MAJOR ASSUMPTIONS & FINANCIAL STATEMENT ANALYSIS Flashcards
(24 cards)
Define target customers,
market size, and growth rate
Assess competitive landscape and price sensitivity
Estimate market penetration
based on research
Align assumptions with industry reports and data
MARKET ASSUMPTION
Identify revenue streams and
pricing strategies
Outline cost structure (fixed &
variable expenses)
Project revenue growth, market
share, and profitability
Consider funding, financing, and
contingency planning
Financial
Assumption
Detail daily business functions and processes
Plan resource allocation, production, and
logistics
Address supply chain stability and workforce
needs
Operational Assumption
Identify licensing, compliance, and tax
obligations
Plan for legal standards (health, safety,
environment)
Allocate resources for compliance and risk management
Regulatory Assumption
Evaluate economic conditions
(inflation, unemployment)
Assess interest rates, consumer
confidence, and spending
Consider currency fluctuations for
international operations
Economic
Assumption
Monitor tech adoption and industry innovation
trends
Plan for software, hardware, and infrastructure
investments
Adapt to emerging technologies for competitive
advantage
Technology Assumption
The process of analyzing these financial statements to assess a company’s performance and make informed
business decisions.
Financial
Statement Analysis
Also called the Profit and Loss
Statement
This shows the company’s revenues,
expenses, and profits over a specific
period.
It essentially tells you whether the
company is making money or losing it
Income Statement
This gives a snapshot of a company’s
assets, liabilities, and shareholder
equity at a specific point in time.
It follows the basic accounting
equation: Assets = Liabilities +
Equity.
Balance sheet
This tracks the cash flowing in and out
of the company.
It is crucial because a company might
be profitable but still run into trouble
if it doesn’t have enough cash on hand
to cover its obligations.
It’s divided into three parts: operations,
investing, and financing activities.
Cash Flow Statement
This shows the changes in equity over time, including stock issuance,
dividends, and retained earnings
Statement of Shareholders’
Equity
These measure how well the
company generates profit from its revenues and
assets.
Profitability Ratios
This tells you the
percentage of revenue that turns into profit.
Net Profit Margin
This ratio shows
how efficiently the company is using its
assets to generate profit.
Return on Assets (ROA)
RATIO ANALYSIS
PROFITABILITY, LIQUIDITY, LEVERAGE, EFFICIENCY
These measure the company’s
ability to meet its short-term obligations.
Liquidity Ratios
This compares current assets
to current liabilities and indicates if a
company can pay its short-term debts.
Current Ratio
This is a more stringent version of the Current
Ratio because it excludes inventory from
assets.
Quick Ratio (also called the Acid-Test Ratio)
These show the degree to
which the company is relying on borrowed funds.
Leverage Ratios
This compares the
company’s debt to its equity and shows how
much debt the company is using to finance its
operations.
Debt-to-Equity Ratio
These measure how effectively a
company uses its assets.
Efficiency Ratios
This measures how often a
company sells and replaces its inventory in a given
period.
Inventory Turnover
where we compare financial
data over multiple periods. This helps us spot
trends or patterns.
Horizontal Analysis
each line item on a financial
statement is expressed as a percentage of a base
figure, such as total revenue or total assets. This
helps us see the proportion of expenses or
liabilities relative to revenue or assets
Vertical Analysis
