About This Chapter
Basics of Financial Statement Analysis - Chapter Summary and Learning Objectives
Financial statements act as a record of data, and if this data is plugged into different formulas, organizations can more accurately determine their overall business costs, risks, and financial futures. These lessons will help you develop a basic understanding of how to interpret financial statements as well as how to analyze the data to make further calculations. This chapter has been constructed to teach you about the following:
- The elements of financial statements and analysis limitations
- Interest ratios for both short-term and long-term creditors
- Formulas for determining different ratios, turnover rates, and other variables
- Examples and uses of a value chain
|Financial Statement Analysis: Definition, Purpose, Elements & Examples||List the four most used financial statements, explain the process of financial statement analysis, define the different types of ratios, and explain how each ratio is used.|
|Limitations of Financial Statement Analysis||Identify these limitations and discuss how they impede the analysis process.|
|How to Calculate Earnings Per Share: Definition & Formula||Explain the following terms: price-earnings ratio, yield ratios, dividend payout, return on common stockholder's equity, and earnings per share; identify the ratio of interest for each stockholder as defined in the ratio analysis; and, practice these earnings calculations with the given formula.|
|Ratios of Interest to the Short-Term Creditor||Break down this concept in relation to accounts receivable turnover and working capital.|
|Current Ratio in Accounting: Definition, Formula & Analysis||Point out how to determine current assets and current liabilities, practice using the current ratio formula of current assets divided by current liabilities, and run formula analyses on sample problems.|
|What Is Inventory Turnover? - Definition, Formula & Calculation||Explore calculations to determine the cost of goods sold, identify how to measure the average inventory, and practice the formula for finding inventory turnover by dividing the cost of goods sold by the average inventory.|
|Liquidity Ratio: Definition, Calculation & Analysis||Demonstrate how to calculate the cash ratio, acid ratio, and current ratio, and then show how these ratio calculations are used to determine an organization's liquidity ratio.|
|Ratios of Interest to the Long-Term Creditor||Decipher the formulas to determine the debt-to-equity ratio as well as the times interest earned ratio, then apply these formulas to calculate the ratios of interest over longer durations of time.|
|What Is a Value Chain? - Definition, Analysis & Example||Evaluate the components of the value chain, express how businesses use value chains in their calculations, and analyze how to determine if the value chain actions are effective.|
1. Financial Statement Analysis: Definition, Purpose, Elements & Examples
In this lesson, we'll define financial statement analysis and discuss the main categories. You'll also learn how to calculate a financial ratio in each category and analyze the results.
2. Limitations of Financial Statement Analysis
Financial analysis is a useful tool for analyzing and comparing companies, but there is a danger in relying solely on this approach. In this lesson, you will learn about the limitations of financial statement analysis.
3. How to Calculate Earnings Per Share: Definition & Formula
There are many different numbers that investors look at when deciding whether to invest in a company, including the earnings per share. In this lesson, we will learn what earnings per share means and how to calculate it.
4. Ratios of Interest to the Short-Term Creditor
Short-term creditors are interested in financial ratios that provide information on cash flows, as they want to recover their money as quickly as possible. In this lesson, you'll learn about liquidity ratios.
5. Current Ratio in Accounting: Definition, Formula & Analysis
Learn what a current ratio is and why it is so important to understand when evaluating the health and future of a company. See how the ratio is calculated and what components go into this important figure.
6. What Is Inventory Turnover? - Definition, Formula & Calculation
Inventory turnover is a financial equation used in accounting to understand how long it takes for a business to convert its inventory to cash. This lesson will explore what inventory turnover means, how it is used, and how it is calculated.
7. Liquidity Ratio: Definition, Calculation & Analysis
The financial stability of a company can be tested in many ways. One of the quickest ways to see just how well a company is performing is to use financial ratios. In this lesson, you will learn what liquidity ratios are, how to calculate them, and how to interpret them.
8. Ratios of Interest to the Long-Term Creditor
Long-term creditors want to ensure that a company will pay its outstanding debts. In this lesson, you'll learn more about calculating and interpreting solvency ratios.
9. What Is a Value Chain? - Definition, Analysis & Example
This lesson discusses what a value chain is and how it can help a business meet the needs of customers. It also provides an analysis of the effectiveness of the value chain actions.
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Other chapters within the Accounting 102: Intro to Managerial Accounting course
- Overview of Managerial Accounting
- Cost Types
- Cost Behavior Analysis & Cost-Volume Profit
- Job-Order Costing & Process Costing
- Basics of Activity-Based Costing
- Budgeting & Standard Costs
- Reporting Systems & Structures in Accounting
- Short & Long-Term Decision-Making in Accounting
- Studying for Accounting 102