WORKING WITH

FINANCIAL
STATEMENT
REPORT BY GROUP 1
 FINANCIAL STATEMENT
ANALYSIS
Financial statements analysis involves
the assessment of a company’s past
performance and future potentials.
 THE BASIC PERFORMANCE
MEASUREMENTS IN ANALYSING
FINANCIAL STATEMENTS

1. LIQUIDITY – It is the ability of the business

to pay its currently maturing liabilities as
they fall on its due date.
2. SOLVENCY – It is the ability to pay long
term liabilities.
3. PROFITABILITY – Addresses a very basic
goal of any business: to earn the highest
possible profit or return on its investment.
 FOOD SNACK HOUSE [INCOME STATEMENT]
DECEMBER 31, 2013 AND DECEMBER 31 2014

2014 2013

NET SALES 7,457,736 6,396,040

LESS: COST OF 6,228,552 5,859,680

GOODS SOLD
GROSS PROFIT 1,229,184 536,360

LESS: OTHER 886,177 561,974

EXPENSES
OPERATING INCOME 343,008 -25,614

LESS: INTEREST 74,208 144,173

EXPENSE
NET INCOME 268,799 -169,787
Balance sheets 2018-2019 2014 2013
Cash 91,626 7,792
Accounts Receivable 939,460 676,411
Inventories 1,836,634 1,377,475
Prepaid Rent 180,000 360,000
TOTAL CURRENT ASSETS 3,047,720 2,421,678
Equipment and Fixtures 1,280,961 1,287,157
Less Accumulated 406,728 281,581
Depreciation
Total Fixed Assets 874,233 1,055,575
TOTAL ASSETS 3,921,953 3,427,253
Accounts Payable 467,376 560,,851
Notes Payable 321,000 681,385
Accruals 436,560 523,872
Total Currents Liabilities 1,224,936 1,766,108
Long-Term Debt 608,000 1,134,072
Owner’s Capital 2,089,017 527,073
TOTAL LIABILITIES AND CAPITAL 3,9921,953 3,427,253
 VERTICAL AND
HORIZONTAL ANALYSIS
 VERTICAL ANALYSIS
VERTICAL ANALYSIS (common size) is
the process of comparing amounts in the
financial statements within the same
accounting period. It involves converting
amounts as a percentage of common base.
 FOOD SNACK HOUSE [INCOME STATEMENT]
DECEMBER 31, 2013 AND DECEMBER 31 2014

2013 (AMOUNT) PERCENTAGE

NET SALES 6,396,040 100%

GROSS PROFIT 536,360

LESS: OTHER 561,974

EXPENSES
OPERATING INCOME -25,614

LESS: INTEREST 144,173

EXPENSE
NET INCOME -169,787
 FOOD SNACK HOUSE [INCOME STATEMENT]
DECEMBER 31, 2013 AND DECEMBER 31 2014

2014 (amount) PERCENTAGE

NET SALES 7,457,736 100%

LESS: COST OF 6,228,552

GOODS SOLD
GROSS PROFIT 1,229,184

LESS: OTHER 886,177

EXPENSES
OPERATING INCOME 343,008

LESS: INTEREST 74,208

EXPENSE
NET INCOME 268,799
Balance sheets 2018-2019 2013 (AMOUNT) PERCENTAGE
Cash 7,792
Accounts Receivable 676,411
Inventories 1,377,475
Prepaid Rent 360,000
TOTAL CURRENT ASSETS 2,421,678
Equipment and Fixtures 1,287,157
Less Accumulated 281,581
Depreciation
Total Fixed Assets 1,055,575
TOTAL ASSETS 3,427,253 100%
Accounts Payable 560,,851
Notes Payable 681,385
Accruals 523,872
Total Currents Liabilities 1,766,108
Long-Term Debt 1,134,072
Owner’s Capital 527,073
TOTAL LIABILITIES AND CAPITAL 3,427,253 100%
Balance sheets 2018-2019 2014 (AMOUNT) PERCENTAGE
Cash 91,626
Accounts Receivable 939,460
Inventories 1,836,634
Prepaid Rent 180,000
TOTAL CURRENT ASSETS 3,047,720
Equipment and Fixtures 1,280,961
Less Accumulated 406,728
Depreciation
Total Fixed Assets 874,233
TOTAL ASSETS 3,921,953 100%
Accounts Payable 467,376
Notes Payable 321,000
Accruals 436,560
Total Currents Liabilities 1,224,936
Long-Term Debt 608,000
Owner’s Capital 2,089,017
TOTAL LIABILITIES AND CAPITAL 3,9921,953 100%
HORIZONTAL ANALYSIS
HORIZONTAL ANALYSIS (trend analysis)
involves comparing amounts in the financial
statements of two or more consecutive
periods.
 FOOD SNACK HOUSE [INCOME STATEMENT]
DECEMBER 31, 2013 AND DECEMBER 31 2014

2014 2013 CHANGE IN PERCENTAGE

AMOUNT
NET SALES 7,457,736 6,396,040 1,061,969 17%

LESS: COST OF 6,228,552 5,859,680 368,872 6%

GOODS SOLD
GROSS PROFIT 1,229,184 536,360 692,824 129%

LESS: OTHER 886,177 561,974 324,203 58%

EXPENSES
OPERATING 343,008 -25,614 368,621 1439%
INCOME
LESS: INTEREST 74,208 144,173 -69,964 -49%
EXPENSE
NET INCOME 268,799 -169,787 438,586 258%
Balance sheets 2018-2019 2014 2013 AMOUNT PERCENTAGE

Cash 91,626 7,792 83,835 10.76%

Accounts Receivable 939,460 676,411 263,049 39%
Inventories 1,836,634 1,377,475 459,158 33%
Prepaid Rent 180,000 360,000 -180,000 -50%
TOTAL CURRENT ASSETS 3,047,720 2,421,678 626,042 26%

Equipment and Fixtures 1,280,961 1,287,157 -6,195 0%

Less Accumulated 406,728 281,581 125,147 44%
Depreciation
Total Fixed Assets 874,233 1,055,575 -131,343 -13%
TOTAL ASSETS 3,921,953 3,427,253 494,699 14%
Accounts Payable 467,376 560,,851 -93,475 -17%
Notes Payable 321,000 681,385 -360,385 53%
Accruals 436,560 523,872 -87,312 -17%
Total Currents Liabilities 1,224,936 1,766,108 -541,172 -31%

Long-Term Debt 608,000 1,134,072 -526,072 -46%

Owner’s Capital 2,089,017 527,073 1,561,943 2.96%
TOTAL LIABILITIES AND CAPITAL 3,9921,953 3,427,253 494,699 14%
 FINANCIAL RATIOS
Financial ratios are relationships established
from company’s financial statements and are
used for comparison and decision-making
purposes. These ratio is computed by dividing
one account balance with another by using the
following: either balance sheet to balance
sheet account, or income statement to income
statement, or income statement to balance
sheet account or vice versa.
 FINANCIAL RATIO IS
CATEGORIZED INTO THREE:

O LIQUIDITY RATIO
O SOLVENCY AND STABILITY RATIO
O PROFITABILITY RATIO
 LIQUIDITY RATIO
O Current Ratio
O Acid test ratio or Quick ratio
O Receivable Turnover and Age of
Receivable
O Inventory Turnover and Age of
Inventory
 1. Current ratio
O The current ratio also known as working
capital ratio is one way to asses the overall
liquidity of a company by comparing current
assets to current liabilities as follows:

CURRENT RATIO= Current Assets

Current Liabilities
 The current ratio of Good Food Snack House
for 2013 and 2014 are computed below:

2014 2013

Current Ratio = 3,047,720 2,421,678

1,224,936 1,766,108

= 2.5 : 1.0 =1.4 : 1.0

 2. Acid test Ratio or Quick
ratio
O The Acid test ratio or quick ratio is another
way to asses the overall liquidity of a firm.
But unlike the current ratio, the quick ratio is
more conservative in the sense that it does
not include all current assets in the
computation.

QUICK RATIO = Cash + Account Receivable

Current Liabilities
 The quick ratio of Good Food Snack House
for 2013 and 2014 are computed below:

2014 2013

Quick Ratio = 1,031,086 684,203

1,224,936 1,766,108

= .84 : 1.0 = .39 : 1.0

 3. Receivable turnover and Age
of Receivable
O After analysing the overall liquidity of a company, a
secondary approach is to examine the liquidity of its
individual current assets, specifically receivable and
inventory. To assess the liquidity of these assets,
compute how long it takes for the company to convert
assets into cash.

Receivables Turnover = Net Sales

(Beginning Balance + Ending balance)/2
 The receivable turnover of Good Food Snack
House for 2013 and 2014 are computed below:

2014 2013

Receivable
Turnover = 7,457,736 6,396,040
807,936 676,411

= 9 times = 9 times
 To compute for the Age of receivables or days
sales outstanding or average collection period, divide
365 days or the number of working days by the
receivable turnover as follows:

Age of receivables = 365

Receivables Turnover
 The receivable turnover of Good Food Snack
House for 2013 and 2014 are computed below:

2014 2013

Age of
Receivables = 365 365
9 9
= 41 days = 41 days
 4. Inventory Turnover and Age
of Inventory
O Like the receivables, it is worth evaluating the liquidity
of a company’s inventory. Begin by computing the
inventory turnover.

Inventory Turnover = Cost of Good Sold

(Beginning Balance + Ending balance)/2
 The inventory turnover of Good Food Snack
House for 2013 and 2014 are computed below:

2014 2013

Inventory
Turnover = 6,228,552 5,859,680
1,607,054 1,377,475

= 4 times = 4 times
O Related to inventory turnover is the Age of Inventory.
This measures the average number of days before the
inventory is replaced. To compute for the age of
inventory or days’ sales in inventory, divide 365 days
or the number of working days by inventory turnover
as follows:

Age of Inventory = 365

Inventory Turnover
 The Age of Inventory of Good Food Snack
House for 2013 and 2014 are computed below:

2014 2013

Age of
Inventory = 365 365
4 4

= 91 days = 91 days
SOLVENCY AND STABILITY
RATIO
O Time Interest Earned
O Debt ratio
O Equity Ratio
 1. Times Interest Earned
O Times interest earned- or the number of times
interest earned- measures the extent to which a
company’s operations cover interest expense.

TIME INTEREST EARNED = Operating Income

Interest Expense
 The Times Interest Earned of Good Food
Snack House for 2013 and 2014 are computed
below:
2014 2013

Time Interest
Earned = 343,008 -25,614
74,208 144,173

= 4.62 times = -0.18 times

 2. Debt Ratio
O The debt Ratio measures the percentage of assets
funded by creditors. It indicates assets that are
financed by both current and long-term liabilities, and
is computed as:

DEBT RATIO = Total Liabilities

Total Assets
 The Debt ratio of Good Food Snack House for
2013 and 2014 are computed below:

2014 2013

DEBT RATIO = 1,832,936 2,900,180

3,921,953 3,427,253

= 47% = 85%
 3. Equity ratio
O The Equity ratio indicates percentage of assets
funded by the owners. This is actually the remainder
of assets after computing the debt ratio, and can be
computed by deducting debt ratio from 100% assets.

EQUITY RATIO = Total Equity

Total Assets
 The Equity ratio of Good Food Snack House
for 2013 and 2014 are computed below:

2014 2013

DEBT RATIO = 2,089,017 527,073

3,921,953 3,427,253

= 53% = 15%
PROFITABILITY RATIO
O Gross profit margin
O Operating profit margin
O Net profit margin
 1. Gross Profit Margin
O The Gross Profit Margin measures the average mark
up on products sold. The average markup is
dependent on how the company controls its costs of
goods sold.

GROSS PROFIT MARGIN = Gross Profit

Net Sales
 The gross profit margin of Good Food Snack
House for 2013 and 2014 are computed below:

2014 2013

GROSS PROFIT
MARGIN = 1,229,184 536,360
7,457,736 6,396,040

= 16% = 8%
 2. Operating Profit Margin
O The Operating Profit Margin. It measures the
percentage of profit provided by the operations, and
therefore measures how well managers take care of
the operating costs and expenses to generate
income from sales.

OPERATING PROFIT MARGIN = Operating Profit

Net Sales
 The operating profit margin of Good Food
Snack House for 2013 and 2014 are computed below:

2014 2013

OPERATING
PROFIT MARGIN = 343,008 -25,614
7,457,736 6,386,040

= 5% = -0.4%
 3. Net Profit Margin
O The Net Profit Margin measures the overall
profitability of a company.

NET PROFIT MARGIN = NET INCOME

NET SALES
 The Net profit margin of Good Food Snack
House for 2013 and 2014 are computed below:

2014 2013

NET
PROFIT MARGIN = 268,799 -169,787
7,457,736 6,396,040

= 4% = -2.7%
THANK YOU FOR
LISTENING
REPORT BY GROUP 1