FUNDAMENTALS OF ABM2
ANALYSIS AND INTERPRETATION OF
FINANCIAL STATEMENT
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).
There are three kinds of FS analysis techniques:
- horizontal analysis
- vertical analysis
- financial ratios
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
Uses financial statements of two or more periods.
- Only the simple year-on-year (y-o-y)grow covered in this
lesson.
Changes can be expressed in monetary value (peso) and
percentages 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)
HORIZONTAL ANALYSIS
Uses financial statements of two or more periods.
- Only the simple year-on-year (y-o-y)grow covered in this
lesson.
Changes can be expressed in monetary value (peso) and
percentages 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)
HORIZONTAL ANALYSIS
Example:
2015 2014
Sales P 250,000 P175,000
Peso change = P250,000 - P175,000 = P75,000
Percentage change = (P250,000 - P175,000) / P175,000 = 42.86%
This is evaluated as follows: sales increased by P75,000. This
represents growth of 42.86% from 2014 levels.
ADDITIONAL EXERCISES
1. The sales of XYZ company for the year 2018- P285,760;
2019 – 420,000; 2020 –P 130,000.
Prepare the yearly peso change, percentage change and your evaluation (2 years). Show
your solution.
2. Megatech, Inc. has the following sales for the past four years.
2017 2018 2019 2020
Sales 790,000 1,230,000 1,283,500 3,650,00
Prepare the following
a. Yearly peso change and percentage change (3 years). Show your
solution
b. What is the trend of Megatech sales for four years? What do you
think triggers this trend?
ADDITIONAL EXERCISES
1. The sales of XYZ company for the year 2018- P285,760; 2019 – 420,000;
2020 –P 130,000.
Prepare the yearly peso change, percentage change and your evaluation (2 years).
Show your solution.
• A. 2019 - PESO CHANGE = 420,000 – 285,760
= 134,240
• PERCENTAGE CHANGE = (420,000-285,760)/285,760
= 0.470 X 100
= 47 %
ADDITIONAL EXERCISES
1. The sales of XYZ company for the year 2018- P285,760; 2019 – 420,000;
2020 –P 130,000.
Prepare the yearly peso change, percentage change and your evaluation (2 years).
Show your solution.
B. 2020- PESO CHANGE = 130,000 – 420,000
= ( 290,000 )
PERCENTAGE CHANGE = (130,000 – 420,000 ) / 420,000
= 0.690 X100
= (69%)
ADDITIONAL EXERCISES 2017 2018 2019 2020
Sales 790,000 1,230,000 1,283,500 3,650,000
PESO CHANGE:
2018 – 1,230,000 – 790,000 = 440,000
2019 – 1,283,500 - 1,230,000 = 53,500
2020- 3,650,000 – 1,283,500 = 2,366,500
PERCENTAGE CHANGE:
2018 – (1,230,000 – 790,000 ) / 790,000 = 0.9984 X 100 = 55.69%
2019 – 1,283,500 - 1,230,000 /1230,000 = 0.0434 X 100 = 4.35%
2020- 3,650,000 – 1,283,500 / 1283,500 = 1.8439 X 100 = 184.38%
ASSIGNMENT NO.1:
DO THE HORIZONTAL ANALYSIS OF R. B.
LAYES ELECTRONICS COMPANY BALANCE
SHEETS FOR THE YEAR 20X0,20X1, 20X2
ASSETS 20X0
20X1 20X2
Cash P 2,507
P 11,310 P 19,648
Accounts receivable 70,360 85,147
118,415
Inventory 77,380
91,378 118,563
Other current assets 6,316 6,082
5,891
LIABILITIES AND OWNER’S EQUITY
20X0 20X1
Accounts payable 20X2 P35,661 P 37,460
P 62,725
Notes payable 20,501 14,680
17,298
Other current liabilities 11,054 8,132
15,741
Current liabilities P 67,216 P 60,272
P 95,764
Long-term debt 888
1,276 4,005
Total liabilities P 68,104 P 61,548
P 99,769
Owner’s Capital 12,650 20,750
END
