Lesson 1: Introduction to Financial Statement Analysis: Reading the Story Behind the Numbers
Duration of Days: 4
Lesson Objective
Students will analyze the purpose and structure of the income statement, balance sheet, and statement of cash flows, and explain how prior accounting decisions (inventory, receivables, depreciation) influence financial reporting outcomes.
• What story do financial statements tell about a company?
• How do inventory, receivable, and depreciation decisions impact reported earnings?
• What is the difference between profitability and liquidity?
• Why do investors rely on financial statements?
• How can financial statements reflect both performance and risk?
• Financial statement analysis
• Income statement
• Balance sheet
• Statement of cash flows
• Profitability
• Liquidity
• Solvency
• Earnings quality
• Financial strength
• Stakeholders
B. Accounting Principles: Identify and describe GAAP principles and explain how application impacts financial reporting.
C. Accounting Process: Analyze how transactions and estimates impact financial statements.
Students strengthen mathematical reasoning and analytical comparison skills by evaluating structural differences in business models and financial statement impact.
Description:
Students review the structure and purpose of the three primary financial statements. Instruction emphasizes how previously learned accounting decisions (inventory valuation, bad debt estimation, depreciation methods) influence reported earnings and asset values.
Purpose:
This lesson marks the transition from accounting mechanics to financial interpretation. Students learn to view financial statements as analytical tools used by investors, managers, and creditors to evaluate business performance.
DOK 1: Identify and describe financial statement components.
DOK 2: Interpret basic financial information.
Students examine how investors use financial statements to decide whether to buy stock.
• Net income alone determines financial strength.
• High revenue guarantees profitability.
• Financial statements are objective and free of assumptions.
• Cash flow and net income are always the same.
• Side-by-side comparison of two companies
• Guided annotation of financial statements
• Small group financial interpretation discussion
• Visual diagram linking inventory, receivables, and depreciation to statements
• Scaffolded note guide
• Excel demonstration of basic financial ratios
• Spanish vocabulary support for ELL students
• Financial statement interpretation worksheet
• Short written response analyzing company performance
• Exit ticket explaining how prior accounting decisions impact financial statements
• Class discussion evaluating financial strength
• Century 21, Accounting, General Journal, 11th edition
• Online working papers (MindTap)
• Microsoft Excel software
• Sample corporate financial statements
• Financial comparison worksheet
• Class notes, Do Now, Exit Tickets
• Projector for modeling and discussion