Financial Statement Analysis

Employees are asking for a raise. A key supplier needs a commitment. A customer wants reassurance. You need to raise funds—fast!

No matter what role you’re in—whether you’re managing a team, running a business, or leading a department—financial statements hold the insights you need to make smart decisions.

Sure, you can ask an accountant to explain the numbers. But here’s the thing: that accountant might not understand the specifics of your industry.

The truth is, you don’t need to be an accountant to do your job well. But you do need to know how to read and use financial information. The good news? You can learn to understand financial statements yourself—and apply them more effectively than someone who doesn’t know your business as well as you do.

I’m Dr. Eric Knight, I am a CPA with over 20 years’ experience in business and academics. I’ve designed this course to explain financials in a thorough but straightforward manner without the complexities. You’ll be introduced to the financial statement information. Then, you learn how to analyze financial statements. I’m not just going to provide formulas but I’ll explain why you need the ratios and how to apply them to a business. I’ll demonstrate using real-world company data to see the story of the business behind the financial information. We’ll see where managers could exploit flexibility so we don’t have any misunderstandings.

In addition to case studies and examples, you can test your knowledge with quizzes and discussion questions that offer an opportunity to apply the information to your field.

Whatever field you are in, make understanding financial statements your superpower!

Why we analyze financial statements

Financial statements may be prepared by accountants—but they’re not just for accountants.

They’re for managers, investors, lenders, and decision-makers like you. So who uses financial statements, and what exactly are they looking for?

In this lesson, we’ll break it all down. You’ll learn who relies on financial data, why they need it, and how financial statement analysis helps turn raw numbers into smart decisions.

GAAP - The Rules

To truly understand financial statements, you need to understand the rules behind them—rules known as GAAP (Generally Accepted Accounting Principles).

In this lesson, we’ll explore where these rules come from, who creates and enforces them, and why they matter. We’ll also look at how management interacts with financial reporting—and the incentives that can shape what gets reported and how.

Timing is everything

Revenue drives business decisions, and profitability is what owners and investors watch closely. But here’s the catch: there’s more than one way to measure profit.

Yes, profit isn’t as absolute as it seems. In this lesson, we’ll break down how timing, recognition, and accounting choices impact reported income—and why it’s crucial for anyone using financial statements to understand how these figures are determined.

Earnings Management

Ideally, financial statements should reflect the true health of a business. But managers often have strong incentives to present their company in the best possible light.

Because GAAP allows for some flexibility in its application, this opens the door to Earnings Management—strategic choices in reporting that influence how financial results appear. In this lesson, we’ll unpack what that means, how it’s done, and what to watch for.

Balance Sheet Part 1

Let's take a closer look at the financial statements. In this lesson we'll begin with an overview of the two key statements used in business. The balance sheet and income statement. As important as knowing what is included on the statements, is understanding how the value of each element was derived. This lesson begins with a closer look at current assets.

Balance Sheet Part 2

We continue to unravel the mysteries of the balance sheet in our lesson. One of the most misunderstood accounting concepts is depreciation. We'll discuss how property and equipment is valued first. Then we discuss what depreciation really is and what it is not. By the end of the lesson, we'll understand book value.

Balance Sheet Part 3

Our journey through the balance sheet continues with intangibles and onward to the liabilities. Who knew the balance sheet could provide so much information on a business? The lesson ends with an overview of corporate bonds.

Statement of Cash Flows

We finally finish up with the balance sheet and move on to the Statement of Cash Flows. Cash is the most important current asset a business has. Without cash the business cannot pay employees or vendors. So how that cash is derived gives the financial statement analyst important information. This lesson takes us through the Statement of Cash Flows while explaining the implications of cash to the organization.

Time Series

The objective of the financial statements are to provide external users with a window into the company. But do we understand what we see in that window? Let's begin understanding the financial statements by using time series analysis. This lesson starts explaining how to analyze a business using the financial statements.

Ratios

Ratios provide analysts with tools to develop deeper understanding of the financial statements. Ratios can help us to determine risk and get a feel for management's performance. In this lesson we learn ratios that can evaluate profitability, liquidity and solvency of an organization.

Applying Ratios

In a previous lessee we began our journey towards understanding ratios. In this lesson we take the next step. We use those ratios on real companies that actually exist. We'll analyze real numbers from Lowe's, Home Depot, Pepsi, Coca Cola, and Monster to see how using ratios can tell us a story about the operations of management.

Valuation

What is a business worth? Is it the buildings and equipment the company has? Is it the value of the employees? Is it the earnings power? Determining value is not as easy as one might thing. In this lesson we'll dive into this idea of valuation.

Credit

A common option used in business is to obtain funds to buy the necessary resources by taking a loan. The creditor needs to understand the business to ascertain the risk of not being paid back. This lesson examines the various methods that creditors approach determining a risk. We begin with an overview of the various types of loans used in business in general.

Contracts

Contracts are used extensively in management. Human resources or supply chain managers for example. HR may need to make a decision on giving employees raises? Supply chain managers need to determine if their supplier is in good financial shape? So, the financial statements are often a big part of the contracting function of business. In this lesson we will consider how financial statements can shape our business contracts.

Executive Compensation

Managers are people. People tend to look out for their own best interest. But what about the company stockholders? How can we structure management compensation in a manner that leads to a win-win situation between management and the stockholders? Our lesson will consider the long- and short-term considerations used to develop management compensation.

Leases

Why discuss leases in a course on financial analysis? Well, it seems leases are a tool that management might use to influence the performance of the financials without increasing actual efficiency. Because we are learning to analyze and understand the financial statements, we need to be aware of the implications of using leases for that purpose.

Owners' Equity

Another option a manager has to get funding for the business, is to sell stock. Stock is a share of a business. Stockholders are owners. There are multiple types of stock. Stocks may have features associated with the shares. Let's learn more about the equity side of balance sheet!

Earnings Per Share

The Earnings Per Share ratio is used extensively by stock analysts. It is the only ratio included with the financial statements. However, earnings per share can be impacted by changes to the number of shares. In our lesson we see how that can occur and how we adjust the Earnings Per Share to include potential harmful impact of changes to the number of shares.

So, before you go...

Whether you’re a manager, entrepreneur, or business professional, understanding financial statements gives you a competitive edge. This course empowers you to interpret the numbers, spot red flags, evaluate performance, and make informed decisions—without needing to be an accountant. By the end, you’ll not only read financial statements—you’ll use them to lead smarter, ask better questions, and drive results. Enroll now and take control of the financial story behind your business.