Page 39 - FINAL CFA I SLIDES JUNE 2019 DAY 9
P. 39
Session Unit 9:
33. Financial Statement Analysis: Applications, p.322
LOS 33.a: Evaluate a company’s past financial performance and explain how a company’s strategy is
reflected in past financial performance., p.322
Trends in financial ratios and differences between a firm’s financial ratios and those of its
competitors or industry averages can indicate important aspects of a firm’s business strategy:
• Differentiation strategy –higher cost of sales but also higher higher gross margins due to premium pricing
• Cost-leadership strategy –lower cost of sales and low gross margins due to low (no frills) pricing
tanties
CFA should understand strategy to be able top apply financial ratios:
• If the firm claims it is going to improve EPS by cutting costs, examination of operating ratios and gross
margins over time will reveal whether the firm has actually been able to implement such a strategy and
whether sales have suffered as a result.
