Analyzing Cash Flow Statements

Target Audience
Expected Duration
Lesson Objectives
Course Number

Have you ever had to make a really tough business decision? They can be hard to make, especially since a bad decision can ruin a company. Fortunately there is a way to make a more informed and better business decision; by analyzing your company's financial statements. They contain information that can help you improve your company's efficiency and overall effectiveness. Cash flow statement analysis focuses on determining your company's ability in the following four areas: (1) ability to meet short-term obligations and to efficiently generate revenue, (2) ability to generate future revenues and meet long-term obligations, (3) ability to provide financial rewards and attract and retain financing, and (4) ability to generate positive market expectations.

Target Audience
Individuals who require knowledge of the basics of accounting, who are starting a business or interested in becoming a partner, who are learning to manage the accounting activities of a business, and who need to review accounting principles and procedures. Shareholders or people who are interested in becoming a shareholder can also benefit from this course.

Expected Duration (hours)

Lesson Objectives

Tools for Financial Statement Analysis

  • recognize the importance of using financial statements as a method of comparison.
  • use horizontal analysis to determine if a given company's performance is within industry standards.
  • calculate trend percent to reveal patterns in a company's financial information, given a scenario.
  • identify the base amount for calculating the common-size percent for a balance sheet and income statement.
  • calculate the common-size percent to determine if there is a significant change, given a scenario.
  • Liquidity and Efficiency

  • recognize the importance of being able to determine a company's liquidity and efficiency.
  • calculate the current ratio for a given scenario to determine if the company has enough working capital to meet its short-term obligations.
  • perform acid-test ratios to determine if a company faces liquidity problems in a given scenario.
  • determine if a company's accounts receivable turnover is favorable, given a scenario.
  • determine a company's merchandise inventory turnover, given a scenario.
  • Solvency

  • recognize the importance of determining a company's solvency.
  • calculate the debt and equity ratio to determine if a company is solvent in a given scenario.
  • determine a company's credit rating by calculating the ratio of pledged assets to secured liabilities for a given scenario.
  • determine which of two companies is a better credit risk by calculating and analyzing their times interest earned ratios, given information from their income statements.
  • Profitability

  • recognize the importance of being able to determine a company's profitability.
  • analyze a company's return on total assets to determine if it is favorable, for a given scenario.
  • determine the common stockholder's equity for a given scenario.
  • determine the range of the price-earnings ratio per share, given a scenario.
  • determine the best investment for a given scenario based on the dividend yield.
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