17.1 Financial statement analysis

• The Balance Sheet provides a snapshot of a company's assets, liabilities, and equity
• What is the primary purpose of financial statement analysis?

  Assess financial health
• Financial statement analysis measures solvency and liquidity
• Ratios are used in financial statement analysis to identify strengths and weaknesses.


  True
• What are the three key financial statements?

  Balance Sheet, Income Statement, Cash Flow Statement
• Ratio analysis helps understand a company's profitability, liquidity, solvency, and efficiency.

  True
• What do profitability ratios measure?

  Ability to generate profits
• Match the ratio type with its significance:

  Profitability ratios ↔️ Measure ability to generate profits

  Liquidity ratios ↔️ Assess short-term liabilities

  Solvency ratios ↔️ Determine long-term stability
• What are the two main tools used in financial statement analysis?

  Ratios and trend analysis
• The Cash Flow Statement categorizes cash flows into operating, investing, and financing
• A higher gross profit margin indicates better cost control.


  True
• The Debt-to-Equity Ratio determines a company's long-term financial stability
• Competitive benchmarking compares a company's performance against direct competitors
• Internal benchmarking can foster complacency due to limited external insights.


  True
• What are the three key financial statements used in financial statement analysis?

  Balance Sheet, Income Statement, Cash Flow Statement
• How does trend analysis help predict future performance?

  Reveals patterns over time
• Strategic benchmarking compares a company's overall strategic plans to those of top-performing organizations
• Match the purpose of financial statement analysis with its benefit:

  Evaluate performance ↔️ Identifies strengths and weaknesses

  Assess financial health ↔️ Measures solvency and liquidity

  Track trends over time ↔️ Reveals patterns and predicts future performance
• What are the three key financial statements?

  Balance Sheet, Income Statement, Cash Flow Statement
• Match the financial statement with its purpose:

  Balance Sheet ↔️ Snapshot of assets, liabilities, and equity

  Income Statement ↔️ Reports revenues, expenses, and net income

  Cash Flow Statement ↔️ Shows inflows and outflows of cash
• What does Ratio Analysis help understand about a company?

  Profitability, liquidity, solvency, efficiency
• Match the profitability ratio with its example formula:

  Gross Profit Margin ↔️ (Gross Profit / Revenue) × 100

  Net Profit Margin ↔️ (Net Profit / Revenue) × 100

  Return on Assets ↔️ (Net Profit / Average Total Assets) × 100

  Return on Equity ↔️ (Net Profit / Average Shareholders' Equity) × 100
• The Debt-to-Equity Ratio is an example of a solvency ratio
• What is the purpose of Trend Analysis in financial statement analysis?

  Identify improvements or declines
• How are financial statements used in decision-making?

  Inform strategic, operational, and investment decisions
• Profitability ratios identify strengths and weaknesses in efficiency
• The three key financial statements must be analyzed together to assess a company's overall financial health.


  True
• What does the Income Statement report?

  Revenues, expenses, net income
• What does the Current Ratio measure?

  Short-term liquidity
• Steps involved in conducting trend analysis:

  1️⃣ Collect financial data for multiple periods

  2️⃣ Calculate key financial metrics

  3️⃣ Identify patterns and trends

  4️⃣ Evaluate changes over time
• What does the Asset Turnover Ratio measure?

  Efficiency of asset use
• The Inventory Turnover Ratio is calculated as Cost of Goods Sold divided by Average Inventory
• Analyzing financial ratios in conjunction with financial statements provides a comprehensive understanding of a company's financial health.


  True
• What can trend analysis reveal about a company's financial performance?

  Improvements or declines
• Trend analysis can predict future financial performance
• Match the trend analysis technique with its description:

  Charting financial ratios ↔️ Visualizes changes over time

  Analyzing year-over-year changes ↔️ Identifies magnitude and direction of changes
• What is the primary purpose of benchmarking?

  Identify best practices
• Order the steps a company takes to improve through benchmarking:

  1️⃣ Understand current performance

  2️⃣ Identify best practices

  3️⃣ Set realistic goals

  4️⃣ Implement improvement strategies
• The Balance Sheet provides a snapshot of a company's assets, liabilities, and equity
• Ratio analysis is a critical tool for evaluating a company's financial performance.


  True