Financial Statements and Ratio Analysis

What the page covers

The resources follow the usual path of financial analysis. Some start with the statements themselves: the notes on financial statements, cash flows and taxes explain the annual report and the balance sheet, which shows assets, liabilities and equity at a point in time. Others move on to ratios, forecasting and valuation.

Where to start

1. Read the Chapter 3 - Notes or open the matching flashcard deck called Chapter 3, which defines ROE, ROA, EPS and the three cash flow headings.
2. Open the Ratio Analysis mind maps to see liquidity, solvency, activity, profitability and valuation ratios grouped together.
3. Move to the Du Pont Identity and Return on Invested Capital maps to see how returns break into parts.
4. Finish with the forecasting and valuation maps, including the one on prospective analysis.

Using quizzes and maps together

Work through a map first, then test yourself. The quiz called Finance Quiz asks which items would not improve the current ratio and includes a collection period calculation based on credit sales. The flashcard deck Advanced Finance - Exercise Set 2 asks what would raise a company's current ratio. Both show quickly whether you understand the ideas or only the definitions.

If an answer surprises you, go back to the related map and trace the formula. The ROI and ROE exercises quiz is a good next step for returns.

For professional candidates and teachers

The flashcard deck called CFA lists net profit margin, ROA, ROE, vertical and horizontal analysis and the main ratio families, which suits candidates revising for that exam. Teachers can pick a map or quiz to set as ready-made material for a class.

Where it fits

This unit sits in the Foundations of Finance strand of Finance and banking. Choose one resource today, try it, and then make a map or deck of your own for the ratios you find hardest.