Analysis of Financial Statements

ANALYSIS AND INTERPRETATION
OF FINANCIAL STATEMENTS
Prep. By: Sir Reynald Krypton Guansing

Solve exercises and problems that require computation
and interpretation
L E A R N I N G using horizontal analysis and vertical analysis.
OBJECTIVES Using the downloaded sample financial
statements, learner performs
horizontal and vertical analysis.
CLASS ACTIVITY
Open your google and in the search tab
• Type“Jollibee foods corporation audited financial
statements”
• Go to 2020 tab and download the audited financial

statement of JFC
- What is the asset growth in 2020?

- Is the asset composition in 2019 the same as that in 2020?
- Is the revenue growth in 2020 better than that in 2019?
- Is the net income growth in 2020 better than that in 2019?
FINANCIAL STATEMENT ANALYSIS
FS analysis
Is the process of evaluating risks, performance, financial health, and
future prospects of a business by subjecting financial data to
computational and analytical techniques with the objective of making
economic decision. There are three kinds of FS analysis techniques:
Horizontal analysis
Vertical analysis
Financial ratios
Horizontal analysis
Also called trend analysis, is a technique for evaluating a series of financial
statement data over a period of time with the purpose of determining the
increase or decrease that has taken place.
-Horizontal analysis uses financial statement of two or more periods

-All line items on the FS may be subjected
-Only the simple year-on-year grow is covered in this lesson
-Changes can be expressed in monetary value (peso) and percentages
computed by using the following formulas:
• Peso change=Balance of Current Year-Balance of Prior year

• Percentage change= (Balance of current year-Balance of prior
year)/(balance of prior year)
Horizontal analysis
Example:
2020 2019
Sales 250,000 175,000
Peso change = 250,000 - 175,000 = 75,000

Percentage change = (250,000 - 175,000) / 175,000 = 42.86%
This is evaluated as follows: Sales increased by P75,000. This

represents growth of 42.86% from 2019 levels
Horizontal analysis
Example:
2020 2019
Sales 250,000 175,000
Peso change = 250,000 - 175,000 = 75,000


Use any spreadsheet application and prepare a
worksheet model of horizontal analysis for C&F
store company
2020 2019
Cash 110,000 87,400
Accounts Receivable 90,000 69,920
Inventory 129,000 218,500
Prepaid Rent 12,000 4,370
Delivery Van 550,000 493,810
Total Assets
Accounts Payable 75,000 67,298
Loan Payable 400,000 393,300
Anistle Cruz, Capital 416,000 413,402
Total Liabilities & Equity
Sales 810,000 686,000
Cost of Goods Sold 348,300 301,750
Gross Profit 461,700 384,250
Operating Expenses 234,900 205,800
Interest Expense 40,500 17,150
Net Income 186,300 161,300

Review
• Peso change= Balance of Current Year-Balance of Prior year
Example:
2020 2019
Net income 250,000 175,000
Peso change = 250,000 - 175,000 = 75,000


Vertical analysis
Also called common-size analysis, is a technique that expresses each financial
statement item as a percentage of a base amount (Weygandt et.al. 2013).
For the SFP, the base amount is Total Assets.

• Balance of Account / Total Assets.
• From the common-size SFP, the analyst can infer the
composition of assets and the company’s financing mix.
For the SCI, the base amount is Net Sales.
• Balance of Account / Total Sales.
• This will reveal how “Net Sales” is used up by the various
expenses.
• Net income as a percentage of sales is also known as the net
profit margin.
For the SFP, the base amount is Total Assets.
• Balance of Account / Total Assets.
• From the common-size SFP, the analyst can infer the
composition of assets and the company’s financing mix.
200,000 / 1,400,000 = 14.3%
400,000 / 1,400,000 = 28.6%
250,000 / 1,400,000 = 17.9%
550,000 / 1,400,000 = 39.3%
Sum of the component is 100%
Accounts Payable P 300,000 300,000 / 1,400,000 = 21.4%
Notes Payable 400,000 400,000 / 1,400,000 = 28.6%
Owner, Capital 700,000 700,000 / 1,400,000 = 50.0%
Total Liab. & Equity P 1,400,000 Sum of the component is 100%

200,000 / 1,400,000 = 14.3%
400,000 / 1,400,000 = 28.6%
250,000 / 1,400,000 = 17.9%
550,000 / 1,400,000 = 39.3%
Sum of the component is 100%
Accounts Payable P 300,000 300,000 / 1,400,000 = 21.4%
Notes Payable 400,000 400,000 / 1,400,000 = 28.6%
Owner, Capital 700,000 700,000 / 1,400,000 = 50.0%
Total Liab. & Equity P 1,400,000 Sum of the component is 100%
The above may be evaluated as follows: The largest component of asset is Equipment at 39.3%.
Cash is the smallest component at 14%. On the other hand, 50% of assets are financed by debt
and the other half is financed by equity.
For the SCI, the base amount is Net Sales.
• Balance of Account / Total Sales.
• This will reveal how “Net Sales” is used up by the various
expenses.
• Net income as a percentage of sales is also known as the net
profit margin.
Net Sales P 900,000
Cost of Goods sold 400,000 400,000 / 900,000 = 44.4%
Gross profit 500,000 500,000 / 900,000 = 55.5%
Operating expense 200,000 200,000 / 900,000 = 22.2%
Net Income 300,000 300,000 / 900,000 = 33.3%

Net Sales P 900,000
Cost of Goods sold 400,000 400,000 / 900,000 = 44.4%
Gross profit 500,000 500,000 / 900,000 = 55.5%
Operating expense 200,000 200,000 / 900,000 = 22.2%
Net Income 300,000 300,000 / 900,000 = 33.3%
The above may be evaluated as follows:

• The cost of goods sold is 44% of sales. The company has a gross profit rate of 55.5%.
Operating expenses is 22% of sales.
• The company earns income of P 0.33 for every peso of sales. Gross profit generated
for every peso of sale is P 0.555
ACVTIVITY
T H A N K S
Prep. By: Reynald Krypton Guansing

Analysis of Financial Statements

Uploaded by

Copyright:

Available Formats

Analysis of Financial Statements

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Analysis of Financial Statements

Uploaded by

Copyright:

Available Formats

ANALYSIS AND INTERPRETATION

Prep. By: Sir Reynald Krypton Guansing

• Go to 2020 tab and download the audited financial

- What is the asset growth in 2020?

-Horizontal analysis uses financial statement of two or more periods

• Peso change=Balance of Current Year-Balance of Prior year

Sales 250,000 175,000

Peso change = 250,000 - 175,000 = 75,000

This is evaluated as follows: Sales increased by P75,000. This

Sales 250,000 175,000

Peso change = 250,000 - 175,000 = 75,000

This is evaluated as follows: Sales increased by P75,000. This

Cash 110,000 87,400

Accounts Receivable 90,000 69,920

Inventory 129,000 218,500

Prepaid Rent 12,000 4,370

Delivery Van 550,000 493,810

Accounts Payable 75,000 67,298

Loan Payable 400,000 393,300

Anistle Cruz, Capital 416,000 413,402

Total Liabilities & Equity

Sales 810,000 686,000

Cost of Goods Sold 348,300 301,750

Gross Profit 461,700 384,250

Operating Expenses 234,900 205,800

Interest Expense 40,500 17,150

Net Income 186,300 161,300

Net income 250,000 175,000

Peso change = 250,000 - 175,000 = 75,000

This is evaluated as follows: Sales increased by P75,000. This

For the SFP, the base amount is Total Assets.

400,000 / 1,400,000 = 28.6%

250,000 / 1,400,000 = 17.9%

550,000 / 1,400,000 = 39.3%

Sum of the component is 100%

Accounts Payable P 300,000 300,000 / 1,400,000 = 21.4%

Notes Payable 400,000 400,000 / 1,400,000 = 28.6%

Owner, Capital 700,000 700,000 / 1,400,000 = 50.0%

Total Liab. & Equity P 1,400,000 Sum of the component is 100%

400,000 / 1,400,000 = 28.6%

250,000 / 1,400,000 = 17.9%

550,000 / 1,400,000 = 39.3%

Sum of the component is 100%

Accounts Payable P 300,000 300,000 / 1,400,000 = 21.4%

Notes Payable 400,000 400,000 / 1,400,000 = 28.6%

Owner, Capital 700,000 700,000 / 1,400,000 = 50.0%

Total Liab. & Equity P 1,400,000 Sum of the component is 100%

Net Sales P 900,000

Cost of Goods sold 400,000 400,000 / 900,000 = 44.4%

Gross profit 500,000 500,000 / 900,000 = 55.5%

Operating expense 200,000 200,000 / 900,000 = 22.2%

Net Income 300,000 300,000 / 900,000 = 33.3%

Cost of Goods sold 400,000 400,000 / 900,000 = 44.4%

Gross profit 500,000 500,000 / 900,000 = 55.5%

Operating expense 200,000 200,000 / 900,000 = 22.2%

Net Income 300,000 300,000 / 900,000 = 33.3%

The above may be evaluated as follows:

Prep. By: Reynald Krypton Guansing

You might also like