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Financial Analysis - Week 6 7

Here are the computations: [COMPUTATIONS]

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Marc Jenley Marqhites
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33 views16 pages

Financial Analysis - Week 6 7

Here are the computations: [COMPUTATIONS]

Uploaded by

Marc Jenley Marqhites
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Fundamentals of Accountancy,

Business, and Management 2 (FABM 2)

Analysis and Interpretation of


Financial Statements 1
Week 6 & 7

Teacher: Raquel M. Perez


Classroom Routine
a. Prayer
b. Reminder of the classroom health and
safety protocols
c. Checking of Attendance
d. Quick “Kumustahan”
Learning Objectives:

1. Perform vertical and horizontal


analysis of financial statements of a
single proprietorship.
A. Recall (Elicit)
Review the four reports that complete
the set of financial statements
B. Motivation
Advise the learners that business
owners and managers need more
information that the balances of
accounts reported statements.
C. Discussion of Concepts (Explore)
FINANCIAL STATEMENT (FS) ANALYS
- Is the process of evaluating risks, performance,
financial health, and future prospects of a
business by subjecting financial statement data
to computational and analytical techniques
with the objective of making economic
decisions (White et.al 1998. There are three
kinds of FS analysis techniques:
- Horizontal Analysis
- Vertical Analysis
- Financial Ratios
C. Discussion of Concepts (Explore)
HORIZONTAL ANALYSIS
Also called trend analysis, is a technique for
evaluating a series of financial statement data
over a period of time with the purpose of
determining the increase or decrease that has
taken place (Weygandtet.al 2013). This will
reveal the behavior of the account over time.
Is it increasing, decreasing or not moving?
What is the magnitude of the change? Also,
what is the relative change in the balances of
the account over time?
C. Discussion of Concepts (Explore)
HORIZONTAL ANALYSIS…continuation
- Horizontal analysis uses financial statements of two or
more periods
- All line items on the FS may be subjected to horizontal
analysis.
- Only the simple year-on-year (Y-o-Y) grow covered is
covered in this lesson.
- Changes can be expressed in monetary value (peso) and
percentage computed by using the following formulas:
• Peso change=Balance of Current Year-Balance of Prior
Year
• Percentage change=(Balance of Current Year-Balance of
Prior Year) / (Balance of Prior Year)
C. Discussion of Concepts (Explore)
Example:
C. Discussion of Concepts (Explore)
VERTICAL ANALYSIS
Also called common-size analysis, is a technique that
expresses each financial statement item as a
percentage of a base amount (Weygandt et.al.2013)
- For the SFP, the base amount is Total Assets
• Balance of Account / Total Assets
• From the common-size SFP, the analyst can infer
the composition of assets and the company’s
financing mix
C. Discussion of Concepts (Explore)
C. Discussion of Concepts (Explore)
VERTICAL ANALYSIS…continuation
For the SCI, the base amount is Net Sales
• Balance of Account / Total Sales
• This will reveal how “Net Sales” is used up by the
various expenses
• Net Income as a percentage of sales is also known
as the Net Profit Margin
• Example:
C. Discussion of Concepts (Explore)
Vertical Analysis….continuation
D. Developing Mastery (Explain)
Sample Problem (Board work)
The financial statements of Merdana Trading Ltd. Are given
below:
D. Developing Mastery (Explain)
Sample Problem (Board work)…continuation
D. Developing Mastery (Explain)
Sample Board work…Continuation
Directions: Please provide what is being asked.
1. Compute for the horizontal analysis of Total
Current Assets and Other Assets
2. Compute for the common-size SFP
3. Do the vertical analysis of the SCI.

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