GROUP 1
Alipora, Mercy Joy
Echevarria, Kristine
Mesina, Nicole
Tamayo, Bleshian Lei
Pimented, Allan
Financial statement (FS) analysis
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 [Link] 1998).
Financial statement analysis is like a investigation of a company’s financial health. It uses sale
from financial statements (like income statements and balance sheets) to figure out how well a
company is doing, what risks it faces, and what its future might look like. The intention is to help
people make smart decisions about the company, such as investing in it or lending it money.
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
([Link] 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?
Horizontal analysis is a way to see how a company’s financial sale have changed over time. It’s
like looking at a company’s financial report card over several years to see if the company is
getting better, worse, or staying the same.
- Horizontal analysis uses financial statements of two or more periods
It uses financial statements from two or more periods (like two or more years).
- All line items on the FS may be subjected to horizontal analysis.
You can analyze any sale on the financial statements, not just specific ones.
- Only the simple year-on-year (Y-o-Y)grow this covered in this lesson
This lesson focuses on the simplest type of horizontal analysis, comparing sale from one year to
the next.
- Changes can be expressed in monetary value (peso) and percentages computed by using the
following formulas:
You can see how much the sale changed in actual money (peso) and also as a percentage of the
original amount.
Formula
Peso change = Balance of Current Year – Balance of Prior Year
This tells you the exact difference in money between two periods.
Percentage Change = (Balance of Current Year - Balance of Prior Year) / Balance of Prior
Year)
This tells you how much the sale changed as a percentage of the original sale.
Example:
Peso change = P250,000 – P175,000 = P75,000
Percentage change = (P250,000-P175,000)/P175,000 = 42.86%
This is evaluated as follows: Sales increase by P75, 000. This represents growth of
42.86% from 2013 levels.
Quiz
Choices
A. Financial statement (FS) analysis
B. Percentage change
C. Peso change
D. Horizontal Analysis
Questions
1. Is the process of evaluating risks, performance, financial health, and future prospects
of a business.
A.
2. 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.
D.
3. This tells you the exact difference in money between two periods.
C.
4. This tells you how much the sale changed as a percentage of the original sale.
B.
5. Write the formula of Peso Change and Percentage Change
Peso change = Balance of Current Year – Balance of Prior Year
Percentage Change = (Balance of Current Year – Balance of Prior Year) / Balance
of Prior Year)
