I.

INTRODUCTION

Financial statement is a collection of data that is organized in accordance to

logical and consistent accounting procedures. Its purpose is to convey an

understanding of some financial aspects of a business firm. However, financial

statements do not reveal all the information related to the financial operations of the

firm, but they furnish some extremely useful information.

Considering the different requirements of external and internal users, the content

of financial statement analysis is very limited hence preparation of the final accounts is

not the end of the accounting process. It is followed by the analysis of these final

accounts. Different firms do financial analysis for different purposes, such as valuing

equity securities, assessing credit risk, or conducting due diligence related to an

acquisition. But, the most common purpose is to obtain information that is useful for

economic decisions from its financial statements. Investors focus on analyzing the

profitability, operational capacity and use of funds, and understanding investment

returns and investments risk. Creditors focus on analyzing the solvency of the firm,

evaluating the degree of financial security or risk of enterprise and so on. By using the

past and current performances as the basis, it will even help predict the future

performance of the firm and avoid committing mistakes.

In order to achieve a complete and effective financial analysis, it is done from

different angles. Accordingly, we can classify financial analysis tools commonly used

into three namely horizontal, vertical and ratio analysis.

1
II. SCOPE AND LIMITATIONS

The financial statement analysis limit their work within the available information

gathered from the financial statements of Glainier Industrial Corporation provided by the

Securities and Exchange Commission-Cagayan de Oro which covers the years 2017-

2018.

The analysis was conducted to analyze and interpret the financial statements of

Glainier Industrial Corporation that covers the comparative statements which is

principally composed of the company’s Comparative Statement of Financial Position,

Comparative Income Statement, Comparative Cash Flows Statement, Comparative

Statement of Changes in Stockholder’s Equity and Notes to Financial Statements for

years ended 2017 and 2018.

Furthermore, the horizontal and vertical analyses were only done on the

comparative Statement of Financial Position and Statement of Comprehensive Income.

Also, with regards to the financial ratios, there are no market tests executed.

Thus, the scope of this paper is only within the available information. The limited

information may bound the analysis to disclose other information from the entity but the

data available still enabled them to communicate with numbers, data and amounts

affecting the entire performance of the entity.

2
III. COMPARATIVE FINANCIAL STATEMENTS

This chapter shows the comparative financial statements of Glainier Industrial

Corporation for the year ended 2016 and 2017.

A. Statement of Comprehensive Income

GLAINIER INDUSTRIAL CORPORATION

STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

2018 2017
Revenues ₱ 7,599,525.00 ₱ 7,913,729.00
Cost of Revenues 7,094,768.00 7,300,265.00
Gross Profit 504,757.00 613,464.00
Operating Expenses 375,391.00 446,011.00
Income From Operations 129,366.00 167,453.00
Other Income - -
Income Before Tax 129,366.00 167,453.00
Income tax expense 38,810.00 50,236.00
Net Income ₱ 90,556.00 ₱ 117,217.00

3
B. Statement of Changes in Equity

GLAINIER INDUSTRIAL CORPORATION

STATEMENT OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31 2018 AND 2017

Share Capital Retained Earnings Total Equity

Balance at January 1,
₱ 62,500.00 ₱ 826,144.00 ₱ 888,644.00
2017
Change in Accounting
-
Policy
Restated balance 62,500.00 826,144.00 888,644.00
Changes in Capital for
-
2017
Issue for share capital 187,500.00 187,500.00
Additional Paid in Capital -
Dividend -
Net income/Loss 117,217.00 117,217.00
Balance at beginning
₱ 250,000.00 ₱ 943,361.00 ₱ 1,193,361.00
of 2018
Change in accounting
-
policy
Restated Balance 250,000.00 943,361.00 1,193,361.00
Changes in Capital for
-
2018
Issue of share Capital -
Additional paid in Capital -
Dividend -
Net Income/Loss 90,556.00 90,556.00
Balance at December
₱ 250,000.00 ₱ 1,033,917.00 ₱ 1,283,917.00
31, 2018

4
C. Statement of Financial Position

GLAINIER INDUSTRIAL CORPORATION

COMPARATIVE STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2017 AND 2018

ASSETS 2018 2017

Current Assets:
Cash ₱ 61,794.00 ₱ 52,271.00
Trade Receivable 108,023.00 59,185.00
Inventories 1,383,272.00 1,291,283.00
Total Current Assets ₱1,553,089.00 ₱ 1,402,739.00

Non-current Assets
Property and Equipment, Net ₱1,072,500.00 ₱ 1,103,085.00
TOTAL ASSETS ₱2,625,589.00 ₱ 2,505,824.00

LIABILITIES AND STOCKHOLDER'S EQUITY

Current Liabilities
Trade Payables &Accrued
Expenses ₱1,333,885.00 ₱ 1,307,364.00
Income Tax Payable 2,293.00 1,680.00
Non-Trade Payables 5,494.00 3,419.00
Total Current Liabilities ₱1,341,672.00 ₱ 1,312,463.00
Total Liabilities ₱1,341,672.00 ₱ 1,312,463.00

STOCKHOLDER'S EQUITY
Share Capital ₱ 250,000.00 ₱ 250,000.00
Additional Paid-In Capital - -
Retained Earnings 1,033,917.00 943,261.00
Total Stockholder's Equity 1,283,917.00 1,193,261.00
TOTAL LIABILITIES AND EQUITY ₱2,625,589.00 ₱ 2,505,724.00

5
D. Statement of Cash Flows

GLAINIER INDUSTRIAL CORPORATION

COMPARATIVE STATEMENT OF FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2018

2018 2017
CASH FLOWS FROM OPERATING ACTIVITES
Income before tax expense ₱ 129,366.00 ₱167,453.00
Adjustment for Depreciation 30,585.00 30,585.00
Changes in working capital
Trade Receivables (48,838.00) 63,425.00
Inventories (91,989.00) (251,830.00)
Trade Payables & Accrued Expenses 26,521.00 (208,596.00)
Non-Trade Payables 2,075.00 (169.00)
Cash Generated from Operations 47,720.00 (199,132.00)
Income tax paid (38,197.00) (50,651.00)
Net Cash from operating activities ₱ 9,523.00 ₱ (249,783.00)

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of property and equipment - -
Net cash used in investing activities - -

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of shares - 187,500.00
Net cash from financing activities - 187,500.00
NET DECREASE IN CASH AND CASH
EQUIVALENTS ₱ 9,523.00 ₱ (62,283.00)
CASH AND CASH EQUIVALENTS at January
1,2018 52,271.00 114,554.00
CASH AND CASH EQUIVALENTS at
December 31,2018 ₱ 61,794.00 ₱ 52,271.00

6
E. Notes to Financial Statements

NOTE 1-GENERAL INFORMATION

GLAINIER INDUSTRIAL CORPORATION was incorporated on May 4, 2015, primarily

to engage in the business of trading and services of goods such as Industrial

Machineries parts and supply on wholesale and retail basis. The Company's registered

office and principal place of business is at Vamenta Blvd.,B-4,L-5 Barra Opol, Misamis

Oriental 9016.

The accompanying financial statements of GLAINIER INDUSTRIAL CORPORATION

for the year ended December 31, 2018, including comparatives for the year ended

December 31, 2017 were authorized for issue by the Board of Directors on April 13,

2019.

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

Basis of Preparation

The financial statements of the Company have been prepared on a historical cost basis

and are presented in Philippine Peso (P), the Company's functional currency. All values

are rounded to the nearest Philippine Peso, unless otherwise indicated.

Moreover, the financial statements have been prepared in compliance with the

Philippine Financial Reporting Standard (PFRS) for Small and Medium-sized Entities

(SMES) issued by the Philippine Financial Reporting Standards Council

7
Basic Financial Instruments

A financial instrument is a contract that gives rise to a financial asset of one entity and a

financial liability or equity instrument of another entity.

The Company recognizes a financial asset or financial liability when the Company

becomes a party to the contractual provisions of the instrument. The Company

derecognizes a financial asset only when (a) the contractual rights to the cash flows

from financial asset expires or are settled; or (b) the entity transfers to another party

substantially all the risks and rewards of the ownership of the financial assets; or (c) the

Company, despite having retained some significant risks and rewards of ownership,

transferred control of the asset to another party and the other party has the practical

ability to sell the asset in its entirety to an unrelated third party and is liable to

unilaterally and without needing to impose additional restriction on the transfer, in this

case, the Company recognizes separately any right and obligation retained or related

on the transfer. On the other hand, the Company derecognizes a financial liability (or a

part of financial liability) only when it is extinguished.

Revenue Recognition

Revenue is measured as the fair value of the consideration received or receivable,

excluding discounts, returns and valued added tax. The Company recognizes revenue

to the extent that it is probable that future economic benefit will flow to the entity and

that the amount of revenue can be reliably measured. The following specific recognition

criteria must also be met before revenue is recognized.

Sales of goods

8
Sales of goods are recognized as revenue when the company has delivered the

products to the customer as there is no unfulfilled obligation could affect the customer's

acceptance of the products.

Expense Recognition

Expense is recognized when it is probable that a decrease in future economic benefit

related to a decrease in an asset or an increase in a liability has occurred and the

decrease in economic benefits can be measured reliably. Revenue and expenses that

relate to the same transactions or other event are recognized simultaneously.

Income Taxes

Current tax assets or liabilities comprise those claims from, or obligations to, fiscal

authorities relating to the current or prior reporting period, that are uncollected or unpaid

at the balance sheet date. They are calculated according to the tax rates and tax laws

applicable to the fiscal periods to which they relate, based on the taxable profit for the

year. All changes to current assets or liabilities are recognized as a component of

Provision for income tax in the income statement.

Provision

Provisions, if any, are recognized when the Company has a present obligation (legal or

constructive) as a result of a past event and it is probable that an outflow of resources

embodying economic benefits will be required to settle the obligations and a reliable

estimate can be made of the amount of the obligation.

9
Events after the End of Reporting Period

Events after the end of reporting period are those events, favorable and unfavorable,

that occur between the end of reporting period and the date when the financial

statements are authorized for issue. Events that provide evidence of condition that arise

after the end of the reporting period are only disclosed in the notes to financial

statements when material.

NOTE 3-SIGNFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The preparation of the financial statements in accordance with PFRS for SMES requires

the Company to make judgments, estimates and assumptions that affect the amounts

reported in the financial statements and accompanying notes. Future events may occur

which will cause the judgments and assumptions used in arriving at the estimates to

change. The effects of any change in judgments and estimates are reflected in the

financial statements as they become reasonably determinable.

Judgments and estimates are continually evaluated and are based on historical

experience and other factors, including expectations of future events that are believed

to be reasonable under the circumstances.

The basic financial instruments of the Company follow:

Cash and Cash Equivalents

Cash includes cash on hand and cash in bank that are unrestricted and available for

current operations. This is stated in the statement of financial position at face amount.

10
Trade Receivables

Trade receivables are recognized initially at the transaction price. They are

subsequently measured at amortized cost using the effective interest method if credit is

extended beyond normal credit terms. A provision for impairment of trade receivables is

established when there is objective evidence that the Company will not be able to

collect all amounts due according to the original terms of the receivables.

Inventories

At the balance sheet date, inventories/materials, supplies and facilities inventory are

valued at the lower of cost and net realizable value. Costs determined using the specific

identification method. Net realizable value is the estimated selling price in the ordinary

course of business, less the estimated costs of completion and the estimated costs

necessary to make the sale.

Property and Equipment

Property and equipment are stated at historical cost less accumulated depreciation and

any accumulated impairment losses.

The initial cost of an asset comprises its purchase price and any directly attributable

costs of bringing the asset to its working condition and location for its intended use.

Cost of minor repairs and maintenance are charged to operations. Renewal and

betterments which improve the original assessed standard of performance of the

property are capitalized to appropriate property account. When assets are sold, retired

or otherwise disposed of, the cost and the related accumulated depreciation and

11
impairment losses are removed from the accounts and any resulting gain or loss is

credited to income or charged to current operations.

Depreciation is charged to allocate the cost of assets less their residual value over their

estimated useful lives, using the group of assets method. The estimated useful lives of

the assets range from 5 to years.

The carrying values of property and equipment are reviewed for impairment when

events or changes in circumstances indicate that the carrying value may not be

recoverable. If any such indication exists and where the carrying values exceed the

estimated recoverable amount, the assets are written down to the recoverable amount.

The recoverable amount of property and equipment is the greater of net selling price

and value in use. Impairment losses, if any, are recognized in the statement of income.

Trade and Other Payables

This account composed of accounts payable, accrued expenses and other liabilities

which are recognized in the period in which the related money, goods or services are

received or when a legally enforceable claim against the Company or when the

corresponding assets or expenses are recognized. These are measured at fair value,

normally equal to its nominal amount.

Equity

Capital stock is recognized as issued when the stock is paid for or subscribed under a

binding subscription agreement and is measured at par value.

12
Judgments

 Determination of functional currency

Based on economic substance of the underlying circumstances relevant to the

Company, the functional currency of the Company has been determined to be

the Philippine Peso. It is the functional currency of the primary economic

environment in which the Company operates and the currency that mainly

influences the Company`s revenue and expenses.

 Fair value of financial instruments

Where the fair value of financial assets and liabilities recorded as at the financial

reporting date cannot be derived from active markets, they are determined using

internal valuation techniques using generally accepted market valuation models.

The inputs to these models are taken from observable markets where possible,

but where this is not feasible, estimates are used in establishing fair values.

These estimates may include considerations of liquidity, volatility, and correlation.

Estimates and Assumptions

 Estimation of useful lives of the Company's property and equipment

The Company estimates the useful lives of property and equipment on the period

over which these assets are expected to be available for use. The estimated

useful are reviewed periodically and are updated if expectations differ from

previous estimates due to physical wear and tear, technical or commercial

obsolescence, and legal or other limits on the' use of the assets. In addition, the

13
 estimation of the useful lives of these assets is based on collective assessment

of internal technical evaluation and experience with similar assets. The amounts

and timing of recorded expenses for any period would be affected by changes in

these factors and circumstances. A reduction in the estimated useful lives of the

Company's assets would increase recorded operating expenses and decrease

non-current assets.

 Estimation of impairment of non-financial assets

The Company assesses impairment on assets whenever events or changes in

circumstances indicate that the carrying amount of an asset may not be

recoverable. The factors that the Company considers important which could

trigger an impairment review include the following:

- significant underperformance relative to expected historical or projected future

operating results;

- significant changes in the manner of use of the acquired assets or the

strategy for overall business; and

- significant negative industry or economic trend

14
NOTE 4
Cash & Cash Equivalents
This account consists of 2018 2017
Petty cash fund ₱ 1,000.00 ₱ 1,000.00
Cash on hand 22,942.00 19,827.00
Cash in bank 37,852.00 31,444.00
Total ₱ 61,794.00 ₱ 52,271.00

NOTE 5
Trade Receivables
This account consists of 2018 2017
Accounts Receivable ₱ 108,023.00 ₱ 59,185.00
Total ₱ 108,023.00 ₱ 59,185.00

NOTE 6
Inventories
This account consists of 2018 2017
Inventories ₱ 1,383,272.00 ₱ 1,291,283.00
Total ₱ 1,383,272.00 ₱ 1,291,283.00

NOTE 7
Property, Plant &
Equipment
This account consists of 2017 Addition Disposition 2018
Furnitures and Fixtures ₱ 9,000.00 ₱ 9,000.00
Office Equipments 25,000.00 25,000.00
Service Vehicle 1,169,000.00 1,169,000.00
Total 1,203,000.00 1,203,000.00
Accumulated Depreciation 99,915.00 ₱ 30,585.00 130,500.00
Net Book Value ₱ 1,103,085.00 ₱ ( 30,585.00) ₱ 1,072,500.00

15
NOTE 8
Trade Payables and Accrued Expenses
This account consists of 2018 2017
Trade Payable ₱ 1,321,778.00 ₱ 1,293,392.00
Accrued Expenses 12,107.00 13,972.00
Total ₱ 1,333,885.00 ₱ 1,307,364.00

NOTE 9
Non-Trade Payables
This account consists of 2018 2017
VAT Payable ₱ 4,659.00 ₱ 2,201.00
Withholding Tax Payable 396.00
SSS, PHIC & Pagibig
Payable 835.00 822.00
Total ₱ 5,494.00 ₱ 3,419.00

NOTE 10
Retained Earnings
This account consists of 2018 2017
Begining Balance ₱ 943,361.00 ₱ 826,144.00
Add: Net Income 90,556.00 117,217.00
Total ₱ 1,033,917.00 ₱ 943,361.00
Less: Dividend
Ending Balance ₱ 1,033,917.00 ₱ 943,361.00
Retained earnings include all current and prior period results as disclosed in the income statement. That
the amount of retained earnings including the excess against the paid-up capital stock is set aside for
business expansion as approved by Board of Directors per its board
resolution.

NOTE 11
Revenues
This account consists of 2018 2017
Sales-Trading Industrial Supply ₱ 7,599,525.00 ₱ 7,913,729.00
Total ₱ 7,599,525.00 ₱ 7,913,729.00

16
NOTE 12
Cost of Sales
This account consists of 2018 2017
Merchandise/Finished Goods Inventory, beg. ₱ 1,291,283.00 ₱ 1,039,453.00
Add:Purchase of mdse./cost of goods manufactured 7,186,757.00 7,552,095.00
Total Goods Available for Sale 8,478,040.00 8,591,548.00
Less: Merchandise/Finished Goods Inventory, end 1,383,272.00 1,291,283.00
Total Cost of Sales ₱ 7,094,768.00 ₱ 7,300,265.00

NOTE 13
Operating Expenses
This account consists of 2018 2017
Charitable contributors ₱ 5,000.00
Communication, light and water ₱ 64,199.00 50,124.00
Depreciation 30,585.00 30,585.00
Fuel and oil 98,241.00 74,894.00
Insurance and Expense 15,949.00 15,949.00
Miscellaneous Expense 2,354.00 3,847.00
Office Supplies 3,449.00 5,173.00
Repairs and Maintenance 5,736.00 10,874.00
Representation & Entairtainmet 20,637.00 3,971.00
Salaries, Wages & Benefits 106,860.00 215,469.00
SSS, PHIC & Pagibig Expenses 10,020.00 15,527.00
Taxes and Licenses 17,361.00 14,598.00
Total ₱ 375,391.00 ₱ 446,011.00

17
IV. FINANCIAL STATEMENT ANALYSIS

A. HORIZONTAL ANALYSIS

GLAINIER INDUSTRIAL CORPORATION

COMPARATIVE STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2017 AND 2018

INCREASE (DECREASE)
ASSETS 2018 2017 Amount %
Current Assets:
Cash ₱ 61,794.00 ₱ 52,271.00 ₱ 9,523.00 18.22%
Trade Receivable 108,023.00 59,185.00 48,838.00 82.52%
Inventories 1,383,272.00 1,291,283.00 91,989.00 7.12%

Total Current Assets ₱1,553,089.00 ₱1,402,739.00 ₱ 150,350.00 10.72%

Non-current Assets
Property and Equipment,
Net ₱1,072,500.00 ₱1,103,085.00 ₱ (30,585.00) (2.77%)

TOTAL ASSETS ₱2,625,589.00 ₱2,505,824.00 ₱ 119,765.00 4.78%

LIABILITIES AND EQUITY

Current Liabilities
Trade Payables & Accrued
Expenses ₱1,333,885.00 ₱1,307,364.00 ₱ 26,521.00 2.03%
Income Tax Payable 2,293.00 1,680.00 613.00 36.49%
Non-Trade Payables 5,494.00 3,419.00 2,075.00 60.69%

Total Current Liabilities ₱1,341,672.00 ₱1,312,463.00 ₱ 29,209.00 2.23%

Total Liabilities
₱1,341,672.00 ₱1,312,463.00 ₱ 29,209.00 2.23%

STOCKHOLDER'S EQUITY
Share Capital ₱ 250,000.00 ₱ 250,000.00 0 0.00%
Additional Paid-In Capital 0 0 0 0.00%

Retained Earnings 1,033,917.00 943,261.00 90,656.00 9.61%

Total Stockholder's Equity 1,283,917.00 1,193,261.00 90,656.00 7.60%

TOTAL LIABILITIES AND
EQUITY ₱2,625,589.00 ₱2,505,724.00 ₱ 119,865.00 4.78%

18
 In the year 2018, Glainier Corporation's total assets have increased by P119,765

or 4.78% as compared to its 2017. The increase in total asset can be mainly attributed

to the increase in the current assets specifically inventory by an amount of P91,989 or

7.12%. Aside from the inventory, this increase in current assets had also resulted from

the increase in cash and trade receivables in the amount of P9,523 or 18.22% and

P48,838 or 82.52% respectively. The decrease in property and equipment by P30,585

or 2.77% was due to depreciation for the current year.

Additionally, the total liabilities had increased to P29, 209 or 2.23%. The increase

in total liabilities mainly resulted from the increase of current liabilities which are the

trade payables and accrued expenses, income tax payable, and non-trade payables by

P26, 521 or 2.03%, P613 or 36.49%, and P2, 075 or 60.69% respectively. All accounts

in the current liabilities increased because greater balances remain outstanding unpaid

at year end.

Moreover, the equity of Glainier Industrial Corporations had risen by P90,656 or

7.60%. Although there is no issuance of share capital during the current year, the

increase in total equity was caused from the generated net income from 2017 closed to

retained earnings.

19
 ₱5,000,000.00

₱4,000,000.00
4.78% increase
Increase
₱3,000,000.00 Total Assets
₱119,765.00

₱2,000,000.00 ₱2,625,589.00 ₱2,505,824.00

₱1,000,000.00
2018 2017

Figure 1. The Changes of Total Assets for the Years Ended in 2018 and 2019.

₱3,000,000.00

₱2,500,000.00
2.23% increase
Increase
₱2,000,000.00 Total Liabilities

₱1,500,000.00 ₱29,209.00
₱1,341,672.00 ₱1,312,463.00

₱1,000,000.00
2018 2017

Figure 2. The Changes in Total Liabilities for the Years Ended in 2017 and 2018.

20
 7.60% increase
3,000,000.00

₱29,209.00

2,500,000.00

Increase
2,000,000.00 Total Stockholder's Equity
2,625,589.00 2,505,724.00

1,500,000.00

1,000,000.00
2018 2017

Figure 3. The Changes in Total Stockholder’s Equity for the Years Ended in 2017 and
2018

21
 The table below is the result of the application of horizontal analysis in the
Statement of Comprehensive Income of Glainier Industrial Corporation.

GLAINIER INDUSTRIAL CORPORATION

STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

INCREASE/DECREASE
2018 2017 Amount %

Revenues ₱7,599,525.00 ₱7,913,729.00 ₱ ( 314,204) (3.97%)

Cost of Revenues 7,094,768.00 7,300,265.00 (205,497) (2.81%)
Gross Profit 504,757.00 613,464.00 (108,707) (17.72%)
Operating
Expenses 375,391.00 446,011.00 (70,620) (15.83%)
Income From
Operation 129,366.00 167,453.00 (38,087) (22.74%)
Other Income - - -
Income Before
Tax 129,366.00 167,453.00 (38,087) (22.74%)
Income tax
expense 38,810.00 50,236.00 (11,426) (22.74%)
Net Income ₱ 90,556.00 ₱ 117,217.00 ₱ (26,661) (22.74%)

As shown in the comparative income statement of Glainier Industrial Corporation, it can

be observed that there are significant changes as to the accounts and transaction affecting the

net profit. One of these changes is the decrease in the revenue and cost of revenue by P314,

204 or 3.97% and P205, 497 or 2.81% respectively. With these occurrences, the gross profit had

decreased by P108, 707 or 17.72%. Furthermore, operating expenses decreased by P70, 620 or

15.83%. Such decrease in operating expenses is due to the fact that the entity has decreased in

its revenue. It can be noted that because of the lower sales during the current year, there is a

decrease in the income tax expense by P11, 426 or 22.74%.

22
 3.97 % Decrease
₱9,000,000.00

₱314,204.00
₱8,000,000.00 Decrease
Revenues
₱7,000,000.00
₱7,599,525.00 ₱7,913,729.00

₱6,000,000.00

₱5,000,000.00
2018 2017

Figure 4. The Changes in Revenues for the Years Ended 2017 and 2018

₱9,000,000

2.81 % Decrease
₱8,000,000
₱205,497.00 Decrease
Cost of Revenues
₱7,000,000

₱7,094,768.00 ₱7,300,265.00
₱6,000,000

₱5,000,000
2018 2017

Figure 5. The Changes in Cost of Revenue for the Years Ended 2017 and 2018.

23
 22.74% decrease

₱120,000.00
₱26,661.00
₱100,000.00

₱80,000.00
Decrease
₱117,217.00
₱60,000.00 Net Income
₱90,556.00
₱40,000.00

₱20,000.00

₱0.00
2018 2017

Figure 6. The Changes in Net Income for the Years Ended in 2017 and 2018.

24
B. VERTICAL ANALYSIS

GLAINIER INDUSTRIAL CORPORATION

COMPARATIVE STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2017 AND 2018

2018 2017
ASSETS Amount % Amount %
Current Assets:
Cash ₱ 61,794.00 2.35% ₱ 52,271.00 2.09%
Trade Receivable 108,023.00 4.11% 59,185.00 2.36%
Inventories 1,383,272.00 52.68% 1,291,283.00 51.53%
Total Current Assets ₱1,553,089.00 59.15% ₱1,402,739.00 55.98%

Non-current Assets
Property and Equipment,
Net 1,072,500.00 40.85% 1,103,085.00 44.02%
TOTAL ASSETS ₱2,625,589.00 100.00% ₱2,505,824.00 100.00%

LIABILITIES AND
STOCKHOLDER'S
EQUITY
Current Liabilities
Trade Payables
&Accrued Expenses ₱1,333,885.00 50.80% ₱1,307,364.00 52.18%
Income Tax Payable 2,293.00 0.09% 1,680.00 0.07%
Non-Trade Payables 5,494.00 0.21% 3,419.00 0.14%
Total Current
Liabilities ₱1,341,672.00 51.10% ₱1,312,463.00 52.38%
Total Liabilities ₱1,341,672.00 51.10% ₱1,312,463.00 52.38%
STOCKHOLDER'S
EQUITY
Share Capital ₱ 250,000.00 9.52% ₱ 250,000.00 9.98%
Additional Paid-In
Capital 0 0.00% 0 0.00%
Retained Earnings 1,033,917.00 39.38% 943,261.00 37.64%
Total Stockholder's
Equity ₱1,283,917.00 48.90% ₱1,193,261.00 47.62%
TOTAL LIABILITIES AND
EQUITY ₱ 2,625,589.00 100.00% ₱2,505,724.00 100.00%

25
 Based on the statement of financial position of Glainier Industrial Corporation, it

is observed that for the year 2017, most of the company’s assets are composed of

inventories. Since the company is primarily engaged in business of trading and services

of goods such as industrial machineries parts and supplies on wholesale and retail

bases, the inventories of these types of business are usually high. For the year 2018,

the company’s assets composition remains the same.

In year 2017, the total assets are composed of 2.09% cash, 2.36% trade

receivables, 51.53% inventories and 44.02% property and equipment. As for 2018, the

compositions of total assets are: 2.35% cash, 4.11% trade receivables, 52.68%

inventories and 40.85% property and equipment.

Moreover, the total liabilities and equity of the company for the years ended 2017

and 2018 are mostly composed with the trade payables and accrued expenses. In the

year 2017, the liabilities and equity are composed of 52.18% trade payables and

accrued expenses, 0.07% income tax payable, 0.14% non-trade payables, 9.98% share

capital, 0% APIC and 37.64% retained earnings. As for the year 2018, it is composed of

50.80% trade payable and accrued expenses, 0.09% income tax payable, 0.21% non-

trade payables, 9.52% share capital, 0% APIC and 39.38% retained earnings.

Thus, Glainier Industrial Corporation’s statement of financial position have

showed that for the years ended in 2017 and 2018, both the inventory account and

trade payable and accrued expenses account have greater percentages. On the other

hand, in the assets section, the cash and trade receivable account for 2017 has a lower

26
percentage as well as in the year 2018. For the liabilities and equity, only the income tax

payable has a low percentage for both years.

27
 2017 TOTAL ASSETS
2.36%
2.09%

44.02% Cash
Trade Receivable
Inventories
51.53% Property and Equipment, Net

Figure 7. The Composition of the Total Assets for the Year Ended 2017.

2018 TOTAL ASSETS

2.35% 4.11%

40.85%
Cash
Trade Receivable
Inventories
52.68%
Property and Equipment, Net

Figure 8. The Composition of the Total Assets for the Year Ended 2018

28
 2017 TOTAL LIABILITIES AND EQUITY
Trade Payables &Accrued
Expenses
Income Tax Payable
37.64%

Non-Trade Payables

52.18%
Share Capital

Additional Paid-In Capital

0.00%
Retained Earnings
9.98% 0.14%
0.07%

Figure 9. The Composition of the Total Liabilities and Equity for the Year Ended 2017

2018 TOTAL LIABILITIES AND EQUITY

Trade Payables &Accrued

Expenses
Income Tax Payable
39.38%
Non-Trade Payables
50.80%
Share Capital

Additional Paid-In Capital

0.00% Retained Earnings

9.52%
0.21%
0.09%

Figure 10. The Composition of the Total Liabilities and Equity for the Year Ended 2018

29
 The table below is the result of the application of vertical analysis in the

Statement of Comprehensive Income of Glainier Industrial Corporation.

GLAINIER INDUSTRIAL CORPORATION

STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

2018 2017
Amount % Amount %
Revenues ₱7,599,525.00 100.00% ₱7,913,729.00 100.00%
Cost of Revenues 7,094,768.00 93.36% 7,300,265.00 92.25%
Gross Profit 504,757.00 6.64% 613,464.00 7.75%
Operating Expenses 375,391.00 4.94% 446,011.00 5.64%
Income From
Operation 129,366.00 1.70% 167,453.00 2.12%
Other Income - 0.00% 0.00%
Income Before Tax 129,366.00 1.70% 167,453.00 2.12%
Income tax expense 38,810.00 0.51% 50,236.00 0.63%
Net Income ₱ 90,556.00 1.19% 117,217.00 1.48%

In the year 2018, the cost of revenue is 93.36% of the revenue which made the

gross profit 6.64%. Furthermore, the operating expenses are 4.94%, while the operating

income before tax is 1.70% of the revenue and 2.12% as for 2017.

There is also a provision for the income tax of 0.51% and 0.63% for 2018 and

2017 respectively. Moreover, the operating income after tax is 90, 556 and 117, 217 in

2018 and 2017 respectively.

30
 2017 SALES

0.63%
1.48%
5.64%
Cost of Revenues
Operating Expenses
Income tax expense
Net Income

92.25%

Figure 11. The Composition of Sales for the Year Ended 2017

2018 SALES
0.51%
1.19%
4.94%

Cost of Revenues
Operating Expenses
Income tax expense
Net Income

93.36%

Figure 12. The Composition of sales for the Year Ended 2018

31
C. RATIO ANALYSIS

It is composed of three tests, namely the tests of liquidity, the tests of solvency,

and the tests of profitability, which are utilized to assess the position and performance of

the company for the two consecutive years.

1. Tests of Liquidity

YEAR

TEST 2018 2017

Current Ratio 1.16 to 1 1.07 to 1

(Working Capital Ratio)

Quick Ratio 0.13 to 1 0.08 to 1

(Acid Test Ratio)

Receivables Turnover 90.90 times 87.06 times

Average Age of 3.96 days 4.14 days

Receivables

(Average Collection

Period)

Inventory Turnover 5.31 times 6.26 times

Average Age of 67.8 days 57.51 days

Inventory

(Inventory Conversion

32
 Period)

Trade Payables 5.50 times 5.22 times

Turnover

Average Age of 66.18 days 68.96 days

Payables

(Payables Deferral

Period)

Normal Operating Cycle 71.76 days 61.65 days

Working Capital 211, 417 90, 276

Assets Turnover 2.96 times 3.22 times

Current Assets Turnover 5.06 times 5.80 times

Fixed Assets Turnover 6.99 7.08 times

Table1. Liquidity Ratios for Years 2017-2018

As shown in Table 1, these ratios are basic estimates of business liquidity.

The higher the ratios are, the better it would be for the business. However,

having a very high current ratio or quick ratio does not guarantee that the

business can pay its currently maturing obligation on time, and avoid bankruptcy.

In 2018, for every one-peso worth of short-term liability, there is 1.16 peso

current assets available. Therefore, the current assets are sufficient to cover all

the current liabilities. In 2018, there is only 0.13 peso of quick assets to pay one

short-term obligations, hence, the quick assets are not enough.

33
 In 2018, trade receivables turnover is 90.90 times in a year. It means that

the trade receivables in 2018 have 90.90 collection cycles. This has improved

from only 87.06 times in 2017, which is favorable for the company because it will

have more cash available for daily cash operations. Since the receivable turnover

has improved, the average age of receivables has decreased from 4.14 days in

2017 to 3.96 days in 2018. This only means that the collection of receivables in

2018 has become faster in 2017, because it only takes 3.96 days to collect a

receivable in 2018. Hence the generation of cash is quicker in 2018 than in 2017.

Moreover, in 2018, the company replaced its inventories 5.13 times in a

year, which is lower than its 2017 inventory turnover of 6.26 times in a year. This

means that they have been less effective in selling their inventories in 2018.

Since the inventory turnover has decreased, the average age of the inventory

has increased from 57.51 days in 2017 to 67.8 days in 2018. This implies that the

inventory conversion in 2018 has become slower than in 2017. This is

unfavorable for the company because it indicates higher carrying cost. In addition

to that, the significant decrease means that there is no improvement I the

utilization of current assets in generating revenues.

When it comes to payments of trade payables in 2018, the trade payable

turnover is 5.50 which have increased from its 2017 trade payable turnover of

5.22. This is only implies that the company needs to pay their suppliers sooner

than in the previous period. Since the trade payable turnover has increased, the

average age of trade payables has decreased from 68.96 days in 2017 to 66.18

34
 days in 2018. This means that the length of time during which payables remain

unpaid has decreased which is unfavorable for the company.

Based on the results above in 2018, the company is less sufficient in using

its asset than in 2017, since its lower asset turnover. It has current asset turnover

ratio of 5.06 times which is lesser than its 2017 ratio of 5.86, and fixed asset

turnover of 6.99 times which is also lesser than its 2017 ratio of 7.08.

2. Tests of Solvency

YEAR

TEST 2018 2017

Debt Ratio 51.10 % 52.38 %

Equity Ratio 48.90 % 47.62 %

Debt-to-Equity Ratio 1.0450 1.0999

Equity Multiplier 2.0450 2.1000

Table 2. Solvency Ratios for Years 2017-2018

Based on the results shown in Table 2, in 2018 the firm’s debt ratio is

51.10% which means that for every one peso worth of assets, the 51.10

centavos represents the claim of the creditors over the assets and the remaining

portion belong to the owners. Although the debt ratio of Glainier Industrial

Corporation has decreased in 2018 from 52.38% to 51.10%, still, it remained

35
 very high. The business used more debt to finance its investing and operating

activities.

In 2018, the claim of the owners over the assets of the firm is only

48.90centavos for every one peso worth of assets which has actually increased

from only 47.62 centavos in 2017. This implies that the relative share of the

creditors over the total resources of the company is highly greater than the

amount of resources provided by the owners.

In 2018, for every peso of equity, there is 1.0450 pesos worth of liabilities.

Compared to the debt-to-equity ratio in 2017, this has decreased from being 1.1

pesos of liabilities to 1.0450 pesos for every peso of equity. With regard to the

decrease of the ratio, it is favorable because the company starts to reduce its

financing from the external creditors. The equity multiplier has decreased in 2018

from 2.1 to 2.0450 because the total assets of the company decreased when it

has used a large amount of cash to pay its current obligations.

Based on the results from the various tests of solvency conducted, the

Glainier Industrial Corporation is in better position in 2018 than in 2017.

3. Tests of Profitability

YEAR

TEST 2018 2017

Gross Profit Margin 6.64 % 7.75 %

Operating Profit Margin 1.70 % 2.12 %

36
 Return on Sales 1.19 % 1.48 %

Return on Equity 7.31 % 9.82%

Return on Assets 3.53 % 4.68%

Earnings per Share 36. 2224 46.8868

Cash Flow Margin 0.13 % (3.15%)

Table 3. Profitability Ratios for Years 2017-2018

Based on the results, the gross profit of Glainier Industrial Corporation for

2018 is 6.64% which is lower than its 2017 by 1.11%. This implies that for every

peso sales of the said company, it earns 6.64 cents profit before other expenses.

So, it is proper to say that it earned lesser in 2018 compared to 2017 by 1.11

cents with respect to gross profit margin ratio.

However, if cost of revenue and operating expenses are taken into

account, its operating profit margin is 1.7% in 2018 and 2.12% in 2017. This

means that in 2018 for every peso sales 98.30 cents of it is used to cover its

operating expenses and cost of revenues, it only earns 1.7 cents. It only yielded

a minimal decrease of 0.42 cents because some operating expense accounts

significantly increased in 2017.

Furthermore, its return on sales is 1.19% which is lower by 0.29%

compared to the previous year. This suggests that for every peso sales it makes;

it earns 1.19% cents as profit. On the other hand, the rate of return on equity is

7.31% in 2018 and 9.82% in 2017. And, earnings per share for the year 2018

and 2017 are 36.22 and 46.89 respectively. This suggests that each share of the

37
stockholders could receive 36.22 in 2018 and 46.89 in 2017. The decrease in the

returns only indicates that the company is not doing well in their financial

performance in 2018.

In addition to that, Glainier Industrial Corporation seemed to be less

effective in managing their assets in 2018 compared to 2017. The rates of return

of assets are 3.53% and 4.68% in 2018 and 2017 respectively.

Moreover, there is an increase in the cash flow margin from -3.15% to

0.13%. There is a 3.28 increase. This is due to the increase of net cash provided

by operating activities. This implies that the corporation is effective in converting

their sales into cash in 2018 compared to 2017.

38
V. SUMMARY, CONCLUSION AND RECOMMENDATION

This chapter presents the summary, conclusions and recommendation of the

analysis after conducting the analysis of the financial statements of Glainier Industrial

Corporation for the year ended 2017 and 2018.

A. SUMMARY

In order to seek meaningful relationships and have thorough analysis and

interpretation of the accounts and amounts in the financial statements, especially the

statement of financial position and statement of comprehensive income of Glanier

Industrial Corporation, different analytical tools and techniques were used. Among the

tools performed in the analysis are horizontal, vertical, and ratio analysis.

In analyzing the financial position of the company through horizontal analysis, the

total assets have increased due to absolute changes in value of assets especially those

from trade receivables and inventories. The increase in current assets is more than

enough to cover the decrease in property and plant equipment due to depreciation. The

total liabilities have also increased due to trade payables and accrued expenses at year

end. Although income tax payables and other payables showed a large increase in

percentage, the absolute change is not considered to be significant. On the other hand,

the equity has increased as a result of the operations.

In the horizontal analysis of the income statement, it may be noted the decrease

both in revenue and net income. The cost of sales likewise decrease which is almost

the same percentage change in cost of revenues. Also, the operating expenses and

39
income tax expense have decreased because all of the accounts in the income

statement are technically interrelated.

Furthermore, the vertical analysis on the statement of financial position and

statement of comprehensive income for the year ended 2017 and 2018 were

maintained at almost constant trends. Few changes noted as regards the company`s

common size balance sheets, are the increase in cash and trade receivables. Current

liabilities, on the other hand, decreased which is an indication of an improving working

capital position. Despite the increase in the absolute values of current liabilities, their

percentages to total assets decreased.

After concluding the ratio analysis in relation to the liquidity, solvency and

profitability of Glainier Industrial Corp, the following are the findings: (a) the current

assets in 2017 are more than the current liabilities which resulted to positive working

capital. In 2018, current asset remain greater than the current liabilities. (b) The

receivables turnover has increased in 2018 which could be an indicator of a decline in

credit and collection policy. (c) The average age of receivables, which apparently, is

shorter than the operating cycle, means the trade payables required shorter length of

time to remain unpaid. (d) The company has a higher debt ratio compared to equity ratio

but only for a small disparity, meaning the company is relying almost equally on

stockholders and outside financing. (e) The profitability ratio showed decreased results

in 2018. This is due to decreased revenue resulted in lower net income.

40
B. CONCLUSION

After the analysis of the financial statements with the help of tools used, the

following conclusions have been made:

Liquidity wise, the company is a bit more liquid in 2018 than in 2017 in terms of

its current ratio and quick ratio. The company has enough current assets to pay its

current liabilities. However, the payment period is a little bit shorter than the operating

cycle which implies slightly limited cash availability in meeting its trade payables before

maturity. The longer operating cycle is due to increase in average age of inventories

despite the improve collection policy shown by increased in receivable turnover on

2018. This can therefore signify shorter collection period meaning the collection of

receivables are collected faster in 2018 than in 2017.

Furthermore, in terms of solvency, the company is at better position in 2018 than

in 2017 because the debt ratio decreased, hence lower exposure in risk. The company

managed to balance its risk almost equally to stockholders and company`s creditors. All

other solvency measures are positive.

In addition, the firm seems to be less profitable in 2018 than in 2017 because all

of the profitability tests showed decreased results compared to 2017. The decline in

sales resulted to a lower net income. Hence, the company must find ways and improve

strategies to increase sales amidst given certain economic and business conditions.

Therefore, Glainier Industrial Corporation is in a slightly overall better position in

regards of liquidity in 2018 than in 2017. Solvency wise, the company is in better

41
position in 2018. However, it has an undesirable performance in regards with its

profitability compared to the previous year, 2017.

42
C. RECOMMENDATION

Based on the limited information gathered from the financial statements analysis,

the analyst come up to the following recommendations from the result of analysis for the

improvement of the financial position and performance of Glainier Industrial

Corporation:

 To use forecasting tools like EOQ in order to control the amount of inventory,

enough to meet daily demands

These recommendations are merely suggestions of the analysts after conducting

the financial statement analysis for the years ended 2017 and 2018.

43