Financial Statement Analysis

  1. Understanding Financial Statements
    1. The Balance Sheet
      1. Fundamental Concepts
        1. Accounting Equation
          1. Assets Equal Liabilities Plus Equity
            1. Balance Sheet Balancing
              1. Double-Entry Bookkeeping Impact
              2. Point-in-Time Snapshot
                1. Reporting Date Significance
                  1. Timing Considerations
                  2. Classification Principles
                    1. Current vs Non-Current
                      1. Liquidity-Based Ordering
                    2. Assets
                      1. Current Assets
                        1. Cash and Cash Equivalents
                          1. Cash on Hand
                            1. Demand Deposits
                              1. Short-Term Highly Liquid Investments
                                1. Restricted Cash
                                2. Short-Term Investments
                                  1. Marketable Securities
                                    1. Trading Securities
                                      1. Available-for-Sale Securities
                                      2. Accounts Receivable
                                        1. Trade Receivables
                                          1. Allowance for Doubtful Accounts
                                            1. Notes Receivable
                                            2. Inventory
                                              1. Raw Materials
                                                1. Work-in-Process
                                                  1. Finished Goods
                                                    1. Inventory Valuation Methods
                                                    2. Prepaid Expenses
                                                      1. Prepaid Insurance
                                                        1. Prepaid Rent
                                                          1. Other Prepaid Items
                                                          2. Other Current Assets
                                                            1. Accrued Income
                                                              1. Deposits
                                                                1. Miscellaneous Current Assets
                                                              2. Non-Current Assets
                                                                1. Property Plant and Equipment
                                                                  1. Land
                                                                    1. Buildings
                                                                      1. Machinery and Equipment
                                                                        1. Accumulated Depreciation
                                                                          1. Construction in Progress
                                                                          2. Intangible Assets
                                                                            1. Patents
                                                                              1. Trademarks
                                                                                1. Copyrights
                                                                                  1. Software
                                                                                    1. Customer Lists
                                                                                    2. Goodwill
                                                                                      1. Business Combination Goodwill
                                                                                        1. Impairment Testing
                                                                                        2. Long-Term Investments
                                                                                          1. Equity Method Investments
                                                                                            1. Available-for-Sale Securities
                                                                                              1. Held-to-Maturity Securities
                                                                                              2. Deferred Tax Assets
                                                                                                1. Temporary Differences
                                                                                                  1. Tax Loss Carryforwards
                                                                                                  2. Other Non-Current Assets
                                                                                                    1. Long-Term Receivables
                                                                                                      1. Deposits and Other Assets
                                                                                                  3. Liabilities
                                                                                                    1. Current Liabilities
                                                                                                      1. Accounts Payable
                                                                                                        1. Trade Payables
                                                                                                          1. Accrued Expenses
                                                                                                          2. Short-Term Debt
                                                                                                            1. Bank Loans
                                                                                                              1. Commercial Paper
                                                                                                                1. Current Portion of Long-Term Debt
                                                                                                                2. Accrued Liabilities
                                                                                                                  1. Wages Payable
                                                                                                                    1. Interest Payable
                                                                                                                      1. Tax Payable
                                                                                                                      2. Unearned Revenue
                                                                                                                        1. Advance Customer Payments
                                                                                                                          1. Deferred Revenue
                                                                                                                          2. Other Current Liabilities
                                                                                                                            1. Dividends Payable
                                                                                                                              1. Warranty Obligations
                                                                                                                            2. Non-Current Liabilities
                                                                                                                              1. Long-Term Debt
                                                                                                                                1. Bonds Payable
                                                                                                                                  1. Term Loans
                                                                                                                                    1. Mortgages Payable
                                                                                                                                    2. Deferred Tax Liabilities
                                                                                                                                      1. Temporary Differences
                                                                                                                                        1. Future Tax Obligations
                                                                                                                                        2. Pension and Post-Employment Benefits
                                                                                                                                          1. Defined Benefit Obligations
                                                                                                                                            1. Other Post-Employment Benefits
                                                                                                                                            2. Lease Liabilities
                                                                                                                                              1. Finance Lease Obligations
                                                                                                                                                1. Operating Lease Liabilities
                                                                                                                                                2. Other Non-Current Liabilities
                                                                                                                                                  1. Asset Retirement Obligations
                                                                                                                                                    1. Long-Term Provisions
                                                                                                                                                3. Shareholders Equity
                                                                                                                                                  1. Contributed Capital
                                                                                                                                                    1. Common Stock
                                                                                                                                                      1. Par Value
                                                                                                                                                        1. Shares Outstanding
                                                                                                                                                        2. Preferred Stock
                                                                                                                                                          1. Dividend Rights
                                                                                                                                                            1. Liquidation Preferences
                                                                                                                                                            2. Additional Paid-In Capital
                                                                                                                                                              1. Premium on Stock Issuance
                                                                                                                                                                1. Stock-Based Compensation
                                                                                                                                                              2. Retained Earnings
                                                                                                                                                                1. Accumulated Net Income
                                                                                                                                                                  1. Dividend Distributions
                                                                                                                                                                    1. Prior Period Adjustments
                                                                                                                                                                    2. Accumulated Other Comprehensive Income
                                                                                                                                                                      1. Unrealized Investment Gains/Losses
                                                                                                                                                                        1. Foreign Currency Translation
                                                                                                                                                                          1. Pension Adjustments
                                                                                                                                                                          2. Treasury Stock
                                                                                                                                                                            1. Share Repurchases
                                                                                                                                                                              1. Cost Method Accounting
                                                                                                                                                                            2. Measurement and Valuation
                                                                                                                                                                              1. Historical Cost
                                                                                                                                                                                1. Original Transaction Price
                                                                                                                                                                                  1. Depreciation and Amortization
                                                                                                                                                                                  2. Fair Value
                                                                                                                                                                                    1. Market-Based Measurements
                                                                                                                                                                                      1. Fair Value Hierarchy
                                                                                                                                                                                      2. Net Realizable Value
                                                                                                                                                                                        1. Expected Selling Price
                                                                                                                                                                                          1. Less Costs to Sell
                                                                                                                                                                                          2. Present Value
                                                                                                                                                                                            1. Discounted Future Cash Flows
                                                                                                                                                                                              1. Discount Rate Selection
                                                                                                                                                                                          3. The Income Statement
                                                                                                                                                                                            1. Fundamental Concepts
                                                                                                                                                                                              1. Revenue Recognition Principles
                                                                                                                                                                                                1. Performance Obligations
                                                                                                                                                                                                  1. Contract Modifications
                                                                                                                                                                                                    1. Variable Consideration
                                                                                                                                                                                                      1. Timing of Recognition
                                                                                                                                                                                                      2. Matching Principle
                                                                                                                                                                                                        1. Expense Recognition
                                                                                                                                                                                                          1. Period Allocation
                                                                                                                                                                                                          2. Accrual vs Cash Basis
                                                                                                                                                                                                            1. Timing Differences
                                                                                                                                                                                                              1. Impact on Reported Results
                                                                                                                                                                                                            2. Revenue Components
                                                                                                                                                                                                              1. Operating Revenue
                                                                                                                                                                                                                1. Primary Business Activities
                                                                                                                                                                                                                  1. Recurring Revenue Streams
                                                                                                                                                                                                                  2. Non-Operating Revenue
                                                                                                                                                                                                                    1. Investment Income
                                                                                                                                                                                                                      1. Gain on Asset Sales
                                                                                                                                                                                                                        1. Other Income
                                                                                                                                                                                                                      2. Expense Components
                                                                                                                                                                                                                        1. Cost of Goods Sold
                                                                                                                                                                                                                          1. Direct Materials
                                                                                                                                                                                                                            1. Direct Labor
                                                                                                                                                                                                                              1. Manufacturing Overhead
                                                                                                                                                                                                                                1. Service Delivery Costs
                                                                                                                                                                                                                                2. Operating Expenses
                                                                                                                                                                                                                                  1. Selling Expenses
                                                                                                                                                                                                                                    1. Sales Commissions
                                                                                                                                                                                                                                      1. Advertising and Marketing
                                                                                                                                                                                                                                        1. Distribution Costs
                                                                                                                                                                                                                                        2. General and Administrative Expenses
                                                                                                                                                                                                                                          1. Management Salaries
                                                                                                                                                                                                                                            1. Office Expenses
                                                                                                                                                                                                                                              1. Professional Fees
                                                                                                                                                                                                                                              2. Research and Development
                                                                                                                                                                                                                                                1. Product Development
                                                                                                                                                                                                                                                  1. Technology Innovation
                                                                                                                                                                                                                                                  2. Depreciation and Amortization
                                                                                                                                                                                                                                                    1. Asset Depreciation
                                                                                                                                                                                                                                                      1. Intangible Amortization
                                                                                                                                                                                                                                                    2. Non-Operating Expenses
                                                                                                                                                                                                                                                      1. Interest Expense
                                                                                                                                                                                                                                                        1. Debt Service Costs
                                                                                                                                                                                                                                                          1. Finance Charges
                                                                                                                                                                                                                                                          2. Loss on Asset Disposal
                                                                                                                                                                                                                                                            1. Other Expenses
                                                                                                                                                                                                                                                          3. Income Statement Formats
                                                                                                                                                                                                                                                            1. Single-Step Format
                                                                                                                                                                                                                                                              1. Revenue Grouping
                                                                                                                                                                                                                                                                1. Expense Grouping
                                                                                                                                                                                                                                                                  1. Net Income Calculation
                                                                                                                                                                                                                                                                  2. Multi-Step Format
                                                                                                                                                                                                                                                                    1. Gross Profit Calculation
                                                                                                                                                                                                                                                                      1. Operating Income Subtotal
                                                                                                                                                                                                                                                                        1. Pre-Tax Income
                                                                                                                                                                                                                                                                          1. Net Income
                                                                                                                                                                                                                                                                        2. Key Performance Measures
                                                                                                                                                                                                                                                                          1. Gross Profit
                                                                                                                                                                                                                                                                            1. Revenue Less COGS
                                                                                                                                                                                                                                                                              1. Gross Margin Analysis
                                                                                                                                                                                                                                                                              2. Operating Income
                                                                                                                                                                                                                                                                                1. Earnings Before Interest and Tax
                                                                                                                                                                                                                                                                                  1. Core Business Performance
                                                                                                                                                                                                                                                                                  2. Net Income
                                                                                                                                                                                                                                                                                    1. Bottom Line Profitability
                                                                                                                                                                                                                                                                                      1. Earnings Per Share
                                                                                                                                                                                                                                                                                      2. Comprehensive Income
                                                                                                                                                                                                                                                                                        1. Net Income Plus OCI
                                                                                                                                                                                                                                                                                          1. Total Change in Equity
                                                                                                                                                                                                                                                                                      3. The Statement of Cash Flows
                                                                                                                                                                                                                                                                                        1. Purpose and Structure
                                                                                                                                                                                                                                                                                          1. Cash Flow vs Net Income
                                                                                                                                                                                                                                                                                            1. Timing Differences
                                                                                                                                                                                                                                                                                              1. Non-Cash Items
                                                                                                                                                                                                                                                                                              2. Three Activity Categories
                                                                                                                                                                                                                                                                                                1. Operating Activities
                                                                                                                                                                                                                                                                                                  1. Investing Activities
                                                                                                                                                                                                                                                                                                    1. Financing Activities
                                                                                                                                                                                                                                                                                                  2. Operating Activities
                                                                                                                                                                                                                                                                                                    1. Direct Method
                                                                                                                                                                                                                                                                                                      1. Cash Receipts from Customers
                                                                                                                                                                                                                                                                                                        1. Cash Payments to Suppliers
                                                                                                                                                                                                                                                                                                          1. Cash Payments to Employees
                                                                                                                                                                                                                                                                                                            1. Cash Payments for Operating Expenses
                                                                                                                                                                                                                                                                                                              1. Cash Payments for Interest and Taxes
                                                                                                                                                                                                                                                                                                              2. Indirect Method
                                                                                                                                                                                                                                                                                                                1. Starting with Net Income
                                                                                                                                                                                                                                                                                                                  1. Adjusting for Non-Cash Items
                                                                                                                                                                                                                                                                                                                    1. Depreciation and Amortization
                                                                                                                                                                                                                                                                                                                      1. Stock-Based Compensation
                                                                                                                                                                                                                                                                                                                        1. Deferred Taxes
                                                                                                                                                                                                                                                                                                                        2. Adjusting for Working Capital Changes
                                                                                                                                                                                                                                                                                                                          1. Accounts Receivable Changes
                                                                                                                                                                                                                                                                                                                            1. Inventory Changes
                                                                                                                                                                                                                                                                                                                              1. Accounts Payable Changes
                                                                                                                                                                                                                                                                                                                                1. Accrued Liabilities Changes
                                                                                                                                                                                                                                                                                                                            2. Investing Activities
                                                                                                                                                                                                                                                                                                                              1. Capital Expenditures
                                                                                                                                                                                                                                                                                                                                1. Property Plant Equipment Purchases
                                                                                                                                                                                                                                                                                                                                  1. Asset Disposals
                                                                                                                                                                                                                                                                                                                                  2. Investment Transactions
                                                                                                                                                                                                                                                                                                                                    1. Purchase of Securities
                                                                                                                                                                                                                                                                                                                                      1. Sale of Securities
                                                                                                                                                                                                                                                                                                                                      2. Business Combinations
                                                                                                                                                                                                                                                                                                                                        1. Acquisitions
                                                                                                                                                                                                                                                                                                                                          1. Divestitures
                                                                                                                                                                                                                                                                                                                                        2. Financing Activities
                                                                                                                                                                                                                                                                                                                                          1. Debt Transactions
                                                                                                                                                                                                                                                                                                                                            1. Debt Issuance
                                                                                                                                                                                                                                                                                                                                              1. Debt Repayment
                                                                                                                                                                                                                                                                                                                                                1. Interest Payments
                                                                                                                                                                                                                                                                                                                                                2. Equity Transactions
                                                                                                                                                                                                                                                                                                                                                  1. Stock Issuance
                                                                                                                                                                                                                                                                                                                                                    1. Share Repurchases
                                                                                                                                                                                                                                                                                                                                                      1. Dividend Payments
                                                                                                                                                                                                                                                                                                                                                    2. Supplemental Disclosures
                                                                                                                                                                                                                                                                                                                                                      1. Non-Cash Investing and Financing
                                                                                                                                                                                                                                                                                                                                                        1. Cash Paid for Interest and Taxes
                                                                                                                                                                                                                                                                                                                                                          1. Significant Assumptions
                                                                                                                                                                                                                                                                                                                                                        2. Statement of Changes in Equity
                                                                                                                                                                                                                                                                                                                                                          1. Components and Movement
                                                                                                                                                                                                                                                                                                                                                            1. Beginning Balances
                                                                                                                                                                                                                                                                                                                                                              1. Net Income Impact
                                                                                                                                                                                                                                                                                                                                                                1. Other Comprehensive Income
                                                                                                                                                                                                                                                                                                                                                                  1. Dividend Distributions
                                                                                                                                                                                                                                                                                                                                                                    1. Share Transactions
                                                                                                                                                                                                                                                                                                                                                                      1. Ending Balances
                                                                                                                                                                                                                                                                                                                                                                      2. Reconciliation Process
                                                                                                                                                                                                                                                                                                                                                                        1. Each Equity Component
                                                                                                                                                                                                                                                                                                                                                                          1. Total Equity Changes
                                                                                                                                                                                                                                                                                                                                                                            1. Cross-References to Other Statements
                                                                                                                                                                                                                                                                                                                                                                          2. Notes to Financial Statements
                                                                                                                                                                                                                                                                                                                                                                            1. Accounting Policies
                                                                                                                                                                                                                                                                                                                                                                              1. Revenue Recognition
                                                                                                                                                                                                                                                                                                                                                                                1. Inventory Valuation
                                                                                                                                                                                                                                                                                                                                                                                  1. Depreciation Methods
                                                                                                                                                                                                                                                                                                                                                                                    1. Foreign Currency Translation
                                                                                                                                                                                                                                                                                                                                                                                    2. Significant Estimates and Judgments
                                                                                                                                                                                                                                                                                                                                                                                      1. Allowance for Doubtful Accounts
                                                                                                                                                                                                                                                                                                                                                                                        1. Inventory Obsolescence
                                                                                                                                                                                                                                                                                                                                                                                          1. Asset Impairment
                                                                                                                                                                                                                                                                                                                                                                                            1. Contingent Liabilities
                                                                                                                                                                                                                                                                                                                                                                                            2. Detailed Disclosures
                                                                                                                                                                                                                                                                                                                                                                                              1. Debt Terms and Covenants
                                                                                                                                                                                                                                                                                                                                                                                                1. Lease Commitments
                                                                                                                                                                                                                                                                                                                                                                                                  1. Employee Benefits
                                                                                                                                                                                                                                                                                                                                                                                                    1. Subsequent Events

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                                                                                                                                                                                                                                                                                                                                                                                                3. Analytical Tools and Techniques