Financial Analysis and Reporting
Part 1
Financial Statements and Reports
• Annual Report – A report issued annually by a corporation to its stockholders. It contains
basic statements as well as management’s opinion of the past year’s operations and the
firms future prospects.
• Income Statement – A statement summarizing the firm’s revenues and expenses over an
accounting period generally a quarter or a year.
• Balance Sheet – A statement of the firm’s financial position at a specific point in time.
• Common Stockholder’s Equity (Net Worth) - The capital supplied by common
stockholders capital stock, paid-in capital, retained earnings and occasionally, certain
reserves. Total equity is common equity plus preferred stock.
• Retained Earnings – The portion of the firm’s earnings that has been saved rather than
paid out as dividends.
• Statement of Retained Earnings – A statement reporting how much of the firm’s earnings
were not paid out in dividends. The figure of retained earnings that appears here is the sum
of the annual retained earnings for each year of the firm’s history.
Ratio Analysis
• Liquidity Ratio – Ratios that show the relationship of a firm’s cash and other current assets
to its current liabilities.
• Current Ratio – The extent to which a firm can meet its short-term obligations. The ratio
is calculated by dividing current assets by current liabilities.
Formula: Current Ratio = Current Assets / Current Liabilities
• Quick Acid Test Ratio – The extent to which a firm can meet its short-term obligations
without relying upon the sale of its inventories. This is calculated by deducting inventories
from current assets and dividing the remainder by current liabilities.
Formula: Current Assets – Inventory / Current Liabilities
Five Key Elements of Financial Analysis
1. Revenues – are probably your business main source of cash. The quantity, quality and
timing of revenues can determine long-term success.
• Revenue Growth (revenue this period – revenue last period) - When calculating
revenue growth, don’t include one-time revenues which can distort the analysis.
Part 1
Financial Statements and Reports
• Annual Report – A report issued annually by a corporation to its stockholders. It contains
basic statements as well as management’s opinion of the past year’s operations and the
firms future prospects.
• Income Statement – A statement summarizing the firm’s revenues and expenses over an
accounting period generally a quarter or a year.
• Balance Sheet – A statement of the firm’s financial position at a specific point in time.
• Common Stockholder’s Equity (Net Worth) - The capital supplied by common
stockholders capital stock, paid-in capital, retained earnings and occasionally, certain
reserves. Total equity is common equity plus preferred stock.
• Retained Earnings – The portion of the firm’s earnings that has been saved rather than
paid out as dividends.
• Statement of Retained Earnings – A statement reporting how much of the firm’s earnings
were not paid out in dividends. The figure of retained earnings that appears here is the sum
of the annual retained earnings for each year of the firm’s history.
Ratio Analysis
• Liquidity Ratio – Ratios that show the relationship of a firm’s cash and other current assets
to its current liabilities.
• Current Ratio – The extent to which a firm can meet its short-term obligations. The ratio
is calculated by dividing current assets by current liabilities.
Formula: Current Ratio = Current Assets / Current Liabilities
• Quick Acid Test Ratio – The extent to which a firm can meet its short-term obligations
without relying upon the sale of its inventories. This is calculated by deducting inventories
from current assets and dividing the remainder by current liabilities.
Formula: Current Assets – Inventory / Current Liabilities
Five Key Elements of Financial Analysis
1. Revenues – are probably your business main source of cash. The quantity, quality and
timing of revenues can determine long-term success.
• Revenue Growth (revenue this period – revenue last period) - When calculating
revenue growth, don’t include one-time revenues which can distort the analysis.
