Interpreting Financial Statements & Profit

This unit deepens students’ ability to read and interpret core financial statements by connecting transactions to the balance sheet, dissecting profit and free cash flow, and examining cost of goods sold and inventory accounting. Students will evaluate disclosures, MD&A, and footnotes, use benchmark ratios and forecasts for decision making, and assess options for raising and managing capital.

Learning Objectives

• Analyze how business transactions and double-entry accounting affect the balance sheet, income statement, and statement of cash flows, including limitations of the cash flow statement
• Apply cost accounting methods to calculate cost of goods sold and inventory valuation for manufacturers and demonstrate how production and accounting policies can alter reported profit
• Evaluate profit quality, adequacy of disclosures (footnotes, MD&A), and the drivers of free cash flow to identify potential earnings management or misleading reporting
• Demonstrate the use of financial ratios and simple financial forecasts to assess liquidity, solvency, profitability, and capital-raising choices (debt vs. equity) for decision-making