1. Review the purpose of financial statements and their form. Financial statements provide stakeholders with a wealth of information that can be used to assess a firm's performance. The balance sheet, built on the fundamental accounting equation, shows a firm's financial position at the end of a reporting period. The statement of changes in owners' equity describes changes in the equity accounts during a fiscal period. The income statement lists the firm's revenues, expenses, and net income for the reporting period. Finally, the statement of cash flows summarizes the increases and decreases in a firm's cash balance.
   
   
2. Describe the use of pro forma financial statements. Pro forma financial statements are used by managers to project a firm's future operations and financial position. Managers must use their insight to transform this data into information that can be used to monitor the implementation of a business plan.
   
   
3. Discuss and illustrate the use of financial ratio analysis. Managers use ratios to explain the relationships between financial statement elements. This gives an indication as to a company's financial health. Liquidity ratios indicate whether a business has enough assets to pay maturing obligations. Leverage ratios assess the extent to which a firm relies on debt capital rather than equity to finance operating and investing activities. Operating ratios monitor how effectively the business utilizes its resources. Profitability ratios are used to evaluate the overall success of a firm's operations.
   
   
4. Demonstrate the use of financial ratios in evaluating business strategy. The DuPont system uses ratios to evaluate how well a firm has executed its business strategy as measured by the overall return generated for its owners. Managers are expected to evaluate changes in a firm's performance and determine whether they reflect improvement or deterioration in the underlying business processes.