Financial Statement Analysis: Worked Example

The task: explain the company, not one ratio

Example Company has two entered historical years, 2024 and 2025, and one forecast year, 2026. The question is why 20% revenue growth and higher EBITDA in 2025 coincide with falling cash. This is a synthetic case applying the Financial Ratio Analysis framework to a whole company.

Enter the historical observations and forecast assumptions

All money amounts are EUR thousands. The opening balance sheet before 2024 is cash 1,200; receivables 1,000; inventory 800; PP&E 5,000; payables 800; debt 3,000; equity 4,200. Both sides total 8,000. All other opening balances are zero.

The table shows positive input amounts; expenses appear negative in the calculated statements. The historical columns are entered observations, not driver forecasts. The 2026 column uses explicit amounts, including interest of 175 and tax of 451.25. Tax-rate and interest-rate assumptions are 25% and 5%; dividends and all other inputs are zero.

Read the linked results together

Revenue rises from 10,000 to 12,000 to 13,200. Gross margin stays at 40%, while EBITDA increases from 2,000 to 2,600 to 2,880. EBIT grows more slowly because depreciation rises from 500 to 700 to 900. Profit growth alone therefore understates the investment needed to sustain this expansion.

Operating working capital—receivables plus inventory less payables—increases from 1,000 in 2024 to 3,240 in 2025. Net income of 1,312.50 plus depreciation of 700, less that 2,240 cash absorption, produces operating cash flow of (227.50). After investment of 1,800 and new debt of 500, cash falls from 2,212.50 to 685.00. The Cash Flow Analysis explains the reconciliation in more detail.

Case assessment: profitable growth is consuming liquidity

The current ratio edges up from 5.02× to 5.09× in 2025 even as cash falls: receivables and inventory replace cash. The quick ratio falls from 4.02× to 3.01×. In this model the quick ratio includes cash and receivables, so it still depends on collection quality. Use Liquidity Ratio Analysis to examine that composition.

Net debt rises from 787.50 to 2,815.00, and net debt / EBITDA rises from 0.39× to 1.08× despite stronger EBITDA. ROIC slips from 18.75% to 18.58%, then to 14.94% in the forecast as the capital base grows. ROE also falls to 18.80% in 2026. The Profitability Analysis places these returns alongside margins.

Assessment: the company generates growing operating profit, but 2025 expansion absorbs cash faster than earnings replenish it. The forecast restores positive operating cash flow of 1,649.75; after 1,500 of capex, cash rises by only 149.75 to 834.75. Cash generation improves, while the larger capital base still weighs on returns. Collections, stock requirements and investment timing deserve scrutiny before further expansion.

Reproduce and check the case

1. Open the model, choose New model and Blank, then set Example Company, first year 2024, two actual years, one forecast year, December 31 year-end, EUR and thousands. Switch to Advanced.

2. Open Model beside Opening Balance Sheet and enter both sides listed above. In the actual-year statement cells, enter the first two input columns; use Model for debt and other detailed inputs where the parent row is calculated. In 2026 use Amount methods for revenue, COGS and operating expenses, then enter the remaining inputs. Leave unrelated positions and distributions at zero.

3. Compare income, balance sheet and cash-flow outputs with the results table. Check balance differences are zero and reconcile each ending cash balance to opening cash plus operating, investing and financing flows. For the exact entered state, download the synthetic company file, then use Manage models → Import to select it manually. The main CTA opens your existing model and does not import this file.

What this diagnosis can and cannot establish

These are entered synthetic observations and an illustrative forecast. The product does not upload annual reports, extract PDFs or automatically diagnose or audit a company. The liquidity ratios use the implemented denominator of payables, other current liabilities and the liquidity revolver; they do not add all term debt. ROIC uses average operating invested capital and a 25% tax assumption. Ratios are not external benchmarks or evidence of solvency.

For statement relationships, use Three Financial Statements. For assumptions, model structure and review questions rather than this company diagnosis, use Financial Model Analysis.