Financial Reporting and Analysis

Financial Reporting and Analysis (FRA) is a core component of the CFA Level 1 curriculum, representing approximately 15% of the exam. This section focuses on how companies communicate their financial performance and position through financial statements. FRA covers the fundamental principles of accounting, including the conceptual framework, revenue recognition, and expense reporting. Candidates learn to analyze the three main financial statements: the income statement (showing profitability), the balance sheet (displaying assets, liabilities, and equity), and the cash flow statement (tracking cash movements). The curriculum emphasizes understanding financial statement elements and how they interconnect. Candidates study inventory valuation methods (FIFO, LIFO, weighted average), long-lived assets accounting (depreciation, amortization, impairment), income taxes (deferred tax assets/liabilities), and non-current liabilities (bonds, leases, pensions). Ratio analysis forms a crucial part of FRA, teaching candidates to evaluate company performance through profitability ratios (ROE, ROA), liquidity ratios (current ratio, quick ratio), solvency ratios (debt-to-equity), and activity ratios (inventory turnover). FRA also covers differences between major accounting standards (IFRS and US GAAP), helping candidates recognize how these differences impact financial statement analysis. Financial statement analysis techniques include common-size analysis (vertical/horizontal), trend analysis, and cross-sectional analysis to compare companies. Mastering FRA is essential because it provides the foundation for security valuation and investment decision-making. Strong FRA skills enable analysts to identify red flags in financial statements, assess earnings quality, detect potential manipulation, and make more informed investment recommendations. For CFA Level 1 success, candidates should practice calculating ratios, interpreting financial statement items, and understanding the implications of accounting choices on reported results.

Financial Reporting and Analysis (FRA) is a core component of the CFA Level 1 curriculum, representing approximately 15% of the exam. This section focuses on how companies communicate their financial…

Concepts covered: Financial Statement Analysis, Analysis of Debt, Analysis of Derivatives, Analysis of Alternative Investments, Corporate Finance, Analysis of Taxes