Financial Statements Analysis

Income Statement

• The income statement shows revenue, operating expenses, interest, taxes, and net income over a period. Bankers focus on revenue growth, gross margin, EBITDA, EBIT, net income, and the quality and recurrence of earnings.
• Adjustments may be needed for non-recurring items, stock-based compensation treatment, restructuring charges, litigation settlements, or gains and losses that distort operating performance.

Balance Sheet

• The balance sheet shows assets, liabilities, and shareholders' equity at a point in time. Analysts evaluate liquidity, leverage, working capital, debt maturities, cash balances, and off-balance-sheet exposures.
• Net debt is typically total debt minus cash and cash equivalents. Minority interest, preferred stock, and pension deficits may also affect valuation or credit analysis depending on the context.

Cash Flow Statement

• Cash flow is divided into operating, investing, and financing activities. A company can report accounting income while suffering cash strain, so bankers pay close attention to cash conversion, capital expenditures, and working capital swings.
• Free cash flow supports debt service, reinvestment, and equity value creation. Deteriorating receivables, inventory build, or unsustainably delayed payables can be red flags.

Series 79 focus

• Expect questions requiring linkage across all three statements, especially how a change in depreciation, capex, working capital, or financing affects cash flow and valuation. The exam also tests normalized EBITDA, leverage ratios, and the distinction between accounting earnings and actual cash generation.