CHAPTER 7
FINANCIAL ANALYSIS TECHNIQUES
Thomas R. Robinson, CFA CFA Institute Charlottesville, Virginia
 
Hennie van Greuning, CFA World Bank Washington, DC
 
Elaine Henry, CFA University of Miami Miami, Florida
 
Michael A. Broihahn, CFA Barry University Miami, Florida

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:
• Identify the analytical phases, sources of information, and output of financial analysis.
• Differentiate between computation and analysis of ratios, and explain key questions that should be addressed in ratio analysis.
• Demonstrate and explain the use of ratio analysis, common-size financial statements, and graphs in company analysis and the value, purposes, and limitations of ratio analysis.
• Explain the common classifications of ratios and compute, analyze, and interpret activity, liquidity, solvency, profitability, and valuation ratios.
• Explain how ratios are related and how to evaluate a company using a combination of different ratios.
• Demonstrate the application of DuPont analysis (the decomposition of return on equity).
• Describe how ratios are useful in equity analysis.
• Describe how ratios are useful in credit analysis.
• Discuss segment reporting requirements and compute, analyze, and interpret segment ratios.
• Describe how the results of common-size and ratio analysis can be used to model/forecast earnings.

1. INTRODUCTION

Financial analysis applies analytical tools to financial data to assess a company’s performance ...

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