# Financial Statement Analysis

## What is Financial Statement Analysis?

Financial Statement Analysis is the process of understanding the fundamentals of the company by reviewing its financial statements namely the Income Statement, Balance Sheet and Cash Flows. Financial Statement Analysis can be performed in a structured way using Ratio Analysis. Typically, such financial analysis is done over a series of reporting periods (using the Horizontal Analysis and Vertical Analysis).

Financial Statement Analysis includes comprehensively analyzing the company's liquidity ratios, turnover ratios, profitability ratios, efficiency ratios, dividend ratios, and debt ratios.

You can learn step by step Financial Statement Analysis from the following guide

### Liquidity Ratios

#### WHAT YOU'LL LEARN

Liquidity ratio in Financial Analysis provides us with an understanding that whether the company will be able to serve its short-term liabilities (current liabilities) with the help of its short-term assets (current assets). This helps an analyst understand whether the company has enough cash in the system to survive for atleast one operating cycle. Liquidity Ratios include current ratios, quick ratio, cash ratio, defensive interval ratio and working capital ratio.

#### 15 ARTICLES IN THIS FINANCIAL STATEMENT ANALYSIS RESOURCES

### Turnover Ratios

#### WHAT YOU'LL LEARN

This ratio in financial analysis helps us understand the how effectively the firm is utilizing its resources. This ratio effectively tracks the flow of cash from sales activity to receivables, inventory, and payables. Turnover Ratios include the inventory turnover, receivables turnover and payables turnover. Also, you can calculate the cash conversion ratio using the three turnover ratios to find out the length of cash cycle.

#### 9 ARTICLES IN THIS FINANCIAL STATEMENT ANALYSIS RESOURCES

### Profitability Ratios

#### WHAT YOU'LL LEARN

Profitability Ratios in Financial analysis are that helps us understand whether the company is able to generate enough sales relative to its expenses during a specified period. This is one of the most popular ratios used by Financial Analysts and they include the gross margin, EBIT Margin, EBITDA Margin and the Net Profit Margin. Other popular ratios are the Return on Equity, Return on Invested Capital

#### 35 ARTICLES IN THIS FINANCIAL STATEMENT ANALYSIS RESOURCES

- Profit Margin
- Gross Profit Margin Formula
- Operating Profit Margin Formula
- Net Profit Margin Formula
- EBIDTA Margin
- Earnings Per Share
- Basic EPS
- Diluted EPS
- Basic EPS vs Diluted EPS
- Return on Equity (ROE)
- Return on Capital Employed (ROCE)
- Return on Invested Capital (ROIC)
- Return on Total Assets (ROA)
- Return on Average Capital Employed
- Capital employed Employed
- Return on Average Assets (ROAA)
- Return on Average Equity (ROAE)
- Return on Assets Formula
- Return on Equity Formula
- DuPont Formula
- Net Interest Margin Formula
- Earnings Per Share Formula
- Diluted EPS Formula
- Contribution Margin Formula
- Revenue Per Employee Ratio
- Operating Leverage
- EBIT vs EBITDA
- EBITDAR
- Capital Gains Yield
- Tax Equivalent Yield
- LTM Revenue
- Operating Expense Ratio Formula
- Overhead Ratio Formula
- Capacity Utilization Rate Formula
- Total Expense Ratio Formula

### Efficiency Ratios

#### WHAT YOU'LL LEARN

Efficiency ratios in Financial Analysis measures how effectively the company makes use of its assets relative to its liabilities (equities) for generating sales. Efficiency ratios include the asset turnover ratio, equity turnover ratio, and equity multiplier.

#### 6 ARTICLES IN THIS FINANCIAL STATEMENT ANALYSIS RESOURCES

### Dividend Ratios

#### WHAT YOU'LL LEARN

The company generally shares a part of its profit with its shareholders via dividends in a given period. This share of profit in form of dividends depends on the growth phase of the company. Dividend Ratios capture the relative value of this part using the dividend payout ratio, plowback ratio, and the retention ratio.

#### 7 ARTICLES IN THIS FINANCIAL STATEMENT ANALYSIS RESOURCES

### Debt Ratios

#### WHAT YOU'LL LEARN

This financial statement analysis ratio provides us with an understanding of how much the company is dependent on debt relative to equity. Debt Ratios are of various types including the debt to equity ratio, capital gearing ratio, DSCR Ratio, interest coverage ratio and more.

#### 15 ARTICLES IN THIS FINANCIAL STATEMENT ANALYSIS RESOURCES

- Debt to Equity Ratio
- Debt Coverage Ratio
- Debt Ratio
- Debt to Income Ratio Formula (DTI)
- Capital Gearing Ratio
- Capitalization Ratio
- Interest Coverage Ratio
- Times Interest Earned Ratio
- Debt Service Coverage Ratio (DSCR)
- Financial Leverage Ratio
- Net Debt Formula
- Leverage Ratios
- Operating Leverage vs Financial Leverage
- Current Yield
- Debt Yield Ratio