Financial Statement Analysis
Complete Chapter Notes — Part 1 & Part 2
Prof. Alexander Liss | KU Leuven | Winter 2025–2026
PART 1: Financial Statement Analysis — 6 Chapters
PART 2: Advanced Accounting & Valuation Topics — 4 Chapters
Every formula · Every definition · Every example · Mock exam included
FSA Complete Notes | Prof. Alexander Liss | KU Leuven | 2025–2026 Page 1
, PART 1
Financial Statement Analysis
Chapters 1 – 6
FSA Complete Notes | Prof. Alexander Liss | KU Leuven | 2025–2026 Page 2
, PART 1
Chapter 1
Introduction to Financial Statements and Their Analysis
FSA = the process of extracting information from financial statements to better understand a company's current and
future performance and financial condition.
Functions of Financial Statements
# Function What it means
1 Information What is the company doing? For investors, management, creditors. Note: tax FS ≠ investor
FS (Amazon paid zero Texas tax using stock deductions despite huge profits).
2 Profit & Tax Determination of profits, distribution to shareholders, base for taxes.
3 Documentation Prerequisite for accountability and capital preservation. Documents fiscal year performance.
• Purpose chain: Accountability → Documentation → Preservation of Investments
The Four Financial Statements
• IFRS requires FIVE financial statements: (1) Balance Sheet, (2) Income Statement, (3) Cash Flow Statement, (4)
Statement of Shareholders' Equity, (5) Notes Section — detailed disclosures behind every line item.
1. Balance Sheet
Assets = Liabilities + Shareholders' Equity
Meaning: Assets = what the firm OWNS/CONTROLS (future economic benefits). Liabilities = what the firm OWES
(obligations to pay). Equity = residual claim of owners (assets minus liabilities). Reports at a POINT IN TIME.
Accounts are PERMANENT (carry forward each period).
Example: If Total Assets = €5,300m and Equity = €1,870m → Liabilities = 5,300 − 1,870 = €3,430m
2. Income Statement
• Reports revenues less expenses between two balance sheet dates. Based on ACCRUALS — recognizes revenue
when earned, not when cash received.
• Depreciation = economic value lost on assets each year. Recorded as an expense but NO cash outflow.
• Accruals example: rent paid in December for January–February belongs to Jan/Feb as an expense, not December.
3. Cash Flow Statement
Change in Cash = CFO + CFI + CFF
Meaning: CFO = Cash from Operations (day-to-day business). CFI = Cash from Investing (buying/selling assets).
CFF = Cash from Financing (debt/equity). Unlike income statement, NOT distorted by accrual accounting choices.
Example: Siemens 2023: CFO=12,281 + CFI=−3,458 + CFF=−8,730 = +93 (slight cash increase) | Bekaert 2023:
439.8+(−40.5)+(−482.1) = −82.8
4. Statement of Shareholders' Equity
Ending Equity = Beginning Equity + Comprehensive Income − Net Payout
FSA Complete Notes | Prof. Alexander Liss | KU Leuven | 2025–2026 Page 3
, Meaning: Shows HOW equity changed during the year. Comprehensive income = everything increasing equity. Net
payout = what was returned to shareholders.
Example: Begin equity=5,417 | Comp. income=968 | Net payout=737 → Ending equity=5,648
Comprehensive Income = Net Income + Other Comprehensive Income
Meaning: Net Income = recognized in income statement. OCI = unrealized gains/losses BYPASSING the income
statement (FX translations, pension changes, hedge fair values). Both increase equity.
Example: Bekaert 2023: NI=253 + OCI=−45 → Comprehensive income=208
Net Payout = Dividends + Share Repurchases − Share Issues
Meaning: Cash returned to shareholders. Dividends and buybacks reduce equity (cash leaves). New share issues
increase equity (cash enters).
Example: Divs=€648 + Repurchases=€720 − Issues=€822 = Net payout=€546
Users of Financial Information
User Key question Focus
Equity investors Is this stock worth buying? Earnings, growth, ROE, dividends
Debt investors Can they repay me? Default probability, TIE, CFO/debt, covenants
Management How are we performing? All metrics — strategic planning
Employees Is my job secure? Solvency, profitability, future plans
Customers Will they keep supplying Solvency, going-concern
me?
Governments How much tax? Profits, assets
• Key conflict: Shareholders prefer risk (unlimited upside). Debtholders prefer stability (fixed return).
Business Analysis Frameworks
• Before FSA: KNOW THE BUSINESS. Key question: How durable is the firm's competitive advantage?
• What you need to know: (1) The business model and strategy — what is the firm aiming to do? (2) The firm's
product/service. (3) The technology required to bring products to market. (4) The firm's knowledge base. (5)
Competitiveness of the industry. (6) The management team. (7) Political, legal, regulatory and ethical environment.
• Problem: Economic factors are often expressed in qualitative terms. Solution: See the business THROUGH the
financial statements.
• Bekaert risk factors: strategic risks, labour market risks, operational risks (business, environmental, cyber security),
regulatory/compliance risks, financial risks, geopolitical risks.
Porter's Value Chain Framework
• Analyzes a firm's internal activities that create value. Primary activities: Inbound Logistics → Operations → Outbound
Logistics → Marketing/Sales → After-Sales Service. Support activities: Firm infrastructure, HR management,
technology development, procurement.
• Used to identify WHERE in the chain a firm has competitive advantage or cost inefficiency.
Porter's Five Forces
Force Abbr. Effect
Industry Competition IC Rivals raise cost of doing business — price wars, heavy marketing
Bargaining Power of Buyers BPOB Strong buyers extract price concessions → lower revenues
FSA Complete Notes | Prof. Alexander Liss | KU Leuven | 2025–2026 Page 4
Complete Chapter Notes — Part 1 & Part 2
Prof. Alexander Liss | KU Leuven | Winter 2025–2026
PART 1: Financial Statement Analysis — 6 Chapters
PART 2: Advanced Accounting & Valuation Topics — 4 Chapters
Every formula · Every definition · Every example · Mock exam included
FSA Complete Notes | Prof. Alexander Liss | KU Leuven | 2025–2026 Page 1
, PART 1
Financial Statement Analysis
Chapters 1 – 6
FSA Complete Notes | Prof. Alexander Liss | KU Leuven | 2025–2026 Page 2
, PART 1
Chapter 1
Introduction to Financial Statements and Their Analysis
FSA = the process of extracting information from financial statements to better understand a company's current and
future performance and financial condition.
Functions of Financial Statements
# Function What it means
1 Information What is the company doing? For investors, management, creditors. Note: tax FS ≠ investor
FS (Amazon paid zero Texas tax using stock deductions despite huge profits).
2 Profit & Tax Determination of profits, distribution to shareholders, base for taxes.
3 Documentation Prerequisite for accountability and capital preservation. Documents fiscal year performance.
• Purpose chain: Accountability → Documentation → Preservation of Investments
The Four Financial Statements
• IFRS requires FIVE financial statements: (1) Balance Sheet, (2) Income Statement, (3) Cash Flow Statement, (4)
Statement of Shareholders' Equity, (5) Notes Section — detailed disclosures behind every line item.
1. Balance Sheet
Assets = Liabilities + Shareholders' Equity
Meaning: Assets = what the firm OWNS/CONTROLS (future economic benefits). Liabilities = what the firm OWES
(obligations to pay). Equity = residual claim of owners (assets minus liabilities). Reports at a POINT IN TIME.
Accounts are PERMANENT (carry forward each period).
Example: If Total Assets = €5,300m and Equity = €1,870m → Liabilities = 5,300 − 1,870 = €3,430m
2. Income Statement
• Reports revenues less expenses between two balance sheet dates. Based on ACCRUALS — recognizes revenue
when earned, not when cash received.
• Depreciation = economic value lost on assets each year. Recorded as an expense but NO cash outflow.
• Accruals example: rent paid in December for January–February belongs to Jan/Feb as an expense, not December.
3. Cash Flow Statement
Change in Cash = CFO + CFI + CFF
Meaning: CFO = Cash from Operations (day-to-day business). CFI = Cash from Investing (buying/selling assets).
CFF = Cash from Financing (debt/equity). Unlike income statement, NOT distorted by accrual accounting choices.
Example: Siemens 2023: CFO=12,281 + CFI=−3,458 + CFF=−8,730 = +93 (slight cash increase) | Bekaert 2023:
439.8+(−40.5)+(−482.1) = −82.8
4. Statement of Shareholders' Equity
Ending Equity = Beginning Equity + Comprehensive Income − Net Payout
FSA Complete Notes | Prof. Alexander Liss | KU Leuven | 2025–2026 Page 3
, Meaning: Shows HOW equity changed during the year. Comprehensive income = everything increasing equity. Net
payout = what was returned to shareholders.
Example: Begin equity=5,417 | Comp. income=968 | Net payout=737 → Ending equity=5,648
Comprehensive Income = Net Income + Other Comprehensive Income
Meaning: Net Income = recognized in income statement. OCI = unrealized gains/losses BYPASSING the income
statement (FX translations, pension changes, hedge fair values). Both increase equity.
Example: Bekaert 2023: NI=253 + OCI=−45 → Comprehensive income=208
Net Payout = Dividends + Share Repurchases − Share Issues
Meaning: Cash returned to shareholders. Dividends and buybacks reduce equity (cash leaves). New share issues
increase equity (cash enters).
Example: Divs=€648 + Repurchases=€720 − Issues=€822 = Net payout=€546
Users of Financial Information
User Key question Focus
Equity investors Is this stock worth buying? Earnings, growth, ROE, dividends
Debt investors Can they repay me? Default probability, TIE, CFO/debt, covenants
Management How are we performing? All metrics — strategic planning
Employees Is my job secure? Solvency, profitability, future plans
Customers Will they keep supplying Solvency, going-concern
me?
Governments How much tax? Profits, assets
• Key conflict: Shareholders prefer risk (unlimited upside). Debtholders prefer stability (fixed return).
Business Analysis Frameworks
• Before FSA: KNOW THE BUSINESS. Key question: How durable is the firm's competitive advantage?
• What you need to know: (1) The business model and strategy — what is the firm aiming to do? (2) The firm's
product/service. (3) The technology required to bring products to market. (4) The firm's knowledge base. (5)
Competitiveness of the industry. (6) The management team. (7) Political, legal, regulatory and ethical environment.
• Problem: Economic factors are often expressed in qualitative terms. Solution: See the business THROUGH the
financial statements.
• Bekaert risk factors: strategic risks, labour market risks, operational risks (business, environmental, cyber security),
regulatory/compliance risks, financial risks, geopolitical risks.
Porter's Value Chain Framework
• Analyzes a firm's internal activities that create value. Primary activities: Inbound Logistics → Operations → Outbound
Logistics → Marketing/Sales → After-Sales Service. Support activities: Firm infrastructure, HR management,
technology development, procurement.
• Used to identify WHERE in the chain a firm has competitive advantage or cost inefficiency.
Porter's Five Forces
Force Abbr. Effect
Industry Competition IC Rivals raise cost of doing business — price wars, heavy marketing
Bargaining Power of Buyers BPOB Strong buyers extract price concessions → lower revenues
FSA Complete Notes | Prof. Alexander Liss | KU Leuven | 2025–2026 Page 4
