Topic 7: Tools in Financial Analysis and

Planning

Prepare by: Mrs. Catherine U. Malig, MBA

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• Cash flow analysis is an essential tool for businesses to manage their cash flow
effectively. It involves analyzing the inflow and outflow of cash from the operating,
investing, and financing activities of the company. By examining the cash flow
statement, companies in the Philippines can identify cash flow problems and take
corrective measures to improve their cash position. The cash flow analysis is also
important for assessing a company's ability to generate cash to meet its financial
obligations and invest in new opportunities.

• Financial planning is a critical process that helps businesses achieve their financial
goals. In the Philippines, financial planning involves setting financial goals and
developing strategies to achieve them. Financial planning includes creating budgets,
analyzing cash flows, forecasting financial statements, and identifying potential
financial risks. Financial planning helps companies in the Philippines make informed
decisions about investments, financing, and other financial activities that can impact
their financial performance. By conducting financial planning, businesses can improve
their financial performance, reduce risks, and achieve their long-term financial goals.

Funds Analysis:

PAS 1 - Presentation of Financial Statements

PFRS 7 - Financial Instruments: Disclosures
PAS 16 - Property, Plant and Equipment
PAS 36 - Impairment of Assets
PAS 39 - Financial Instruments: Recognition and
Measurement
PAS 40 - Investment Property
Cash Flow Analysis:

PAS 1 - Presentation of Financial Statements

PAS 7 - Statement of Cash Flows
PAS 16 - Property, Plant and Equipment
PAS 36 - Impairment of Assets
PAS 39 - Financial Instruments: Recognition and
Measurement
PAS 40 - Investment Property

Financial Analysis:
Financial Planning:

ABC Corporation is a manufacturing company in the Philippines. Below are the

summarized financial statements of the company for the year ended December
31, 2022.

Balance Sheet Income Statement

Assets:
Revenue P5,000,000
Cash P500,000
Cost of Goods Sold 3,000,000
Accounts receivable 1,000,000
Inventory 1,500,000 Gross profit P2,000,000
Total Assets P3,000,000 Operating expenses 1,500,000
Liabilities and Equity Net Income P500,000
Liabilities:
Accounts Payable P500,000
Notes payble 1,000,000
Total Liabilities P1,500,000 Help me compute the liquidity
Equity
CS P1,000,000
ratio and analyze them.
Retained earnings 500,000
Total equity P1,500,000
ABC Corporation is a manufacturing company in the Philippines. Below are the
summarized financial statements of the company for the year ended December
31, 2022.
Liquidity Ratios:
Current Ratio = Current Assets / Current Liabilities
= PHP 3,000,000 / PHP 500,000
=6

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

= (PHP 3,000,000 - PHP 1,500,000) / PHP 500,000
=3

Profitability Ratios:
Gross Profit Margin = Gross Profit / Revenue
= PHP 2,000,000 / PHP 5,000,000
= 0.40 or 40%

Net Profit Margin = Net Income / Revenue

= PHP 500,000 / PHP 5,000,000
= 0.10 or 10%

Solvency Ratios:
Debt-to-Equity Ratio = Total Liabilities / Total Equity
= PHP 1,500,000 / PHP 1,500,000
=1

ABC Corporation is a company in the Philippines. Below are the

summarized financial statements of the company for the year ended December
31, 2022.
XYZ Corporation is a retail company in the Philippines. Below are the summarized financial
statements of the company for the year ended December 31, 2022.
Balance Sheet
Assets:
Cash P1,000,000
Accounts receivable 1,500,000
Inventory 2,000,000
Total Assets P4,500,000
Liabilities and Equity
Liabilities: Help me do the fund analysis.
Accounts Payable P1,500,000
Short term loans 500,000
payable
Notes payable 1,000,000
Total Liabilities P3,000,000
Equity
CS P1,000,000
Retained earnings 500,000
Total equity P1,500,000

Illustration:Funds Analysis
Using the above financial statements, we can compute the sources and uses of
funds as follows:
Analysis:
Sources of Funds:
Total Liabilities: P3,000,000
Equity: P1,500,000
Total Sources of Funds: P4,500,000

Uses of Funds:
Cash: PHP 1,000,000
Accounts Receivable: PHP 1,500,000
Inventory: PHP 2,000,000
Total Uses of Funds: PHP 4,500,000
Illustration:Cashflow Analysis

Cash from Operating Activities:

Cash Collections from Customers: P 2,500,000
Cash Payments to Suppliers: P1,000,000
Cash Payments for Operating Expenses: P 1,200,000
Net Cash from Operating Activities: P 300,000
Cash from Financing Activities:
Proceeds from Long-term Debt: PHP 1,000,000
Payment of Short-term Debt: PHP 500,000
Net Cash from Financing Activities: PHP 500,000

Cash from Investing Activities: Net Increase in Cash: PHP 300,000

Purchase of Property, Plant and Equipment: P 500,000 Cash at Beginning of Year: PHP 200,000
Net Cash Used in Investing Activities: P 500,000 Cash at End of Year: PHP 500,000

Using the above cash flow statement, we can compute the following cash flow
ratios:
Operating Cash Flow Ratio = Net Cash from Operating Activities / Current
Liabilities
= P 300,000 / (P 1,000,000 + P 500,000)
= 0.20 or 20%

Free Cash Flow = Operating Cash Flow - Capital Expenditures

P 300,000 - P 500,000
= - P 200,000
Relevance to the business:
1. Operating Cash Flow Ratio is also known as the cash flow
coverage ratio. It measures a company's ability to generate
cash from its operations to cover its current liabilities. It is an
important financial metric that can provide insight into a
company's liquidity, financial health, investment opportunities,
and relative performance within its industry.
The higher the ratio the better since the company has
sufficient cash flow from operations to cover its current
liabilities, which may help reduce the risk of defaulty or
bankruptcy.

Relevance to the business:

2.
Illustration: Financial Planning

Illustration: Financial Planning

Suggestions:
SEATWORK

1. Conduct a financial, fund, and cashflow analysis on the

FS provided.

2. Prepare a financial planning.