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FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND MANAGEMENT 2

SY 2020-2021
QTR1 Wk 7
Financial statement (FS) Analysis

MELC/s:
1.Perform vertical and horizontal analyses of financial statements of a single proprietorship

INTRODUCTION
Learning Task 1.
Directions. Differentiate Horizontal and Vertical Financial Analysis using Venn Diagram.
Financial statement (FS) analysis
• is the process of evaluating risks, 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 decisions (White et.al 1998).
• There are three kinds of FS analysis techniques: -
• -Horizontal analysis
• - Vertical analysis
• - Financial ratios
HORIZONTAL ANALYSIS-also called trend analysis, is a technique for evaluating a series of financial
statement data over a period of time with the purpose of determining the increase or decrease that has taken
place (Weygandtet.al 2013). This will reveal the behavior of the account over time. Is it increasing, decreasing
or not moving? What is the magnitude of the change? Also, what is the relative change in the balances of the
account over time?
Horizontal analysis uses financial statements of two or more periods. - All line items on the FS may be
subjected to horizontal analysis. - Only the simple year-on-year (Y-o-Y)grow this covered in this lesson. -
Changes can be expressed in monetary value (peso) and percentages computed by using the following formulas:
Peso change=Balance of Current Year-Balance of Prior Year
Percentage change= (Balance of Current Year-Balance of Prior Year)/(Balance of Prior Year)
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Vertical Analysis
• •also called common-size analysis, is a technique that expresses each financial statement item as a
percentage of a base amount (Weygandt et.al. 2013). –
• For the SFP, the base amount is Total Assets. • Balance of Account / Total Assets. • From the common-
size SFP, the analyst can infer the composition of assets and the company’s financing mix
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DEVELOPMENT:
Learning Task 2.
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ENGAGEMENT
Learning Task 3.
Directions:
Compute the use both vertical and horizontal analysis
Directions:
a. Prepare a common-size Statement of Comprehensive Income for 2014 and 2013 for Abakada Trading
Company.
b. Prepare a horizontal analysis for Abakada Trading Company.

Development
Learning Task 3.
Directions:
a. Prepare a common-size Statement of Financial Position for 2014 and 2013 for Ilang-Ilang Trading Company.
b. Prepare a vertical and horizontal analysis for Ilang-Ilang Trading Company. Interpret the results.
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ASSIMILATION
Learning Task 4
Directions: Copy the given problem. Choose the letter that best answers the question. Show your
computation.
1.How much is the beginning cash in January 2017, if the ending cash balance in December 2016 is 80,000,
and the net change in cash is 20,000?
a. 50,000 b. 60,000 c. 70,000 d. 80,000 e. 90,000

2. A financial analysis uses financial statements of two or more periods. All line items on the Financial
Statement may be subjected to horizontal analysis.
a. Financial Analysis b .Horizontal Analysis
c. Vertical Analysis d. Ratio Analysis

3. A common-size analysis, is a technique that expresses each financial statement item as a percentage of a
base amount. For the SFP, the base amount is Total Assets.
a. Financial Analysis b .Horizontal Analysis
c. Vertical Analysis d. Ratio Analysis

4. The process of evaluating risks, 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 decisions.
a. Financial Analysis b .Horizontal Analysis
c. Vertical Analysis d. Ratio Analysis

5. What is the percentage change if Cash is 5,000 in 2017 and 15,000 in 2016?
a. 60% b. 61% c. 63% d. 66% e. 66.6%

6. What is the percentage change if Account Receivable is 38,000 in 2017 and 12,000 in 2016?
a. 112 % b. 212% c. 217% d. 220% e. 221 %

7. What is the percentage change if the Inventory is 20,000 in 2017 and 25,000 in 2016?
a. 10 % b. 20% c. 25% d. 26% e.43%

Reference:
Teaching Guide for Senior High School (2016).FUNDAMENTALS OFACCOUNTANCY, BUSINESS,AND
MANAGEMENT 2