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03 FINANCIAL STATEMENT
ANALYSIS
J. VILLENA, CPA
HORIZONTAL ANALYSIS
- Presents the differences in absolute amount and in percentage between two
periods.
- % of change = Amount of Change / Base
SAMPLE PROBLEM 1
DAVID Corporation
Balance Sheet
Comparative figures of December 31, 2015 and 2016
Increase (Decrease)
Assets 2015 2016 Amount Percenta
ge
Cash and Cash Equivalents 400 600
Trade and other receivables 2,600 2.900
Inventories 1,200 1,000
Long term investments 2,000 2,200
Property and equipment 4,000 4,400
Other assets 0 400
Total Assets 10,2 11,50
00 0
LIABILITIES & EQUITY
Trade and other payables 3,000 3,500
Bond Payable 500 400
Discount on bonds payable (20) (18)
Ordinary Share Capital 3,100 3,200
Share Premium 2,000 2,200
Retained Earnings 1,620 2,218
Total Liabilities and Equity 10,2 11,50
00 0
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FIM01- FINANCIAL MANAGEMENT
03 FINANCIAL STATEMENT
ANALYSIS
J. VILLENA, CPA
TREND ANALYSIS
- The purpose of trend analysis is to track down what happened in the past and
provide a pattern on what may happen in the coming years.
SAMPLE PROBLEM 2
Ratio
VERTICAL ANALYSIS
- Gets the proportional component of each of the variables in the financial
statements in relation to a chosen base (100%).
- By expressing the financial data in percentage using a particular base, the size
of different companies is brought to a common expression.
SAMPLE PROBLEM 3
Let us assume the following income statement data of two companies, Alden
and Maine Corporation.
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FIM01- FINANCIAL MANAGEMENT
03 FINANCIAL STATEMENT
ANALYSIS
J. VILLENA, CPA
SAMPLE PROBLEM 4
DAVID Corporation
Balance Sheet
Comparative figures of December 31, 2015 and 2016
COMMON SIZE
Assets 2015 2016
ANALYSIS
2015 2016
Cash and Cash Equivalents 400 600
Trade and other receivables 2,600 2.900
Inventories 1,200 1,000
Long term investments 2,000 2,200
Property and equipment 4,000 4,400
Other assets 0 400
Total Assets 10,2 11,50
00 0
LIABILITIES & EQUITY
Trade and other payables 3,000 3,500
Bond Payable 500 400
Discount on bonds payable (20) (18)
Ordinary Share Capital 3,100 3,200
Share Premium 2,000 2,200
Retained Earnings 1,620 2,218
Total Liabilities and Equity 10,2 11,50
00 0
RATIO ANALYSIS
1. Profitability Ratios
2. Growth Ratios
3. Liquidity Ratios
4. Leverage Ratios
PROFITABILITY RATIOS
Return on Sales (ROS) = Profit/Net Sales
Return on Asset (ROA)= Profit/ Average Total Assets
Return on Equity (ROE) = Profit/Average Equity
Return on Ordinary Equity= Profit - Preference Dividends
Average Ordinary SHE
Earnings per Share (EPS) = Profit-Preference Dividends
Average shares outstanding
SAMPLE PROBLEM 5
The following selected data were taken from the financial records of GMA
Corporation.
Net Income P 1,000,000
Average total assets 12,000,000
Net Sales 20,000,000
10% cumulative preference shares, P100 par,
Liquidation value, P120, 20,000 shares issued 2,000,000
Ordinary Shares, P30 par, 220,000 shares issued, 6,600,000
treasury Shares, 20,000
GROWTH RATIOS
Price Earnings Ratio = Market Price per share / EPS
Dividend yield ratio = Dividend per share / Market price per share
Dividend payout ratio = Dividend per share / EPS
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FIM01- FINANCIAL MANAGEMENT
03 FINANCIAL STATEMENT
ANALYSIS
J. VILLENA, CPA
SAMPLE PROBLEM 6
ABS-CBN Corporation provided the following selected financial data of GMA
NEWS-TV Corporation on December 31, 2016. The company did not declared
dividends in 2015.
Earnings per share P 25
Market dividend per share 125
Dividend per common shares 10
Net shareholders equity 4,200,000
12% Preference share, P60 par
200,000 shares issued and outstanding
Liquidation value, P90 1,200,000
Ordinary shares outstanding 80,000
Determine the following:
1. Price Earnings Ratio
2. Dividend yield ratio
3. Dividend payout ratio
4. Book Value of Ordinary and
Preference
LIQUIDITY RATIOS
Inventory Turnover = Cost of Sales / Average inventories
Receivable Turnover = Net credit sales / Average trade receivables
Payable Turnover = Net credit purchases / Average trade payables
Age = Days in a year / Turnover
Operating Cycle = Age of Inventory + Age of Receivable
Net cash cycle = Operating cycle Age of Payable
Current Ratio = Current Asset / Current Liabilities
Quick Asset Ratio = Quick Assets / Current Liabilities
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FIM01- FINANCIAL MANAGEMENT
03 FINANCIAL STATEMENT
ANALYSIS
J. VILLENA, CPA
RECEIVABLES TO NET
CREDIT SALES.
Age of Receivable Measures the average
number of days to collect
its receivable.
Payable Turnover Reflects how effective the
business in utilizing the
trade credit line offered by
supplier.
Age of Payable Determines whether the
firm is paying its invoices
on a timely basis.
Operating cycle Measures the average
number of days to convert
inventories to cash.
Net cash cycle Measures the average
number of days is
available before payment
to creditors.
SECONDARY RATIOS
Current Ratio The ability to meet its
current obligation in
relation to its current
assets.
Ability in paying short
term obligations.
Quick Ratio Measures the ability of the
firms to pay its ST debts
from its most liquid asset.
Working Capital The amount needed in the
firms business to operate.
SAMPLE PROBLEM 7
The following selected financial data from the records of David Corporation and
Dean Corporation as of and for the year ended December 31, 2016.
David Corp. Dean Corp.
Net credit sales P60M 120M
Cost of goods sold 20M 45M
Net credit purchases 20M 43M
Average trade receivables 4M 4M
Average inventories 2M 2M
Average trade payables 3.5M 3.5M
Sales credit terms 2/10, n/30 2/10, n/30
Purchase credit terms 3/30, n/60 3/30, n/60
2. Age of Inventory
3. Receivable Turnover
4. Age of Receivable
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FIM01- FINANCIAL MANAGEMENT
03 FINANCIAL STATEMENT
ANALYSIS
J. VILLENA, CPA
5. Payable Turnover
6. Age of Payable
7. Operating Cycle
SAMPLE PROBLEM 8
Say, we have two companies with the same total equity of P200 million pesos.
However, they raised the money needed to finance investments differently as
follows:
A. Co. B. Co.
Debt, 10% 40,000,000 160,000,000
Shareholders Equity 160,000,000 40,000,000
EBIT 50,000,000 50,000,000
Debt Ratio
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FIM01- FINANCIAL MANAGEMENT
03 FINANCIAL STATEMENT
ANALYSIS
J. VILLENA, CPA
-END OF FSA-
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