REVIEW OF FINANCIAL

STATEMENT PREPARATION,
ANALYSIS AND
INTERPRETATION
BASIC FINANCIAL STATEMENTS
It contains information as of the date of
its preparation about firm’s assets,
liabilities and owner’s equity.

BALANCE SHEET
Statement of financial position is a
___________ of the firm’s assets,
liabilities, and owner’s equity for a
particular date.
In the statement of financial position,
assets are listed on the _______ side.
The current assets and non-current
assets are combined and labeled as
___________.
TOTAL ASSET
On the right side are _______ &
______.
 XYZ Company 1. ? ___________ Form
Statement of Financial Position
As of December 31, 2018

Current Assets 3. ?

ACCOUNT FORM
Non-Current Liabilities

2. ?
Total Liabilities

4. ?
Total Assets

Total Liabilities and Equity

Asset that the firm does not expect to
sell or otherwise convert into cash
within a year or current period
Asset that can be easily be sold or
converted to cash.
Current Assets:
Cash
Cash equivalents
Trade and other receivables
Marketable securities
Inventories
Prepaid expenses
Contra-asset accounts
Non-Current Assets:
Long-term investments
Property, plant,and equipment
Intangible assets
Financial Obligation of a firm that is due
within one year or less.
Financial Obligation of a firm that is due
more than one year into the future.
Non-Current Liabilities:

Mortgage Payable
Bonds Payable
Current Liabilities:
TRADE AND OTHER PAYABLES
• Accounts Payable
• Notes Payable
• Loan Payable
• Utilities Payable
• Unearned Revenues
• Accrued Liabilities
Fundamental Equation of the statement
of financial position.
Assets = Liabilities + Owner’s
Equity
__________ Form
___________ Form
Financial statement that summarizes a
firm’s sales or revenues, expenses
incurred, and results of operation.
Results of operation can be either
_________
Net Lossor __________.
Net Income
Income statements are prepared either
_________ or __________.
Maximum tax rate for business
according to Philippine Tax Law

30 %
Summarizes the cash activities of the
business by classifying cash inflows
(receipts) and cash outflows (payments)
into operating, investing, and financing
activities.
STATEMENT OF CASH FLOW
Statement of cash flows is prepared at
least ______ a ________.
Refers to changes in a company’s cash
position due to activities of the firm
such as raising capital or repayment of
debt.
Refers to money generated from
regular activities of the firms.
Refers to changes in a firm’s cash
position resulting from investments
made.
USERS OF FINANCIAL
STATEMENTS
 STOCKHOLDERS
STAKEHOLDERS
➢Person who brought ➢Person who is not
shares of stocks of a necessarily the owner of
publicly traded the business but has an
corporation. interest on how the
business is performing or
how it is managed.
➢Part owner of the
business.
 Internal Stakeholder
(Someone who is directly involved in the business)
Employees • They are interested in the way things are run in the organization-
from policies and procedures, hiring and compensation, and
compensation and benefits.
• They ask for transparency in financial reporting from the finance
manager.
Stockholders • Are those who bought shares of stocks of a publicly traded
corporation.
• They have voting rights and also entitled to dividends.
• They rely on the use of financial statements to assess the risk and
return trade-off in investing.
Top Management • They are more concerned with the quality of financial data that are
readily made to them.
• They use financial data for decision-making.
• Members of the top management especially the president, are
accountable to the board of directors.
Department Managers The analysis of financial statements is on the operational level.
(labor efficiency, percentage of reject in relation to overall output,
sales per market segment)
Board of Directors • Group of individuals elected by the stockholders to represent
them.
• They are tasked to ensure the financial well-being of the
company through the creation of policies. (dividends and
compensation of the members of the top management)
Labor Unions • Is an organization of employees whose mission is to represent
the employees in negotiations with employers.
• They review financial statements for them to gain an
understanding of the firm’s capacity to give the demands of the
employees. (working conditions, overtime compensation,
holidays, vacation, and work hours)
 External Stakeholder
(Someone who is not directly involved in the business but has a
stake on how the business is performing)
Customers • Most important external stakeholders.
• They are the lifeblood of the business.
Suppliers • Finance managers seek marketing support from
suppliers in form of free products for giveaways, event
sponsorship, and printing of marketing materials.
Government • Representatives of the government agencies, the BIR,
review financial statements of firms to determine the
payment of income taxes or the applicability of certain
exemptions.
Competitors • Competing firms within an industry monitor one
another’s activities and overall performance: product
offerings, pricing strategies, and investments made.
Financial • They review financial statements to see if a firm
Institutions applying for a loan is creditworthy.
Potential Investors • They review financial statements in order to assess
potential return if they invest in the business.
FINANCIAL STATEMENT
ANALYSIS
Tearing apart the financial statements
and looking at the relationships.
In order to evaluate a company, one
needs at least ______ periods to make
an evaluation or even _______ or more
years if one is to make a trend analysis.

2/3
It compares the same account in the
financial statements of two periods
determining the amount of changes
and computing its percentage change
using a base year as comparison.

Horizontal Analysis
It shows the relationship of each part
to the whole in a single financial
statement.
VERTICAL ANALYSIS
It compares not only two years but
covers three, four, or five years’
financial statements.

TREND ANALYSIS
Horizontal Analysis is otherwise known
as __________________?

Vertical Analysis is otherwise known as

__________________?
Steps in performing a trend analysis:

1. Prepare comparative financial statements for __________,

_________, or ________ consecutive years.
2. Choose a base year. Usually the ____ year is the base year.
3. Calculate the trend percentage for each item by dividing the
amount of each item by the base year. The _________ is
automatically 100%. Formula?
Steps in performing a vertical analysis in the statement of financial position:

1. Prepare __________ financial statements of two consecutive years.

2. Add one column on the _______ side of each year.
3. For the comparative statement of financial position, express each
account as a percentage of the total assets. The __________ is
automatically 100%. Likewise, _________________ is automatically
100%.
Steps in performing horizontal analysis:
1. Prepare comparative financial statements of __________
consecutive years.
2. Add a third column for the _____________ and a fourth
column for the___________________.
3. Get the percent of increase in or decrease for each
account. Formula?
Steps in performing a vertical analysis in the income statement:

1. Prepare comparative financial statements of two ___________

years.
2. Add _________ column on the right side of each year.
3. For the comparative income statement, express each account as a
percentage of the __________. Net sales is automatically
_________.
FINANCIAL RATIOS
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