About This Chapter
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
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.
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.
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.
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.
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.
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.
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.
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!
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.
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.
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.
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.
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.
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.
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.
Earning College Credit
Did you know… We have over 160 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.
To learn more, visit our Earning Credit Page
Transferring credit to the school of your choice
Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.
Other chapters within the Finance 303: Financial Institutions & Markets course
- Foundations of Finance & Investment
- The Federal Reserve System & Financial Institutions
- Interest Rates, Rate Changes, & Risk Structure
- Understanding Financial Markets
- Basics of Financial Investments
- Equity Ownership & Risk Exposure
- Calculating Prices & Yields
- Financial Risk Management & Mitigation
- Financial Regulation & Ethics