CFA Level 1 Financial Statement Analysis

Income statements, balance sheets, cash flow statements, inventories, long-term assets, taxes, debt, and ratio analysis for Level 1.

9

Modules

46

Concepts

31

Formulas

29

Quiz Questions

Financial Statement Analysis Study Overview

Financial Statement Analysis is one of the highest-weight CFA Level 1 areas. The exam tests how accounting choices affect reported income, assets, cash flow, ratios, and comparability across companies.

Connect recognition and measurement choices to income statement, balance sheet, and cash flow statement effects.

Use inventory, long-term asset, tax, debt, and lease adjustments to compare companies under IFRS and US GAAP.

Treat ratios as diagnostic tools: profitability, liquidity, solvency, efficiency, and DuPont analysis each answer a different question.

How to Study This Topic

  • Start with the financial statement analysis framework before drilling into individual accounting topics.
  • Spend extra time on inventories, long-term assets, income taxes, and non-current liabilities because they create common exam adjustments.
  • After each module, answer calculation questions and write down which statement each adjustment affects.

Modules in Financial Statement Analysis

9 learning modules covering 11-14% of the CFA Level I exam.

1

Introduction to Financial Statement Analysis

6 concepts 3 questions
2

Analyzing Income Statements

6 concepts 6 formulas 4 questions
3

Analyzing Balance Sheets

5 concepts 4 formulas 3 questions
4

Analyzing Statements of Cash Flows I

6 concepts 3 formulas 4 questions
5

Analyzing Statements of Cash Flows II

3 concepts 5 formulas 2 questions
6

Analysis of Inventories

5 concepts 4 formulas 4 questions
7

Analysis of Long-Term Assets

5 concepts 4 formulas 3 questions
8

Topics in Long-Term Liabilities and Equity

4 concepts 2 formulas 3 questions
9

Analysis of Income Taxes

6 concepts 3 formulas 3 questions

Key Formulas

14 essential formulas for Financial Statement Analysis.

Basic EPS

EPS = (NI - Pref Div) / Wtd Avg Shares

Earnings per common share

Diluted EPS

Diluted EPS = (NI - Pref Div + Convertible Interest) / (Shares + Dilutive Securities)

Treasury stock method for options

Current Ratio

Current Ratio = Current Assets / Current Liabilities

>1 indicates short-term solvency

Quick Ratio

Quick = (Cash + Receivables + ST Investments) / Current Liabilities

Excludes inventory

ROE

ROE = Net Income / Average Equity

Return to shareholders

DuPont (3-way)

ROE = (NI/Rev) × (Rev/Assets) × (Assets/Equity)

Profit margin × Turnover × Leverage

DuPont (5-way)

ROE = Tax Burden × Interest Burden × EBIT Margin × Turnover × Leverage

Extended decomposition

Inventory Turnover

Inv Turnover = COGS / Avg Inventory

Days = 365 / Turnover

DSO

DSO = 365 / Receivables Turnover

Receivables Turnover = Revenue / Avg AR

Debt-to-Equity

D/E = Total Debt / Total Equity

Financial leverage measure

Interest Coverage

Interest Coverage = EBIT / Interest Expense

Ability to service debt

CFO (Indirect)

CFO = NI + Non-cash charges ± WC changes

Start from net income, adjust

Free Cash Flow to Firm

FCFF = NI + NCC + Int(1-t) - FCInv - WCInv

Cash available to all capital providers

Free Cash Flow to Equity

FCFE = FCFF - Int(1-t) + Net Borrowing

Cash available to equity holders

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