Financial Statements for a Business

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Application

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.


Additional Knowledge Expected of CFP Professionals
  • Define the financial statements produced for a business, such as:
    • Statement of Financial Position
    • Statement of Comprehensive Income
    • Statement of Changes in Equity
    • Statement of Cash Flows
    • Statement of Management Discussion and Analysis
  • Explain the importance of the notes that accompany the financial statements of a business. 
  • Explain how the financial statements of a business may be used.
  • Define the level of assurance service provided for the financial statements of a business.
    • Compilation
    • Review
    • Audited 
  • Define the reports that may accompany the financial statements of a business.
    • Notice to Reader
    • Review Engagement
    • Audited
  • Compare the levels of assurance service provided for the financial statements of a business.
  • Define liquidity ratios, such as:
    • Current Ratio
    • Quick Ratio
    • Working Capital Ratio
  • Define debt ratios, such as:
    • Interest Coverage Ratio
    • Debt-to-Assets Ratio
    • Debt-to-Equity Ratio
  • Define profitability ratios, such as:
    • Gross Profit Margin
    • Operating Profit Margin
    • Net Profit Margin
    • Return on Assets
    • Return on Equity
  • Explain how financial ratios for a business may be used.
  • Define the types of approaches that may be used to value a business, such as:
    • Going-concern
    • Liquidation
    • Discounted future earnings
    • Market value