Clarisse S.

Gatchalian February 28, 2020

BSA 401 AEC 43

ACTIVITY QUESTIONS

1. Corporate Governance, Business Ethics, Risk Management and Internal Control

are all factors of entity’s Growth, Sustainability and Feasibility. The following are
rations that are associated to growth and feasibility of business enterprise.
A. Current Ratio
B. Return on equity
C. Return on Investment
D. Return on Asset
E. Dividend
F. Working Capital Ratio

From these ratios, discuss how each ratio is being measured. What importance or
significance each ratio is being provided to various stakeholders of business enterprise?

2. Discuss what financial statement analysis is. How is financial statement analysis
can be attributed as part of internal control or as part of risk management?

3. What are the different tools or technique used in financial statement analysis?
Discuss each.

Note: Provide specific sources for each of your specific answers. Use short bond paper. Due date on
Friday, February 28, 2020 (8am). USB will be provided to the class for your soft copy.
ANSWERS

1. a.

Show the relation between the company’s current assets and current liabilities. The
higher the percentage indicates large portion of current assets to current liabilities
and company has better position capable of meeting its current obligations.

Source: Current Ratio. Fundamentals of Accounting Principle Statement of Cash Flow 11

Edition, 714–715.

b.

An important profitability metrics that reveals how much profit that a company
earned in comparison to the total amount of the equity. The higher percentage the
better they are more likely to be one that is capable of generating cash internally.

Source: Return on equity ratio. (n.d.). Retrieved February 27, 2020, from Current ratio.
(n.d.). Retrieved February 27, 2020, from https://thebull.com.au/10275-why-is-return-on-
equity-such-an-important-measure-for-a-company/

c.

In result, the higher the ratio, the greater the collected benefit. Return on investment
ratio used to compute the benefit earned by the investor in relation to its investment
cost. It helps the investor to see the positive and a negative result of their
investments as well as an indication to see the value of their investments.
Source: Return on Investment. (n.d.). Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/finance/return-on-investment-roi-
formula/

d.

A profitability ration that measures the percentage of return on assets owned by a

business and measures the level of the net income achieve by a company’s assets.
Same as the other, the higher the rate of return on assets the better because this
shows that a business utilizes their resources well to generate more income.

Source: Return On Asset. (n.d.). Retrieved from

https://www.google.com/amp/s/www.accountingverse.com/managerial-accounting/fs-
analysis/return-on-assets.html

e.

Dividend yield ratio helps investors to analyze their return on investments of stocks.
It shows what percentage of the market price of a share a company annually pays to
its stockholders in the form of dividends. Mostly used by investors looking for
dividend income on continuous basis.

Source: (n.d.). Dividend Yield Ratio. Retrieved from

https://www.myaccountingcourse.com/financial-ratios/dividend-yield
 f.

It shows the liquidity of a company. Higher rate in the result of working capital ratio is
more favorable for it shows that a business has an enough income for the operation.

Source: (n.d.). Working Capital Ratio. Retrieved from

https://www.myaccountingcourse.com/financial-ratios/working-capital-ratio

2. Financial statement analysis is the process of calculating financial ratios, which

are mathematical indicators calculated by comparing key financial information
appearing in financial statements of a business, and analyzing those to find out
reasons behind the business’s current financial position and its recent financial
performance, and develop expectation about its future outlook. The purpose of
financial statement analysis is to examine past and current financial data so that
a company's performance and financial position can be evaluated and future
risks and potential can be estimated.  Financial statement analysis can yield
valuable information about trends and relationships, the quality of a company's
earnings, and the strengths and weaknesses of its financial position.

The financial statement analysis can be attributed as part of internal control as it

gives the analysis of performance, the company’s weaknesses and strengths and
its potential of its financial position which the members of the business can use to
develop their policies and procedures in achieving their goals. It is also attributed
as part of risk management for it help the company to evaluate future risks and
examine the company’s current position in order to assess the risks and be able
to prevent it.
3. Horizontal analysis spotlights trends and establishes relationships between
items that appear on the same row of a comparative statement thereby
disclosing changes on items in financial statements over time.  

Vertical analysis involves the conversion of items appearing in statement

columns into terms of percentages of a base figure to show the relative
significance of the items and to facilitate comparisons.

Profitability analysis is a type of income statement analysis where an analyst

assesses how attractive the economics of a business are.

Liquidity analysis is a financial analysis that focuses on the balance sheet,

particularly, a company’s ability to meet short-term obligations.

Variance analysis is the process of comparing actual results to

a budget or forecast. It is a very important part of the internal planning and
budgeting process at an operating company, particularly for professionals
working in the accounting and finance departments.

Valuation Analysis is the process of estimating what a business is worth is a

major component of financial analysis, and professionals in the industry spend a
great deal of time building financial models. The value of a business can be
assessed in many different ways, and analysts need to use a combination of
methods to arrive at a reasonable estimation.

Source: Financial Analysis and Its Tools . (n.d.). Retrieved from

https://corporatefinanceinstitute.com/resources/knowledge/finance/types-of-financial-
analysis/
AEC 43 GOVERNANCE, BUSINESS ETIHICS, RISK
MANAGEMNET AND INTERNAL CONTROL

Submitted by:
Clarisse S. Gatchalian
BSA 401

Submitted to:
Sir Armando Bañares, CPA
February 28, 2020