Fm-Answer-Key 2

Answer key
1. The objectives of Financial analysis is to probe to the company's;
Profitability - the ability of the firm to yield a sufficient amount of return on company sales assets and
invested capital.
Liquidity and Stability - the ability of the firm to meet or pay its current or short- term maturing
obligation.
Asset utilization or Activity - pertains to how efficient the company is in managing its resources.
Debt - Utilization or Leverage - pertains to the overall debt status of the company.
2. Issues that limits Financial Statement Analysis
1. Its failure to consider changes in the purchasing power, inconsistencies, as well as dissimilarities in the
accounting principles used by the firms in the industry.
2. Its failure to consider changes in the purchasing power of currencies.
3. The age of the financial statement.
4. Its failure to read and understand the info in the notes to the FS.
5. FS that have not undergone external auditing procedures. It may not conform with GAAP.
6. FS that have not undergone external auditing procedures. It may be inaccurate or worse, fraudulent.
7. Audited statements that do not guarantee Accuracy.
8. The reality that a firm or trading in the stock exchange and its FS are readily available does not
guarantee that the company in questions is financially stable and credit-worthy.
3. In the horizontal analysis, the items of the present financial year are compared with the base year's
amount, in both absolute and percentage terms. On the contrary, in vertical analysis, each item of the
financial statement is compared with another item in of that financial statement.
CONCEPT APPLICATION:
Prepare a horizontal and vertical analysis of TREN Corporation. Below your
computations, present a concise analysis, interpretation and conclusion about the result
of computations. Determine the company’s Free Cash Flow using the FCF formula.
TREN Corporation
Comparative Statement of Financial Position
December, 31, 2025
(in Thousand pesos)
Increase [decrease]
2025 2024 AMOUN PERCEN

T T
Assets
Current Assets
Cash & Cash Equivalent 24, 890 2, 120 22,770 1,074.05%
Trade & Other Receivables 10, 000 - 10,000
Inventory 16, 000 6, 000 10,000 166.7%
Prepaid Expenses 8, 960 10, 600 -1,640 -15.47%
Total Current Assets 59, 850 18, 720 41,130 219.71%
Noncurrent Assets
Property, Plant & Equipment 150,000 161,280 -11,280 -6.99%
Intangibles 16, 000 20, 000 -4,000 -20%
Total Noncurrent Asset 166,000 181,280 -152,280 -8.43%
TOTAL ASSETS 225,850 200,000 25,850 12.925

Increase [decrease]
Liabilities and Shareholders’ Equity
Current liabilities
Trade & Other Payables
Unearned Revenues 8, 400 3, 350 5,050 150.75%
Notes Payable- current 10, 600 11, 650 -1,050 -9.01%
Total Current Liabilities 900 600 300 50%
Noncurrent Liabilities 19, 900 15, 600 4,300 27.56%
Notes Payable- Noncurrent
Total Liabilities 73, 550 100, 000 -26,450 -26.45%
Shareholders’ Equity 93, 450 115, 600 -22,150 -19.16%
Preference Shares
₱100 Par
Ordinary Share, ₱1 Par 80, 000 60, 000 20,100 33.33%
Premium On Ordinary Shares 16, 000 10, 000 6,000 60%
Total Paid-In-Capital 96, 000 70, 000 26,000 37.14%
Retained Earnings 36, 400 14, 400 22,000 152.78%
Total Shareholders’ Equity 132, 400 84, 400 48,000 56,87%
TOTAL LIABILITIES & 225, 850 200, 000 25,850 12.925%

SHAREHOLDERS’ EQUITY
TREN CORPORATION
Comparative Income Statements
For the years ended December 31,2025&2024
Increase
(decrease)
2025 2024 Amount Percent
Sales 480,000 400,000 80,000 20%
Less: Cost of good sold 364,000 280,000 84,000 30%
Gross Income 116,000 120,000 -4,000 -3.33%
Add: Other Income 15,000 9,600 5,400 56.25%
Total Income 131,000 129,600 1,400 1.08%
Less: Other Expenses 12,400
Finance Costs (interest) 14,400 19,000 -4,600 -24.21%
Total Expenses 26,800 19,000 7,800 41.05%
Net Income before taxes 104,200 110,600 -6,400 -5.79%
Less: Income tax 32,334 35,392 3,058 -8.64%
Net Income after Taxes 71,866 75,208 -3,342 -4.44%
A comparative income statement combines information from several income

statements as columns in a single statement. It helps you identify financial trends and
measure performance over time. You can compare different accounting periods from
your records. Or, you can compare your income statement to other companies.
In the table above, it shows all assets and liabilities of TREN corparation in two
different year, in this, we can say that TREN corporation has a good output in
managing their business in 2025. For example, in 2024, their total liabilities is ₱100,
000 while in 2025, it decreases into ₱73, 550, ranging the difference of -26.45%.
Furthermore, the total assets increases by ₱25, 850 ranging to 12. 925%.
Compute the FREE CASH FLOW

Differentiate horizontal and vertical analysis.
Own opinion why Financial Manager must have a good kin analytic mind.
Horizontal Analysis is a dynamic measure, it involves the comparison and measurement of

financial statement of two or more periods.
While the Vertical Analysis is a static measurement, it includes a comparison of financial data
for only one period.

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Answer key

1. The objectives of Financial analysis is to probe to the company's;

2. Issues that limits Financial Statement Analysis

2. Its failure to consider changes in the purchasing power of currencies.

3. The age of the financial statement.

7. Audited statements that do not guarantee Accuracy.

2025 2024 AMOUN PERCEN

Cash & Cash Equivalent 24, 890 2, 120 22,770 1,074.05%

Trade & Other Receivables 10, 000 - 10,000

Inventory 16, 000 6, 000 10,000 166.7%

Prepaid Expenses 8, 960 10, 600 -1,640 -15.47%

Total Current Assets 59, 850 18, 720 41,130 219.71%

Property, Plant & Equipment 150,000 161,280 -11,280 -6.99%

Intangibles 16, 000 20, 000 -4,000 -20%

Total Noncurrent Asset 166,000 181,280 -152,280 -8.43%

TOTAL ASSETS 225,850 200,000 25,850 12.925

Liabilities and Shareholders’ Equity

Trade & Other Payables

Unearned Revenues 8, 400 3, 350 5,050 150.75%

Notes Payable- current 10, 600 11, 650 -1,050 -9.01%

Total Current Liabilities 900 600 300 50%

Noncurrent Liabilities 19, 900 15, 600 4,300 27.56%

Notes Payable- Noncurrent

Total Liabilities 73, 550 100, 000 -26,450 -26.45%

Shareholders’ Equity 93, 450 115, 600 -22,150 -19.16%

Ordinary Share, ₱1 Par 80, 000 60, 000 20,100 33.33%

Premium On Ordinary Shares 16, 000 10, 000 6,000 60%

Total Paid-In-Capital 96, 000 70, 000 26,000 37.14%

Retained Earnings 36, 400 14, 400 22,000 152.78%

Total Shareholders’ Equity 132, 400 84, 400 48,000 56,87%

TOTAL LIABILITIES & 225, 850 200, 000 25,850 12.925%

Comparative Income Statements

For the years ended December 31,2025&2024

2025 2024 Amount Percent

Sales 480,000 400,000 80,000 20%

Less: Cost of good sold 364,000 280,000 84,000 30%

Gross Income 116,000 120,000 -4,000 -3.33%

Add: Other Income 15,000 9,600 5,400 56.25%

Total Income 131,000 129,600 1,400 1.08%

Less: Other Expenses 12,400

Finance Costs (interest) 14,400 19,000 -4,600 -24.21%

Total Expenses 26,800 19,000 7,800 41.05%

Net Income before taxes 104,200 110,600 -6,400 -5.79%

Less: Income tax 32,334 35,392 3,058 -8.64%

Net Income after Taxes 71,866 75,208 -3,342 -4.44%

A comparative income statement combines information from several income

Compute the FREE CASH FLOW

Horizontal Analysis is a dynamic measure, it involves the comparison and measurement of

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