The key Financial Statement Analysis formulas and decision rules for 2026, module by module. Financial Statement Analysis is 11-14% of the Level I exam.
Free to read, no sign-up. A revision companion to use alongside your curriculum or prep provider. The full sheet (46 concepts, 31 formulas, 9 decision rules) is in the study dashboard.
The ones to know cold before exam day.
Where: Only common shareholders' income
Open the lessonWhere: Higher = more leveraged
Open the lessonWhere: FCInv = capital expenditures (net)
Open the lessonKey concepts and formulas from each of the 9 Financial Statement Analysis modules. Open a module for its lesson page, or the dashboard for the full sheet.
1) State purpose/context, 2) Collect data, 3) Process data, 4) Analyze/interpret, 5) Develop conclusions, 6) Follow-up.
Income statement (performance), Balance sheet (position), Cash flow statement (cash generation). Plus: Statement of changes in equity.
Full sheet: 6 concepts · 1 decision rules
IFRS 15 / ASC 606: 5-step model. Recognize when performance obligation satisfied and control transfers to customer.
Expenses matched to the revenues they help generate. Period costs expensed immediately; product costs match to sales.
Where: Only common shareholders' income
Where: If-converted method: add back interest, add converted shares
Full sheet: 6 concepts · 6 formulas · 1 decision rules
Identifiable (patents, trademarks) can be recognized. Goodwill arises only from acquisitions. Internally generated goodwill NOT recognized.
Purchase price - Fair value of net identifiable assets. Not amortized but tested annually for impairment. Only written DOWN (GAAP); IFRS similar.
Where: Only from business combinations
Where: >1 indicates short-term solvency
Full sheet: 5 concepts · 4 formulas · 1 decision rules
Cash from core business operations. Start from net income (indirect) or cash receipts (direct). THE most important section.
Purchases/sales of long-term assets, investments. Negative CFI often signals growth investment.
Where: Add depreciation, subtract gains, adjust for changes in current assets/liabilities
Where: Increase in AR means cash not yet collected; increase in AP means cash not yet paid
Full sheet: 6 concepts · 3 formulas · 1 decision rules
Cash available to ALL capital providers (debt + equity). FCFF = CFO + Int(1-t) - FCInv.
Cash available to equity holders. FCFE = CFO - FCInv + Net borrowing.
Where: FCInv = capital expenditures (net)
Where: WCInv = increase in working capital
Full sheet: 3 concepts · 5 formulas · 1 decision rules
First In, First Out. Ending inventory reflects recent costs (closer to replacement cost). In rising prices: higher income, higher inventory.
Last In, First Out (US GAAP only). COGS reflects recent costs. In rising prices: lower income (tax savings), lower inventory, better cash flow.
Where: To make LIFO companies comparable to FIFO
Where: Δ = change in LIFO reserve during period
Full sheet: 5 concepts · 4 formulas · 1 decision rules
Straight-line: equal annual charge. Accelerated (DDB): higher early charges. Units-of-production: based on usage.
When carrying value exceeds recoverable amount. Write down to fair value. IFRS: reversal allowed (except goodwill). US GAAP: no reversal.
Where: Equal annual charges
Where: Double declining balance — ignore residual until final years
Full sheet: 5 concepts · 4 formulas · 1 decision rules
Recognize right-of-use asset and lease liability on BS. Depreciate asset, record interest on liability. Front-loaded expense.
US GAAP: right-of-use asset and liability on BS, but single straight-line lease expense. IFRS: treats nearly all leases as finance.
Where: Positive = underfunded, Negative = overfunded
Where: Per income statement
Full sheet: 4 concepts · 2 formulas · 1 decision rules
Accounting income follows GAAP/IFRS; taxable income follows tax law. Differences can be temporary or permanent.
Reverse over time. Taxable temporary diff → DTL. Deductible temporary diff → DTA. Example: accelerated tax depreciation.
Where: Income statement tax charge
Where: Actual rate after all adjustments
Full sheet: 6 concepts · 3 formulas · 1 decision rules
Start with the free module, then add your own notes to every Financial Statement Analysis cheat sheet in the dashboard.