Interpreting Financial Information
Securities and Investments
Finance
Lesson Plan
Performance Objective
Students will analyze various types of financial information that can aid in investment selection.
Specific Objective
 Identify and calculate financial ratios
 Interpret financial information to make investment decisions
 Understand fundamental and technical analysis used in selecting investments
Terms
 Financial statement-a summary of all of the transactions of a business for a certain time period and
represent the financial position of a company; the most common statements reviewed by an investor
include the Balance Sheet and Income/Expense Statement
 Annual Report-a report that corporations provide to shareholder which details their operations for the
year
 Prospectus-a document that contains information about an investment that is being offered for sale
 “Red herring” – a term for the first of two prospectuses about an investment offered for sale, the term
relating to the red letters on the front of the prospectus that says it is preliminary. The exact details of
the investment such as the price and number of shares offered are stated in the final version of the
prospectus.
 Compound interest- also known as “interest on interest”, interest calculated on principal plus
previously accrued interest
 Rule of 72- a mathematical tool to calculate the number of years it will take to double your investment
 Income statement-details a company’s revenues and expenses, determining if there is a net income or
net loss
 Ratio-a comparison of two numerical values that are obtained from financial statements and are used
to assess a company’s financial condition
 Balance sheet-summarizes a company’s assets, liabilities, and shareholder’s equity
 Liquidity-how quickly an asset can be converted to cash
 Stockholder-someone who purchases shares of stock in a company, stock ownership represents shares
of ownership in a company
 Fundamental analysis–analyzes data from financial statements and other sources to make investment
decisions
 Technical analysis–relies on historical stock performance and market trends to make investment
decisions
 Mutual fund-a type of investment that is professionally managed and is made up of a group of
diversified securities
 Cash flow statement-a financial statement that shows cash flow from operations, investments, and
financing
Time
When taught as written, this lesson should take approximately 4-5 class periods to complete.
Preparation
TEKS Correlations:
This lesson, as published, correlates to the following TEKS. Any changes/alterations to the activities may result
in the elimination of any or all of the TEKS listed.
130.164 (c) Knowledge and Skills
(2) The student maintains, monitors, controls and plans the use of financial resources in order to
perform key duties in the securities and investments industry. The student describes investment
analysis and selection processes. The student is expected to:
(B) consider the nature of investment risk;
(E) relate information that can be obtained from financial statements and annual reports; and
(F) communicate the nature of a mutual fund prospectus.
(3) The student selects investments for clients. The student is expected to:
(A) interpret financial ratios significant to investors.
Interdisciplinary Correlations:
English-English I
 110.31(b)(21)(B).
…organize information gathered from multiple sources to create a variety of graphics and forms.
 110.31(b)(22)(B).
…evaluate the relevance of information to the topic and determine the reliability, validity, and
accuracy of sources (including Internet sources) by examining their authority and objectivity.
 110.31(b)(23)(C)
…use graphics and illustrations to help explain concepts where appropriate.
 110.31(b)(23)(D)
…uses a variety of evaluative tools (e.g., self-made rubrics, peer reviews, teacher and expert
evaluations, to examine the quality of the research.
Math-Algebra I
 111.32(b)(1)(E). Interpret and make decisions, predictions, and critical judgments from functional
relationships.
Social Studies-World Geography
 113.34(c)(20)(A) Describe the impact of new technologies, new markets, and revised perceptions of
resources.
Occupational Correlation (O*Net – www.onetonline.org/):
Job Title: Financial Analysts
O*Net Number: 13-2051.00
Reported Job Titles: Securities Analyst, Investment Analyst, Operational Risk Analyst
Tasks:
Inform investment decisions by analyzing financial information to forecast business, industry, or
economic conditions
Recommend investments and investment timing to companies, investment firm staff, or the public
Prepare plans of action for investment, using financial analyses
Soft Skills:
Complex Problem Solving, Judgment and Decision Making, Critical Thinking
Accommodations for Learning Differences
It is important that lessons accommodate the needs of every learner. These lessons may be modified to
accommodate your students with learning differences by referring to the files found on the Special
Populations page of this website.
Preparation
Preparation
 Have materials and websites ready to go prior to the start of the lesson.
 Practice locating company annual reports which include a Balance Sheet, Income Statement, and Cash
Flow Statement so you can direct students to follow along. You might use a search engine that has a
separate Finance link so you know the format of the statements will be similar for all of the
corporations examined.
References
 Century 21 Accounting for Texas, General Journal
 http://fefe.arizona.edu – Family Economics and Financial Education
 https://kwhs.wharton.upenn.edu/lesson_plans/swot-strengths-weaknesses-opportunities-threats/ Knowledge at Wharton High School (requires free registration to view lesson plans)
Instructional Aids
 Lesson Presentation
 Instructor Computer/Projection Unit
 Online Websites
Introduction
The main purposes of this lesson are to help students understand


that there are many different financial methods that investors can look at to make decisions on where
to put their money.
that there are resources available that can provide information to aid investors.
Ask students if they have heard of financial statements such as a balance sheet, income statement, or a cash
flow statement.
Ask students if they think that work should be done by an investor to determine the most profitable
investments possible or if they should let a professional take that responsibility.
Outline
I.
The Annual Report
A.
Letter to shareholders
B.
Financial highlights
C.
Charts and graphics
D.
Financial statements
E.
Additional notes
F.
Company information
II.
The Balance Sheet
A.
Assets (Property)-current (cash)
and long-term (land, buildings)
B.
Liabilities (Loans)-current
(accounts payable) and long-term
(notes payable)
C.
Net worth, or stockholder’s
equity
III.
The Income Statement
A.
Revenue-income from sales
B.
Expenses-operating expenses
such as salaries, rent, and utilities
C.
Net income or net loss-revenue
minus expenses
IV. The Cash Flow Statement
A.
Cash flow from operationshopefully a positive number
B.
Investments-a negative number
means company is spending
money on investments
C.
Financing section-a negative
number can be because the
company is paying dividends or
buying shares from investors
Annual reports for any company
can provide a great deal of
information about the financial
condition of the company.
Search onine for a finance web
site to locate an annual report for
a company with which they are
familiar. Show them the different
sections.
As you arrive at the balance
sheet, point out the items at the
left (which are also in the
presentation) so they can observe
the different terms that are used.
Show them the bottom line, or
net worth amount.
Do the same for the income
statement and ask students to
volunteer the different amounts
so you can be sure that they are
finding the same numbers that
you are.
Again, show the students the
different items listed in this
outline. Ask them what a
negative cash flow can mean for a
company, and as a result, what it
can mean for an investor.
Multiple Intelligences Guide
Existentialist
Interpersonal
Intrapersonal
Kinesthetic/
Bodily
Logical/
Mathematical
Musical/Rhythmic
Naturalist
Verbal/Linguistic
Visual/Spatial
V.
An Overall Look at Financial Statements
A.
Has balance sheet improved over
the years?
B.
Net income or net loss?
C.
Positive or negative cash flow?
D.
Has cash flow from operations
been increasing?
E.
Any risk factors or legal actions (in
annual report)?
F.
Have gross margins been
increasing?
G.
Calculate various ratios from data
in annual reports.
VI. What is a Prospectus?
A.
Information provided by a
corporation about an investment
offering
B.
Look for:
1. management fees
2. past performance
3. risks
4. price per share
VII. Fundamental Analysis
A.
Uses data from financial
statements
B.
Uses credit rating of bond issuers
C.
Looks at interest rates and
economic factors
D.
Type of analysis used by Warren
Buffett
VIII. Technical Analysis
A.
Relies on historical performance
of a stock to predict future
success
B.
Relies on market trends
C.
Supply and demand-important
factors
Financial statements usually show
a comparison of two or three
time periods. One thing to
consider then is whether or not
there are patterns, where certain
amounts are increasing or
decreasing over time.
A prospectus provides
information about mutual funds
as annual reports provide
information about individual
companies. There are
prospectuses for companies as
well, but in this lesson we are
focusing on the mutual fund
prospectus. Search online for a
prospectus that you can show
students. Use “mutual fund
prospectuses” as the search
criteria.
Fundamental analysis is term for
using financial data to make
investment decisions. Warren
Buffett is a fan of this analysis.
You can have students conduct
research on Warren Buffett’s
style as well as some other wellknown investors.
Technical analysis is not as
popular a technique. It mainly
uses historical
Multiple Intelligences Guide
Existentialist
Interpersonal
Intrapersonal
Kinesthetic/
Bodily
Logical/
Mathematical
Musical/Rhythmic
Naturalist
Verbal/Linguistic
Visual/Spatial
IX.
Financial Ratios-Liquidity
A.
How quickly assets can be
converted to cash
B.
Current Ratio
C.
Quick Ratio
performance of primarily that
particular stock.
X.
Financial Ratios-Profitability
A.
Shows how well a company’s
assets and equity can generate
profits
B.
Return on Assets
C.
Return on Equity
XI.
Financial Ratios-Debt
A.
Shows how much a company
owes to others
B.
Debt Ratio
C.
Debt-to-Equity Ratio
Return to an annual report of a
company that the students
suggest. Calculate some of the
ratios at the left using the
formulas found in the
presentation slides and have
students follow along, writing
down the calculations as you go
so they will be able to perform
calculations on their own or in
pairs.
XII. Financial Ratios-Operating and Cash
Flow
A.
Shows how well a company’s
assets can generate sales or
revenue
B.
Fixed Asset Turnover Rate
C.
Operating Cash Flow/Sales
XIII. Financial Ratios-Value of Investment
A.
These depend upon what type of
stock investors are looking for
B.
Price/Earnings
C.
Dividend Yield
D.
Price/Book Value
Multiple Intelligences Guide
Existentialist
Interpersonal
Intrapersonal
Kinesthetic/
Bodily
Logical/
Mathematical
Musical/Rhythmic
Naturalist
Verbal/Linguistic
Visual/Spatial
Application
Guided Practice
 Have students in pairs decide upon a company for which they can go online and locate an annual
report. Have them select a ratio that they will calculate for that company. Each pair will post flipchart
paper around the room displaying their company, the name of the ratio they used, and the calculation.
Also, they will include a recommendation of whether that calculation would result in a positive or
negative recommendation to purchase stock in that company.
 Model for students how to search for and locate an annual report and numbers to use to calculate
ratios and have them follow along with you.
Independent Practice
 The teacher can print off some financial statements to be distributed to students. Students should
individually circle or highlight accounts that are used in the common ratios found in the presentation
to familiarize themselves with the places to look for information.
 Students can write down each ratio on index cards to keep handy for further practice.
Summary
Review
The following questions can be asked formally, through class discussion, or through the use of exit tickets over
several class periods.
Question #1: What is the part of an annual report that is most beneficial to investors?
Answer #1:
The financial statement section.
Question #2: What are three financial statements?
Answer #2:
The balance sheet, the income statement, and the cash flow statement.
Question #3: What can the balance sheet show?
Answer #3:
It can show the amount of debt a company owes to suppliers or other creditors.
Question #4: What is important about the income statement?
Answer #4:
It shows whether a company’s revenues are higher or lower than its expenses.
Question #5: Why are ratios important in investment analysis?
Answer #5:
Ratios can indicate different areas of strength or weaknesses in a company’s financial
condition.
Evaluation
Informal Assessment
Any and all of the following can be used as informal assessments…
 S & I Bingo #2 – You may hand out the bingo card found later in this lesson and have students copy the
words from the board or document camera. You may also need a free space for this lesson.
 Pair-share : teacher should write or type two each of company names to be distributed randomly to
students. Each company name should also have a ratio name on it as well. After each student
calculates that ratio for his/her particular company, each student will look for the other student who
has the same company and ratio. That way they can compare their calculations and help each other if
they got different answers.
Formal Assessment
 Annual Report Analysis Assignment #1 - Students will select two companies and conduct Internet
research to locate their annual reports. They are to create a table or diagram comparing at least 5
different ratios for the companies using the Balance Sheet, Income Statement, and/or Cash Flow
Statements. After this is completed the students should make a recommendation on whether or not
investing in stock in these companies would be a profitable idea.
 Mutual Fund Venn Diagram Assignment #2 – Create a diagram comparing and contrasting 3 different
mutual funds by searching online for ‘mutual fund prospectuses’. The outer circles will contain the
name of the fund and the price per share of the fund. Other information that should be included are :
a statement summarizing past performance of the fund, the risks of the fund, the management fees,
and the investing strategy of the fund. These may be included in the outer circles as well, but any
information that is common to all three funds should be placed in the overlapping parts of the circles in
the Venn diagram.
 Company SWOT Analysis Assignment #3 – Following the example of the SWOT analysis done as a
class, select a company (the teacher can randomly place company names under each chair in the room
and the students can see which company name is under their chair) to conduct a SWOT analysis for, as
an alternative investment strategy. This analysis may be done on a computer using any of the available
templates online or manually on posterboard or flipchart paper. Student should also include an
investment recommendation based on the SWOT analysis.
Enrichment
Extension
Interview two people from different generations regarding their personal investment strategies. Create a list
of questions including topics of 1) did they use an investment advisor?, 2) where did they put their money at
different time periods in their lives, 3) how did they feel about the risk of their investments, 4) if they had a
plan at all, and any other questions they would like to ask. Either create a word processing document with the
questions and answers for both individuals, or write a report comparing and contrasting the individuals’
answers.
S & I Bingo
Interpreting Financial Information
Annual Report Comparison Chart Assignment #1
Student Name ______________________
CATEGORY
20
15
8
1
Column Headings The chart has
creative column
headings that
accurately
describe the
material.
The chart has
The chart is
column headings missing a column
that adequately heading.
describe the
material in the
chart.
Resources
The chart
contained at
least 5 ratios
related to the
topic being
studied.
The chart
contained only 4
ratios related to
the topic being
studied.
The chart
The chart
contained only 3 contained fewer
ratios related to than 3 ratios.
the topic being
studied.
Content/Facts
Facts were
accurate for all
events reported
on the chart and
could have been
proven if asked
to.
Facts were
accurate for
almost all events
reported on the
chart and could
have been
proven if asked
to..
Facts were
accurate for
most (~75%) of
the events
reported on the
chart.
Facts were often
inaccurate for
events reported
on the chart.
Readability
The overall
appearance of
the chart is
pleasing and
easy to read.
The overall
appearance of
the chart is
somewhat
pleasing and
easy to read.
The chart is
relatively
readable.
The chart is
difficult to read.
The use of font
styles and colors
is consistent and
shows a logical
pattern for the
most part. It
helps organize
the material
somewhat.
The use of font
styles and colors
is consistent ,
but is not used
effectively to
organize.
The use of font
styles and colors
is not consistent
OR detracts from
the organization.
Fonts and Colors The use of font
styles and colors
is consistent and
shows a logical
pattern. It helps
organize the
material.
Maximum Points Possible 100
Student Points __________
The chart does
not include any
column headings
or labels of cell
data.
Interpreting Financial Information
Mutual Fund Venn Diagram Assignment #2
Student Name ______________________
CATEGORY
20
15
Labels
Each outer circle
clearly labeled
with name of
mutual fund and
price per share.
Each outer circle Labels missing
labeled with
from one circle.
name of fund but
price missing.
No labels for 2 or
more circles.
Required
Elements
The diagram
includes all
required
elements as well
as additional
information.
All required
elements are
included on the
diagram.
All but 1 of the
required
elements are
included on the
diagram.
Several required
elements were
missing.
Mechanics
Capitalization
There is 1 error
and punctuation in capitalization
are correct
or punctuation.
throughout the
diagram.
There are 2
errors in
capitalization or
punctuation.
There are more
than 2 errors in
capitalization or
punctuation.
Placement of
Statements
All similar
statements are
placed in
overlapping
circles with
differences in
outer circles.
Most statements Few statements Student does not
are in the correct are in the correct understand
circles.
circles.
concept of Venn
diagrams.
Knowledge
Gained
Student can
accurately
answer all
questions related
to facts in the
diagram.
Student can
accurately
answer most
questions related
to facts in the
diagram.
Maximum Points Possible 100
Student Points __________
8
Student can
accurately
answer about
75% of questions
related to the
diagram.
1
Student appears
to have
insufficient
knowledge about
the facts or
processes used in
the diagram.
Interpreting Financial Information
Company SWOT Analysis Assignment #3
Student Name ______________________
CATEGORY
20
15
8
1
Strengths/Weaknesses Clearly identifies
at least 2
strengths and 2
weaknesses for
assigned
company.
2 strengths and One strength
2 weaknesses or weakness is
identified but missing.
are vague.
More than one
strength and
weakness is
missing.
Opportunities/Threats Clearly identifies
at least 2
opportunities and
threats for
assigned
company.
2 opportunities
and 2 threats
identified but
are vague.
One
opportunity or
threat is
missing.
More than one
opportunity or
threat is
missing.
Organization
Work is wellorganized and
easy to
understand.
Information is
appropriately
placed in its
respective
section.
The
organization is
generally good,
but one item
may be placed
in an incorrect
section.
The
organization is
unclear. 2
items placed in
an incorrect
section.
More than 2
items are
placed under
the wrong
section.
Grammar
There are no
grammatical
mistakes on the
SWOT analysis.
There is 1
grammatical
mistake on the
SWOT analysis.
There are 2
grammatical
mistakes on
the SWOT
analysis.
There are
more than 2
grammatical
mistakes on
the SWOT
analysis.
Summary
Student includes
a thorough
summary of
recommendation
based on
analysis.
Student
includes an
adequate
summary
based on the
analysis.
Student
includes an
incomplete
summary,
somewhat
based on the
analysis,
somewhat
based on
opinion.
Student either
included an
incomplete
summary
solely based
on opinion,
not facts, or
did not include
one at all.
Maximum Points Possible 100
Student Points __________