FINANCIAL MANAGEMENT

Ms. Mariebelle Ann Arcosa

Cathlyn F. Presidentis
BS ENTREP 2A
Module 3

ASSESSMENT

Answer the following questions.

1. What are the objectives of financial statement analysis? Discuss briefly.

The objectives of financial statement are the following;

Profitability- which refers to the ability to generate income. It analyse a company’s financial statements,
the most common profitability ratios used include: gross profit margin, net profit margin or return on
equity.

Liquidity and Stability- refers to the ability of the firm to meet or pay their current short term maturing
obligations. It is also refers to the working capital position or short term financial of the company.

Asset utilization or activity- it talks about on how the company effectively manage their resources. It also
refers on how fast the company in turning over the accounts receivable, inventory and their long term
assets.

Debt-utilization or leverage- this refer to the overall debt that the company had which measured and
evaluated using other variables like assets, equity and earning power.

2. Discuss the issues that limit financial statement analysis.

The primary purpose of financial statement analysis is to examine the present, as well as the past,
financial position (SFP) and results of operations (Income Statement) of the firm in order to determine
the best suitable estimate and predict the future state and performance of the company. The main
subject of analysis is also subject to limitation.

3. Compare and contrast horizontal analysis and vertical analysis in terms of procedure.

The key difference between horizontal and vertical analysis is that vertical analysis depends on the way
financial information in statements are extracted for decision making. Horizontal analysis compares
financial information over time by adopting a line by line method. Vertical analysis is focused on
conducting comparisons of ratios calculated using financial statements and both are equally important
to make decisions that affect the company on an informed basis.
II. Prepare a horizontal and vertical analysis based on the data below. Below your computations, present
an analysis, interpretation and conclusion about the result of your computation.

TREN Corporation
Comparative Statements of Financial Position
December 31, 205
(in Thousand Pesos)

Increase/Decrease
2015 2014
Assets
Current Assets
Cash & Cash Equivalent 24, 890 2, 120 22, 770 91. 48
Held for Trading 10, 000
Trade & Other Receivables 16, 000 6, 000 10,000 62.5
Inventory 8, 960 10, 600 -1, 640 -190.70
Total Current Assets 59, 850 18, 720 41, 130 68. 72
Non-Current Assets
Property, plant & Equipment 150, 000 161, 280 -11, 280 -7. 52
Investment in Equity Securities 16, 600 20, 000 -4, 000 -24.10
Total Non-current Assets 166, 000 181, 280 -15, 280 -9. 20
TOTAL ASSETS 225,850 200, 000 25, 850 11. 45

Liabilities & Shareholders’ Equity

Current Liabilities
Trade & Other Payable 8, 400 3, 350 5, 050 166. 33
Unearned Revenues 10, 600 11,650 -1, 050 -9. 91
Notes Payable-current 900 600 300 33. 33
Total Current Liabilities 19, 900 15, 600 4, 300 21. 61
Non-Current Liabilities
Notes Payable- non-current 73, 550 100, 000 -26, 450 -35. 96
Total Liabilities 93, 450 115, 600 -22, 150 -23, 70
Shareholders’ Equity
Ordinary Shares, ₱100 par 80, 000 60, 000 20, 000 25
Premium on Ordinary Shares 16, 000 10, 000 6, 000 37. 5
Total paid-in-capital 96, 000 70, 000 26, 000 27. 08

Retained Earnings 36, 400 14, 400 22, 000 60. 44

Total Shareholders’ Equity 132, 400 84, 400 48, 000 36.25
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY 225, 850 200, 000 25, 850 11. 43
 TREN Corporation
Comparative Income Statements
For the years ended December 31, 2015 & 2014
(in Thousand Pesos)

Increase/Decrease
2015 2014
Sales 480, 000 400, 000 80, 000 16.67
Less: Cost of Goods Sold 364, 000 280, 000 84, 000 23. 08
Gross Income 116, 000 120,000 -4, 000 -100. 03
Add: Other Income 15, 000 9, 600 5, 400 36
Total Income 131, 000 129, 600 1, 400 1.07
Less: Other Expenses 12, 400
Finance Costs (Interest) 14, 400 19, 000 -4, 600 -31. 94
Total Expenses 26, 800 19, 000 7, 800 29. 10
Net Income before taxes 104, 200 110, 600 -6, 400 -6. 14
Less: Income Tax 32, 334 35, 392 -3, 058 -9.46
Net Income after Taxes 71, 866 75, 208 -3, 342 -4.650