CMCP M3 Chapter 8: Financial Statements

I. Financial Statements
a. Income Statement
Income statement is a financial statement that summarizes a company's
revenues and expenses over a period, either quarterly or annually.
Understanding this is essential for investors who want to analyze the profitability
and future growth of a company.
b. Balance Sheet
The balance sheet is shows the balance of the entity’s assets, liabilities,
and equity at the end of the period of time. It also shows you a snapshot of
much money you would have left over if you sold all your assets and paid off all
your debts.
c. Statement of Changes in Equity
It is a financial statement which summarises the transactions related to
the shareholder's equity over an accounting period. I think it can be used to
clarify retained earnings and furnish shareholders with information that can
further inform their investment strategy.
d. Statement of Cash Flow
A cash flow statement is a financial statement that summarizes all cash
inflows received by a company from continuing activities and external investment
sources and cash outflows used to fund corporate operations and investments
over a certain time period. It tracks cash generated by the business in three
ways: operations, investment, and financing.
e. Notes to Financial Statements
Notes to the financial statements disclose the detailed assumptions made
by accountants when preparing a company's: income statement, balance sheet,
statement of changes of financial position or statement of retained earnings. The
notes are essential to fully understanding these financial statements.

II. Financial Ratios

a. Horizontal Analysis
Horizontal is a method where financial statements are compared to reveal
financial performance over a specific period of time. I think this is used to spot
financial trends of compnay whether it is growing over time or not.
b. Vertical Analysis
Vertical analysis is an approach wherein all line items in a financial
statement is listed as a percentage of a base amount. This is more like knowing
which activity of the company is using more of the base amount for just a certain
period of time unlike the horizontal analysis whoch measures the trend for at
least two years.
 c. Ratio Analysis
Ratio analysis is a quantitative method of gaining insight into a company's
liquidity, operational efficiency, and profitability by studying its financial
statements such as the balance sheet and income statement. There are different
ratio analysis that are discussed by the lecturers like the liquidity ratios, activity
ratios, leverage ratios, profitability ratios, and market value ratios.

III. Cash Flow Analysis

The lecturers discussed that this is an analysis of the various cash inflows and
the cash outflows of the company during the reporting period. These include the
operating activities, investing activities and financing activities. They also
showede different ratios and methods to analyze the cash flow and I have been
thinking if doing the vertical and horizontal analysis on a cash flow statement is
also considered as a cash flow analysis.