Financial Statements

by:
Jamnague, Cyrene
Regis, Claire
Breboneria, Eric
Titco, Seanrell
Mañoso, Eric
Sanquina, Patrick John
Teodoro, Jeff
Cabias, John Ernest
 Financial statements are a collection
of summary-level reports about an
organization's financial results,

What are
financial position, and cash flows.

Financial
They include the income statement,
balance sheet, and statement of cash

Statements?
flows.

A report that shows the financial

activities and performance of a
business.

It is used by lenders and investors to

check a business’s financial health
and earnings potential.
Advantages of Financial
Statement

To determine the ability of a business to generate cash, and the

sources and uses of that cash.
To determine whether a business has the capability to pay back
its debts.
To track financial results on a trend line to spot any looming
profitability issues.
To derive financial ratios from the statements that can indicate
the condition of the business.
To investigate the details of certain business transactions, as
outlined in the disclosures that accompany the statements.
To use as the basis for an annual report, which is distributed to a
company’s investors and the investment community.
Disadvantages of Financial Statements

A possible concern is that they can be

fraudulently manipulated, leading investors to
believe that the issuing entity has produced
better results than was really the case.

Financial statements are entirely historical in

nature, and so can be misleading when used to
project the future results of a business.
Types of Financial
Statement
Balance Sheet
A financial report that summarizes a
company’s assets and liabilities plus
owner’s equity.
According to The Free Dictionary, a
balance sheet is: “A statement of a
company’s assets, liabilities, and
stockholder equity at a given period of
time, such as the end of a quarter or year.
A balance sheet is a record of what a
company has and how it has come to
have it.”
3 Main Section of
Balance Sheet
Assets- which are probable future
economic benefits owned or
controlled by the entity
Liabilities- which are probable
future sacrifices of economic
benefits
Owners’ Equity- calculated as the
residual interest in the assets of an
entity after deducting liabilities.
Income Statement
Also known as profit and loss (P&L)
statements, income statements
summarize all income and expenses
over a given period, including the
cumulative impact of revenue, gain,
expense, and loss transactions.
 THE INCOME STATEMENT
VS.
THE BALANCE SHEET
While the definition of an income statement may
remind you of a balance sheet, the two documents are
designed for different uses. An income statement
tallies income and expenses; a balance sheet, on the
other hand, records assets, liabilities, and equity.
 PURPOSE OF AN INCOME STATEMENT
To show a company’s financial performance over a period. It tells the
financial story of a business’s activities.
Within an income statement, you’ll find all revenue and expense
accounts for a set period.
From an income statement and other financial documents, such as the
cash flow statement, balance sheet, and annual report, you can
determine whether the business is generating a profit; if it’s spending
more than it earns; when costs are highest and lowest; how much it’s
paying to produce its product; and whether it has the cash to invest
back into the business.
 Major Components
of Income Statement
Revenue or sales:
This is the first section on the income statement, and it gives you a
summary of gross sales made by the company.
can be classified into two types: operating and non-operating.
Operating revenue refers to the revenue gained by a company by
performing primary activities like manufacturing a product or providing
a service.
Non-operating revenue is gained by performing non-core business
activities such as installation, operation, or maintenance of a system.
 Major Components
of Income Statement
Cost of goods sold (COGS):
This is the total cost of sales or services, also referred
to as the cost incurred to manufacture goods or
services.
Keep in mind that it only includes the cost of products
which you sell.
COGS does not usually include indirect costs, like
overhead.
 Major Components
of Income Statement
Gross profit:
Defined as net sales minus the total cost of goods
sold in your business.
Net sales is the amount of money you brought in for
the goods sold, while COGS is the money you spent to
produce those goods.
 Major Components
of Income Statement
Gains:
A result of a positive event that causes an
organization’s income to increase.
Indicate the amount of money realized by the
company from various business activities like the
sale of an operating segment.
 Major Components
of Income Statement
Expenses:
The costs that the company has to pay in order to
generate revenue.
Some examples of common expenses are
equipment depreciation, employee wages, and
supplier payments.
 Two Main Categories for Business
Expenses:
Operating expenses - Expenses generated by
company’s core business activities
-Examples: Sales commission, pension contributions,
payroll account
Non-operating expenses - the ones which are not
generated by core business activities
-Examples: obsolete inventory charges or settlement of
lawsuit.
 Business Expenses:
Advertising expenses: These expenses are
simply the marketing costs required to expand
the client base. They include advertisements in
print and online media as well as radio and
video ads. Advertising costs are generally
considered part of Sales, General &
Administrative (SG&A) expenses.
 Business Expenses:
Administrative expenses: It can be defined as the
expenditure incurred by a business or company as a
whole rather than being the ones associated with specific
departments of the same company. Some of the
examples of administrative expenses are salaries, rent,
office supplies, and travel expenses. Administrative
expenses are fixed in nature and tend to exist irrespective
of the level of sales.
 Major Components
of Income Statement
Depreciation:
Refers to the practice of distributing the cost of a
long-term asset over its life span.
a management accord to write off a company’s
asset value but it is considered a non-cash
transaction.
mainly shows the asset value used up by the
business over a period of time.
 Major Components
of Income Statement
Earnings before tax (EBT):
This is a measure of a company’s financial
performance.
EBT is calculated by subtracting expenses from
income, before taxes.
It is one of the line items on a multi-step income
statement.
 Major Components
of Income Statement
Net income:
Net profit can be defined as the amount of money
you earn after deducting allowable business
expenses.
It is calculated by subtracting total expenses from
total revenue.
While net income is a company’s earnings, gross
profit can be defined as the money earned by a
company after deducting the cost of goods sold.
Statement of
Cashflow
is a financial statement that summarizes
the movement of cash and cash
equivalents (CCE) that come in and go out
of a company.
The CFS measures how well a company
manages its cash position, meaning how
well the company generates cash to pay
its debt obligations and fund its
operating expenses.
How the Cash Flow Statement Is Used
The cash flow statement paints a picture as to how a company’s
operations are running, where its money comes from, and how money is
being spent.
the CFS helps its creditors determine how much cash is available
(referred to as liquidity) for the company to fund its operating expenses
and pay down its debts.
The CFS is equally important to investors because it tells them whether a
company is on solid financial ground. As such, they can use the
statement to make better, more informed decisions about their
investments.
 Structure of the Cash Flow
Statement
Cash from Operating Activities
The operating activities on the CFS include any
sources and uses of cash from business activities. In
other words, it reflects how much cash is generated
from a company’s products or services.
 Structure of the Cash Flow
Statement
Operating activities might include:
Receipts from sales of goods and services
Interest payments
Income tax payments
Payments made to suppliers of goods and
services used in production
Salary and wage payments to employees
Rent payments
Any other type of operating expenses
 Structure of the Cash Flow
Statement
Cash from Investing Activities
include any sources and uses of cash from a
company’s investments.
Purchases or sales of assets, loans made to
vendors or received from customers, or any
payments related to mergers and acquisitions
(M&A) are included in this category.
In short, changes in equipment, assets, or
investments relate to cash from investing.
 Structure of the Cash Flow
Statement
Cash from Financing Activities
includes the sources of cash from investors
and banks, as well as the way cash is paid to
shareholders.
This includes any dividends, payments for
stock repurchases, and repayment of debt
principal (loans) that are made by the
company.
 Financial Ratios
Basic calculations using quantitative data from a company’s
financial statements.
They are used to get insights and important information on
the company’s performance, profitability, and financial
health.
Common financial ratios come from a company’s balance
sheet, income statement, and cash flow statement.
Businesses use financial ratios to determine liquidity, debt
concentration, growth, profitability, and market value.
 Why are financial ratios so
important?
These ratios are important for assessing how a
company generates revenue and profits using
business expenses and assets in a given period.
Internal and external stakeholders use financial
ratios for competitor analysis, market valuation,
benchmarking, and performance management.
 https://www.accountingtools.com/articles/financial-
statements
https://www.xero.com/ph/glossary/financial-
statement/

https://corporatefinanceinstitute.com/resources/acc
ounting/three-financial-statements/

https://www.zoho.com/books/guides/what-is-an-

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https://online.hbs.edu/blog/post/income-
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https://www.britannica.com/topic/accounting/The-
balance-sheet

https://www.investopedia.com/investing/what-is-a-
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