------------|--------|---------| | Liquidity |
Current Assets / Current Liabilities | Assess short-term ability to pay debts | | Profitability | Net
Income / Revenue | Measure profitability efficiency | | Solvency | Total Liabilities / Owner’s Equity |
Assess long-term financial stability |
Page 4 – Analyzing Financial Statements
• Trend Analysis: Comparing statements over multiple periods to identify patterns
• Common-Size Analysis: Converting statements into percentages to compare companies of
different sizes
• Vertical & Horizontal Analysis: Vertical = % of total, Horizontal = % change over time
1
