Financial Statement Analysis

  1. Analytical Tools and Techniques
    1. Common-Size Analysis
      1. Vertical Analysis
        1. Balance Sheet Common-Size
          1. Each Item as Percentage of Total Assets
            1. Asset Composition Analysis
              1. Capital Structure Analysis
              2. Income Statement Common-Size
                1. Each Item as Percentage of Revenue
                  1. Cost Structure Analysis
                    1. Margin Analysis
                  2. Horizontal Analysis
                    1. Trend Analysis
                      1. Multi-Year Comparisons
                        1. Growth Rate Calculations
                          1. Base Year Selection
                          2. Year-over-Year Analysis
                            1. Period-to-Period Changes
                              1. Seasonal Adjustments
                                1. Identifying Patterns
                              2. Benefits and Limitations
                                1. Standardization for Comparison
                                  1. Size-Independent Analysis
                                    1. Loss of Absolute Values
                                      1. Base Period Selection Impact
                                    2. Financial Ratio Analysis
                                      1. Ratio Categories and Applications
                                        1. Liquidity Ratios
                                          1. Current Ratio
                                            1. Current Assets ÷ Current Liabilities
                                              1. Short-Term Liquidity Assessment
                                                1. Industry Benchmarking
                                                2. Quick Ratio
                                                  1. Quick Assets ÷ Current Liabilities
                                                    1. Conservative Liquidity Measure
                                                      1. Inventory Exclusion Rationale
                                                      2. Cash Ratio
                                                        1. Cash and Equivalents ÷ Current Liabilities
                                                          1. Most Conservative Liquidity Measure
                                                          2. Operating Cash Flow Ratio
                                                            1. Operating Cash Flow ÷ Current Liabilities
                                                              1. Cash Generation Assessment
                                                              2. Cash Conversion Cycle
                                                                1. Days Sales Outstanding
                                                                  1. Days Inventory Outstanding
                                                                    1. Days Payable Outstanding
                                                                      1. Working Capital Efficiency
                                                                    2. Solvency and Leverage Ratios
                                                                      1. Debt-to-Assets Ratio
                                                                        1. Total Debt ÷ Total Assets
                                                                          1. Financial Risk Assessment
                                                                          2. Debt-to-Equity Ratio
                                                                            1. Total Debt ÷ Total Equity
                                                                              1. Capital Structure Analysis
                                                                              2. Equity Multiplier
                                                                                1. Total Assets ÷ Total Equity
                                                                                  1. Financial Leverage Measure
                                                                                  2. Interest Coverage Ratio
                                                                                    1. EBIT ÷ Interest Expense
                                                                                      1. Debt Service Capability
                                                                                      2. Fixed Charge Coverage Ratio
                                                                                        1. EBIT + Lease Payments ÷ Interest + Lease Payments
                                                                                          1. Comprehensive Coverage Analysis
                                                                                          2. Debt-to-EBITDA Ratio
                                                                                            1. Total Debt ÷ EBITDA
                                                                                              1. Leverage Relative to Cash Flow
                                                                                            2. Profitability Ratios
                                                                                              1. Gross Profit Margin
                                                                                                1. Gross Profit ÷ Revenue
                                                                                                  1. Production Efficiency
                                                                                                  2. Operating Profit Margin
                                                                                                    1. Operating Income ÷ Revenue
                                                                                                      1. Operational Efficiency
                                                                                                      2. Net Profit Margin
                                                                                                        1. Net Income ÷ Revenue
                                                                                                          1. Overall Profitability
                                                                                                          2. Return on Assets
                                                                                                            1. Net Income ÷ Average Total Assets
                                                                                                              1. Asset Utilization Efficiency
                                                                                                              2. Return on Equity
                                                                                                                1. Net Income ÷ Average Shareholders Equity
                                                                                                                  1. Shareholder Value Creation
                                                                                                                  2. Return on Invested Capital
                                                                                                                    1. NOPAT ÷ Invested Capital
                                                                                                                      1. Capital Allocation Efficiency
                                                                                                                    2. Activity and Efficiency Ratios
                                                                                                                      1. Asset Turnover
                                                                                                                        1. Revenue ÷ Average Total Assets
                                                                                                                          1. Asset Utilization
                                                                                                                          2. Inventory Turnover
                                                                                                                            1. COGS ÷ Average Inventory
                                                                                                                              1. Inventory Management Efficiency
                                                                                                                              2. Days Sales in Inventory
                                                                                                                                1. Average Inventory ÷ Daily COGS
                                                                                                                                  1. Inventory Holding Period
                                                                                                                                  2. Accounts Receivable Turnover
                                                                                                                                    1. Revenue ÷ Average Accounts Receivable
                                                                                                                                      1. Collection Efficiency
                                                                                                                                      2. Days Sales Outstanding
                                                                                                                                        1. Average Accounts Receivable ÷ Daily Sales
                                                                                                                                          1. Collection Period
                                                                                                                                          2. Accounts Payable Turnover
                                                                                                                                            1. COGS ÷ Average Accounts Payable
                                                                                                                                              1. Payment Practices
                                                                                                                                              2. Days Payable Outstanding
                                                                                                                                                1. Average Accounts Payable ÷ Daily COGS
                                                                                                                                                  1. Payment Period
                                                                                                                                                  2. Working Capital Turnover
                                                                                                                                                    1. Revenue ÷ Average Working Capital
                                                                                                                                                      1. Working Capital Efficiency
                                                                                                                                                    2. Market Value Ratios
                                                                                                                                                      1. Earnings Per Share
                                                                                                                                                        1. Net Income ÷ Weighted Average Shares
                                                                                                                                                          1. Per-Share Profitability
                                                                                                                                                          2. Price-to-Earnings Ratio
                                                                                                                                                            1. Market Price ÷ Earnings Per Share
                                                                                                                                                              1. Valuation Multiple
                                                                                                                                                              2. Price-to-Book Ratio
                                                                                                                                                                1. Market Price ÷ Book Value Per Share
                                                                                                                                                                  1. Market vs Book Value
                                                                                                                                                                  2. Price-to-Sales Ratio
                                                                                                                                                                    1. Market Capitalization ÷ Revenue
                                                                                                                                                                      1. Revenue-Based Valuation
                                                                                                                                                                      2. Dividend Yield
                                                                                                                                                                        1. Annual Dividends Per Share ÷ Market Price
                                                                                                                                                                          1. Income Return
                                                                                                                                                                          2. Dividend Payout Ratio
                                                                                                                                                                            1. Dividends Per Share ÷ Earnings Per Share
                                                                                                                                                                              1. Dividend Policy Analysis
                                                                                                                                                                              2. Market-to-Book Ratio
                                                                                                                                                                                1. Market Capitalization ÷ Book Value of Equity
                                                                                                                                                                                  1. Market Premium Assessment
                                                                                                                                                                              3. DuPont Analysis
                                                                                                                                                                                1. Traditional Three-Factor Model
                                                                                                                                                                                  1. ROE Decomposition
                                                                                                                                                                                    1. Net Profit Margin Component
                                                                                                                                                                                      1. Asset Turnover Component
                                                                                                                                                                                        1. Equity Multiplier Component
                                                                                                                                                                                          1. Performance Driver Identification
                                                                                                                                                                                          2. Extended Five-Factor Model
                                                                                                                                                                                            1. Tax Burden
                                                                                                                                                                                              1. Interest Burden
                                                                                                                                                                                                1. Operating Margin
                                                                                                                                                                                                  1. Asset Turnover
                                                                                                                                                                                                    1. Financial Leverage
                                                                                                                                                                                                      1. Detailed Performance Analysis
                                                                                                                                                                                                      2. Applications and Insights
                                                                                                                                                                                                        1. Performance Benchmarking
                                                                                                                                                                                                          1. Trend Analysis
                                                                                                                                                                                                            1. Strategic Planning Support
                                                                                                                                                                                                          2. Ratio Analysis Limitations
                                                                                                                                                                                                            1. Accounting Policy Differences
                                                                                                                                                                                                              1. GAAP vs IFRS Variations
                                                                                                                                                                                                                1. Company-Specific Policies
                                                                                                                                                                                                                2. Industry and Business Model Differences
                                                                                                                                                                                                                  1. Sector-Specific Norms
                                                                                                                                                                                                                    1. Business Cycle Impact
                                                                                                                                                                                                                    2. Historical Data Limitations
                                                                                                                                                                                                                      1. Backward-Looking Nature
                                                                                                                                                                                                                        1. Economic Environment Changes
                                                                                                                                                                                                                        2. Window Dressing and Manipulation
                                                                                                                                                                                                                          1. Period-End Adjustments
                                                                                                                                                                                                                            1. Earnings Management
                                                                                                                                                                                                                            2. Single Point-in-Time Issues
                                                                                                                                                                                                                              1. Seasonal Variations
                                                                                                                                                                                                                                1. Temporary Fluctuations

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                                                                                                                                                                                                                          2. Understanding Financial Statements

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                                                                                                                                                                                                                          4. Financial Reporting Quality Analysis