ASSETS Horizontal analysis of financial statements is also known as trend analysis.

It involves comparison of a financial ratio, a benchmark, or a line item over a number of accounting periods. It also allows the assessment of relative changes in different items over time. Based on the comparative balance sheet of PAGCOR primarily the assets portion, cash items (Cash on Hand Cash in Bank - Local Currency Cash in Bank - Foreign Currency, and Treasury Fund Capital) have increased in 2011. It represents corporations resources, liquidity and ability to support its investment and liabilities but with a Statement of Cash flows, cash inflows and outflows can be interpreted further. Receivables-Net items (Officers and Employees, Allowance for Doubtful Account, Due from Officers and Employees, Interest Receivable) have also increased in the year 2011. The determinant of accounts receivables is the companys credit policy, which affects its sale. The inventory comprises of other supplies, spare parts, merchandise, office supplies, food supplies, construction materials, and raw materials, work in process, finished goods and other accountable forms. There is a minimal increase of Inventory in the year 2011. Prepayments include payments incurred by the corporation but the benefits of which has not yet received. In the year 2011, the corporation incurred a large portion of prepayments. It indicates that the corporation engaged with

advance payments in terms of their resources. Other receivables under the noncurrent assets have decreased in the year 2011 that refers to trade receivables from other companies, individuals and organizations, such as gasoline/oil withdrawals by the National Parks Development Committee and amount due from bingo franchises. Meanwhile, other assets have increased in 2011 that comprises of Miscellaneous Deposits, Advances to Provident Fund, Deferred Charges and Guarantee Deposits. The Property, Plant and Equipment of the corporation refer to tangible assets that are held for the purpose of service and other administrative purposes, and other assets held by the corporation in relation to their business operations.

LIABILITIES AND EQUITY A current liability is expected to be settling in its normal operating cycle for trading purposes. On the other side, liability is classified as non-current if it is settled not within twelve months after the reporting period. Accounts Payable is a liability arising from the purchase of goods, materials, supplies or service. In the presented balance sheet, accounts payable represents 33% of the corporations current liabilities. This liability is a source of financing in a sense that it spontaneously arises from the ordinary course of business transactions. Inter Agency Payables that is consisting of Due to National Treasury, Due

to Bureau of Internal Revenue, Due to Other National Government Agencies, Due to Pag-Ibig, Due to PHILHEALTH, and Due to Other Government-Owned and -Controlled Corporations and Due to Local Government Units have decreased by 25.51% in 2011. The Intra Agency Payables that is consisting of Due to PAGCOR Retirement Fund and Due to Retired/Separated Employees have also decreased in 2011 by almost 50% compared in 2010. On the other hand, deferred credit has also decreased in 2011 by 29.08% that could mean money received in advance but not yet earned. Most of the liabilities have decreased in the year 2011 indicating that the corporation has met to their obligations. On the other hand, Equity account represents the owners' interest in the assets of a business. The owners' interest is the part of assets that is left after all liabilities are paid. In this case, corporations 42.53% equity represents assets that are financed by equity.

INCOME AND EXPENSE

Philippine Accounting Standards and Interpretation (PAS 1) defines income as an increase in economic benefits during the period that results in increase in equity, other than from the investors. It may also take place from cash inflow, enhancement of assets or decrease in liability. In 2010, the corporation incurred a loss in foreign exchange. However, in 2011, Income from gaming operations and other related services tend to increase. This made the total income in 2011 increased by 16.48% compared to the previous year. On the other hand, Philippine Accounting Standards and Interpretation (PAS 1) defines expense as a decrease in economic benefit during the accounting period that results in decrease in equity. It may also take place from the outflow or cash, depletion of asset or increase in liability. The operating expense, the franchise tax or the tax levied at the state level against businesses and partnership, Government share to cater far-reaching and wide ranging national programs, Office of the President, the Philippine Sports Commission share for training of the countrys national athletes, Board claims share to provide justice and the Mandated contributions to the NG-others have increased in the year 2011. Even the corporation incurred a 13.26% increase in their total expenses; still its net income has resulted to a 51.39% increase in 2011 because of a 16.48% increase to its total income generated. ASSETS

Vertical analysis of financial statements is a technique in which it is performed for a single accounting period to see the relative proportions of different account balances. It is useful to perform vertical analysis over a number of periods to identify changes in accounts over time. Vertical Analysis is also known as the common size financial statement. In 2011, there is a higher portion of the total current assets in cash items, receivables, prepayments as compared in 2010. Cash has the highest portion of the total current assets for two years indicating that the corporation has available resources to support its investments or to meet its obligations. Receivables have increased in 2011 indicating that the corporation has not yet been collected the other collections or may have a relaxed credit policy. When it comes to the non-current assets, Property, Plant and Equipment has the largest portion in the total assets. It includes purchase price and costs in bringing and maintaining the equipments. Other assets have a minimal increase in amount which is deemed necessary in the operation of the business.

LIABILITIES AND EQUITY In liability section, the Inter-Agency Payables has the largest portion of the total current liabilities for the year 2010. In the same year, the long-term liability has the largest portion of the total liabilities. These liabilities are related to the general financial condition of the corporation rather than to the operating cycle that are due beyond twelve months from the end of the reporting period. This portion of the long-term liability made the corporation to incur a bigger total liabilities and a lower equity. While in 2011, the total liability is smaller than the previous year that resulted to a higher equity.

INCOME AND EXPENSE

Both years-2010 and 2011 have a largest portion of total income in the income from operating gaming-winnings account in which it is the main source of income of the corporation. Secondly is the income from other related services. Even if the corporation incurred a loss in foreign exchange in 2010, still it accumulated a higher portion of the total income from the gaming operationswinnings account compared in 2011.However, there is a higher portion of income from other related services incurred in 2011 compared in 2010. In 2010, the operating expenses that consists of personal and maintenance and other operating expense have the largest portion of the total amount of expenses. Next in line is the mandatory share or the 50% government share in the form of remittances to BIR and National Treasury that are directly to government fund. The Office of the President pertains to the net cash income due to the Presidents Social Fund. The 5% franchise tax paid to the BIR also has a large portion of the total expenses for both years.

B. Ratio Analysis

RATIO ANALYSIS Profitability Ratios Return on Assets Return on Equity Debt management Ratios Debt Ratio Equity Ratio Liquidity Ratios Current Ratio Quick Ratio

2011

2010

13% 30%

9% 28%

56% 44.30%

67% 33.21%

1.58 1.52

1.18 1.12

Ratio analysis involves methods of calculating and interpreting financial ratios to analyze and monitor the firms performance.

Liquidity ratio: It is used to measure the firms ability to meet its short term obligations and to measure the solvency of the firms overall financial position. Current ratio- Generally, the higher the current ratio, the more the firm is liquid but a 2.0 ratio is occasionally acceptable. Current Ratio Current Asset Current Liability

In the 2011, PAGCOR incurred a higher current ratio of 1.58x compared in the previous year. A high current ratio would mean a strong and sound liquidity position but it also indicates that the corporation has too much cash relative to its sale. Too much cash represents inefficient utilization of resources.

Quick ratio- It is also known as acid-test which is similar to current ratio except that it excludes inventory which is the least liquid current asset. Current Asset Inventories Current Liability

Quick Ratio

In year 2011 also, PAGCOR incurred a higher quick ratio of 1.52x compared in the previous year. It proves that the corporation has the ability to pay its short-term obligations without relying on the sale of inventory.

Debt management ratio: It is a set of ratios that measure the firms effectiveness in managing its debt. Debt ratio- It measures the proportion of total assets financed by the firms creditors. The greater this ratio, the greater the firms degree of indebtedness. Debt Ratio Total Debt Total Assets

In 2011, PAGCOR has a decreased debt ratio of 56% compared to 67% in 2010. This means that in 2010, the corporation rely more on the creditors and thus paying a higher interest rates while in 2011, there is a small portion of the total funds provided by the creditors in the corporation. In 2011 also, the corporation also met its outstanding bank loans incurred by the corporation.

Equity ratio- Indicative of the relative proportion of equity applied to finance the assets of a company. Shareholders Equity Total Assets

Equity Ratio

The equity ratio in 2011 is 44.30% as compared in 2010 which is 33.21% only. In 2010, the corporation incurred a lower equity ratio indicates a good result to shareholders if the return of assets is good. While in 2011, the corporations assets is financed by equity and thus indicating that the shareholders are secured in the event of liquidation.

Profitability Ratio: It is used to measure the profitability of the firm in operating and utilizing its assets. Return on Assets- is also called as return on investment that measures the effectiveness of management in generating its profits with its available assets. Return on Assets Net Income Total Assets

PAGCOR incurred a 13% return on assets which is higher compared n 2010 with only 9% of the return of assets. This indicates that the corporation earned 13 cents in each amount of assets investment. It also reflects the corporations effectiveness in handling its resources while generating profits.

Return on Equity- It measures the return earned on the common stockholders investment in the company. Net Income Common Equity

Return on Equity

There is only 2% increase in the return on equity for the year 2011 as compared in 2010. Having a high return on equity, the better off are the owners. The increase of the return may indicate an improvement in managing its assets and proper use of debts.

C. Matrix

ACCOUNT

ANALYSIS Increase of cash items due to cash collections and increase in income. Increases due to cash advances of employees and other collections. Increases due to accumulation of rent, insurance and others.

RISK Inefficient utilization of resources.

PLAN OF ACTION Prepare a cash budget to plan for its productivity purposes. Establish a credit policy in controlling receivables. Engage in contracts dealing with rental and insurance. Set an allowance for uncollected items to have a proper matching against revenue and for the principle of conservatism. Ensure that the resources are well utilized. Engage in early payments to avail discounts.

Cash and cash equivalents

Accounts Receivable-Net

Receivables may be written off as expenses. Loss may incur if the insurance company become bankrupt.

Prepayments

Other receivables

Decreases receivables that mature beyond the reporting period.

Receivables may become uncollected items.

Accounts Payable

Increases due to contractors, suppliers and others.

The liquidity ratio of the corporation will suffer.

Deferred Credits

Decreases in the revenues not yet been earned Increases due licensed casinos, e-games, poker and commercial bingo. Decrease in value of foreign exchange on hand.

Opportunity loss when the qualified employees are not been hired. Possible reporting of understatement of expenses.

Create a human resource and training program.

Income from Other Related Services

.Apply auditing.

Loss on Foreign Exchange

Incurred a loss in the total income.

Make an investment when the value of foreign exchange improves.

Operating Expenses 5% Franchise Tax 50% Government Share Office of the President 5% Philippine Sports Commission Share 1% of Board of Claims Share Mandated Contributions to the NG Others

Increases due to increase of the total income in 2011.

Possibility of no proper matching of cost and revenue.

Apply auditing.