Financial Statement Analysis Cheat Sheet
BASICS OF ANALYSIS
Liquidity and efficiency: Ability to meet short-term obligations and efficiently generate revenues.
Solvency: Ability to meet long-term obligations and generate future revenues.
Profitability: Ability to provide financial rewards to attract and retain financing.
Market prospects: Ability to generate positive market expectations.
General-purpose financial statements: Include the (1) income statement, (2) balance sheet, (3) statement of stockholders’ equity (or statement of retained earnings), (4) statement of cash flows, and (5) notes to these statements.
HORIZONTAL ANALYSIS
Comparative financial statements: Show financial amounts in side-by-side columns on a single statement.
Analysis period: The financial statements under analysis.
Base period: The financial statements used for comparison. The prior year is commonly used as a base period.
Dollar change formula:
Dollar change=Analysis period amount−Base period amount
Percent change formula:
Percent change (%)=Analysis period amount − Base period amountBase period amount×100
Apple comparative balance sheet: The prior year is the base period and current year is the analysis period.
$ millions Current Yr Prior Yr Dollar Change Percent Change
Assets
Cash and cash equivalents $48,844 $25,913 $22,931 88.5%
Short-term marketable securities 51,713 40,388 11,325 28.0%
Accounts receivable, net 22,926 23,186 (260) (1.1)%
Trend analysis: Computing trend percents that show patterns in data across periods.
Trend percent (%)=Analysis period amountBase period amount×100
Apple trend analysis: 4 years ago is the base period, and each subsequent year is the analysis period.
In trend percent Current Yr 1 Yr Ago 2 Yrs Ago 3 Yrs Ago 4 Yrs Ago
Net sales 111.3% 113.6% 98.1% 92.3% 100.0%
Cost of sales 115.5% 116.9% 100.7% 93.8% 100.0%
Operating expenses 153.9% 138.2% 119.9% 108.2% 100.0%
VERTICAL ANALYSIS
Common-size financial statements: Show changes in the relative importance of each financial statement item. All individual amounts in common-size statements are shown in common-size percents.
Common-size percent formula:
Common-size percent (%)=Analysis amountBase amount×100
Base amount: Comparative balance sheets use total assets, and comparative income statements use net sales.
Apple common-size balance sheet:
Common-Size Percents
$ millions Current Yr Prior Yr Current Yr Prior Yr
Long-term marketable securities 105,341 170,799 31.1% 46.7%
Property, plant and equipment, net 37,378 41,304 11.0% 11.3%
Other noncurrent assets 32,978 22,283 9.7% 6.1%
Total assets $338,516 $365,725 100.0% 100.0%
Apple common-size income statement:
Common-Size Percents
$ millions Current Yr Prior Yr Current Yr Prior Yr
Net sales $260,174 $265,595 100.0% 100.0%
Cost of sales 161,782 163,756 62.2% 61.7%
Gross margin $ 98,392 $101,839 37.8% 38.3%
RATIO ANALYSIS AND REPORTING
Ratio Formula
Liquidity and Efficiency
Current ratio =Current assetsCurrent liabilities
Acid-test ratio
=Cash + Short-term investments + Current receivablesCurrent liabilities
Accounts receivable turnover =Net salesAverage accounts receivable, net
Inventory turnover =Cost of goods soldAverage inventory
Days’ sales uncollected =Accounts receivable, netNet sales×365
Days’ sales in inventory =Ending inventoryCost of goods sold×365
Total asset turnover =Net salesAverage total assets
Solvency
Debt ratio =Total liabilitiesTotal assets
Equity ratio =Total equityTotal assets
Debt-to-equity ratio =Total liabilitiesTotal equity
Times interest earned =Income before interest expense and income tax expenseInterest expense
Profitability
Profit margin ratio =Net incomeNet sales
Gross margin ratio =Net sales − Cost of goods soldNet sales
Return on total assets =Net incomeAverage total assets
Return on equity =Net incomeAverage total equity
Basic earnings per share =Net income − Preferred dividendsWeighted-average common shares outstanding
Market Prospects
Price-earnings ratio =Market price per common shareEarnings per share
Dividend yield =Annual cash dividends per shareMarket price per share