Income Statement – An income statement or profit and
loss account is one of the financial statements of a
company and shows the company’s revenues and
expenses during a particular period. It determines
whether the operations of the business resulted into
profit or loss.
Balance Sheet – A balance sheet is a financial statement
that reports a company's assets, liabilities and
shareholders' equity at a specific point in time, and
provides a basis for computing rates of return and
evaluating its capital structure. It shows the standing of
the company
TWO WAYS OF ANALYZING FINANCIAL STATEMENTS
 Vertical Analysis – is a method of financial
statement analysis in which each line item is
listed as a percentage of a base figure within the
statement. This kind of analysis on makes use of
one particular period. Vertical Analysis always
uses Revenue/Sales as its base.
VERTICAL ANALYSIS FORMULA (INCOME
STATEMENT):
𝑰𝒏𝒄𝒐𝒎𝒆 𝑺𝒕𝒂𝒕𝒆𝒎𝒆𝒏𝒕 𝑰𝒕𝒆𝒎
× 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝑺𝒂𝒍𝒆
VERTICAL ANALYSIS FORMULA (BALANCE SHEET):
𝑩𝒂𝒍𝒂𝒏𝒄𝒆 𝑺𝒉𝒆𝒆𝒕 𝑰𝒕𝒆𝒎
× 𝟏𝟎𝟎
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔 (𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
 Horizontal Analysis – (also known as trend
analysis) is a financial statement analysis
technique that shows changes in the amounts of
corresponding financial statement items over a
period of time. It is a useful tool to evaluate the
trend situations between two or more periods
and uses historical data.
HORIZONTAL ANALYSIS SHORTCUT FORMULA:
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 − 𝑷𝒓𝒆𝒗𝒊𝒐𝒖𝒔
%=
𝑷𝒓𝒆𝒗𝒊𝒐𝒖𝒔
FAJARDO, RACHEL MAE R. | BBE 1102 | TYPES OF ANALYSIS & FINANCIAL RATIOS
DOLLAR CHANGE FORMULA:
∆$ = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 − 𝑷𝒓𝒆𝒗𝒊𝒐𝒖𝒔
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒀𝒆𝒂𝒓 = (% 𝒐𝒇 𝒄𝒖𝒓𝒓𝒆𝒏𝒕 × 𝒑𝒓𝒆𝒗𝒊𝒐𝒖𝒔)
+ 𝒑𝒓𝒆𝒗𝒊𝒐𝒖𝒔
Revenue – is the income generated from normal business
operations and includes discounts and deductions for
returned merchandise. It is the top line or gross income
figure from which costs are subtracted to determine net
income. Revenue is also known as sales on the income
statement.
Gross Profit – is the profit a company makes after
deducting the costs associated with making its products,
or the costs associated with providing its services.
Gross Profit = Sales – Cost of Goods Sold
Cost of Goods Sold (COGS) – refers to the direct costs of
producing the goods sold by a company. This amount
includes the cost of the materials and labor directly used
to create the good as well as the overhead.
Asset – is any resource owned by the business. Anything
tangible or intangible that can be owned or controlled to
produce value and that is held by a company to produce
positive economic value is an asset.
Liabilities – Liabilities are defined as a company's legal
financial debts or obligations that arise during the course
of business operations. They can be limited, or unlimited
liability. Liabilities are settled over time through the
transfer of economic benefits including money, goods, or
services.
Equity – is the residual value of an owner's interest in a
company, after all liabilities have been deducted.
Leverage Ratio – measures the relationship of the capital
and the liabilities. It looks at how much capital comes in
the form of debt (loans) or assesses the ability of a
company to meet its financial obligations.
1
 VERTICAL ANALYSIS
Vertical Analysis
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
2018 2017 2016 2018 2017 2016
REVENUE $ 5000 $4000 $3000 100% 100% 100%
COGS (3200) (3000) (2500) (64%) (75%) (83%)
Gross Profit 1800 1000 500 36% 25% 17%

Depreciation (500) (450) (400) (10%) (11%) (13%)

SG&A (300) (300) (300) (6%) (8%) (10%)
Interest (50) (50) (50) (1%) (1%) (2%)
Earnings Before Tax 950 200 250 19% 5% (8%)

Tax (225) (20) (0) (5%) (1%) (0%)

Net Earnings 725 180 250 15% 5% (8%)

HORIZONTAL ANALYSIS

FAJARDO, RACHEL MAE R. | BBE 1102 | TYPES OF ANALYSIS & FINANCIAL RATIOS 2
 VERTICAL ANALYSIS

FAJARDO, RACHEL MAE R. | BBE 1102 | TYPES OF ANALYSIS & FINANCIAL RATIOS 3
 HORIZONTAL ANALYSIS

FAJARDO, RACHEL MAE R. | BBE 1102 | TYPES OF ANALYSIS & FINANCIAL RATIOS 4
 MAIN LIQUIDITY RATIO
3. Debt to EBITDA – ratio measuring the amount of
1. Liquidity/Quick Ratio – also known as the acid-test
income generated an available to pay down debt
ratio, it measures the relationship of the assets and
before covering interest, taxes, depreciation, and
the liabilities. It measures the ability of a company to
amortization expenses.
use its near cash or quick assets to extinguish or retire
- EBITDA – Earnings Before Interest, Taxes,
its current liabilities immediately.
Depreciation and Amortization.
𝑪𝒂𝒔𝒉 + 𝑨𝑹 + 𝑰𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕𝒔
𝑸𝒖𝒊𝒄𝒌 𝑹𝒂𝒕𝒊𝒐 = 𝑫𝒆𝒃𝒕
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒚 𝑫𝒆𝒃𝒕 𝒕𝒐 𝑬𝑩𝑰𝑻𝑫𝑨 𝑹𝒂𝒕𝒊𝒐 =
𝑬𝑩𝑰𝑻𝑫𝑨

2. Current Ratio - measures a company's ability to pay 4. Interest Leverage – a debt ratio and profitability ratio
short-term obligations or those due within one year. used to determine how easily a company can pay
It tells investors and analysts how a company can interest on its outstanding debt.
maximize the current assets on its balance sheet to
satisfy its current debt and other payables. 𝑻𝒐𝒕𝒂𝒍 𝑫𝒆𝒃𝒕𝒔
𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑳𝒆𝒗𝒆𝒓𝒂𝒈𝒆 𝑹𝒂𝒕𝒊𝒐 =
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑹𝒂𝒕𝒊𝒐 =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
5. Fixed Charge Coverage Ratio – Measures firms’ ability
to pay all of its fixed charges or expenses with its
3. Net working capital (NWC) – is the aggregate amount income before interest and income taxes.
of all current assets and current liabilities. It is used to
measure the short-term liquidity of a business, and 𝑭𝒊𝒙𝒆𝒅 𝑪𝒉𝒂𝒓𝒈𝒆 𝑪𝒐𝒗𝒆𝒓𝒂𝒈𝒆 𝑹𝒂𝒕𝒊𝒐
can also be used to obtain a general impression of the 𝑭𝒊𝒙𝒆𝒅 𝑬𝒙𝒑𝒆𝒏𝒔𝒆𝒔
=
ability of company management to utilize assets in an 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
efficient manner.

𝑵𝑾𝑪 = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 − 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 MAIN OPERATING EFFICIENCY RATIOS

1. Inventory Turnover – a ratio showing how many times

MAIN LEVERAGE RATIOS FOR BUSINESS ANALYTICS a company has sold and replaced inventory during a
1. Debt to Equity Ratio – shows the proportions of equity given period.
and debt a company is using to finance its assets and 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐
it signals the extent to which shareholder's equity can 𝑪𝒐𝒔𝒕 𝒐𝒇 𝑮𝒐𝒐𝒅𝒔 𝑺𝒐𝒍𝒅
fulfill obligations to creditors, in the event a business =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
declines.
𝑫𝒆𝒃𝒕 𝑩𝒆𝒈. 𝑰𝒏𝒗 + 𝑬𝒏𝒅. 𝑰𝒏𝒗
𝑫𝒆𝒃𝒕 𝒕𝒐 𝑬𝒒𝒖𝒊𝒕𝒚 𝑹𝒂𝒕𝒊𝒐 = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 =
𝑻𝒐𝒕𝒂𝒍 𝑬𝒒𝒖𝒊𝒕𝒚 𝟐

2. Debt to Capital Ratio – ratio of the total debts to the

total capital. This ratio measure a company’s capital
structure, financial solvency, and degree of leverage,
at a particular point in time.

𝑫𝒆𝒃𝒕
𝑫𝒆𝒃𝒕 𝒕𝒐 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝑹𝒂𝒕𝒊𝒐 =
𝑪𝒂𝒑𝒊𝒕𝒂𝒍

FAJARDO, RACHEL MAE R. | BBE 1102 | TYPES OF ANALYSIS & FINANCIAL RATIOS 5
2. Accounts Receivable Days – It is the length of time it
takes to clear all Accounts Receivable, or the
𝑩𝒆𝒈. 𝑨𝑷 + 𝑬𝒏𝒅. 𝑨𝑷
timeframe before account receivable would be 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨𝒑 =
𝟐
turned into cash.

𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑹𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆 𝑫𝒂𝒚𝒔

𝑵𝒆𝒕 𝑪𝒓𝒆𝒅𝒊𝒕 𝑺𝒂𝒍𝒆𝒔 4. Total Asset Turnover – compares the sales of a
=( ) × 𝟑𝟔𝟓
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨𝑹 company to its asset base. The ratio measures the
ability of an organization to efficiently produce sales.
𝑩𝒆𝒈. 𝑨𝑹 + 𝑬𝒏𝒅. 𝑨𝑹 𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨𝑹 = 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐 =
𝟐 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔

3. Accounts Payable Days – measures the number of

5. Net Asset Turnover –
days that a company takes to pay its suppliers.
𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆 𝑫𝒂𝒚𝒔 𝑵𝒆𝒕 𝑨𝒔𝒔𝒆𝒕 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 =
𝑵𝒆𝒕 𝑪𝒓𝒆𝒅𝒊𝒕 𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆𝒔 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
=( ) × 𝟑𝟔𝟓
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨𝑷

𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔 = (𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔 𝑷𝒓𝒆𝒗. +𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔 𝑪𝒖𝒓𝒓𝒆𝒏𝒕) ÷ 𝟐)

FAJARDO, RACHEL MAE R. | BBE 1102 | TYPES OF ANALYSIS & FINANCIAL RATIOS 6