BUSINESS FINANCE

by: MR. PAVI ANTONI D. VILLACERAN, MBA-FM, J.D(c)

WHAT DID WE DISCUSS SO
FAR
1. What is Finance and Financial Planning?
2. What is the Financial Planning Process
3. Securities
4. We discussed about Financial Markets
5. Different types of Income Streams
6. What are considered the Financial Environment
 LEARNING
OBJECTIVES
At the end of the discussion, the learners are able to:
1. Perform vertical and Horizontal Analyses
2. Identify different financial ratios
3. Compute, Analyze and interpret different financial
ratios
 OPENING CASE
Evangeline the Pretty is proud the she is able to prepare the financial
statements of GWAPA KA D Merchandising for year 2018 with
comparative balances for the year 2017.
however, she has no idea how to analyze the information contained
in the financial statements. She wonders
1. Was the business did better during the year 2018 as
compared to prior years
2. She wants to know the business' current standing in the
market and if the business
3. If the business is doing great as compared with prior years
along with other players in the industry
QUESTION
Can Evangeline the Pretty compare the business' 2018 performance
and financial condition as compared with prior year's operations
aloingn with other players in the industry?
ANSWER
A BIG YES!!!

WELCOME TO ANALYSIS AND INTERPRETATION OF

FINANCIAL STATEMENTS
WHAT DO YOU DO?
1. Prepare the Financial Statements
a. Income Statements, Comparative Statements of Financial Position or
Balance Sheet
2. Horizontal or Vertical Analysis
3. Percentage Analysis or Ratio Analysis
4. Ratio Analysis
a. Liquidity Ratios
b. Solvency Ratios
c. Profitability Ratios
d. Activity Ratios
IN ORDER TO MAKE THE
DETAILS FOUND IN THE
FINANCIAL STATEMENTS
MORE USEFUL, SHE
APPROACHES YOU FOR
ADVICE.
What will you tell her?
FINANCIAL STATEMENTS
WHAT TO DO NEXT?
REMEMBER :
This is of major importance to
1. Current and Future Investors
2. Creditors
3. For Financial Decisions
4. For Management
5. Stakeholders and
Shareholders
Things to remember
1. They are highly interrelated
2. It is important to learn how to
go beyond what is found in the
financial statements
3. Extract useful and relevant
information in the Decision-
making process
HORIZONTAL
ANALYSIS
Which is also referred to as trend
analysis, examines the behavior of
individual financial statement items
over different periods of time. It
highlights which items have changed
and how these items have changed
from one period to another and wheter
the change was favorable or not.
PERCENTAGE
ANALYSIS
involves computing for the
percentage relationship between
two amounts
Each change is being expressed as
a percentage of a base year, which
in most case, would be the earliest
year presented
HORITAL ANALYSIS OF COMPARATIVE
INCOME STATEMENT
EXAMINING THE RESULTS, WE CAN OBSERVE THE FOLLING
1. ABC's Sales have substantially increased by 42.86%
2. Cost of Goods sold has increased by 55.12%
3. Operating Expenses increased by almost 60%
4. ABC's reported net income has narrowed down to 5.62%
WHAT IS YOUR ANALYSIS?
WHY THE BUSINESS HAS
LESSER INCOME?
We can easily see that the percentage increase in cost of goods sold and
operating expenses is greater than the percentage increase in the
company'les which resulted in narrow increase in the company's net
income

So, even if more people are buying from her merchandising business, his
profit is not increasing because of higher cost!
EXAMINING THE RESULTS, YOU WILL
NOTICE
• Total Assets increased by 9.31% with merchandise inventory
contributing the highes percentage change, an increase of 34.43%
• Total liabilities have also increassed by 8.42% with most of the
increases coming from current obligation such as salaries utilities and
accounts payable
• Owner's equity increased by 10.38%, The increase in owner's equity
implies an increase in the residual interest of ABC Merchandising's
owner over the firm
ALWAYS REMEMBER
1. users should also take caution in terms of drawing overly simplistic
conclusions based on the results of the analysis
2. Its a limited tool that will not be able to answer all questions about
each financial statements
3. It serves as attention-directing medium
4. You investigate further
VERTICAL ANALYSIS
A vertical analysis uses percentages and compares each financial
statement item with a key financial statement figure.
For statement of Financial Position
1. Commonly expressed as a percentage of total assets
For Income Statement
1. Expressed as a percentage of net sales
VERTICAL ANALYSIS
Financial Statement prepared through percentages related to a
base amount is called common-size financial statement.
VERTICAL ANALYSIS
EXAMINING THE RESULTS
It shows a common size income statement of Shupa ka Di Merchandising.
The following are observed
1. Purchases and cost of goods sold comprised the largest percentage in
relation to total sales for both years
2. Ne Income on the other hand, was reported at 17.29% of sales for 2017
and 12.78% f18

Through this analysis, we can easily see that , indeed, costs have
substantially increased, which in turn, reduced the percentage of sales that
went to net income