Project Archive: Introduction to Financial Analysis

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Introduction to Financial Analysis

Subject: Finance

Book Language: English

Audience: Undergraduate students

Created date: May 15, 2020

Updated date: June 1, 2022

Target Release Date: 2021-08-31


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Analyzing Financial Statements

The accountant produces two basic financial statements: the Balance Sheet and the Income Statement, which, to readers of the statements, are fraught with interpretive pitfalls. These difficulties are due to the fact that the accountant, in his reporting, must abide by “generally accepted accounting principles,” which are often arbitrarily conceived, subjectively selected among a plethora of choices, and

constituted by a body of

rules that is internally inconsistent. The student, manager, and investor must identify these strange idiosyncrasies in order to understand the true goings-on within the company. This text explains, in the most friendly and simple manner, how the statements are assembled and what obstacles one should look out for. The text also takes one through twenty essential financial ratios so that both business and financial issues can be investigated further still. Last, elementary forecasting is covered. In the end, the student and practitioner will acquire both a certain healthy skepticism with regard to the accountant’s end-product and a platform upon which to paint a true picture of the corporation. No prior knowledge of Accounting is assumed. Ample practice problems and solutions are provided.

The Time Value of Money

They say that “a bird in the hand is worth two in the bush.” Similarly, a dollar to be paid in a year is not worth the same as a dollar presently in one’s hand. What would you rather have? How much would the difference in values be? All financial transactions depend on the notion of interest, both discounted and compounded. Accordingly, we speak of “Present-” and “Future-Values.” This text will take the student, manager, or investor through the entire variety of Time Value problems using the most basic arithmetic. In the end, the student will be able not only to calculate Time Value problems, but to interpret complex problems as well so that s/he may make educated and informed decisions regarding money. No prior knowledge of Finance is assumed. Practice problems and solutions are provided.

Short Description:

An introductory text to the principles of finance for first year business and economic students


Part One: Financial Statements Analysis


Financial Statements Analysis: The Balance Sheet

Financial Statements Analysis: The Income Statement

Financial Statements and Finance

Part Two: Ratio Analysis and Forecasting Modelling

Financial Ratios and Forecasting; Liquidity and Solvency Ratios

Financial Ratios: Profitability, Return Ratios, and Turnover

Financial Ratios: Market Ratios

Corporate Financial Projections: Accounting Income, Cash Flow and Depreciation

Corporate Forecasting Models

Part Three: The Time Value of Money

The Time Value of Money: Simple Future-and Present-Values

The Time Value of Money: Annuities, Perpetuities, and Mortgages

Part Four: Interest Rates, Valuation, and Return

Interest Rates

Fixed Income Valuation

Equity Valuation and Return


Partial Glossary of Terms