How to Read Financial Statements: Build Financial Literacy.

Couple managing the debt

Read financial statements and speak the language of business without the drudgery of a traditional accounting course

What you’ll learn

  • Explain how three financial statements (balance sheet, income statement, and statement of cash flows) are used, what the three financial statements measure, and why we need three statements.
  • Differentiate between income and cash flow
  • Explain what is the balance sheet equation and why the balance sheet equation is the foundational model for accrual accounting (also called double entry accounting)
  • Define what are assets, liabilities, and equity and how assets, liabilities, and equity relate
  • Explain how the statement of cash flows and income statement link into the balance sheet
  • Explain how accounts work like buckets
  • Locate a real company’s annual report at their website and locate their financial statements within the annual report
  • Explain who are the six most important stakeholders of a corporation (employees, customers, government, vendors, lenders, investors)
  • Explain what are the give and take of a transaction, how accounting records the give and take for transactions with the six stakeholders, and how each side of a transaction with a stakeholder can be recorded separately from the other
  • Explain which side of the give and take appears on the income statement and on the statement of cash flows
  • Explain why you can’t measure profit with cash and why you need to use accrual accounting (double-entry accounting), not cash accounting
  • Illustrate how accrual accounting can both record cash and profits using a spreadsheet
  • Explain the basis for bookkeeping and basic accounting without learning bookkeeping
  • Explain what each line item of the balance sheet means and distinguish between current assets, non-current assets, current liabilities, non-current liabilities, and shareholders’ equity
  • Explain what each line item of the income statement means, including revenues, expenses, and earnings per share
  • Explain each important line item for the three sections of the statement of cash flows means: operating activities, investing activities, and financing activities
  • Explain how the format of the operating activities section differs from the other two activities (investing and financing)
  • Test your knowledge by completing 28 multiple-choice questions about the 2013 Facebook annual report
  • Explain four areas that can go wrong in a business (sales pricing, expense control, asset management, and asset financing)
  • Explain how four ratios (return on equity, profit margin, asset turnover, and financial leverage) can detect problems within the four potential problem areas
  • Compute return on equity, profit margin, asset turnover, and financial leverage ratios from real company’s financial statements
  • Start with the return on equity ratio and drill down into three component ratios (profit margin, asset turnover, and financial leverage) to pinpoint problem areas
  • Start with the profit margin ratio and drill down to compute the gross profit percentage and expense percentage from a real company’s financial statements
  • Locate management’s explanation for year-to-year changes in profit margin, asset turnover, and financial leverage from the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of a real company’s annual report
  • Summarize the key reasons for return on equity variations for a real company from year-to-year
  • Explain how four industries (distribution, manufacturing, service, and financial services differ in the way they make money
  • Explain how the profit margin, asset turnover, and financial leverage ratios can reveal the key differences in the way that four industries make money

Requirements

  • There are no prerequisites for the course. You do not need to know anything about accounting or finance

This course includes:

  • 1.5 hours on-demand video
  • 30 downloadable resources
  • Full lifetime access
  • Access on mobile and TV
  • Certificate of completion

Get it here

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