Financial Statement Analysis

Résumé

Financial Statement Analysis teaches how to read, adjust, and interpret financial reports prepared under IFRS and US GAAP. The three primary statements are the income statement (revenue recognition, expense recognition, and earnings per share), the balance sheet (assets, liabilities, and equity measured at cost or fair value), and the cash flow statement (operating, investing, and financing activities under the direct and indirect methods). Analysts reconcile accrual accounting with cash flows and assess the quality and sustainability of earnings. Inventory accounting compares FIFO, LIFO, and weighted-average cost methods and their effects on cost of goods sold, gross profit, and inventory values, including LIFO reserve adjustments. Long-lived assets cover capitalization versus expensing, depreciation and amortization methods, impairment, and revaluation. Income taxes introduce deferred tax assets and liabilities arising from temporary differences. Non-current liabilities include bonds (issued at par, premium, or discount, with effective interest amortization) and leases. Ratio analysis is central: activity, liquidity, solvency, profitability, and valuation ratios, organized through DuPont decomposition of return on equity. Financial reporting quality spans the spectrum from high-quality decision-useful reporting to earnings management and fraud, with warning signs and incentives. Applications include credit analysis, equity screening, forecasting, and adjusting statements for comparability across firms and accounting standards. Mastery requires understanding how each transaction flows through the statements and how choices in estimates and policies affect reported results.