Key Learning Points:
• Part one Understanding core financial statements and their interrelationships.
Performing key financial ratio analysis for performance evaluation.
• Part two Assessing business viability and investment attractiveness. Preparing
compelling loan applications.
• Part three Evaluating strategic initiatives through cost-benefit analysis.
Now that you understand the three main financial statements, it's time to use them to gain insights into your business's financial health. We'll use financial ratios, which are powerful tools to compare different aspects of your statements and identify trends.
Use this checklist to assess your readiness to apply financial analysis in your business. Tick 'Yes' if you feel confident, 'No' if you need more practice.
● Start Here: Begin by reviewing the Module Introduction to understand the scope.
● Navigate Lessons: Each lesson provides objectives, definitions, examples, and mini-quizzes.
● Complete Templates: Utilize provided tools and templates to apply concepts.
● Review Case Studies: Analyze real-world scenarios to deepen understanding.
● Take Quizzes: Test your knowledge with online mini-quizzes throughout and a comprehensive main quiz at the end.
Accrued Expenses: Expenses incurred but not yet paid for.
Accounts Payable (AP): Money a company owes to its suppliers for goods or services purchased on credit.
Accounts Receivable (AR): Money owed to a company by its customers for goods or services delivered on credit.
Assets: Resources owned by a company that have economic value.
Balance Sheet: A financial statement that provides a snapshot of a company’s financial position at a specific point in time.
Cash Flow Statement: A financial statement that reports the cash generated and used by a company during a period.
Cost of Goods Sold (COGS): The direct costs attributable to the production of the goods sold by a company.
Current Assets: Assets that can be converted into cash or used within one year.
Current Liabilities: Obligations due within one year.
Debt Service Coverage Ratio (DSCR): A ratio that measures a firm’s ability to pay current debt obligations.
Debt-to-Equity Ratio: A financial ratio indicating the relative proportion of shareholders’ equity and debt used to finance a company’s assets.
Depreciation: An accounting method of allocating the cost of a tangible asset over its useful life.
Earnings Before Interest and Taxes (EBIT) / Operating Profit: A measure of a firm’s profit that includes all revenues and expenses except interest and taxes.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): A measure of a company’s financial performance, excluding interest, taxes, depreciation, and amortization.
Equity: The residual value of assets after all liabilities have been deducted; the owner’s stake in the business.
Expenses: The costs incurred in operating a business.
Gross Profit: Revenue minus Cost of Goods Sold.
Gross Profit Margin: The percentage of revenue that exceeds the cost of goods sold.
Income Statement: A financial statement that reports a company’s financial performance over a specific accounting period.
Inventory: Goods available for sale and raw materials used to produce goods available for sale.
Liabilities: Obligations or debts that a company owes to outside parties.
Liquidity: The ease with which an asset can be converted into cash to meet short-term obligations.
Net Profit (Net Income): The total profit after all expenses, including taxes and interest, have been deducted from total revenue.
Net Profit Margin: The percentage of revenue left after all expenses are deducted.
Non-Current Assets: Long-term assets not expected to be converted into cash within one year.
Non-Current Liabilities: Long-term obligations that are due beyond one year.
Operating Expenses (OPEX): Expenses incurred in carrying out a company’s day-to-day activities, but not directly associated with production.
Operating Profit Margin: The percentage of revenue remaining after all operating expenses are paid.
Profitability Ratios: Financial metrics used to assess a company’s ability to generate revenue from its operations.
Quick Ratio: A liquidity indicator that measures a company’s ability to cover its current liabilities without relying on the sale of inventory.
Retained Earnings: The portion of net income that is retained by the corporation and not paid out as dividends.
Revenue: The total income generated from selling goods or services.
Solvency: The ability of a company to meet its long-term financial obligations.
Solvency Ratio: A ratio indicating the soundness of a company’s long-term financial position.
Working Capital: The difference between current assets and current liabilities.