There are no prerequisites.

Course Description

Deconstructing the Financial Statement is a primer for financial statement analysis. The course is designed specifically for professionals who must understand how to read, interpret, and analyze financial statements. The course describes in clear, concise, and understandable language the intricacies of financial statements, and their use by investors, creditors, analysts, and auditors. This course can enhance your chance for success in business and investing by enabling you to profit from the knowledge, insights, and perceptions of professionals who use financial statement analysis tools on a day-to-day basis. Realistic examples and illustrations of financial statement analysis are widely used in this course to make the subject matter crystal clear.


Delta Publishing

For many years, Delta Publishing has offered a wide variety of continuing education courses for financial professionals. Topics covered by Delta’s courses include accounting, financial management, budgeting, investments, financial statement reporting, business management, IFRS, ethics, valuations, real estate, and business writing. The diversity and breadth of Delta’s course offerings make the company a prolific and unique contributor to the CPE world. Delta’s well-credentialed authors and contributors have also been published in numerous academic and professional journals and quoted by some of the leading financial media outlets.

Course Specifics

Jan 26, 2018
There are no prerequisites.

Compliance Information

Qualifies for CA Fraud: No

Learning Objectives

Upon successful completion of this course, participants will be able to:

Chapter 1

  • Cite some real-life scenarios and understand why financial statement analysis is necessary to solve some puzzles presented by these scenarios
  • Describe the focus of financial statement analysis
  • Outline the information needs of investors and creditors
  • State the objectives of financial reporting
  • Identify the qualitative characteristics of accounting information

Chapter 2

  • Describe the basic assumptions of accounting
  • Explain the application of the basic principles of accounting
  • Explain the meaning of generally accepted accounting principles
  • Differentiate the cash basis of accounting from the accrual basis of accounting
  • Describe the impact that constraints have on reporting accounting information

Chapter 3

  • Interpret the basic financial statements: the balance sheet, income statement, and statement of cash flows
  • Explain how the balance sheet portrays a company's financial position
  • Describe how the income statement reveals the entity's operating performance
  • Determine and assess a company's cash inflows and cash outflows
  • State the many types of accounts that may exist in the accounting system
  • Outline the usefulness of the statement of cash flows
  • Explain what the annual report is and understand its components, including the financial statements, footnotes, review of operations, auditor's report, and supplementary schedules
  • Discuss management's discussion and analysis (MD&A)
  • Summarize how the Sarbanes-Oxley 404 reporting differs from traditional reporting

Chapter 4

  • Explain what financial statement analysis is and why it is important
  • Compare horizontal analysis and vertical analysis
  • List the basic components of ratio analysis
  • Distinguish between trend analysis, industry comparison, and benchmarking
  • Calculate a comprehensive set of financial ratios and interpret them
  • Explain the limitations of ratio analysis

Chapter 5

  • Define working capital
  • Compute and interpret liquidity ratios
  • Compute and interpret activity ratios
  • Define operating cycle and cash conversion cycle
  • Define liquidity and activity and explain how they relate to each other
  • Describe the LIFO reserve and explain its importance for comparing results of different companies

Chapter 6

  • Define solvency
  • List capital structure ratios and explain what they measure
  • Measure operating leverage and financial leverage and distinguish between them

Chapter 7

  • List and explain various ratios related to profitability
  • Explain what ROI or ROA is
  • Identify the basic components of the Du Pont formula and to explain how it can be used for profit improvement
  • Interpret and compute ROE how it relates to ROI
  • Describe how financial leverage affects the stockholders' return

Chapter 8

  • Differentiate between two different capital structures - simple and complex
  • Compute earnings per share in a simple capital structure
  • Compute earnings per share in a complex capital structure
  • List market test ratios and calculate them
  • Form an overall evaluation on a company's financial performance
  • Summarize the limitations of ratio analysis

Chapter 9

  • Describe the purpose of the statement of cash flows
  • Identify the major classifications of cash flows
  • Prepare and analyze the statement of cash flows
  • Differentiate between net income and net cash flows from operating activities
  • Distinguish between cash flow coverage (or adequacy) ratios and cash flow performance measures
  • Analyze and interpret two major categories of cash flow ratios

Chapter 10

  • Describe the accounting problems associated with interim reporting
  • Outline the disclosure requirements for major segments of a business

Table of Contents

Chapter 1 – Objectives of Financial Statement Analysis and Financial Reporting

Learning Objectives

Focus of Financial Statement Analysis

Assessment of Past Performance and Current Position

Assessment of Future Potential and Related Risk

Investor’s Needs

Objectives of Financial Reporting

Qualitative Characteristics of Accounting Information


Chapter 1 Review Questions

Chapter 2 – Accounting Assumptions, Principles, Procedures, and Policies

Learning Objectives

Accounting Assumptions

Accounting Principles

Accounting Procedures and Policies

Other Accounting Considerations


Chapter 2 Review Questions

Chapter 3 – Understanding Financial Statements

Learning Objectives

What and Why of Financial Statements

Consolidated Financial Statements

The Balance Sheet

Measurements Used in Financial Statements


Current Assets

Exhibit 3-3

Long-Term Investments

Property, Plant, and Equipment

Intangible Assets

Other Assets


Current Liabilities

Contingent Liabilities


Long-Term Debt

Stockholders’ Equity

Paid-In or Contributed Capital

Retained Earnings

Treasury Stock

Off-Balance-Sheet Items

Balance Sheet Limitations

The Income Statement


Revenues and Expenses

Discontinued Operations

Changes in Accounting Principles

Implications for Analysts

Retained Earnings Statement

Statement of Cash Flows

Contents of the Statement of Cash Flows

Other Sections of the Annual Report


Review of Operations

History of Market Price

The Auditors’ Report

Unqualified Opinion

Notes to the Financial Statements (Footnotes)

Management's Discussion and Analysis (MD&A)

The Sarbanes-Oxley Act

How Will the New Reporting Model Differ from Historical Reporting?

What Will Management's Report Include?

Top Management’s Certification of Financial Statements

Key Points of Auditing Standard No. 5


Chapter 3 Review Questions

Chapter 4 – An Overview of Financial Statement Analysis

Learning Objectives

Basic Considerations

Major Tools of Analysis

Sources of Information

Comparative Financial Statements

Trend Analysis

Horizontal Analysis

Vertical Analysis

Common-Size Statements

Ratio Analysis

Mathematical Cautions

Implications for Analysis

Cash Flow Analysis

Specialized Analytical Tools


Chapter 4 Review Questions

Chapter 5 – Analysis of Liquidity and Activity

Learning Objectives

Liquidity Ratios

Net Working Capital

Current Ratio

Quick (Acid-Test) Ratio

Other Liquidity Ratios

Activity Ratios

Accounts Receivable Ratios

Bad-Debts Ratios

Inventory Ratios

Account Payable Ratios

Operating Cycle of a Business

Cash Conversion Cycle

Asset Turnover


Interrelationship of Liquidity and Activity to Earnings

Other Considerations


Chapter 5 Review Questions

Chapter 6 – Analysis of Solvency and Capital Structure

Learning Objectives

Solvency (Leverage and Debt Service)

Capital Structure Ratios

Shareholders’ Equity to Total Assets

Number of Times Interest Earned

Cash Coverage Ratio

Free Cash Flow


Cash Flow Ratios and Solvency


Chapter 6 Review Questions

Chapter 7 – Profitability Analysis

Learning Objectives

Quality of Earnings

Return on Investment

Return on Total Assets

Return on Stockholders’ Equity

Comprehensive Return on Investment—Du Pont Formula

Du Pont Formula II


Chapter 7 Review Questions

Chapter 8 – Market Strength and Overall Evaluation

Learning Objectives

Earnings per Share

Market Test Ratios

Other Considerations

An Overall Evaluation – Summary of Financial Ratios

Is Ratio Analysis a Panacea?


Chapter 8 Review Questions

Chapter 9 – Analysis of Cash Flows

Learning Objectives

Preparing and Analyzing the Statement of Cash Flows

Trend Analysis and Industry Comparison

Cash Flow Coverage (Adequacy) Ratios

Price/Cash Flow Ratio


Chapter 9 Review Questions

Chapter 10 – Interim Statements and Segment Analysis

Learning Objectives

Interim Financial Report

Segment Reporting

Segment Disclosures

Two-Year Quarterly Data


Chapter 10 Review Questions

Review Question Answers and Rationales



Qualified Assessment

Answer Sheet

Course Evaluation

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