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Ch 8: Principles of Financial Statement Analysis

About This Chapter

Enhance your preparations for an upcoming test, project or assignment for school or work that covers the principles of financial statement analysis using this fun chapter. Engaging lessons, mini quizzes and a practice exam make it easy to quickly and effectively boost your knowledge.

Principles of Financial Statement Analysis - Chapter Summary

This chapter's entertaining lessons ensure you have a quality understanding of the principles of financial statement analysis. Get up to speed with the basics of financial reporting, liquidity ratio, limitations of financial statement analysis, external audits of financial statements and more. Each lesson in this chapter is accompanied by a short quiz you can take to find out how well you grasp key concepts. For a broader review of the lessons, feel free to take our comprehensive practice exam. Any questions that arise while studying this chapter can be submitted to our experts via the Dashboard. Upon completion of this chapter, you will be able to:

  • Define and discuss the purpose and importance of financial statements
  • Describe the horizontal and vertical methods of analyzing financial statements
  • Discuss the basics of using liquidity ratios and formulas in financial analysis
  • Detail how to estimate the value of a company and calculate the intrinsic value of a firm
  • Explain how to use solvency ratios to analyze financial statements
  • Prepare financial statements
  • Share the definition and purpose of financial statement projections
  • Discuss the purpose of notes on financial statements

15 Lessons in Chapter 8: Principles of Financial Statement Analysis
Test your knowledge with a 30-question chapter practice test
What Is Financial Reporting? - Purpose, Statement Examples & Analysis

1. What Is Financial Reporting? - Purpose, Statement Examples & Analysis

Financial reporting is a vital part of corporate governance. In this lesson, you'll learn what financial reporting is, its primary components, its purpose, and be provided with some examples. A short quiz follows the lesson.

What Are Financial Statements? - Definition, Purpose & Importance

2. What Are Financial Statements? - Definition, Purpose & Importance

Financial statements are big players in the world of accounting. In this lesson, you will be introduced to each of the financial statements. You will also learn what their role is in the accounting industry, who they are important to and why they are important.

The Horizontal Method of Analyzing Financial Statements

3. The Horizontal Method of Analyzing Financial Statements

This lesson focuses on horizontal analysis, which is used to compare financial balances over time. Following this lesson, you'll be able to explain how to use the analysis for a balance sheet, income statement, and retained earnings statement.

Using the Vertical Method to Analyze Financial Statements

4. Using the Vertical Method to Analyze Financial Statements

This lesson focuses on vertical analysis, which is used to compare items in the same financial statement. After this lesson, you'll be able to explain how to use the analysis for a balance sheet and income statement.

Liquidity Ratio: Definition, Calculation & Analysis

5. 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.

Using Liquidity Ratios & Formulas in Financial Analysis

6. Using Liquidity Ratios & Formulas in Financial Analysis

In this lesson, we'll define liquidity and discuss three financial ratios to determine a company's liquidity: current, quick and operating cash. You'll also learn how to calculate and analyze the ratios.

Estimating the Value of a Company

7. Estimating the Value of a Company

In this lesson, we'll define enterprise value. We'll introduce you to the formula and provide an example. You'll also learn about using market comparables as a valuation tool.

Calculate the Intrinsic Value of a Firm

8. Calculate the Intrinsic Value of a Firm

Value investors like to calculate the intrinsic value of a company's stock and compare it to the market price to determine mispriced stocks. We will cover three formulas for intrinsic value with examples. All calculations will be shown!

Analyzing Financial Statements using Solvency Ratios

9. Analyzing Financial Statements using Solvency Ratios

In this lesson, we'll define solvency and learn about three solvency ratios: debt, equity, and debt to equity.We'll also learn how to analyze each ratio and determine if a high or low ratio is positive or negative.

Preparing Financial Statements

10. Preparing Financial Statements

Financial statements are the most sought after reports in the financial industry. In this lesson, you will learn how to prepare them using information found on the adjusted trial balance.

Issues with Financial Statement Analysis

11. Issues with Financial Statement Analysis

In this lesson, we'll define financial statement ratios. You'll also learn some of the issues in analyzing financial statement ratios, as well as suggestions on how to make sure you're comparing apples to apples.

Limitations of Financial Statement Analysis

12. 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.

Financial Statement Projections: Definition & Purpose

13. Financial Statement Projections: Definition & Purpose

In this lesson, we will examine financial projections and why they are used. We will also look at the various things used in a financial projection and why they would be used to make a projection.

The Purpose of Notes on Financial Statements

14. The Purpose of Notes on Financial Statements

Financial statements are very important in accounting and finance. In this lesson, you will learn about notes to the financial statements, what information they may give, and why they are important to financial statement users.

External Audits of Financial Statements

15. External Audits of Financial Statements

Financial statements are one of the most heavily relied upon group of reports in the business world, and they must be accurate and reliable. In this lesson, you'll learn about financial statement audits, who performs them, and why they are important.

Chapter Practice Exam
Test your knowledge of this chapter with a 30 question practice chapter exam.
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Practice Final Exam
Test your knowledge of the entire course with a 50 question practice final exam.
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