Learn How To Read Financial Statements

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

Last updated 2022-01-10 | 4.5

- Explain how the balance sheet
- income statement
- and statement of cash flows are used
- what they 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/double entry accounting

What you'll learn

Explain how the balance sheet

income statement

and statement of cash flows are used

what they 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/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 the give and take of a transaction and how to record both sides of the transaction separately with the six stakeholders

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 and noncurrent assets

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: 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

For the return on equity ratio

drill down into its 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 ratios from the 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

Description

Explain how the balance sheet, income statement, and statement of cash flows are used, what they 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/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 the give and take of a transaction and how to record both sides of the transaction separately with the six stakeholders
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 and noncurrent assets, 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: 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
For the return on equity ratio, drill down into its 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 ratios from the 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

Course content

7 sections • 51 lectures

Read Basic Financial Statements 7 lectures

Welcome to the class. Introduction Preview 06:15

Welcome to the class and see what we will cover and why. Also, get introduced to your instructor.

What Are Financial Statements Preview 05:01

In this module you will be able to

Explain how three financial statements (balance sheet, income statement, and statement of cash flows) are used,
Explain what the three financial statements measure
Explain why we need three statements.
Differentiate between income and cash flow.

What are Financial Statements

Test your knowledge by answering multiple choice questions about the What Are Financial Statements? lecture.

The Balance Sheet Equation Preview 03:49

In this module you will be able to

Explain what is the balance sheet equation
Explain why the balance sheet equation is the foundational model for accrual accounting (also called double entry accounting)
Define what are assets, liabilities, and equity
Explain how assets, liabilities, and equity relate.

The Balance Sheet Equation

Test your knowledge by answering multiple choice questions about the The Balance Sheet Equation lecture.

How Do Financial Statements Relate? Preview 04:10

In this module, you will be able to

Explain how the statement of cash flows and income statement link into the balance sheet
Explain how accounts work like buckets.

How Do Financial Statements Relate?

Test your knowledge by answering multiple choice questions about the How Do Financial Statements Relate? lecture.

Quick Look: Read Financial Statements of Whole Foods 6 lectures

Whole Foods Balance Sheet Preview 03:55

In this module you will be able to

Locate Whole Foods’ annual report at their website
Locate Whole Foods’ their balance sheet within the annual report.
Relate some interesting details about the company and its founder
Explain the important line items for assets, liabilities and equity on a balance sheet.

Whole Foods Balance Sheet

Test your knowledge by answering multiple choice questions about the Whole Foods Balance Sheet lecture.

Whole Foods Statement of Operations Preview 03:49

In this module you will be able to

Locate Whole Foods’ statement of operations (income statement) in its annual report
Explain what are the important elements of revenues and expenses for a statement of operations
Explain what is earnings per share
Explain how the statement of operations relates to retained earnings on the balance sheet.

Whole Foods Statement of Operations

Test your knowledge by answering multiple choice questions about the Whole Foods Statement of Operations lecture.

Whole Foods Statement of Cash Flows Preview 05:13

In this module you will be able to

Locate Whole Foods’ statement of cash flows in its annual report
Explain what are the important elements of operating, investing, and financing activities on a statement of cash flows
Explain how the statement of cash flows relates to cash on the balance sheet.

Whole Foods Statement of Cash Flows

Test your knowledge by answering multiple choice questions about the Whole Foods Statement of Cash Flows lecture.

Where the numbers come from: Accrual Accounting Basics 6 lectures

Accrual Accounting Basics Preview 05:41

In this module, you will be able to

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
Explain how accounting records the give and take for transactions with the six stakeholders
Explain which side of the give and take appears on the income statement and on the statement of cash flows.

Accrual Accounting Basics

Test your knowledge by answering multiple choice questions about the Accrual Accounting Basics lecture.

Can't Measure Profit With Cash Preview 03:50

In this module, you will be able to

Explain why you can’t measure profit with cash
Explain why you need to use accrual accounting (double-entry accounting), not cash accounting.

Can’t Measure Profit with Cash

Test your knowledge by answering multiple choice questions about the Can’t Measure Profit with Cash lecture.

How Accrual Accounting Measures Both Cash and Profit Preview 05:57

In this module you will be able to

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 how each side of a transaction with a stakeholder can be recorded separately from the other

How Accrual Accounting Measures Both Cash and Profits

Test your knowledge by answering multiple choice questions about the How Accrual Accounting Measures Both Cash and Profits Cash lecture

Deep Dive: Read Financial Statements of Sherwin Williams 6 lectures

Sherwin Williams Balance Sheet Preview 08:46

In this module, you will be able to

Locate Sherwin Williams’ annual report from its website
Locate the balance sheet in the annual report
Relate some important details about the company’s business
Explain what each line item of the balance sheet means
Distinguish between current assets, non-current assets, current liabilities, non-current liabilities, and shareholders’ equity.

Sherwin Williams’ Balance Sheet

Test your knowledge by answering multiple choice questions about the Sherwin Williams Financial Statements: Balance Sheet lecture.

Sherwin Williams Statement of Operations Preview 04:14

In this module, you will be able to

Locate Sherwin Williams’ income statement from its annual report
Explain what each line item of the income statement means, including revenues, expenses, and earnings per share.

Sherwin Williams' Income Statement

Test your knowledge by answering multiple choice questions about the Sherwin Williams Financial Statements: Income Statement lecture.

Sherwin Williams Statement of Cash Flows Preview 06:31

In this module you will be able to

Locate the statement of cash flows for Sherwin Williams from its annual report
Explain each important line item for the three sections of the statement: 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)

Sherwin Williams Statement of Cash Flows

Test your knowledge by answering multiple choice questions about the Sherwin Williams Financial Statements: Statement of Cash Flows lecture.

Test What you have learned: Facebook Case Study 2 lectures

Case Study: Facebook Preview 01:29

In this module you will be able

Test the knowledge you have acquired so far by completing 28 multiple-choice questions about the 2013 Facebook annual report presented in quiz format.

Facebook Case

Test your knowledge by answering multiple choice questions about the Case Study: Facebook.

What the Financial Statements Tell You Through Ratios 12 lectures

Introduction to Key Ratios Preview 07:32

In this module you will be able to

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.

Introduction to Key Ratios

Test your knowledge by answering multiple choice questions about the Introduction to Key Ratios lecture.

Compute Sherwin Williams' Return on Equity Preview 05:49

In this module you will be able to

Compute return on equity ratio from Sherwin Williams’ financial statements
Explain how to drill down into three component ratios (profit margin, asset turnover, and financial leverage) to pinpoint problem areas.

Compute Sherwin Williams’ Return on Equity

Test your knowledge by answering multiple choice questions about the Compute Sherwin Williams Return on Equity lecture.

Compute Sherwin Williams' Profit Margin Preview 06:05

In this module you will be able to

Compute the profit margin for Sherwin Williams from its financial statements
Drill down and compute the gross profit percentage and expense percentage from its financial statements.
Locate management’s explanation for year-to-year changes from the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the annual report.

Compute Sherwin Williams’ Profit Margin

Test your knowledge by answering multiple choice questions about the Compute Sherwin Williams Profit Margin lecture.

Compute Sherwin Williams' Asset Turnover Preview 03:45

In this module you will be able to

Compute the asset turnover for Sherwin Williams.
Locate management’s explanation for year-to-year changes from the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the annual report.

Compute Sherwin Williams' Asset Turnover

Test your knowledge by answering multiple choice questions about the Compute Sherwin Williams Asset Turnover lecture.

Compute Sherwin Williams' Financial Leverage Preview 03:40

In this module you will be able to

Compute the financial leverage for Sherwin Williams
Locate management’s explanation for year-to-year changes from the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the annual report.
Summarize the key reasons for return on equity variations for Sherwin Williams from year-to-year

Compute Sherwin Williams’ Financial Leverage

Test your knowledge by answering multiple choice questions about the Compute Sherwin Williams Financial Leverage lecture.

Compare Key Ratios Among Companies Preview 07:28

In this module you will be able to

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

Compare Key Ratios Among Companies

Test your knowledge by answering multiple choice questions about the Compare Key Ratios among Companies lecture.

Section 7 Update of Financial Statements and Ratios from 2013 to 2019 12 lectures

Introduction to New Update Module Preview 02:06

This lecture introduces the five topics of this update module that reviews the financial statements, ratios, and stock prices of Sherwin-Williams, Facebook, and Wholefoods. Please download the eBook that covers the material in the five lectures of this update module and follow along.

Update Sherwin-Williams Financial Statements 2013 to 2019 Preview 06:46

This lecture will point out notable changes in the income statement, balance sheet, and statement of cash flows for Sherwin-Williams between 2013 and 2019 and will analyze the company’s ratios.

Quiz for Update Sherwin-Williams Financial Statements 2013 to 2019

Test your knowledge and recall with these four multiple choice questions

Update Facebook Financial Statements 2013 to 2019 Preview 07:52

This lecture will point out notable changes in the income statement, balance sheet, and statement of cash flows for Facebook between 2013 and 2019 and will analyze the company’s ratios.

Quiz for Update Facebook Financial Statements 2013 to 2019

Test your knowledge and recall for Update Facebook Financial Statements 2013 to 2019

Update Whole Foods Financial Statements 2013 to 2017 Preview 05:14

This lecture will point out notable changes in the income statement, balance sheet, and statement of cash flows for Whole Foods between 2013 and 2017 and will analyze the company’s ratios.

Quiz for Update Whole Foods Financial Statements 2013 to 2017

Take this four-question multiple-choice quiz to test your comprehension and recall

Ratio Comparison of Three Companies 2013 to 2019 Preview 08:00

This lecture will compare the ROE for the three companies and the components of ROE: Profit margin, asset turnover, and financial leverage to determine how well they performed.