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 2 - Financial Formulas and Ratios
Lesson 3 - Analysing Financial Statements
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Financial Analysis Course - Part 1
Introduction to Analysing Financial Statements
Who should take this course?
Financial Analysis Course - Part 2
Review of limited company accounts
Comparing financial information
And other financial formulas & ratios
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
- 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 efficency
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
Improving company cash flow...
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