CFA Financial Reporting and Analysis Syllabus

Financial Reporting and Analysis syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Financial Reporting and Analysis in CFA, not a summary of it.

1. 1

   Financial Statement Analysis

   3 topics

   • Income Statement
   • Balance Sheet
   • Cash Flow Statement
2. 2

   Inventories

   2 topics

   • Inventory Valuation Methods
   • Effects on Financial Statements
3. 3

   Long-lived Assets

   2 topics

   • Depreciation and Amortization
   • Impairment and Revaluation

Financial Reporting and Analysis flashcards for CFA

18 of 50 cards from the Financial Reporting and Analysis deck — real questions with worked answers.

1. What is the fundamental accounting equation that underlies the balance sheet?

   $$\text{Assets} = \text{Liabilities} + \text{Owners' Equity}$$

2. Define the income statement (statement of operations).

   A financial statement that reports a company's financial performance over a period of time, presenting revenues, expenses, and the resulting net income (or loss): $\text{Revenue} - \text{Expenses} = \text{Net Income}$.

3. What is the basic single-step income statement equation?

   $$\text{Net Income} = (\text{Revenues} + \text{Gains}) - (\text{Expenses} + \text{Losses})$$

4. How is gross profit calculated?

   $$\text{Gross Profit} = \text{Revenue} - \text{Cost of Goods Sold (COGS)}$$

5. How is operating profit (operating income) calculated?

   $$\text{Operating Income} = \text{Gross Profit} - \text{Operating Expenses}$$ It reflects earnings before interest and taxes (EBIT) from core operations.

6. State the formula for basic earnings per share (EPS).

   $$\text{Basic EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted Average Number of Common Shares Outstanding}}$$

7. What distinguishes diluted EPS from basic EPS?

   Diluted EPS includes the effect of all potentially dilutive securities (convertible bonds, convertible preferred, options, warrants) in the denominator, producing an EPS that is less than or equal to basic EPS.

8. Under the two conditions of the accrual principle, when is revenue recognized under IFRS 15 / ASC 606?

   Revenue is recognized when (or as) performance obligations are satisfied, i.e., when control of goods or services transfers to the customer — following the 5-step model: identify contract, identify performance obligations, determine transaction price, allocate price, recognize revenue.

9. How do you compute the gross profit margin ratio?

   $$\text{Gross Profit Margin} = \frac{\text{Gross Profit}}{\text{Revenue}}$$

10. How do you compute the net profit margin ratio?

    $$\text{Net Profit Margin} = \frac{\text{Net Income}}{\text{Revenue}}$$

11. On the income statement, how are results from discontinued operations presented?

    They are reported separately, net of tax, below income from continuing operations, so that continuing-operations performance can be evaluated independently.

12. What is comprehensive income?

    $$\text{Comprehensive Income} = \text{Net Income} + \text{Other Comprehensive Income (OCI)}$$ where OCI includes items bypassing the income statement (e.g., certain unrealized gains/losses, foreign currency translation adjustments, pension adjustments).

13. Define the balance sheet (statement of financial position).

    A financial statement that reports a company's assets, liabilities, and owners' equity at a specific point in time, providing a snapshot of financial position.

14. How are current assets distinguished from non-current assets?

    Current assets are expected to be converted to cash, sold, or consumed within one year or one operating cycle (whichever is longer); non-current (long-term) assets provide benefit beyond that period.

15. How is working capital calculated?

    $$\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$$

16. State the current ratio and what it measures.

    $$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$$ It measures short-term liquidity — the ability to cover current obligations with current assets.

17. State the quick (acid-test) ratio.

    $$\text{Quick Ratio} = \frac{\text{Cash} + \text{Marketable Securities} + \text{Receivables}}{\text{Current Liabilities}}$$ It excludes inventory from current assets for a stricter liquidity test.

18. What are the three main components of shareholders' equity?

    Contributed (paid-in) capital, retained earnings, and accumulated other comprehensive income (plus/minus treasury stock and non-controlling interests).

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