Corporate Financial Statement Analysis

Introduction

• Comparing financial statements across time
• Use key tools to analyze financial statements

1. A Review of the Financial Statements

• Link the accounting equation to all three statements
• Analyze balance sheets for assets and liabilities
• Break down the income statement by revenues and costs
• Evaluate cash flows for operations, investing, and finance
• Use AI to generate insights from financial statements
• Excel: Connect the three statements

2. The DuPont Framework

• Calculate return on equity and assess performance
• Apply DuPont analysis to ROE components
• Compare Ford vs. GM using the DuPont framework
• Automate DuPont analysis using AI tools
• Excel: Use the DuPont Framework to compare companies

3. Common-Size Financial Statements

• Scale statements with common-size analysis tools
• Convert and analyze a common-size income statement
• Break down a common-size balance sheet for insights
• Compare Walmart and Target’s common-size statements
• Use AI to common-size financial statements
• Excel: Construct and use common-size financial statements

4. Profitability Ratios

• Discern the many ways to define income and profit
• Compare profitability across industries
• Use AI to compute key profitability ratios
• Excel: Build income statements to identify profit issues

5. Efficiency Ratios

• Analyze a company's full operating cycle
• Compute a company's days sales of inventory (DSI)
• Compute and interpret average collection period (ACP)
• Compare Harley and McDonald’s efficiency metrics
• Use AI analysis to detect ratio trends over time
• Excel: Improve cash flow via receivables and inventory

6. Leverage Ratios

• Rethink the current ratio in today’s context
• Differentiate key debt ratios in financial analysis
• Compare debt ratios across companies
• Use AI to assess financial risk from leverage
• Excel: Analyze ratios for successful companies

7. Limitations of Financial Statement Analysis

• Recognize limits of past performance analysis
• Avoid common pitfalls of financial statement analysis
• Resist oversimplifying financial performance issues
• Use AI to spot limits in financial comparisons
• Excel: Spot comparability pitfalls in global financials

Conclusion

• Plan your next steps in financial statement analysis