Financial statements need to be analyzed in order to fully understand the data presented. The nature of the analysis depends on the type of financial statement user:
- Internal users need to analyze the statements to review past performance and results, to get insight on areas of improvement and to compare their firm to competitors.
- External users need to analyze statements in order to determine if they should sell or purchase the firms’ products or services, loan the firm money, invest in the firm, and divest current investments in the firm.
The course is made up of 10 modules and covers most financial ratios. The course starts with an overview of common size and base year analysis and then explores ratios to analyze liquidity, solvency and leverage. Activity ratios to analyze the quality of assets and operational efficiency are reviewed, followed by analysis of profitability and return ratios. The course ends with a review of market ratios using values per share, earnings and dividends.
Many of the ratios are illustrated using the FY 2019 financial statements of NIKE Inc.
The course content covers Financial Statement Analysis topics tested in the Certified Management Accountant (CMA) Part 2 examination as outlined by the CMA Part 2 exam content specification outline.
Topics include:
- Common size and base year analysis.
- Liquidity ratios.
- Solvency ratios.
- Leverage ratios.
- Activity ratios.
- Profit and return ratios.
- Market ratios.
Course Key Concepts: Financial ratios, common size statements, horizontal analysis, vertical analysis, working capital, current ratio, quick ratio, cash ratio, cash flow ratio, net working capital ratio, capital structure, solvency, leverage, debt to equity ratio, long-term debt to equity ratio, debt to total assets ratio, debt service, debt coverage, interest coverage, fixed charge coverage, operating leverage, financial leverage, accounts receivable turnover, days sales outstanding, inventory turnover, days sales in inventory, operating cycle, cash cycle, gross profit percentage, operating profit percentage, net profit percentage, return on assets (ROA), return on equity (ROE), book value per share, market to book ratio, basic earnings per share (EPS), diluted earnings per share (EPS), price/earnings ratio (P/E ratio), earnings yield, dividend yield, dividend payout ratio.
Learning Objectives
- Discover how to prepare and analyze common size income statements and balance sheets.
- Explore the analysis of working capital using ratios, including the current, quick, cash, cash flow and net working capital ratios.
- Identify capital structure, solvency, and leverage.
- Explore the analysis of capital structure using ratios, including the debt to equity, long-term debt to equity and debt to total assets ratios.
- Identify debt service.
- Explore the analysis of leverage using ratios, including the debt coverage, interest coverage, fixed charge coverage and cash flow to fixed charges ratios.
- Explore the analysis of operational and financial leverage.
- Explore the analysis of accounts receivable using accounts receivable turnover and days sales outstanding.
- Explore the analysis of inventory using inventory turnover and days sales in inventory.
- Recognize the differences between the operating and cash cycles.
- Explore the key profitability and return ratios used to analyze income statements and returns on investments.
- Discover how to analyze and compare publicly traded companies using market ratios including price earnings (P/E), dividend yield and dividend payout.
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Prerequisites
No advanced preparation or prerequisites are required for this course.