There are no prerequisites.

Course Description

Most companies are constantly confronted with situations that require a detailed review of available options and a decision to proceed in a certain direction. These decisions can be supported by different types of analysis tools. Financial Analysis: A Business Decision Guide describes how to extract meaningful information from the financial statements of a business. The course delves into a number of analyses that can be used to improve business decisions such as price optimization, constraint management, and credit granting. In addition, the course material addresses financial leverage, capital structure, and foreign exchange risk, and contains coverage of financial forecasting, discounted cash flow analysis, and the valuation of acquisitions as well.


Steven M. Bragg, CPA

Steven M. Bragg, CPA, is a full-time book and course author who has written more than 70 business books. He provides Western CPE with self-study courses in the areas of accounting and finance, with an emphasis on the practical application of accounting standards and management techniques. A sampling of his courses include the The New Controller Guidebook, The GAAP Guidebook, Accountants’ Guidebook, and Closing the Books: An Accountant’s Guide. He also manages the Accounting Best Practices podcast.

Steven has been the CFO or controller of both public and private companies and has been a consulting manager with Ernst & Young and an auditor with Deloitte & Touche. He holds an MBA from Babson College, a Master of Finance from Bentley College, and a BA from the University of Maine (summa cum laude).

Course Specifics

Dec 5, 2017
There are no prerequisites.

Compliance Information

Qualifies for CA Fraud: No

Learning Objectives

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

Chapter 1

  • Recognize key financial analysis concepts, noting the purpose of this type of analysis, and the role of the financial analyst well as the role of judgement in analyzing decisions
  • Identify different types of financial analysis and cite situations in which the various types could be used
  • Note issues to consider when making recommendations as the result of financial analysis

Chapter 2

  • Identify the financial statements, their contents, and how they are formatted
  • Recognize the disclosures that accompany financial statements

Chapter 3

  • Cite the key accounting concepts that can alter the information presented in the financial statements

Chapter 4

  • Identify the methods used to interpret the information in the financial statements, citing applicable limitations

Chapter 5

  • Identify the components of the cost-volume-profit relationship, and how they are used
  • Determine the amount of units that must be sold to make a profit and a sales mix variance given a set of circumstances

Chapter 6

  • Identify different types of pricing strategies, noting the characteristics of each type as well as applicable advantages of the various pricing methodologies

Chapter 7

  • Identify types of cost objects
  • Cite the factors that can impact the cost of a cost object, and whether that cost is recognized

Chapter 8

  • Identify key constraint concepts and how they can be used to improve profitability

Chapter 9

  • Note the concepts under which credit is granted to customers, as well as indicators of possible future delinquency

Chapter 10

  • Identify the financing choices available to a company, noting their defining characteristics, costs, terms, and impact

Chapter 11

  • Cite the impact and risks of financial leverage on a business as well as when leverage is more likely to be used

Chapter 12

  • Recognize the components of an optimal capital structure, identifying applicable examples
  • Identify issues that impact the capital structure of a business and situations in which the capital structure should be reviewed

Chapter 13

  • Identify the measurements used by investors to track the adequacy of dividend payments, noting the applicable tax treatment, what the measurements indicate, and what events are likely to occur given a set of circumstances
  • Note the defining characteristics of stock buyback options and stock dividends

Chapter 14

  • Identify the risks and mitigating actions associated with foreign exchange

Chapter 15

  • Cite the risks and mitigating actions associated with interest rates as well as the terms of the various interest rate hedging instruments

Chapter 16

  • Identify the elements of a system of forecasting and budgeting

Chapter 17

  • Identify factors and issues that impact the rate of growth of a company

Chapter 18

  • Identify the elements the comprise cost of capital, noting how this measurement is calculated and ways in which the result can be skewed
  • Determine the cost of capital given a set of circumstances

Chapter 19

  • Cite the basis for the use of discounted cash flows, the types of annuities, and how discounted cash flows can be used

Chapter 20

  • Recognize the methods available for analyzing requests for capital projects, identifying their defining characteristics, usage, and any issues to be reviewed when examining such requests

Chapter 21

  • Note the concepts involved in the lease or buy decision process, the information to include in or exclude from the decision, and the circumstances under which different lease types would be used

Chapter 22

  • Identify the techniques used to place a value on a target company, noting the assumptions that underlie each method and situations to which each method might be applied

Chapter 23

  • Specify methods used to measure and improve shareholder value, citing potential downsides to each method and situations in which certain methods are more applicable

Table of Contents

Chapter 1 – Overview of Financial Analysis

Learning Objectives


The Purpose of Financial Analysis

Key Financial Analysis Concepts

Judgment in Financial Analysis

Precision of Financial Analysis

Death by a Thousand Cuts

Monitoring Analysis

Role of the Financial Analyst

A Conservative Bias


Chapter 1 Review Questions

Chapter 2 – The Financial Statements

Learning Objectives


The Income Statement

Income Statement Overview

The Single-Step Income Statement

The Multi-Step Income Statement

The Contribution Margin Income Statement

The Multi-Period Income Statement

The Balance Sheet

Overview of the Balance Sheet

The Common Size Balance Sheet

The Comparative Balance Sheet

The Statement of Cash Flows

Overview of the Statement of Cash Flows

The Direct Method

The Indirect Method

The Statement of Retained Earnings

Overview of the Statement of Retained Earnings

Financial Statement Disclosures


Chapter 2 Review Questions

Chapter 3 – Accounting Issues Impacting the Financials

Learning Objectives


The Basis of Accounting

Accrual Basis of Accounting

Cash Basis of Accounting

Modified Cash Basis of Accounting

Effect of the Fiscal Year

Recordation of Revenue at Gross or Net

Bill and Hold Revenue

Negative Cash

Inventory Costing Methods

Depreciation Methods

Current Value Accounting

Financial Statement Reporting Issues

Headline Earnings

Pro Forma Earnings

Window Dressing

Auditor Certification


Chapter 3 Review Questions

Chapter 4 – Interpretation of Financial Statements

Learning Objectives


Interpretation of Financial Statements

Horizontal Analysis

Vertical Analysis

Cash Coverage Ratio

Current Ratio

Quick Ratio

Liquidity Index

Accounts Payable Turnover Ratio

Accounts Receivable Turnover Ratio

Inventory Turnover Ratio

Fixed Asset Turnover Ratio

Sales to Working Capital Ratio

Debt to Equity Ratio

Fixed Charge Coverage

Breakeven Point

Gross Profit Ratio

Net Profit Ratio

Return on Net Assets



Limitations of Ratio Analysis


Chapter 4 Review Questions

Chapter 5 – Cost-Volume-Profit Analysis

Learning Objectives


Contribution Margin

Breakeven Point

Margin of Safety

Cost-Volume-Profit Analysis

Sales Mix


Chapter 5 Review Questions

Chapter 6 – Pricing Decisions

Learning Objectives


Psychological Pricing

Cost-Plus Pricing

Dynamic Pricing

Freemium Pricing

High-Low Pricing

Premium Pricing

Time and Materials Pricing

Value-Based Pricing

Other Pricing Strategies

When to Review Pricing

Price Elasticity of Demand

Cross Price Elasticity of Demand

Non-Price Determinants of Demand


Chapter 6 Review Questions

Chapter 7 – Cost Object Analysis

Learning Objectives


Factors in Cost Object Analysis

The Assignability of Costs

The Customer Cost Object

Customer Acquisition Costs

Customer Lifetime Value

The Employee Cost Object

The Product Cost Object

The Product Line Cost Object

The Sales Channel Cost Object

Cost Object Termination Issues

Which Cost Objects to Track


Chapter 7 Review Questions

Chapter 8 – Constraint Analysis

Learning Objectives


Constraint Analysis Operational Terminology

Overview of Constraint Analysis

The Cost of the Bottleneck

Local Optimization

Constraint Analysis Financial Terminology

Constraint Analysis from a Financial Perspective

The Constraint Analysis Model

The Decision to Sell at a Lower Price

The Decision to Outsource Production

The Capital Investment Decision

The Decision to Cancel a Product


Chapter 8 Review Questions

Chapter 9 – Credit Decisions

Learning Objectives


The Credit Rating

Internal Credit Rating Systems

Third-Party Credit Ratings

Evaluating Credit Scores

Use of Credit Ratings

Credit Rating Errors

Indicators of Future Payment Delinquency

Ongoing Credit Monitoring Actions

Requests for Credit Increases

The Riskiest Customers

The Demanding Customer

Effects of Industry Credit Practices


Chapter 9 Review Questions

Chapter 10 – Financing Choices

Learning Objectives


Overview of Debt Funding

The Line of Credit

The Borrowing Base

Early Payment Discounting

Invoice Discounting


Inventory Financing

Purchase Order Financing


The Long-Term Loan


Agency Financing


Overview of Equity Funding

Restricted Stock

Unrestricted Stock


Angel Investors and Venture Capital

Private Investment in Public Equity

Debt for Equity Swaps


Chapter 10 Review Questions

Chapter 11 – Financial Leverage

Learning Objectives


The Financial Leverage Concept

Issues Impacting Leverage

Leverage Risk

Impact of Compensation on Leverage


Chapter 11 Review Questions

Chapter 12 – Capital Structure Analysis

Learning Objectives


Optimal Capital Structure

Capital Structure Analysis

Line of Credit Issues

Tax Shield Effects

Future Financing Flexibility

Loan Covenant Issues

Maturity Structure of Debt

Creditor Position Considerations

Debt Paydown

Cost of Capital Reduction

Planning for a Bond Rating

Capital Structure Measurements

Interest Coverage Ratio

Debt Service Coverage Ratio

Timing of Changes to the Capital Structure


Chapter 12 Review Questions

Chapter 13 – Dividend Analysis

Learning Objectives


The Investor Viewpoint

The Company Viewpoint

The Stock Buyback Option

The Stock Dividend


Chapter 13 Review Questions

Chapter 14 – Foreign Exchange Risk Analysis

Learning Objectives


Foreign Exchange Risk Overview

Foreign Exchange Risk Management

Take No Action

Avoid Risk

Shift Risk

Time Compression

Payment Leading and Lagging

Build Reserves

Maintain Local Reserves



Types of Foreign Exchange Hedges

Loan Denominated in a Foreign Currency

The Forward Contract

The Futures Contract

The Currency Option

The Cylinder Option




Chapter 14 Review Questions

Chapter 15 – Interest Rate Risk Analysis

Learning Objectives


Interest Risk Overview

Interest Rate Risk Management

Take No Action

Avoid Risk

Asset and Liability Matching


Types of Interest Rate Hedges

The Forward Rate Agreement

The Futures Contract

The Interest Rate Swap

Interest Rate Options

Interest Rate Swaptions


Chapter 15 Review Questions

Chapter 16 – Financial Forecasting

Learning Objectives


The Differences between a Budget and a Forecast

The Run Rate Concept

Revenue Forecasting

The System of Budgets

The Number of Budget Scenarios

The Rolling Forecast

The Cash Forecast

The Short-Term Cash Forecast

The Medium-Term Cash Forecast

The Long-Term Cash Forecast

The Use of Averages

The Use of Clearing Dates in a Forecast


Chapter 16 Review Questions

Chapter 17 – Managing the Rate of Growth

Learning Objectives


The Funding of Growth

Contribution Margins and Sustainable Growth

Step Costs and Sales Growth

Other Constraints on Growth

Negative Effects of Excessive Growth

The Ideal Rate of Growth


Chapter 17 Review Questions

Chapter 18 – The Cost of Capital

Learning Objectives


Cost of Capital Derivation

Cost of Debt

Cost of Preferred Stock

Cost of Common Stock

Weighted Average Cost of Capital

Variations in the Cost of Capital

Adjustments to the Cost of Capital

Cost of Capital as a Threshold Value


Chapter 18 Review Questions

Chapter 19 – Discounted Cash Flow Techniques

Learning Objectives


Time Value of Money

Present and Future Value Tables

Net Present Value

Internal Rate of Return

Incremental Internal Rate of Return

Terminal Value

Inclusions in Cash Flow Analysis


Chapter 19 Review Questions

Chapter 20 – Capital Budgeting

Learning Objectives


Overview of Capital Budgeting

The Capital Request Form

The Payback Method

Real Options

Capital Budget Proposal Analysis

Complex Systems Analysis

Research and Development Funding Analysis

The Outsourcing Decision

The Post-Installation Review


Chapter 20 Review Questions

Chapter 21 – The Lease or Buy Decision

Learning Objectives


The Lease Arrangement

The Lease or Buy Decision

Leasing Concerns

Leasing Advantages


Chapter 21 Review Questions

Chapter 22 – Acquisition Valuation

Learning Objectives


Liquidation Value

Real Estate Value

Relief-from-Royalty Method

Book Value

Enterprise Value

Multiples Analysis

Discounted Cash Flows

Post Five-Year Cash Flows

Negotiation of DCF Contents

Replication Value

Comparison Analysis

The Comparison of Sales Multiples

The Comparison of Cash Flows

The Comparison of Contract Revenues

52-Week High

Influencer Price Point

The Initial Public Offering Valuation

The Strategic Purchase

Extraneous Valuation Factors

The Control Premium

The Earn-out

Synergy Analysis

The Valuation Floor and Ceiling


Chapter 22 Review Questions

Chapter 23 – The Enhancement of Shareholder Value

Learning Objectives


Return on Equity

Economic Value Added

Cash Flow Analysis

Key Success Factors

Stock Price Enhancement

Long-Term and Short-Term Value Considerations

The Industry Setting


Chapter 23 Review Questions

Chapter 1 Review Question Answers and Rationales

Chapter 2 Review Question Answers and Rationales

Chapter 3 Review Question Answers and Rationales

Chapter 4 Review Question Answers and Rationales

Chapter 5 Review Question Answers and Rationales

Chapter 6 Review Question Answers and Rationales

Chapter 7 Review Question Answers and Rationales

Chapter 8 Review Question Answers and Rationales

Chapter 9 Review Question Answers and Rationales

Chapter 10 Review Question Answers and Rationales

Chapter 11 Review Question Answers and Rationales

Chapter 12 Review Question Answers and Rationales

Chapter 13 Review Question Answers and Rationales

Chapter 14 Review Question Answers and Rationales

Chapter 15 Review Question Answers and Rationales

Chapter 16 Review Question Answers and Rationales

Chapter 17 Review Question Answers and Rationales

Chapter 18 Review Question Answers and Rationales

Chapter 19 Review Question Answers and Rationales

Chapter 20 Review Question Answers and Rationales

Chapter 21 Review Question Answers and Rationales

Chapter 22 Review Question Answers and Rationales

Chapter 23 Review Question Answers and Rationales



Final Examination

Answer Sheet

Course Evaluation


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