Financial Statement Analysis

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En provenance du cours de Indian School of Business

Accounting and Finance for IT professionals

60 notes

Indian School of Business

Accounting and Finance for IT professionals

60 notes

Cours 3 sur 6 dans Specialization Business Technology Management

This course presents an introduction to the basics of financial accounting and finance for IT professionals. The first part of the course will focus on understanding the most important financial statements, namely, the balance sheet, the income statement, and the statement of cash flows. We will then focus on how we can understand the financial health and performance of the company by examining a number of important financial ratios that are derived from the financial statements of the company. The second part of the course will focus on the basics of finance. This includes the concept of time value of money, discounting cash flows, and capital budgeting. The course will also introduce the idea of real options, how they affect a project’s NPV, and their impact of the decision to accept/reject a project. Lectures on concepts will be supplemented with numerical examples.

À partir de la leçon

Financial Statement Analysis

The purpose of this module is to equip you with the skills required to identify accounting information required for building trading strategies. After completing this module you will be able to calculate the key financial ratios.

Financial Statement Analysis3:38

Profitability ratios6:00

Activity Ratios8:35

Solvency and Liquidity Ratios6:53

DuPont Identity4:56

Rencontrer les enseignants

Ramabhadran Thirumalai
Assistant Professor
Indian School of Business

[MUSIC]

How do we determine if the company is doing well, financially or not?

We saw that Amazon had a net income of $0.60 billion at the end of 2015.

Is that good or bad?

To answer this question, we will look at a number of financial ratios.

In this video, we will introduce the idea of financial statement analysis.

We will also talk about the different tools used in financial statement analysis

as well as the approaches use with each tool.

We will wrap up this video by defining the five

most common categories of financial ratios.

Financial statement analysis is a comprehensive analysis

of a company's strategy, its competition, regulations and

taxes that affect it, its past current and financial performance,

the fundamental valuation of a company relative to its stock price, and

planning for the company's future operations, investments and finances.

In this course, we will focus only on financial performance and

fundamental evaluation relative to stock price.

The typical tools used in financial statement analysis

are comparative analysis, common size analysis, and ratio analysis.

Comparative analysis is the evaluation of

consecutive financial statements of a company to identify the direction,

speed, and magnitude of any trends in financial performance.

Common size analysis is the evaluation of the internal make-up

of financial statements and or financial statements items across companies.

For example, this could mean that a common size income statement would report

all income statement items as a percentage of revenues.

This is especially useful when you compare two companies

that are widely different revenues.

Similarly, all balance sheet items could be reported as a percentage of total

assets.

Ratio analysis evaluates the relationship between two or

more economically important items.

For this, prior accounting analysis is important, and

interpretation is very important.

We will focus mostly on ratio analysis.

The approaches used with each of these tools are as follows.

Time series analysis, Cross-sectional analysis, and Benchmark comparison.

Time-series analysis is the comparison of a firm with itself over time.

Cross-sectional analysis is the comparison of different companies in an industry

at a given point in time.

Benchmark comparison is the use of pre-specified industry norms or

benchmarks.

In this course, we will mostly focus only on time-series analysis.

Financial ratios largely fall into five different categories namely, profitability

ratios, activity ratios, solvency ratios, liquidity ratios and valuation ratios.

Profitability ratios measure a company's ability to generate profits

from its various resources.

Activity ratios measure a company's ability to convert various assets and

liabilities into cash or sales.

Solvency ratios measure if a company has sufficient cash

to meet its long term financial commitments.

Liquidity ratios, on the other hand,

measure if a company has enough cash to meet its shutdown financial obligations.

Finally, valuation ratios compare the current market price of a company stock

to certain items from the financial statements.

Next time, we will start looking at the various types of ratios within each

category of financial ratios.

[MUSIC]

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