Analyzing Income Statements – Module 2 – FSA– CFA® Level I 2025

Download PDF Now: https://www.finquiz.com/cfa/level-1/summary/ 2025 Prep Packages for the CFA® Program exam offered by FinQuiz Pro (notes, summaries, question bank, mock exams, and formula sheet): Level I: https://www.finquiz.com/cfa/level-1/ Level II: https://www.finquiz.com/cfa/level-2/ Level III: https://www.finquiz.com/cfa/level-3/ 0:00 – 0:37 | Introduction to the Income Statement & CFA Exam Overview An opening overview explaining the importance of the income statement in financial analysis. Learn why this topic is essential for CFA Level 1 candidates and how it serves as a gateway to understanding a company’s performance. 0:37 – 3:00 | Revenue Recognition Essentials in Financial Reporting Discover the core principles of revenue recognition—when revenue is both realized and earned. This section covers key examples such as recognizing revenue on credit sales versus cash received, and the creation of receivables and unearned revenue. 3:00 – 4:16 | The 5-Step Revenue Recognition Process (IFRS & US GAAP) A detailed breakdown of the converged revenue recognition standards from IASB and FASB. Follow the five-step process: Identify the contract with a customer Identify performance obligations Determine the transaction price Allocate the transaction price Recognize revenue as each obligation is satisfied 4:16 – 5:26 | Expense Recognition & the Matching Principle Learn how expenses are defined and recognized. This chapter explains the matching principle—recording expenses in the same period as the revenues they help generate—and provides real-world examples, such as the timing of cost of goods sold. 5:26 – 7:40 | Inventory Costing Methods Explained An overview of various inventory costing methods, including specific identification, FIFO (first-in, first-out), weighted average cost, and LIFO (last-in, first-out). Understand how these methods impact net income, inventory valuation, and tax liabilities. 7:40 – 12:00 | Capitalization vs. Expensing: Effects on Financial Statements Explore the critical differences between capitalizing a cost (recording it as an asset and depreciating/amortizing over time) and expensing it immediately. Learn how each treatment affects the balance sheet, operating cash flows, and short‑term profitability metrics. 12:00 – 17:00 | Adjustments in Financial Reporting: Policies, Estimates & Errors This segment discusses the adjustments that ensure financial statements remain comparable over time. Topics include changes in accounting policies, adjustments in estimates (e.g., asset useful lives, bad debt), and corrections of errors. These are key for accurate income statement analysis. 17:00 – 22:00 | Earnings Per Share (EPS) Analysis: Basic vs. Diluted Delve into one of the most important metrics in financial analysis—EPS. Understand how to calculate basic EPS, and when and why diluted EPS (accounting for convertible securities, stock options, and warrants) is used. Learn methods such as the if‑converted method and the treasury stock method. 22:00 – 25:10 | Income Statement Analysis Tools & Key Financial Ratios Learn how to use common-size analysis and various income statement ratios (net profit margin, gross profit margin, operating profit margin) to evaluate a company’s performance over time and across industries. These tools help analysts compare companies of different sizes and benchmark performance. 25:10 – 25:52 | Conclusion & Key Takeaways for Financial Analysis A brief summary of the core concepts covered—from revenue and expense recognition to EPS and ratio analysis. This chapter reinforces why understanding the income statement is crucial for making better investment decisions and excelling on the CFA Level 1 exam.