Republic of the Philippines

Department of Education
REGION IV-A CALABARZON
CITY SCHOOLS DIVISION OF BIÑAN CITY

THIRD QUARTER
Business Finance
WEEK No. 2
Date of the week: February 20-24

The learners… The learners… The learners… The learners…

1. prepare financial 2. define the 4.compute, analyze,
statements measurement 3.perform vertical and and
ABM_BF12-IIIb-6 levels, namely, interpret financial ratios
liquidity, horizontal analyses of such as current ratio,
solvency, stability, financial statements of working capital, gross
and profit ratio, net profit
a
profitability ratio, receivable
ABM_BF12-IIIb-7 single proprietorship turnover, inventory
turnover, debtto- equity
ABM_BF12-IIIb-8 ratio, and the like
ABM_BF12-IIIb-9

References: Beticon, J. L. , Domingo, J. C. D, Yabut, F. A. D (2016) Fundamentals of Accountancy, Business

and Management 2. Vibal Group, Inc. , Ong, F. L., Gomendoza J. (2017) Fundamentals of Accountancy,
Business and Management 2 for Senior High School. C & E Publishing, Inc., Teachers Guide

Financial Statement Analysis

 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.

Three kinds of Financial Statement analysis techniques:

1. Horizontal also known as 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.

Formula of Horizontal Analysis:

Peso Change = Balance of Current Year – Balance of Prior Year

Percentage Change = (Balance of Current Year – Balance of Prior Year)

(Balance of Prior Year)

1|Page
Address: P. Burgos St. Brgy. Sto. Domingo, Biñan City Laguna
Website: depedbinancity.com.ph
Email: deped.binancity@deped.gov.ph
Telephone no: 511-4143/ 511-8620/ 511-4191/ 511-8746
 ABM Trading
Statement Of Financial Position
As of December 31 HORIZONTAL ANALYSIS
INCREASE/(DECREASE) INCREASE/(DECREASE)
ASSETS 2014 2013 AMOUNT PERCENT
Cash and Cash Equivalents P 12,250 P 10,470 P 1,780 17%
Receivables 9,065 8,055 1,010 13%
Inventory 6,620 5,300 1,320 25%
Prepaid Expenses 8,545 10,600 -2,055 -19%
Total Current Assets 36,480 34,425 2,055 6%
Other Assets 92,500 78,685 13,815 18%
Total Assets P 128,980 P 113,110 P 15,870 14%

HORIZONTAL ANALYSIS
LIABILITIES AND OWNER'S EQUITY INCREASE/(DECREASE) INCREASE/(DECREASE)
AMOUNT PERCENT
Total Current Liabilities 36150 42335 -6,185 -15%
Long Term Liabilities 23990 18960 5,030 27%
Mercedes Aldana, Capital 68840 51815 17,025 33%
Total Liabilities and Equity P 128980 P 113110 15,870 14%

ABM Trading
Statement Comprehensive Income
For the years ended December 31 HORIZONTAL ANALYSIS
INCREASE/(DECREASE) INCREASE/(DECREASE)
2014 2013 AMOUNT PERCENT
Sales P 115,176 P 104,705 P 10,471 10%
Less:Cost of Sales 35,503 32,275 3,228 10%
Gross Profit 79,674 69,430 10,244 15%
Less: Selling Expenses 38,858 35,325 3,533 10%
Administrative Expenses 14,097 12,815 1,282 10%
Operating Income 26,719 21,290 5,429 25%
Less: Interest Expense 1,155 1,050 105 10%
Net Income P 25,564 P 20,240 5,324 26%

INTERPRETATION OF DATA
In interpreting the data, it is important to note that the materiality of increases or decreases
depends on the size of the company. A material amount in one company may not be material to another.
For example, a hundred-thousand increase in the receivable of a small grocery may be considered material
to the small grocery but not to SM’s Hyper Mart considering their size, capitalization, and volume of
transactions. Hence, there is not strict rule to follow in determining the materiality of an amount.
In analyzing the significance of a percent change in value, the analysis should not only center on
internal factors controllable b management. An example is the drop is sales of plastic bags. A 25% drop in
the sale of plastic bag company may be significant to the company but because of the plastic ban issued by
the Philippine government in some areas in Metro Manila, other company’s plastic bag sales may have
dropped by 30% to 50% considering the trend in the industry. This is an outside factor over which
management has no control. Hence, internal factors are not the only factors considered in data analysis and
interpretation but external factors as well. Management should be well informed on the latest trends
affecting their industry.

2. Vertical Analysis also called common size analysis

is a technique that expresses each financial statement items as a percentage of a base amount.
For SFP, the base amount is the Total Assets
For SCI, the base amount is the Net Sales

2|Page
Address: P. Burgos St. Brgy. Sto. Domingo, Biñan City Laguna
Website: depedbinancity.com.ph
Email: deped.binancity@deped.gov.ph
Telephone no: 511-4143/ 511-8620/ 511-4191/ 511-8746
 ABM Trading
Statement Of Financial Position
As of December 31

ASSETS 2014 Percent 2013 Percent

Cash and Cash Equivalents P 12,250 9 P 10,470 9
Receivables 9,065 7 8,055 7
Inventory 6,620 5 5,300 5
Prepaid Expenses 8,545 7 10,600 9
Total Current Assets 36,480 28 34,425 30
Other Assets 92,500 72 78,685 70
Total Assets P 128,980 100 P 113,110 100

LIABILITIES AND OWNER'S EQUITY

Total Current Liabilities 36150 28 42335 37

Long Term Liabilities 23990 19 18960 17
Mercedes Aldana, Capital 68840 53 51815 46
Total Liabilities and Equity P 128980 100 P 113110 100

ABM Trading
Statement of Comprehensive Income
For the years ended December 31

2014 PERCENT 2013 PERCENT

Sales P 115,176 100 P 104,705 100
Less:Cost of Sales 35,503 31 32,275 31
Gross Profit 79,674 69 69,430 66
Less: Selling Expenses 38,858 34 35,325 34
Administrative Expenses 14,097 12 12,815 12
Operating Income 26,719 23 21,290 20
Less: Interest Expense 1,155 1 1,050 1
Net Income P 25,564 22 P 20,240 19

3. Financial Ratios/ Ratio Analysis

It expresses the relationship among selected items of financial statement data.
Financial Ratios are grouped into three categories:
A.. Liquidity Ratios
Liquidity is the capacity of the company to pay its currently maturing obligations. This will
require a good amount of Cash and other liquid assets, such as Accounts Receivable, Inventory,
Trading Securities and Prepaid Assets.
B. Solvency Ratios
Solvency ratios measures the capability of the entity to pay its long term obligations as
they fall due. Creditors of the company’s long term notes payable and bonds payable will be
interested in knowing its solvency status.
C. Profitability Ratios
One of the primary reasons why stockholders why stockholders invest in a certain
company is the chance to earn profits. Investors make use of different profitability ratio in choosing
from diverse investment opportunities available.

Here are the activities for you to understand the lessons further. Write your answers on a bond paper or
yellow pad.

DEVELOPMENT

Learning Task 1

The following are the financial statements of Pancake House and Subsidiaries.

3|Page
Address: P. Burgos St. Brgy. Sto. Domingo, Biñan City Laguna
Website: depedbinancity.com.ph
Email: deped.binancity@deped.gov.ph
Telephone no: 511-4143/ 511-8620/ 511-4191/ 511-8746
 Perform horizontal and vertical analysis for year 2013 and 2012 for Pancake House and Subsidiaries. (30
items)

ENGAGEMENT: (32 items)

Learning Task 2:
The following are the financial statements of Pancake House and Subsidiaries.

Perform horizontal and vertical analysis for year 2013 and 2012 for Pancake House and Subsidiaries. (30
items)

4|Page
Address: P. Burgos St. Brgy. Sto. Domingo, Biñan City Laguna
Website: depedbinancity.com.ph
Email: deped.binancity@deped.gov.ph
Telephone no: 511-4143/ 511-8620/ 511-4191/ 511-8746
 Prepared by: Verified by:

Myla Z. Castillo Lani A. Alonte, EdD

Teacher II EPS-EPP/TLE/TVL

5|Page
Address: P. Burgos St. Brgy. Sto. Domingo, Biñan City Laguna
Website: depedbinancity.com.ph
Email: deped.binancity@deped.gov.ph
Telephone no: 511-4143/ 511-8620/ 511-4191/ 511-8746