Financial Statement Analysis - learn the basics of financial analysis

This page is dedicated to our free courses that cover financial statement analysis. 

On this page, you will find free tutorials that cover...

1. financial statement fundamentals

2. analysis of financial statements

3. financial ratios and equations

4. and more...

 

To access the training material, please use the links below...

*NEW* - The FREE Financial Statement Analysis Course

Lesson 1 - Introduction

Lesson 2 - Financial Formulas and Ratios

Lesson 3 - Analysing Financial Statements

Want to become a financial analysis expert? click here

Analysing Financial Statements Course Part 1

Financial Analysis Course - Part 1

Introduction to Analysing Financial Statements

Course overview

Who should take this course?

Financial Analysis Course - Part 2

Review of limited company accounts

Comparing financial information

Gross margin

Net margin

Current ratio

And other financial formulas & ratios

Analysing Financial Statements Course Part 2
Analysing Financial Statements Course Part 3

Financial Analysis Course - Part 3

Analysis of profit and loss statement

Analysis of balance sheet

Financial Analysis - Key Points

Financial Statement Analysis - Part 1

What are financial statements?

In accounting and finance, financial statements are any financial reports that display the financial health (sales, expenses or profits) or financial position (assets, liabilities or equity) of a business or company. Generally though, financial statements refers to two specific financial reports; the profit and loss statement and the balance sheet. 

Sometimes, the profit and loss statement is named the statement of comprehensive income. Sometimes, the balance sheet is named the statement of financial position. 

Who should learn to analyse financial statements? 

 

Being able to read, understand and analyse financial statements is an incredibly useful skill. 

Those that would find this skill useful include...

- Business owners

- Company directors

- Business students

- Accounting students

- Bookkeepers 

- Accountants

- Entrepreneurs

- Shareholders and investors 

- Stock traders

Financial Statement Analysis - Part 2

Common Financial Formulas and Financial Ratios

Below are the most basic (and commonly used) formulas used for analysis...

 

Gross profit margin - evaluates how much gross profit is generated from sales

Gross profit margin = gross profit/total sales

Gross profit margin as percentage = (gross profit/total sales)*100

 

Net profit margin - evaluates how much gross profit is generated from sales

Net profit margin = gross profit/total sales

Net profit margin as percentage = (gross profit/total sales)*100

 

Current ratio - analyses the company's ability to pay-off short-term liabilities with the company's assets

Current ratio = current assets/current liabilities

 

Acid test ratio - analyses the company's ability to pay-off short-term liabilities with the liquid assets

Acid test ratio = liquid assets/current liabilities

 

Days sales outstanding (DSO) - measures the average number of days it takes for the company to collect payment from credit sales. Can also be referred to as collection period or receivable turnover is days.

DSO = (debtors balance/total credit sales)*365

 

Days payable outstanding (DPO) - measures the average number of days it takes for the company to pay it's credit suppliers. Can also be referred to as payment period or accounts payable turnover in days

DPO = (creditors balance/total credit purchases)*365

A Complete List of other Financial Formulas and Financial Ratios

Financial formulas for profitability

 

Return on assets - also known as return on investment. Used to evaluate the company's efficiency to generate sales from it's assets

ROA = net profit/total assets

 

Return of shareholders equity - measures the income derived from shareholders equity

Return of shareholders equity = net profit/shareholders equity

 

Financial formulas for liquidity

 

Cash ratio - analyses the company's ability to pay-off short-term liabilities with company cash

Cash ratio = cash/current liabilities

 

Net working capital - determines if a company can meet it's current liabilities with it's current assets

Net working capital = current assets - current liabilities

Financial formulas for management efficiency

 

Inventory turnover - measures how many times inventory is sold and replaced

Inventory turnover ratio = cost of sales/inventory

 

Days inventory outstanding - measures how many days inventory is in the warehouse before sale

Days inventory outstanding = 365/inventory turnover

 

Operating cycle - calculates the amount of days it takes the company to complete 1 full operating cycle i.e pays for purchases, sells them and collects the revenue from the sale

Operating cycle = days inventory outstanding/days sales outstanding

 

Financial formulas for leverage

 

Debt ratio - measures the amount of company assets that are financed by debt

Debt ratio = total liabilities/total assets

 

Equity ratio - measures the amount of company assets that are financed by owners equity

Equity ratio = total equity/total assets

 

Financial formulas for valuation and growth

 

Earnings per share(EPS) - shows the rate of earnings per company share

EPS = (net profit-dividends)/company shares

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