3
Financial Statement AnalysisModule 3 of 9

Analyzing Balance Sheets

5

Concepts

4

Formulas

1

Decisions

3

Quiz Questions

Key Concepts

5 concepts covered in this module.

Intangible Assets

Identifiable (patents, trademarks) can be recognized. Goodwill arises only from acquisitions. Internally generated goodwill NOT recognized.

Goodwill

Purchase price - Fair value of net identifiable assets. Not amortized but tested annually for impairment. Only written DOWN (GAAP); IFRS similar.

Financial Instruments

Amortized cost, Fair value through OCI (FVOCI), Fair value through P&L (FVPL). Classification affects income volatility.

Deferred Tax Liabilities/Assets

DTL: taxable temporary differences (tax owed later). DTA: deductible temporary differences (tax benefit later).

Common-Size Balance Sheet

Express each item as % of total assets. Shows capital structure and asset composition.

Formulas

4 essential formulas for this module.

Goodwill

Goodwill = Purchase Price - FV of Net Identifiable Assets

Where: Only from business combinations

Current Ratio

Current Ratio = Current Assets / Current Liabilities

Where: >1 indicates short-term solvency

Debt-to-Equity

D/E = Total Debt / Total Equity

Where: Higher = more leveraged

Debt-to-Assets

D/A = Total Debt / Total Assets

Where: Proportion of assets financed by debt

Decision Frameworks

1 decision frameworks to guide your analysis.

FVPL vs FVOCI vs Amortized Cost?

  • FVPL: trading securities, most volatile income
  • FVOCI: available for sale, unrealized G/L in OCI (not income)
  • Amortized cost: held-to-maturity debt, most stable income

Mind Map

Visual overview of how concepts connect in this module.

Balance Sheet Analysis
Intangibles & Goodwill
Identifiable: recognized
Goodwill: acquisition only
Annual impairment test
No amortization
Financial Instruments
FVPL: G/L in income
FVOCI: G/L in OCI
Amortized cost: stable
IFRS 9 classification
Deferred Tax
DTL: future tax owed
DTA: future tax benefit
Temporary differences
Valuation allowance
Ratios
Current ratio
Quick ratio
D/E
D/A
Common-size

Study Analyzing Balance Sheets

This module has 10 flashcards and 3 quiz questions to test your knowledge.

Open the study dashboard to access interactive flashcards, timed quizzes, and track your progress.

Open Study Dashboard

No signup required. Create an account anytime to save progress.

Previous Module

Analyzing Income Statements

Next Module

Analyzing Statements of Cash Flows I