Survey of the coverage of financial statement analysis in Australian business degrees

The ability to use ratios to analyse financials statement is a skill many bachelor of business graduates will need in their workplace. Not surprisingly, therefore, a survey of the structures and subject content of related degrees offered by Australian universities revealed that they all include a topic in financial statement analysis in one of the compulsory first year core subjects. This survey also revealed that in the vast majority of universities financial statement analysis was not covered further in any other subject. As educators of future managers we have an obligation to provide our students with the opportunity to learn the latest, simple yet significant, financial statement analysis ratios and to ensure they are aware of the limitations related to their use. In 1992, Carslaw and Mills found that U.S. intermediate accounting texts did not cover cash flow ratios. In this paper we also report the results of a survey of the financial statement analysis chapters of Australian introductory accounting and finance textbooks to determine the extent to which: 1. the ratios recommended in them are consistent; 2. they include cash flow ratios; and 3. they include ratios commonly used in company annual reports and those used in a sample of web based services. The results revealed that while all textbooks cover traditional ratios such as the current ratio, return on equity, debtors and inventory turnovers, earnings per share and various versions of the debt ratios, there is considerable variance across books related to all other ratios. Coverage of cash flow ratios was also found to be highly inconsistent and inadequate. Other ratios, such as the net debt to equity ratio and net tangible asset backing, were also found to be missing.