2025 CFA© Program Curriculum Level I Volume 4 - FINANCIAL STATEMENT ANALYSIS

✍ Scribed by CFA Institute

• Publisher: CFA Institute
• Year: 2025
• Tongue: English
• Leaves: 523
• Edition: 2025
• Category: Library

✦ Table of Contents

How to Use the CFA Program Curriculum
CFA Institute Learning Ecosystem (LES)
Designing Your Personal Study Program
Errata
Other Feedback
Financial Statement Analysis
Learning Module 1 Introduction to Financial Statement Analysis
Introduction
Financial Statement Analysis Framework
Articulate the Purpose and Context of the Analysis
Collect Data
Process Data
Analyze/Interpret the Data
Develop and Communicate Conclusions and Recommendations
Follow-Up
Scope of Financial Statement Analysis
Regulated Sources of Information
International Organization of Securities Commissions
US Securities and Exchange Commission
Capital Markets Regulation in Europe
Financial Notes and Supplementary Schedules
Business and Geographic Segment Reporting
Management Commentary or Management’s Discussion and Analysis
Auditor's Reports
Comparison of IFRS with Alternative Financial Reporting Systems
Monitoring Developments in Financial Reporting Standards
New Products or Types of Transactions
Evolving Standards and the Role of CFA Institute
Other Sources of Information
Practice Problems
Solutions
Learning Module 2 Analyzing Income Statements
Introduction
Revenue Recognition
General Principles
Accounting Standards for Revenue Recognition
Expense Recognition
General Principles
Capitalization versus Expensing
Capitalization of Interest Costs
Capitalization of Internal Development Costs
Implications for Financial Analysts: Expense Recognition
Non-Recurring Items
Unusual or Infrequent Items
Discontinued Operations
Changes in Accounting Policy
Changes in Scope and Exchange Rates
Earnings per Share
Simple versus Complex Capital Structure
Basic EPS
Diluted EPS: The If-Converted Method
Diluted EPS When a Company Has Convertible Preferred Stock Outstanding
Diluted EPS When a Company Has Convertible Debt Outstanding
Diluted EPS: The Treasury Stock Method
Other Issues with Diluted EPS and Changes in EPS
Changes in EPS
Income Statement Ratios and Common-Size Analysis
Common-Size Analysis of the Income Statement
Income Statement Ratios
Practice Problems
Solutions
Learning Module 3 Analyzing Balance Sheets
Introduction
Intangible Assets
Identifiable Intangibles
Goodwill
Financial Instruments
Non-Current Liabilities
Long-Term Financial Liabilities
Deferred Tax Liabilities
Ratios and Common-Size Analysis
Common-Size Analysis of the Balance Sheet
Some interesting general observations can be made from these data:
Balance Sheet Ratios
Practice Problems
Solutions
Learning Module 4 Analyzing Statements of Cash Flows I
Introduction
Linkages between the Financial Statements
Primary Financial Statements
Relationship between Financial Statements
Linkages Between Current Assets and Current Liabilities
The Direct Method for Cash Flows from Operating Activities
Operating Activities: Direct Method
The Indirect Method for Cash Flows from Operating Activities
Operating Activities: Indirect Method
Conversion from the Indirect to Direct Method
Method to Convert Cash Flow from Indirect to Direct
Cash Flows from Investing Activities
Cash Flows from Investing Activities
Cash Flows from Financing Activities
Cash Flow from Financing activities: Long-Term Debt and Common Stock
Computing Dividends Paid
Differences in Cash Flow Statements Prepared under US GAAP versus IFRS
Practice Problems
Solutions
Learning Module 5 Analyzing Statements of Cash Flows II
Introduction
Evaluating Sources and Uses of Cash
Ratios and Common-Size Analysis
Free Cash Flow Measures
Cash Flow Statement Analysis: Cash Flow Ratios
Practice Problems
Solutions
Learning Module 6 Analysis of Inventories
Introduction
Inventory Valuation
The Effects of Inflation and Deflation on Inventories, Costs of Sales, and Gross Margin
Presentation and Disclosure
Presentation and Disclosure
Inventory Ratios
Practice Problems
Solutions
Learning Module 7 Analysis of Long-Term Assets
Introduction
Acquisition of Intangible Assets
Intangible Assets Purchased in Situations Other Than Business Combinations
Intangible Assets Developed Internally
Intangible Assets Acquired in a Business Combination
Impairment and Derecognition of Assets
Impairment of Property, Plant, and Equipment
Impairment of Intangible Assets with a Finite Life
Impairment of Intangibles with Indefinite Lives
Impairment of Long-Lived Assets Held for Sale
Reversals of Impairments of Long-Lived Assets
Derecognition
Presentation and Disclosure
Using Disclosures in Analysis
Practice Problems
Solutions
Learning Module 8 Topics in Long-Term Liabilities and Equity
Introduction
Leases
Requirements for Lease Accounting
Examples of Leases
Advantages of Leasing
Lease Classification as Finance or Operating
Financial Reporting of Leases
Lessee Accounting—IFRS
Lessee Accounting—US GAAP
Lessor Accounting
Financial Reporting for Postemployment and Share-Based Compensation Plans
Employee Compensation
Deferred Compensation
Defined-Benefit Pension Plans
Accounting for Defined-Benefit Plans under IFRS
Accounting for Defined-Benefit Plan under US GAAP
Pension-Related Disclosures
Share-Based Compensation
Stock Grants
Stock Options
Accounting for Stock Options
Other Types of Share-Based Compensation
Presentation and Disclosure
Presentation and Disclosure of Leases
Lessee Disclosure
Lessor Disclosure
Presentation and Disclosure of Postemployment Plans
Presentation and Disclosure of Share-Based Compensation
Practice Problems
Solutions
Learning Module 9 Analysis of Income Taxes
Introduction
Differences between Accounting Profit and Taxable Income
Taxable Temporary Differences
Deductible Temporary Differences
Taxable and Deductible Temporary Differences
Permanent Differences
Tax Expense
Deferred Tax Assets and Liabilities
Realizability of Deferred Tax Assets
Corporate Income Tax Rates
Presentation and Disclosure
Practice Problems
Solutions
Learning Module 10 Financial Reporting Quality
Introduction
Conceptual Overview
Conceptual Overview
GAAP, Decision Useful Financial Reporting
GAAP, Decision-Useful, but Sustainable?
Biased Accounting Choices
Within GAAP, but “Earnings Management”
Departures from GAAP
Differentiate between Conservative and Aggressive Accounting
Conservatism in Accounting Standards
Bias in the Application of Accounting Standards
Context for Assessing Financial Reporting Quality
Motivations
Conditions Conducive to Issuing Low-Quality Financial Reports
Mechanisms That Discipline Financial Reporting Quality
Market Regulatory Authorities
Auditors
Private Contracting
Detection of Financial Reporting Quality Issues: Introduction and Presentation Choices
Presentation Choices
Accounting Choices and Estimates
How Accounting Choices and Estimates Affect Earnings and Balance Sheets
Accounting Choices That Affect the Cash Flow Statement
Accounting Choices that Affect Financial Reporting
Warning Signs
Pay Attention to Revenue
Pay Attention to Signals from Inventories
Pay Attention to Capitalization Policies and Deferred Costs
Pay Attention to the Relationship between Cash Flow and Net Income
Look for Other Potential Warnings Signs
References
Practice Problems
Solutions
Learning Module 11 Financial Analysis Techniques
Introduction
The Financial Analysis Process
The Objectives of the Financial Analysis Process
Distinguishing between Computations and Analysis
Analytical Tools and Techniques
Financial Ratio Analysis
The Universe of Ratios
Value, Purposes, and Limitations of Ratio Analysis
Sources of Ratios
Common Size Balance Sheets and Income Statements
Common-Size Analysis of the Income Statement
Cross-Sectional, Trend Analysis, and Relationships in Financial Statements
Trend Analysis
Relationships Among Financial Statements
The Use of Graphs and Regression Analysis
Regression Analysis
Common Ratio Categories, Interpretation, and Context
Interpretation and Context
Activity Ratios
Calculation of Activity Ratios
Interpretation of Activity Ratios
Liquidity Ratios
Calculation of Liquidity Ratios
Interpretation of Liquidity Ratios
Solvency Ratios
Calculation of Solvency Ratios
Interpretation of Solvency Ratios
Profitability Ratios
Calculation of Profitability Ratios
Interpretation of Profitability Ratios
Integrated Financial Ratio Analysis
The Overall Ratio Picture: Examples
DuPont Analysis—The Decomposition of ROE
Industry-Specific Financial Ratios
Model Building and Forecasting
References
Practice Problems
Solutions
Learning Module 12 Introduction to Financial Statement Modeling
Introduction
Building a Financial Statement Model
Company Overview
Revenue Forecast
COGS
SG&A Expenses and Other Operating Expenses
Operating Profit by Segment
Non-Operating Items
Corporate Income Tax Forecast
Shares Outstanding
Pro Forma Income Statement
Pro Forma Statement of Cash Flows
Capital Investments and Depreciation Forecasts
Working Capital Forecasts
Forecasted Cash Flow Statement
Forecasted Balance Sheet
Valuation Model Inputs
Behavioral Finance and Analyst Forecasts
Overconfidence in Forecasting
Illusion of Control
Conservatism Bias
Representativeness Bias
Confirmation Bias
The Impact of Competitive Factors in Prices and Costs
Cognac Industry Overview
Modeling Inflation and Deflation
Sales Projections with Inflation and Deflation
Cost Projections with Inflation and Deflation
The Forecast Horizon and Long-Term Forecasting
Case Study: Estimating Normalized Revenue
References
Practice Problems
Solutions
Glossary