Financial Statement Analysis: Ratios, Liquidity & DuPont ROE | CPA BAR & CMA

For more resources, visit https://FarhatLectures.com Learn financial statement analysis with Professor Farhat through 11 lessons on profitability, liquidity, asset utilization, market ratios, DuPont return on equity, and economic value added. Designed for accounting and finance students and CPA BAR or CMA candidates reviewing financial performance and ratio interpretation. STUDY ROADMAP • Begin with an overview of the income statement, balance sheet, and statement of cash flows. • Analyze profitability and financial leverage using ROA, return on capital, ROE, and profit margins. • Measure asset utilization: total-asset, fixed-asset, inventory, and receivables turnover, plus related days measures. • Assess short-term liquidity using the current, quick, and cash ratios. • Compare profitability measures and interpret price-to-book (P/B) and price-to-earnings (P/E) ratios. • Work through DuPont analysis: profit margin, asset turnover, leverage, and the expanded interest-burden and tax-burden components, followed by additional explanation and MCQ practice. • Apply economic value added (EVA) with company examples. • Finish with the limitations of financial statement analysis, including accounting methods, inflation, and fair-value measurement. QUICK ANSWERS What does the current ratio measure? Current assets divided by current liabilities provides one indicator of short-term liquidity. The quality and timing of the underlying assets and obligations also matter. What is the basic DuPont formula for ROE? Profit margin × asset turnover × equity multiplier. With consistent definitions, this separates profitability, asset-use efficiency, and financial leverage. Why use average assets or equity? An income statement covers a period, while a balance sheet is measured at a point in time. An appropriate average can better align the denominator with period earnings or sales; follow the convention stated in the problem. Does a higher ratio always mean better performance? No. Interpret the measure using industry context, trends, business strategy, risk, and accounting policies. How does EVA differ from a ratio? EVA is a dollar measure of operating profit after tax less a charge for invested capital. It asks whether operating returns exceed the capital cost under the specified assumptions. HOW TO STUDY Calculate the ratio, identify what drives it, and explain what additional information you need before reaching a conclusion. For DuPont questions, trace a change in ROE to margins, turnover, or leverage. Keep definitions and periods consistent across comparisons. Historical company examples illustrate methods, not a current assessment of those companies or their securities. RELATED COURSE Performance measurement — ROI, residual income and EVA: https://www.youtube.com/playlist?list=PLxP0KZzCGFYOA2_-ikRk3qXTz4-6Z8RXi The financial statement overview also supports introductory financial accounting. Use the analytical lessons alongside your current course syllabus or CPA BAR/CMA exam outline. CPA exam content: https://www.aicpa-cima.com/resources/article/learn-what-is-tested-on-the-cpa-exam CMA study resources: https://www.imanet.org/ima-certifications/cma-certification/prepare