Financial Statements: Introduction, Preparation, & Analysis

Discover how to extract cash values from the balance sheet and P&L to prepare the cash flow statement, using loan examples and year-end balances to determine cash received.

Learn to compute cash received from shareholders using the balance sheet by combining share capital and share premium, and track year-by-year changes from 2019 to 2022.

Learn to calculate cash flow from interest payments by reconciling interest expense with opening and closing balances on the balance sheet using a stepwise schedule.

Compute tax cash payments from accrual tax expenses in the profit and loss statement and taxes payable on the balance sheet, using the 2019–2021 kangaroo company data.

Calculate cash paid for asset purchases and cash received from asset sales by analyzing depreciation on the profit and loss statement and balance sheet, with 200,000 purchase and 80,000 sale.

analyze how fixed asset disposal affects cash flow and non-operational income on the p&l, showing a 2021 sale: balance 120, depreciation 40, closing 80, sale 80k, gain 8k, cash 88k.

Calculate cash received from customers from the profit and loss statement by deducting the change in receivables, linking sales to the balance sheet.

Compute cash paid for operational expenses from profit before tax, adjusting for the increase in payables on the balance sheet; the example shows a cash outflow of 65,000.

Learn how to calculate cash paid to suppliers by linking cost of sales, inventory changes, and trade payables on the balance sheet and preparing the cash flow statement.

Learn to prepare cash flow from operating activities using the indirect method, starting from profit before tax and adjusting for depreciation, amortization, interest, non-operating items, and working capital changes.

Explore the cash flow statement format, detailing the three sections—operating, investing, and financing activities—and show how beginning cash links to ending cash through net cash generated.

Explore English subtitles, adjust playback speed, ensure HD 720p quality, enable full-screen viewing, and learn how to ask questions and earn your course certificate after completing all lectures.

Company ownership equals issued shares representing total ownership; investors become owners proportional to their shares. For example, 200,000 of 1,000,000 shares equals 20 percent, with control over 50 percent required.

Explore Microsoft’s share structure and market capitalization, reveal who owns the company, how share price and outstanding shares determine value, and what benefits shareholders receive.

Shareholders receive dividends and may realize capital gains when the share price rises, and together these form the total shareholder return.

Calculate total shareholder return by adding dividend and capital gain, and express it as a percentage of the starting share price, using Microsoft 2019 as an example.

Calculate capital gains, dividends, and total shareholder return for Microsoft using fiscal-year share prices and dividend data. Learn to compute returns from year-start and year-end prices and assess Microsoft's performance.

Explain dividend yield as the dividend as a percentage of share price, compare yields across companies using year end prices, and note yields fall when prices rise despite higher dividends.

Learn to evaluate a company's true performance by analyzing earnings and profits beyond dividends and share price, recognizing that price movements or high payouts do not guarantee future shareholder wealth.

Learn how earnings equal revenues minus expenses and how earnings per share divides earnings by number of shares. Microsoft’s EPS rose to 5.85 in 2020, after a dip in 2018.

Analyze the shift from earnings per share to earnings yield to measure investment return, comparing share price and earnings, with examples showing 4.8% in 2017 and 2.88% today.

Compute the price-earnings ratio by dividing share price by earnings per share, illustrated at about 34–35 times. Link fluctuations in PE to market reputation and shareholders' confidence across fiscal years.

Explore profitability, net worth, and cash flow through financial statements, including the profit and loss statement, balance sheet, and cash flow statement, with gross, operating, and net profit.

Analyze Microsoft’s profit and loss account across years 2017–2020, covering revenue, cost of revenue, gross profit, operating profit, net income to shareholders, and horizontal analysis to compare year-over-year margins.

Perform a Microsoft Excel–driven horizontal analysis of a P&L to compute year-over-year revenue and cost growth, identify margins, and interpret net income trends.

Perform vertical analysis on Microsoft's P&L by expressing each item as a percentage of total revenue to enable apple-to-apple comparisons.

Add visualizations to P&L analysis to quickly spot exceptional items, using data bars for vertical analysis and sparklines for horizontal trends to compare revenue across years.

Explore how a balance sheet lists assets and liabilities to reveal net wealth (equity), with current and noncurrent categories and items like cash, inventory, receivables, and share capital and reserves.

Explore how to read a balance sheet using Microsoft’s four-year data, focusing on assets, liabilities, and equity, and lay groundwork for vertical analysis and asset turnover calculations.

Analyze asset turnover, ROA, and ROE by calculating sales over assets, net profit over assets, and net profit over equity, using Microsoft’s yearly trends.

Perform a balance sheet horizontal analysis in Excel, calculating year-over-year changes in cash and cash equivalents (2020 vs 2019), identify exceptional items for internal management and stakeholders.

Perform vertical analysis of a balance sheet in Excel by calculating asset percentages of total assets and liabilities plus equity, using absolute references to lock totals, and identifying major components.

Learn to enhance vertical and horizontal analysis in Excel using conditional formatting with data bars, color scales, icons, and line charts to reveal trends.

Explore profitability by analyzing how a company converts investment into revenues and revenues into profits. Compare profits to revenue and profits to investment to contextualize performance.

Compute gross, operating, and net profit margins as a percentage of sales from a P&L, and learn a quick one-step formula technique to speed up the analysis.

Compare revenues and profits to total investment using assets and shareholder funds, then compute ROA and ROE to analyze profitability across years with consistent formulas.

Calculate return on capital employed by dividing earnings before interest and tax by capital employed (equity plus long-term debt). Note roce increases over the last four years, indicating improving profitability.

Assess a company's liquidity by comparing current assets to current liabilities and evaluating how quickly assets convert to cash, then derive related ratios.

Calculate the current ratio from balance sheet data by isolating current assets and current liabilities, using Microsoft example to show a decline from 2.92 to 2.52 and compare with competitors.

Calculate the quick ratio by excluding inventory from current assets and dividing by current liabilities. Compare its declining trend to industry averages to assess liquidity.

Explore how the cash ratio sharpens liquidity analysis by using cash, cash equivalents, and short-term investments divided by current liabilities, and compare trends with prior periods and competitors.

Analyze solvency by comparing total liabilities to the business's capital, and dig into capital to assess if sufficient to pay off obligations and sustain long-term operations.

Analyze solvency by comparing total liabilities to equity on the balance sheet, compute the debt-to-equity ratio, and assess the trend for risk management.

Calculate debt to total capital ratio by dividing total debt by sum of liabilities and equity, express as a two-decimal percent, and note improved solvency as bankruptcy risk declines.

Learn how the debt to total capital ratio, also known as gearing or leverage, is used in solvency analysis with like-for-like comparisons across firms.