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:

The Fundamentals of Financial Statements

How to Analyse Financial Statements

Key Financial Ratios and Formulas

Examples of financial analysis in action

Course Modules:

Lesson 1: Financial Analysis Introduction

Lesson 2: Common Formulas & Ratios

Lesson 3: Analysing Financial Statements

And more

To start the online course, scroll down.

This course is FREE, and no registration is required. It is ideal for start-up businesses and companies seeking financing.

Jump to:

An Introduction to Financial Analysis

Fundamental Financial Formulas and Ratios

Analysing Financial Statements

Financial Analysis Course: Financial Analysis Made Easy

financial analysis introduction

Part 1: An Introduction to Financial Analysis

Module overview:

Course Introduction
Course Overview
Course Aim
And more

1.1 What are financial statements?

In accounting and finance, financial statements are 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.

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 essential if a company wishes to grow and remain solvent.

The following should learn and use financial analysis:

Business owners
Company directors
Business students
Accounting students
Bookkeepers
Accountants
Entrepreneurs
Shareholders and investors
Stock traders and investors

fundamental financial formulas and ratios

Part 2: Financial Formulas and Ratios

Module overview:

Company accounts
Comparing financial information
Common financial formulas
Common financial ratios

2.1 Financial Formulas

Competent financial analysis consists of four key stages:

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 those of prior year and the year before 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 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

Name: Gross Profit Percentage

Description: Display gross profit margin as a percentage

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

Name: Net Profit Margin

Description: Evaluate how much net profit is generated from sales

Formula: Net profit margin = gross profit/total sales

Name: Net Profit Percentage

Description: Display the net profit margin as a percentage

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

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

Name: Acid Test Ratio

Description: Calculate a company's ability to pay off short-term liabilities with its most liquid assets.

Formula: Acid test ratio = liquid assets/current liabilities

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 referred to as the 'collection period' or 'receivable turnover in days'.

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

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 referred to as the 'payment period' or 'accounts payable turnover in days'.

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

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2.3 Financial Formulas for Profitability

Name: Return on assets

Description: Also known as return on investment. Its used to evaluate a company's efficiency in generating sales from its assets.

Formula: ROA = net profit/total assets

Name: Return on shareholders' equity

Description: Measure the income derived from shareholders' equity.

Formula: Return on shareholders equity = net profit/shareholders equity

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

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

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

Name: Days' inventory outstanding

Description: Measure how many days inventory is in the warehouse before the sale.

Formula: Days inventory outstanding = 365/inventory turnover

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

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

Name: Equity ratio

Description: Measure the amount of company assets that are financed by owners' equity.

Formula: Equity ratio = total equity/total assets

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

Analysing financial statements

Part 3: Financial Analysis Example

Module overview:

Analysis of the profit and loss statement
Analysis of the balance sheet

3.1 Analysing the Profit and Loss Statement

Take a look at the profit and loss statement below. Study it. Under the profit and loss statement is an example of basic financial analysis utilising basic observations and financial formulas.