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FABM2-Q2-Lesson-2

The document outlines the essential learning competencies for analyzing financial statements, focusing on vertical and horizontal analyses for single proprietorships. It explains the importance of financial statement analysis for evaluating business performance and making economic decisions. Additionally, it provides methods for horizontal and vertical analysis, including formulas for calculating changes in financial data over time.

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cassandra grace
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1 views

FABM2-Q2-Lesson-2

The document outlines the essential learning competencies for analyzing financial statements, focusing on vertical and horizontal analyses for single proprietorships. It explains the importance of financial statement analysis for evaluating business performance and making economic decisions. Additionally, it provides methods for horizontal and vertical analysis, including formulas for calculating changes in financial data over time.

Uploaded by

cassandra grace
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 19

•ANALYSIS AND INTERPRETATION OF

FABM 2 FINANCIAL STATEMENTS


Quarter 2
week 2
•Most Essential Learning Competency:
The learner shall be able to
perform vertical and horizontal analyses
of financial statements of a single
proprietorship.(ABM_FABM12- Ig-h-14)
Objective:
At the end of the lesson, you are going to:
a. Solve exercises and problems that require
computation and interpretation using horizontal analysis
and vertical analysis.
Review Lesson:
Direction: Identify the different types of activity in the
Cash Flow Statement
• 1. Sales of old Furniture
• INVESTING – CASH IN
• 2. Barrowing long Term money
• FINANCING – CASH IN
• 3. Cash Received from sales
• OPERATING – CASH IN
• 4. Withdrawal by the owner
• FINANCING – CASH OUT
• 5. Payment of Salaries and Rent
• OPERATING – CASH OUT
Lesson 2: Financial Statement Analysis
• Is the process of evaluating risk,
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 decision.
Importance of Financial Statements Analysis:

• It is important for the owners and


managers of the entity to be able to
evaluate the results of all their business
activities. This analysis can help them
• Confirm past expectations
• Evaluate present financial results
• Predict future outcomes
3 ways of Analyzing Financial
Statements
• HORIZONTAL ANALYSIS
• VERTICAL ANALYSIS
• FINANCIAL ANALYSIS
HORIZONTAL ANALYSIS
• Is also called a Trend Analysis…It is a method of comparing and
analyzing financial result of different accounting periods in each
financial statement account and element. This will reveal the
behaviour of the account over time. Is it increasing , decreasing or
not moving.

• It uses Comparative Financial Statements.


• It uses financial statements for two or more periods.
• All line items on the Financial statement may be subjected to
horizontal analysis
• Only one simple year-on-year grow this covered in this lesson.
• Changes can be expressed in monetary value and percentages
computed by using the following formulas:
Peso Change = Balance of Current Year- Balance of Prior
Year
Amount Change Percentage Change

100,000. 25.00%
(31,500) (35.00%)
The entity’s Cash Increased by
100,000 from(12,000)
2019 to 2020 (30.00%)
The entity’s Cash Increased
60,000 20.00%
by 25% from 2019 to 2020
-____ ___ _ _-______
116,500 12.26%
=========== =============
Amount Change Percentage Change

51,500 51.50%
- -

65,000__ 10.00%
116,500 12.26%
============ ===============
Horizontal Analysis: Using the Net Income:
Vertical Analysis
• Is also called a common-size analysis. It is a method of analyzing financial
results expressing each financial statement account and element as a
component of a base.
2020 Common Size 2019 Common /size

The entity ‘s
land 46.88% 42.11%
comprises 5.49% 9.47%
33.76% of 2.63% 4.21%
the entitry’s
33.76% 31.58%
assets in
2020. Which 11.25% 12.63%
means ¼ of 100.00% 100.00%
the assets is
Land
The entity’s
Capital 14.21% 10.53%
comprises of
67.04% which
21.05%
means that most
18.75% 68.42%
of the asset is 67.04% 100,000
finance by 100.00%
equity.
Vertical Analysis: Using the Income
Statement
Base Line
Example
3,000,000/
5,000,000
As P 1.00
1.00
.60
.40
.04
.44
.16
.28
.08
.20
========
Activity 1: Analyze and interpret the following financial reports of the
BETTER SERVICE ENTERPRISE BALANCE SHEET AND INCOME STATEMENT.
Use the HORIZONTAL AND VERTICAL ANALYSIS methods.
Activity 2: Vertical Analysis
Activity 2: Vertical Analysis
Activity 2: Vertical Analysis

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