Analysis and Interpretation of Financial Statements

Analysis and interpretation of financial statements
Qualitative Characteristics of Financial Statements
Understandability Relevance
Reliability
A. Faithful Representation
B. Substance Over Form

C. Neutrality
D. Prudence/Conservatism
E. Completeness
Comparability
represents the results of operations IV. Statement of III. Statement of The Basic II. Income Revenue, Expenses , Net I. profit or loss, Sheet for the Balance Financial Statements Retained Earnings Cash Flows Statement accounting period.
shows the financial position assets, liabilities and equity the firm on reconciles theowners beginning and of ending balance a particular date. of the retained earnings account reflecting the net income or loss for the period less any dividends paid. provides information about the cash flows and outflows from operating, financing and investing activities during an accounting period.
Assessing information weaknesses in financial statements

Financial statements sometimes do not meet the objective to provide information about the financial position, performance and changes in financial position of an enterprise.
Financial statements are sometimes not understandable, relevant, reliable and comparable.
Financial statements of poor reported quality defeat the basic purpose of readers who wish to have a reasonable knowledge of business and economic activities.
Objectives of Financial Statement Analysis
Managers, investors and lenders analyze financial statements to identify an organizations financial strengths and weaknesses. Current stockholders or owners are concerned about their investment income.
Potential investors are interested in sold companies, ones whose financial statements indicate stable earnings and dividends with limited or moderate growth.
Objectives of Financial Statement Analysis

Short- term creditors are interested in a firms short-run liquidity, its ability to pay current obligations as they mature.
Long-term creditors are concerned about the long-term security of their interest income and the companys ability to maintain earnings and cash flows.
General Approach to Financial Statement Analysis

1. Background study and evaluation of firm industry, economy and outlook 2. Short-term solvency analysis
Indications that a company enjoys a satisfactory shortterm solvency positions are: a. Favorable credit position b. Satisfactory proportion of cash to the requirements of the current volume c. Ability to pay current debts in the regular course of business d. Ability to extend more credit to customers e. Ability to replenish inventory promptly

3. Capital structure and long-term solvency analysis a. Maintain a well-balanced relationship between borrowed funds and owners equity b. Effectively employ borrowed funds and owners equity c. Declare satisfactory amount of dividends to stockholders d. Withstand adverse business conditions e. Engage in research and development to provide new products or improve old products, methods or processes f. Meet their commitment to borrowers and owners

4. Operating Efficiency and Profitability analysis a. Ability to earn a satisfactory return on its investments of borrowed funds and owners equity b. Ability to control operating costs within reasonable limits c. Optimum level of investment in assets
Limitations of Financial Statements Analysis
1. Information derived by the analysis are not absolute measures of performance in any and all of the areas. 2. Limitations inherent in the accounting data the analyst works with. a. variation and lack of consistency in the application of accounting principle, policies and procedures b. too- condensed presentation of data c. failure to reflect change in purchasing power
Limitations of Financial Statements Analysis
3. Limitations of the performance measures or tools and techniques used in the analysis. 4. Analysts should be alert to the potential for management to influence the outcome of financial statements.
Steps in Financial Statement Analysis
1. Establish objectives of the analysis
2. Study the industry in which firm operates and relate industry climate to current and projected economic development. 3. Develop knowledge of the firm and the quality of the management

4. Evaluate financial statements using any of the techniques below. 1. Horizontal Analysis of Comparative Statements 2. Trend Percentages 3. Common size financial statements 4. Financial ratios The major areas that may be covered in the analysis are: a. Short-term solvency b. Capital structure and long-term solvency c. Operating efficiency and profitability d. Segmented analysis

5. Summarize findings based on analysis and reach conclusions about firm relevant to the established objectives.
Factors affecting the interpretation of Data
Prior years data Budget and other targets Industry norms State of the economy Price-level changes
Analysis of business performance and financial position
a. Comparative financial statements
Involves comparing figures shown in the financial statements of two or more consecutive periods. The difference between the figures of the two periods is calculated and the percentage change from one period to the next is calculated, using the earlier period as the base.
Compare Corporation Income Statements For Years Ended December 31 (in thousands of pesos) 2012 P3,280 2,120 P1,160 P350 420 P770 390 30 360 126 P234 P2.34 2011 P2,950 1,917 P1,033 P100 480 P580 453 25 428 149.8 P278.2 P2.78 INCREASE (DECREASE) AMOUNT PERCENT P330 11% 203 11% P127 250 (60) 190 (63) 5 (68) (23.8) (44.20) (0.44) 12
Sales Less cost of sales Gross Income Less operating expenses: Selling Administrative Total operating expenses Income from operations Less interest expense Income before tax Less income tax Net Income Earnings per common share
250 33 (14) 20 (16) (16) (16) (16)
Compare Corporation Statement of Retained Earnings For Years Ended December 31 (in thousands of pesos) 2012 P274 234 P580 150 P358 2011 P145.8 278.2 P424 150 P274 INCREASE (DECREASE) AMOUNT PERCENT P128.2 88% (44.2) (16%) P84 P84 12 31
Retained Earnings, Jan. 1 Add net income Total Less Dividends: Retained Earnings, Dec. 31
Compare Corporation Balance Sheets December 31 (in thousands of pesos) 2012 ASSETS Current Assets Cash P120 Marketable Securities 45 Accounts receivable(net) 210 Merchandise Inventory 150 Other Current Assets 80 Total Current Assets P605 Fixed Assets: Land 210 Building 1,129 Furniture and Fixtures 120 Store & Office Equipments 96 Total 1,555 Less accumulated dep. 360 Total Fixed Assets 1,195 TOTAL ASSETS 1,800 2011 INCREASE (DECREASE) AMOUNT PERCENT
P150 15 180 112 62 P519
(P30) 30 30 38 18 86
(20%) 200 17 34 29 17
120 1,129 98 84 1,431 300 1,131 1,650
90 22 12 124 60 64 150
75 22 14 9 20 6 9
LIABILITIES AND STOCKHOLDERS EQUITY 2012 LIABILITIES Current Liabilities Notes & accounts payable P125 Taxes Payable 85 Other Current Liabilities 82 Total Current Liab. P292 Long term Liabilities P650 Total Liabilities P942 STOCKHOLDERS EQUITY Capital stock, P5 par value, P500 100,000 shares issued & outstanding Retained Earnings 358 Total Stockholders Equity P858 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 1,800 2011
INCREASE (DECREASE) AMOUNT PERCENT
P169 107 P276 P600 P876
(P44) ( 22) 82 16 50 P66
(26%) (21) 6 8 8
P500
274 P774
84 P84
31 11
1,650
150

FORMULA FOR PERCENTAGE CHANGE
a. Comparative financial statements
Percentage Change = Most Recent Value Base Period Value Base Period Value ZERO-BASE 2012 P82 2011 INCREASE (DECREASE) AMOUNT PERCENTAGE P82 -
Other current liabilities
b. Trend Percentages
Comparative figures enhance analysis It would be much better if the company could present comparative data for longer periods so that the analyst could compute a number of year to year comparisons. Long term comparisons are usually more informative and significant than comparisons for only two accounting periods. Unusual changes in economic, political and business conditions may likewise bring about extremely high and low changes between two consecutive periods.
b. Common-size financial statements
is the process of comparing figures in the financial statements of a single period.
These converted statements are called common-size statements, 100 percent statements or component statements.

CONVERSION PROCEDURES
b. Common-size financial statements
1.Balance Sheet total assets represents 100%. Other items on the balance sheet are expressed as percentages of total assets by dividing each item by total assets. 2. Income Statement the sales figure is set at 100%. Each item in the income statement is divided by sales to express such items as percentages of sales.
Compare Corporation Income Statements For Years Ended December 31 (in thousands of pesos) 2012 P3,280 2,120 P1,160 P350 420 P770 390 30 360 126 P234 PERCENT 100% 64.6 35.4 10.7 12.8 23.5 11.9 1.0 10.9 3.8 7.1 2011 P2,950 1,917 P1,033 P100 480 P580 453 25 428 149.8 P278.2 PERCENT 100% 65 35 3.4 16.3 19.7 15.3 0.8 14.5 5.1 9.4
Sales Less cost of sales Gross Income Less operating expenses: Selling Administrative Total operating expenses Income from operations Less interest expense Income before tax Less income tax Net Income
Compare Corporation Balance Sheets December 31 (in thousands of pesos) 2012 ASSETS Current Assets Cash P120 Marketable Securities 45 Accounts receivable(net) 210 Merchandise Inventory 150 Other Current Assets 80 Total Current Assets P605 Fixed Assets: Land 210 Building 1,129 Furniture and Fixtures 120 Store & Office Equipments 96 Total 1,555 Less accumulated dep. 360 Total Fixed Assets 1,195 TOTAL ASSETS 1,800 PERCENT 2011 PERCENT
6.7% 2.5 11.7 8.3 4.4 33.6%
P150 15 180 112 62 P519
9.1 0.9 10.9 6.8 3.8 31.5
11.7 62.7 6.7 5.3 86.4 20 66.4 100%
120 1,129 98 84 1,431 300 1,131 1,650
7.3 68.4 5.9 5.1 86.7 18.2 68.5 100%
LIABILITIES AND STOCKHOLDERS EQUITY 2012 LIABILITIES Current Liabilities Notes & accounts payable P125 Taxes Payable 85 Other Current Liabilities 82 Total Current Liab. P292 Long term Liabilities P650 Total Liabilities P942 STOCKHOLDERS EQUITY Capital stock, P5 par value, P500 100,000 shares issued & outstanding Retained Earnings 358 Total Stockholders Equity P858 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 1,800 PERCENT 2011 PERCENT
6.9 4.7 4.6 16.2 36.1 52.3
P169 107 P276 P600 P876
10.2% 6.5 16.7 36.4 53.1
27.8
P500
30.3
19.9 47.7
274 P774
16.6 46.9
100%
1,650
100%
c. Financial Ratios
are calculated from the financial statements to provide users of such information with relevant information about the firms liquidity, use of leverage, asset management, cost control, profitability, growth and valuation.
c. Financial Ratios Test of Liquidity
Liquidity- the companys ability to pay its short-term current liabilities as they fall due.
1. Current Ratio -also called working capital ratio or bankers ration - measures the number of times that the current liabilities could be paid with the available current assets.
CURRENT RATIO = Current Assets Current Liabilities
2. Acid Test Ratio -also called Quick Ratio - measures the firms ability to pay its short-term debts from its most liquid assets without having to rely on inventory QUICK RATIO= Quick Assets Current Liabilities Cash + Marketable securities + Receivables Current Liabilities
OR
3. Receivables Turnover -the time required to complete one collection cycle. - the faster the cycle completes, the more quickly receivables are converted into cash. RECEIVABLES TURNOVER= Net credit sales Average receivables AVERAGE RECEIVABLES = Beginning Balance + Ending Balance 2 AVERAGE AGE OF RECEIVABLES = Number of Working Days in a year Receivables Turnover
4. Inventory Turnover -Measures the number of times that inventory is replaced during the period. MERCHANDISING FIRM INVENTORY TURNOVER= COGS Average Merchandise Inventory
AVERAGE MERCHANDISE INVENTORY = Beginning Balance + Ending Balance 2 AVERAGE AGE OF INVENTORY = Number of Working Days in a year Inventory Turnover
MANUFACTURING FIRM RAW MATERIALS TURNOVER = Cost of Raw Materials Used Average Raw Materials Inventory
GOODS IN PROCESS TURNOVER = Cost of Goods Manufactured Average Goods in Process Inventory FINISHED GOODS TURNOVER = Cost of Goods Sold Average finished goods inventory
5. Trade payables Turnover -Concern to the firms internal management and its trade creditors
PAYABLES TURNOVER =
Net Credit Purchases Average Trade Inventory Number of Working Days in a year Payables Turnover
AVERAGE AGE OF PAYABLES =
6. Current Assets Turnover - measures the movement and utilization of current assets to meet operating requirements
CURRENT ASSETS TURNOVER =
Cost of Sales + Operating Expenses Average Current Assets
c. Financial Ratios Test of Solvency
Solvency- the companys ability to pay all its debts, whether such liabilities are current or noncurrent.
1. Times Interest Earned - the extent to which operations cover interest expense.
TIMES INTEREST EARNED = Income before tax + Interest Expense Interest Expense
2. Debt Equity Ratio - compares resources provided by creditors with resources provided by shareholders DEBT- EQUITY RATIO = Total Liabilities Total Owners Equity
3. Debt Ratio - measures the percentage of funds provided by creditors DEBT RATIO = Total Liabilities Total Assets
4. Equity Ratio - indicates the percentage of total assets provided by the owners or stockholders. EQUITY RATIO = Total Owners Equity Total Assets
c. Financial Ratios Test of Profitability
- Measures earnings in relation to some basis such as assets, sales or capital
RATE OF RETURN=
Income Investment
1.Return on Sales -Measures the amount of income provided by the average peso sales. RETURN ON SALES = Income Net Sales GROSS PROFIT RATIO = Gross Profit Net Sales

2. Net Profit Ratio NET PROFIT RATIO = Net Profit Net Sales
3. Return on Total Assets -Measure of operating efficiency RETURN ON ASSETS = Income before Interest and Taxes Average Total Assets OR = Net Income + Interest Expense + Income Tax Average Total Assets

4. Return on Total Assets -Measure of operating efficiency
RETURN ON ASSETS = Income before Interest and Taxes Average Total Assets OR = Net Income + Interest Expense + Income Tax Average Total Assets
5. Return on Owners Equity -Measures the amount earned on the owners (or stockholders) investment. RETURN ON OWNERS EQUITY = Net Income Average Owners Equity Net Income Average Stockholders Equity
RETURN ON STOCKHOLDERS EQUITY =
RETURN ON COMMON EQUITY= Net income preferred Dividends Average Common Stockholders Equity
6. Earnings Per Share -considered as one of the most important indications of profitability because: a.It can easily be compared to previous EPS figures b. It can be compared to the EPS figures of other companies c. Investors or stockholders find it convenient to see the amount earned for a single shared of stock
EARNING PER SHARE = Net income Preferred Dividends (if any) Weighted Average Number of Common Shares
c. Financial Ratios Market Test
- To evaluate the stocks performance and attractiveness in the stock market
1.Price-earnings Ratio -Ratio of the current price per share to the earnings per share of stocks
PRICE-EARNINGS RATIO (P/E) = Price per Share Earnings per share
c. Financial Ratios Market Test
2. Dividend Yield -Measure the rate of return in the investors common stock investment DIVIDEND YIELD = Dividend per Share Price per share
3. Dividend Payout -Ratio of dividends per share to earnings per share

DIVIDEND PAYOUT = Common Dividend Per Share Earnings Per Share
Cash Flow Analysis
Nature and Purpose
Provides information about cash inflows and outflows during an accounting period as well as the net change in cash from the operating , investing and financing activities in a manner that reconciles the beginning and ending cash balances. (SFAS No. 22) To provide relevant information about a companys cash receipts and cash payments during an accounting period.
Cash Flow Analysis
Nature and Purpose
The SFAS #22 states that the information in a statement of cash flows, if used with information in the other financial statements, should help external users to assess: 1. a companys ability to generate positive future net cash flows 2. a companys ability to meet its obligations and pay dividends 3. a companys need for external financing 4. the reasons for differences between a companys net income and associated cash receipts and payments 5. both the cash and noncash aspects of a companys financing and investing transactions during the accounting period
Cash Flow Analysis
The Basic Approach to a Statement of Cash Flows
Cash equivalents consist of short-term, highly liquid investments such as treasury bills, SEC registered commercial papers and money market funds. Such investments are made solely for the purpose of generating a return on funds that are temporarily idle.
Cash Flow Analysis
Classification of Cash Flow Activities
OPERATING ACTIVITIES -Include delivering or producing goods for sale and providing services; and the cash effects of transactions and other events that enter into the determination of income.
INVESTING ACTIVITIES -Include acquiring and selling or otherwise disposing of (a) securities that are not cash equivalents and (b) productive assets that are expected to benefit the firm for long periods of time; and lending money and collecting on loans. FINANCING ACTIVITIES - Include borrowing from creditors and repaying the principal; and obtaining resources from owners and providing them with a return on the investment.
Cash Flow Analysis
Content and Form of the Statement of Cash Flows
A.Net Cash 1. Provided or used by operating activities 2. Provided or used by investing activities 3. Provided or used by financing activities B. Net effect of those flows on cash and cash equivalents during the period in a manner that reconciles the beginning and ending cash and cash equivalents. C. Noncash investing and financing activities affecting the financial position
Cash Flow Analysis
Calculating Cash Flow from Operating Activities
DIRECT METHOD
- enterprises are encourage to report major classes of gross cash receipts and gross cash payments and the net cash flow from operating activities. 1.Cash collected from customers, including lessees, licensees and the like 2. Interest and dividends received 3. Other operating cash receipts, if any 4. Cash paid to employees and other suppliers of goods or services 5. Interest paid 6. Income taxes paid 7. Other operating payments, if any
Cash Flow Analysis

PLUS

Net Income
Decreases in current assets (except cash, marketable securities and non-trade accounts Increases in current liabilities (except financing or non-operating accounts) Depreciation, depletion, and amortization expense Amortization of discount on bonds payable Amortization of premium on investment in bonds Increase in deferred income taxes Loss (net) on disposal of assets or liabilities Subsidiary loss under the equity method
MINUS
Increases in current assets (except cash, marketable securities and non-trade accounts) Decreases in current liabilities (except financing or non-operating accounts) Amortization of premium on bonds payable Amortization of discounts on investment in bonds Decrease in deferred income taxes Gain (net) on disposal of assets or liabilities Subsidiary gain under the equity method
EQUALS
Net Cash Flow From Operating Activities
Cash Flow Analysis
INDIRECT METHOD
- enterprises that choose not to provide the major classes of operating cash receipts and payments by the direct method shall determine and report the same amount of net cash flow from operating activities indirectly by adjusting net income to reconcile it to net cash flow from operating activities.
Cash Flow Analysis
Procedures in Preparing the Statement of Cash Flows
A. Visual Inspection Method

-Used when the financial statements are not complex and when the relationships between the changes in account balances can be easily observed and analyzed. Step 1. Prepare the heading for the SCF and list the three major sections: a. Net cash flow from operating activities b. Cash flow from investing activities c. Cash flow from financing activities Step 2. Determine the net change in cash that occurred during the accounting period. Step 3. Determine the companys net income and list this amount as the first item in the net cash flow from operating activities section
Cash Flow Analysis
Step 4. Determine whether the increase or decrease in each balance sheet account caused an inflow or outflow of cash and if so whether to an operating, investing or financing activity. Step 5. If no cash flow occurred, determine whether the increase or decrease in each balance account (except cash) was the result of a noncash income statement item or a simultaneous investing and financing transaction. If the former, determine the adjustment to help convert net income to the net cash from operating activities. If the latter, identify the components of the simultaneous investing and financing activity.
Step 6. Complete the various sections of the SCF 9based on the analysis in step 4 and 5). Check that the subtotals of the sections sum to the net change (increase or decrease) in cash (from step 2) and that the sum of the net change and cash and the beginning cash balance is equal to the ending balance reported on the balance sheet.
Cash Flow Analysis
B. Worksheet Method of Analysis

-Is commonly used in practice because analysis of even the most complex set of financial statements may be documented in a relatively concise working paper. Step 1. Prepare the column headings on a worksheet. Enter the accounts from the balance sheets together with their beginning and ending account balance and the net change in the account balance. Total amount columns being sure that the debit totals equal the credit totals. Step 2. Directly below these accounts add the following headings: A. Net Cash Flow from Operating Activities B. Cash Flow from Investing Activities C. Cash Flow from Financing Activities D. Investing and Financing Activities Not Affecting Cash
Cash Flow Analysis
Step 3. Account for all the changes in the noncash accounts that occurred during the current period. Reconstruct the journal entries that caused the changes in the noncash accounts directly on the worksheet making certain modifications show the cash inflows and outflows related to operating, investing and financing activities. Use the following general rules for reconstructing the journal entries. 1.Start with net income. Debit to the caption Net Income under the heading Net Cash Flow from Operating Activities and a credit to Retained Earnings. 2. Account for all the changes in the current asset and current liability accounts (except cash and non-trade accounts) 3. Account for the changes in the noncurrent accounts. Identify whether the transactions involves an operating, investing or financing activity an make the entry on the worksheet.
Cash Flow Analysis
Step 4. Make a final worksheet entry to record the net change in cash. The difference between the total cash inflows and outflows must be equal to the change in the cash account. Step 5. Prepare the Statement of Cash Flows and accompanying schedule.
Gross Profit Variance Analysis

To conduct a meaningful analysis of the variation in gross profit, the actual gross profit during a given period maybe compared with any of the following:
a. The immediately preceding periods figures or any previous periods figures selected as the base for comparison. b. The same periods budgeted or standard figures

Changes in gross profit may be attributed to the change in any, or a combination of the following factors: 1. Selling price(s) of the product(s) 2. Volume or quantity of products(s) sold which, in turn, maybe due to change in: a. Number of physical units sold (when the company sells only one product line), and b. Product mix or sales mix which refers to the composition of the products sold (this is applicable to companies selling more than one product line) 3. Cost of the product sold: a. For merchandising firms, cost refers to the net purchase cost of the product b. For manufacturing firms, cost includes the three manufacturing cost elements, namely, materials, labor and factory overhead.
4-Way Analysis
Sales Variance: Sales Price Factor: 19B Sales Less 19B Sales @ 19A sales price Sales Volume Factor: 19B Sales @ 19A sales price Less 19A Sales Cost Variance: Cost Price Factor: 19B Cost of sales Less 19B Cost of sales @ 19A cost price Cost Volume Factor: 19B Cost of sales @ 19A cost price Less 19A Cost of sales Net Change in Gross Profit
XX XX
XX XX
XX
XX
XX
XX XX
XX XX XX
XX
XX
XX
4-Way Analysis
Sales Variance: Price Factor = Difference in selling prices x 19B units Volume or Quantity factor = Difference in units x 19A selling price
Cost Variance: Price Factor = Difference in cost prices x 19B units Volume or Quantity factor = Difference in units x 19A cost price
6-Way Analysis
Sales Variance: Price Factor = Difference in selling prices x 19A units Volume or Quantity factor = Difference in units x 19A selling price Price-volume factor = Difference in selling price x Difference in units Cost Variance: Price Factor = Difference in cost prices x 19A units Volume or Quantity factor = Difference in units x 19A cost price Price-volume factor = Difference in selling price x Difference in units
Price Factor change in selling or cost prices assuming that there has been no change in units sold. Volume or Quantity factor change in the number of units sold assuming that there has been no change in the selling or cost prices Price-volume factor- sales or cost of sales variances due to the combined effects of the differences in prices and units sold.
3-Way Analysis
Quantity or Volume Factor = Difference in units x 19A Gross Profit Per Unit Price Factor Cost Factor = Difference in selling prices x 19B units = Difference in cost prices x 19B units
Quantity Factor change in gross profit due to the difference in units sold Price Factor change in gross profit due to the difference in selling prices Cost factor change in gross profit due to the difference in cost prices.
EXAMPLE
JAM CORPORATION
Sales Volume in units Selling price per unit Cost per unit
2012 5,000 P10 7
2011 8,000 P8 6
Gross Profit Figures may be computed as follows: 2012 2011 Increase (Decrease) Sales 50,000 64,000 (P14,000) U Cost of Sales 35,000 48,000 ( 13,000) F Gross Profit 15,000 16,000 (P1,000) U

Sales Variance:
EXAMPLE 4-Way Analysis
Sales Price Factor: 19B Sales Less 19B Sales @ 19A sales price Sales Volume Factor: 19B Sales @ 19A sales price Less 19A Sales
Cost Variance: Cost Price Factor: 19B Cost of sales Less 19B Cost of sales @ 19A cost price Cost Volume Factor: 19B Cost of sales @ 19A cost price Less 19A Cost of sales Net Change in Gross Profit
XX XX XX XX
XX
XX
XX
XX XX XX XX XX
XX
XX
XX
2012 5,000 P10 7
2011 8,000 P8 6
Sales Variance: Price Factor = Difference in selling prices x 19B units Volume or Quantity factor = Difference in units x 19A selling price
Cost Variance: Price Factor = Difference in cost prices x 19B units Volume or Quantity factor = Difference in units x 19A cost price
2012 5,000 P10 7
2011 8,000 P8 6
Sales Variance: Price Factor = Difference in selling prices x 19A units Volume or Quantity factor = Difference in units x 19A selling price Price-volume factor = Difference in selling price x Difference in units Cost Variance: Price Factor = Difference in cost prices x 19A units Volume or Quantity factor = Difference in units x 19A cost price Price-volume factor = Difference in selling price x Difference in units
2012 5,000 P10 7
2011 8,000 P8 6
Quantity or Volume Factor = Difference in units x 19A Gross Profit Per Unit
Price Factor
Cost Factor
= Difference in selling prices x 19B units

= Difference in cost prices x 19B units
2012 5,000 P10 7
2011 8,000 P8 6
Analysis for Two or More Products
Sales Mix Variance: 19B Sales @ 19A sales price Less 19B Sales @ 19A cost price Difference Less 19B units @ 19A average gross profit Sales Mix Variance Final Sales Volume Variance: 19B units @ 19A average gross profit Less 19A gross profit
XX XX XX XX XX
XX XX
Final Sales Volume Variance
XX
EXAMPLE
White Jam Corporation 2012 2011 (base year) Product J Product A Product M Product J Product A Product M Sales volume in units 400 350 1,000 500 200 1,000 Selling Prices per unit P4 P5 P3 P4.20 P4.50 P2.80 Cost per unit 1.60 2 1.20 1.68 1.80 1.12
EXAMPLE
The amount of gross profits may be computed as follows: 2012 Sales: Product J A M Total sales Less Cost of Sales: Product J A M Total COS Gross Profit 1,600 1,750 3,000 6,350 640 700 1,200 2,540 3,810 2011 Sales: Product J A M Total sales Less Cost of Sales: Product J A M Total COS Gross Profit 2,100 900 2,800 5,800 840 360 1,120 2,320 3,480 Increase (Decrease)
P550
220 U 330
EXAMPLE
Sales Variance: Sales Price Factor: 19B Sales Less 19B Sales @ 19A sales price Sales Volume Factor: 19B Sales @ 19A sales price Less 19A Sales Cost Variance: Cost Price Factor: 19B Cost of sales Less 19B Cost of sales @ 19A cost price Cost Volume Factor: 19B Cost of sales @ 19A cost price Less 19A Cost of sales Net Change in Gross Profit
XX XX
XX XX
XX
XX
XX
XX XX
XX XX XX
XX
XX
XX
EXAMPLE
Sales Mix Variance: 19B Sales @ 19A sales price Less 19B Sales @ 19A cost price Difference Less 19B units @ 19A average gross profit Sales Mix Variance Final Sales Volume Variance: 19B units @ 19A average gross profit Less 19A gross profit
XX XX XX XX XX
XX XX
Final Sales Volume Variance
XX

Analysis and Interpretation of Financial Statements

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Analysis and Interpretation of Financial Statements

Hochgeladen von

Copyright:

Verfügbare Formate

Analysis and interpretation of financial statements

Qualitative Characteristics of Financial Statements

B. Substance Over Form

Assessing information weaknesses in financial statements

Objectives of Financial Statement Analysis

Objectives of Financial Statement Analysis

General Approach to Financial Statement Analysis

General Approach to Financial Statement Analysis

General Approach to Financial Statement Analysis

Limitations of Financial Statements Analysis

Limitations of Financial Statements Analysis

Steps in Financial Statement Analysis

1. Establish objectives of the analysis

Steps in Financial Statement Analysis

Steps in Financial Statement Analysis

Factors affecting the interpretation of Data

Analysis of business performance and financial position

a. Comparative financial statements

250 33 (14) 20 (16) (16) (16) (16)

P150 15 180 112 62 P519

120 1,129 98 84 1,431 300 1,131 1,650

INCREASE (DECREASE) AMOUNT PERCENT

P169 107 P276 P600 P876

(P44) ( 22) 82 16 50 P66

Analysis of business performance and financial position

a. Comparative financial statements

Other current liabilities

Analysis of business performance and financial position

Analysis of business performance and financial position

b. Common-size financial statements

is the process of comparing figures in the financial statements of a single period.

Analysis of business performance and financial position

b. Common-size financial statements

6.7% 2.5 11.7 8.3 4.4 33.6%

P150 15 180 112 62 P519

9.1 0.9 10.9 6.8 3.8 31.5

11.7 62.7 6.7 5.3 86.4 20 66.4 100%

120 1,129 98 84 1,431 300 1,131 1,650

7.3 68.4 5.9 5.1 86.7 18.2 68.5 100%

6.9 4.7 4.6 16.2 36.1 52.3

P169 107 P276 P600 P876

10.2% 6.5 16.7 36.4 53.1

Analysis of business performance and financial position

Analysis of business performance and financial position

c. Financial Ratios Test of Liquidity

Analysis of business performance and financial position

c. Financial Ratios Test of Liquidity

Analysis of business performance and financial position

c. Financial Ratios Test of Liquidity

Analysis of business performance and financial position

c. Financial Ratios Test of Liquidity

Analysis of business performance and financial position

c. Financial Ratios Test of Liquidity

Analysis of business performance and financial position

c. Financial Ratios Test of Liquidity

AVERAGE AGE OF PAYABLES =

Analysis of business performance and financial position

c. Financial Ratios Test of Liquidity

CURRENT ASSETS TURNOVER =

Cost of Sales + Operating Expenses Average Current Assets

Analysis of business performance and financial position

c. Financial Ratios Test of Solvency