Free Financial Analysis Course
This page contains our free online financial statement analysis course. It will teach you the basics of financial analysis, including examples of using financial analysis to analyse financial statements.
The Course Covers:
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The Fundamentals of Financial Statements
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How to Analyse Financial Statements
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Key Financial Ratios and Formulas
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Examples of financial analysis in action
Course Modules:
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Lesson 1: Financial Analysis Introduction
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Lesson 2: Common Formulas & Ratios
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Lesson 3: Analysing Financial Statements
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And more
To start the online course, scroll down.
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This course is FREE, and no registration is required. It is perfect for start-up businesses and companies looking for financing.
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Jump to:
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An Introduction to Financial Analysis
Financial Statement Analysis Made Easy
Part 1: An Introduction to Financial Analysis
Module overview:
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Course Introduction
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Course Overview
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Course Aim
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And more
1.1 What are financial statements?
In accounting and finance, financial statements are any reports that display a business or company's financial health (sales, expenses or profits) or financial position (assets, liabilities or equity). Generally, financial statements refer to two specific financial reports: the profit and loss statement and the balance sheet.
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Sometimes, the profit and loss statement is called the statement of comprehensive income, and the balance sheet is called the statement of financial position. ​
1.2 Who should learn to analyse financial statements?
Reading, understanding and analysing financial statements is not just a handy skill. Financial analysis is a must if a company wishes to grow and stay solvent.
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The following should learn and use financial analysis:
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Business owners
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Company directors
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Business students
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Accounting students
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Bookkeepers
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Accountants
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Entrepreneurs
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Shareholders and investors
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Stock traders and investors
Part 2: Financial Formulas and Ratios
Module overview:
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Company accounts
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Comparing financial information
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Common financial formulas
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Common financial ratios
2.1 Financial Formulas
Competent financial analysis consists of four key stages:
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1. The gathering of financial information, such as financial statements. Management accounts, cash flow forecasts, and detailed sales and expense reports can also be used.
2. Reviewing information to spot trends and obvious signs of strength and weakness. This is made easier by comparing financial information across several reporting periods, such as comparing the most recent sales and profit figures to the year prior, and the year prior to that.
3. Using financial formulas. These formulas will provide crucial information about the business, including profit percentages, solvency test results, and the overall financial strength of the business.
4. Analysing results to highlight strengths, weaknesses, areas of concern, and form conclusions
A Complete List of Financial Formulas and Ratios
2.2 Common Financial Formulas and Ratios
Below are the most basic and commonly used formulas used for financial analysis:
Name: Gross Profit Margin
Description: Evaluate how much gross profit is generated from sales
Formula: Gross profit margin = gross profit/total sales
Example:
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Name: Gross Profit Percentage
Description: Display gross profit margin as a percentage
Formula: Gross profit margin as percentage = (gross profit/total sales)*100
Example:
Name: Net Profit Margin
Description: Evaluate how much net profit is generated from sales
Formula: Net profit margin = gross profit/total sales
Example:
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Name: Net Profit Percentage
Description: Display the net profit margin as a percentage
Formula: Net profit margin as percentage = (gross profit/total sales)*100
Example:
Name: Current Ratio
Description: Calculate a company's ability to pay off short-term liabilities with its current assets.
Formula: Current ratio = current assets/current liabilities
Example:
Name: Acid Test Ratio
Description: Calculate a company's ability to pay off short-term liabilities with it's most liquid assets.
Formula: Acid test ratio = liquid assets/current liabilities
Example:
Name: Days Sales Outstanding (DSO)
Description: Measure the average number of days it takes for the company to collect payment from credit sales. DSO can also be called 'collection period' or 'receivable turnover in days'.
Formula: DSO = (debtors balance/total credit sales)*365
Example:
Name: Days Payable Outstanding (DPO)
Description: Measure the average number of days it takes for the company to pay its credit suppliers. DPO can also be called 'payment period' or 'accounts payable turnover in days'.
Formula: DPO = (creditors balance/total credit purchases)*365
Example:
Financial Formulas are easier when you understand the basics of bookkeeping and accounting:
The ULTIMATE Accounting Course
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2.3 Financial Formulas for Profitability
Name: Return on assets
Description: Also known as return on investment. Used to evaluate a company's efficiency to generate sales from its assets.
Formula: ROA = net profit/total assets
Example:
Name: Return of shareholders' equity
Description: Measure the income derived from shareholders' equity.
Formula: Return of shareholders equity = net profit/shareholders equity
Example:
2.4 Financial Formulas for Liquidity
Name: Cash ratio
Description: Analyse a company's ability to pay off short-term liabilities with company cash.
Formula: Cash ratio = cash/current liabilities
Example:
Name: Net working capital
Description: Determine if a company can meet its current liabilities with its current assets.
Formula: Net working capital = current assets - current liabilities
Example:
2.5 Financial Formulas for Management Efficiency
Name: Inventory turnover
Description: Measure how many times inventory is sold and replaced.
Formula: Inventory turnover ratio = cost of sales/inventory
Example:
Name: Days inventory outstanding
Description: Measure how many days inventory is in the warehouse before the sale.
Formula: Days inventory outstanding = 365/inventory turnover
Example:
Name: Operating cycle
Description: Calculate the days the company takes to complete one operating cycle, i.e., pay for purchases, sell them and collect the revenue from the sale.
Formula: Operating cycle = days inventory outstanding/days sales outstanding
Example:
2.6 Financial Formulas for Leverage
Name: Debt ratio
Description: Measure the amount of company assets that are financed by debt.
Formula: Debt ratio = total liabilities/total assets
Example:
Name: Equity ratio
Description: Measure the amount of company assets that are financed by owners' equity.
Formula: Equity ratio = total equity/total assets
Example:
2.7 Financial formulas for valuation and growth
Name: Earnings per share(EPS)
Description: Calculate the rate of earnings per company share.
Formula: EPS = (net profit-dividends)/company shares
Example:
Part 3: Financial Analysis Example
Module overview:
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Analysis of the profit and loss statement
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Analysis of the balance sheet
3.1 Analysing the Profit and Loss Statement
Using the profit and loss statement