A SIMPLE DISCUSSION OF FINANCIAL

1. FINANCIAL STATEMENT
ANALYSIS
• Financial Statements
• Performance Measurements
• Vertical and Horizontal Analyses
• Financial Ratios

2. Financial Statements
Is a formal record of the financial activities
and position of the business, person, or other
entity.

3.  Form of Business Organizations
1. Sole or single proprietorship
 is a business owned by one person.
2. Partnership
 is a business owned by two or more owners.
 General partnership, profits and losses are shared by all
partners.
 Limited partnership, who will not actively participate in the
management of the business.
3. Corporation
 is the most complicated form of business organization.

4.  Type of Business Activities
1. Service type of Business
 Offers products with no physical form like skills, field of
expertise, and consultancy.
2. Merchandising type of Business
 is the “buy and sell” business.
3. Manufacturing type
 buys products known as raw materials, with an intention of
transforming them into a new products.

5.  Basic Financial Statements
1. Income statement
 shows the performance of the business for a given
period of time.
2. Balance sheet
 shows the financial position of the business as of a
particular date.

6. Performance Measurements
1. Liquidity
 is the ability of the business to pay its currently maturing
liabilities as they fall in its due date.
2. Solvency
 is the ability to pay long-term liabilities.
3. Profitability
 addresses a very basic goal of any business- to earn the
highest possible profit or return on its investment.

7. Vertical and Horizontal Analyses
1. Vertical Analysis ( common-size)
 is the process of comparing amounts in the financial
statements within the same accounting period.
2. Horizontal Analysis ( trend analysis)
 involves comparing amounts in the financial statements of
two or more consecutive periods.

8. Financial Ratios
1. Liquidity Ratios
• Current Ratio, also known as working capital ratio, is one way to
assess the overall liquidity of a company by comparing current
assets to current liabilities.
• Acid Test Ratio, also known as quick ratio, is another way to assess
the overall liquidity of a firm.
• Receivables Turnover and Age of Receivables, to assess the
liquidity of these assets, compute how long it takes for the company
to convert assets into cash.
• Inventory Turnover and Age of Inventory, it measures the
number of times the inventory is replaced during the accounting
period.

9. Financial Ratios
2. Solvency and Stability Ratios
• Times interest earned, measures the extent to which a company’s
operations cover interest expense.
• Debt Ratio, measures the percentage of assets funded by creditors.
• Equity Ratio, indicates the percentage of assets funded by the
owners.

10. Financial Ratios
3. Profitability Ratios
• Gross Profit Margin, measures the average markup on every peso
sale or for each product sold.
• Operating Profit Margin, is computed by deducting operating
expenses from the gross profit.
• Net Profit Margin or Return on Sales, it measures the overall
profitability of a company.

11. THANKS FOR LISTENING!!!
Submitted by:
MARY KATHLEEN O. QUINTILA
HONEYLETTE P. SANCHEZ
IRENE RHODORAA. DOME