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Year 2 · Core Finance · Accounting & Statements

Financial Statement Analysis

Move from reading financial statements to diagnosing a business: profitability, returns, liquidity, leverage, efficiency, DuPont analysis, cash conversion, earnings quality and peer comparison.

Estimated time110–135 min
Saved progressGuest
Completion rule70% quiz
LEARNING OBJECTIVES

What you should be able to explain after this lesson

01

Analyze margins and profitability across the income statement.

02

Interpret ROA, ROE and ROIC while recognizing denominator distortions.

03

Assess liquidity, leverage and debt-servicing capacity.

04

Measure asset efficiency and working-capital discipline.

05

Use DuPont analysis to explain what is driving ROE.

06

Identify earnings-quality red flags and compare companies on a normalized basis.

CONCEPT MAPA financial-statement analysis workflow
01ProfitabilityMargins · ROA · ROE · ROIC
02Balance-sheet riskLiquidity · leverage · coverage
03EfficiencyTurnover · working capital · DuPont
04QualityCash conversion · red flags · peers
01 · PROFITABILITY & MARGINS

Margins reveal where economics improve or deteriorate

CORE FACTS · SAME IN EVERY MODE

Gross margin measures revenue remaining after cost of goods or services sold.

Operating margin captures profitability after operating expenses but before selected financing and tax items.

Net margin measures bottom-line profit relative to revenue.

Margin analysis is most useful when trends are decomposed into price, volume, mix and cost drivers.

BeginnerTeaching style changes, knowledge does not.

If revenue is $100 and COGS is $60, gross profit is $40 and gross margin is 40%. If operating expenses are $20, operating income is $20 and operating margin is 20%.

FORMULACore margins
Gross Margin = Gross Profit ÷ Revenue · Operating Margin = Operating Income ÷ Revenue · Net Margin = Net Income ÷ Revenue

Use consistently defined numerators and periods when comparing companies.

Worked example

Revenue 100, gross profit 40, operating income 20, net income 12 → gross margin 40%, operating margin 20%, net margin 12%.

PROFESSIONAL VOCABULARY
Margin expansion / expansion de marge / margin expansion

Increase in a profit margin over time.

Operating leverage / levier opérationnel / operating leverage

Sensitivity of operating profit to changes in revenue because of fixed versus variable cost structure.