FINANCIAL ANALYSIS AND

REPORTING  LEARNING MODULES 

  
 Degree and  
 Program : Bachelor of Science in Business Administration
Major in Financial Management  

 Course Title 
 and Code : FM2 – Financial Analysis and Reporting 

 Prerequisite : BA4 – Basic Finance 

 Unit 1 : Introduction to Financial Analysis and  

 Reporting 

University of Rizal System 

J.P. Rizal St, Brgy. Sampaloc, Tanay (Main) 
Rizal Province

Module 1- 
 Fundamentals of  
Financial Report
Financial   Date Developed:  Document No. 
Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  2of 12
URSB 
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.

1. To define financial report; 

2. To identify the three (3) basic types of financial  
reports; 
3. To describe the users of financial reports; and; 
4. To explain the limitations of financial reports.

INTRODUCTION 

Financial analysis and reporting are one of the cores of modern business.
Financial  reporting is important because not only is it a legal requirement in most
countries, it is  also a way of providing pertinent financial data which would aid in
making decisions. 

Utilizing financial data allows a company to not only share vital information both
internally  and externally but also leverage metrics or insights to make significant
improvements to  the very area that allows the business to flow. According to
Hasanaj and Kuqi (2019),  assessing financial position and performance of an
enterprise is a skill that every manager  needs to have to make the best and right
decisions for the company. 
An acceptable financial reporting framework should be identified and used by the 
management in the preparation and presentation of the financial statements.
Financial  statement should be prepared for general purpose and it should also
fulfill the requirement  of local laws and regulations.  

WHAT ARE FINANCIAL REPORTS?  

Financial reports (or financial statements) are written records that convey the
business  activities and the financial performance of a company. 
Financial   Date Developed:  Document No. 
Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  3 of
URSB  12
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.

THE THREE (3) BASIC FINANCIAL REPORTS 

There are three (3) basic financial reports/statements a company use. These are: 
1. Balance Sheet 
2. Income Statement 
3. Cash Flow Statement 

Balance sheet provides an overview of assets, liabilities, and stockholders' equity

as a  snapshot in time. It shows the company’s financial condition for a given
date. It is also  known as Statement of Financial Condition or Statement of
Financial Position. 

Income statement primarily focuses on a company’s revenues and expenses

during a  particular period. It shows the result of operation of the company as of a
given period of  time. It is otherwise known as Statement of Revenue and
Expenses or Profit and Loss  Statement 

Cash Flow Statement provides data regarding all cash inflows and outflows of a
company  from its ongoing operations during a given period. It measures how
well a company  generates cash to pay its debt obligations, fund its operating
expenses, and fund  investments. 

USERS OF FINANCIAL REPORTS 

Aside from the company, many different parties benefit from its accounting
records and  reports. They are called financial statement users which often
review the information in  the financial reports for decision-making purposes. The
following are users of financial  reports: 

1. Management - The management of the company is the first and foremost

user of  the financial statements. The board and the executive officers of the
company need to  refer to the financial reports while considering its progress and
growth. The management  of the company looks at the financial statement from
the perspective of liquidity,  profitability, cash flows, assets and liabilities, cash
balances, fund requirements, debt to  be paid, project financing, and various
other days to day operational activity. Simply put,  management of the company
needs financial statements to make decisions about the  business.
Financial   Date Developed:  Document No. 
Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  4 of
URSB  12
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.

2. Business competitors - Competitors would like to know the financial status

of the  competing company. They would like to maintain a competitive edge on
their competitors  and hence, would like to know the financial health of the other
company. Further, they  could decide to change or leverage their strategy
looking at the statements. Doing so  would help them survive in the industry 

3. Customers – Customers need to view the financial statements of the

company  from which they are procuring goods or services. Big clients would like
to have a long term partnership or contract with the company; thus, they would
like to work with a  company that is financially stable. Further, a financially strong
company can provide its  customers with credit sales and can deliver products
and services at a discount than the  market. 

4. Employees - Employees would like to know how the company is doing

financially  as their bonus and pay increases depend on it. Also, the company
may choose to involve  their employees in the decision-making process that is
why employees need to have a  deep understanding of the business and the
current industry situation, which will be  available in the financial statements.  

5. Government agencies - Government agencies like BIR, BSP, etc. would

like to go  through the company’s financial statements to keep a check if the
company is paying their taxes or if they are operating in accordance with the
agency’s rules and regulations. 
 6. Investors – Investors have financial interest in the company which is why it
is  expected that they would be interested in its financial performance. They
would like to be  updated with the earnings of their share and the profitability of
the organization.  

From the financial performance of the company as reflected in the financial

reports, they  could decide whether to add or withdraw capital investments. 

7. Lenders - Lenders like traditional banks and other financial institutions

would like  to check the ability of the company to pay its debt. Thus, they go
through the financial  statements of the company and decide whether to grant a
loan or not to the company. 

8. Credit rating agencies – Rating agencies review the financial statements of

the  company to give credit rating to their debt instruments. The issuing company
has to  provide all information to the credit rating agency to get a rating of the
securities it is  issuing to raise funds. The investors of these securities can make
an informed decision  once a rating agency has provided a rating, which is
based on the financials of the  company.
Financial   Date Developed:  Document No. 
Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  5 of
URSB  12
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.

9. Suppliers - Suppliers would like to deal with companies that have good
financial  health. Thus, they are also users of financial statements and make
decisions to provide  credit to the company 

LIMITATIONS OF FINANCIAL REPORTS 

It is evident that financial reports have a crucial role in the decision-making

process of  their users. However, it is important to note that helpful as they
maybe, they have their  inherent limitations. Users must bear in mind these
limitations so that their decisions will  not be based solely on them.  

The following are the limitations of financial reports: 

1. Transactions are recorded at historical costs - Transactions in financial
reports  are recorded at historical costs. Given that assets purchased by the
company and the  liabilities it owes changes with time and depends on market
factors, financial statements  do not provide the current value of such assets and
liabilities. Thus, information can be  misleading since a company is not required
to automatically revalue its. 
 2. Variations in accounting policies – Companies may use different
accounting  policies even if they belong to the same industry. For example, a
company may use first in first-out (FIFO) in costing inventory while another
company belonging to the same  industry may use last-in-first out (LIFO). Another
example would be depreciation. One  company may apply the straight-line
method of computing depreciation while another may  opt to compute
depreciation based on production volume. 

3. Presence of estimates – There are accounts in the financial reports with 

estimated amounts. Example is the contra asset account allowance for
depreciation. A  company may set an amount to estimate uncollected trade
receivables for the period  based on historical data. Although historical data may
be used to make projections of  the future, the problem here is that what had
happened in the past may not be true in the  future.  

4. Specific time period reporting – The financial statements of a business

is  prepared for a specific time period and not for the entirety of its life. As such,
one period  cannot be compared to other periods very easily as many parameters
affect the  performance of the company, and that reported in the financial reports.
The reader of the  reports can make mistakes while analyzing based only on one
period of reporting.  Looking at reports from various periods and analyzing them
prudently can give a better  view of the performance of the company.
Financial   Date Developed:  Document No. 
Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  6 of
URSB  12
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.

5. Issues on intangible assets - The intangible assets of the company are not
recorded  on the balance sheet. Intangible assets include brand value, the reputation of
the company earned  over a while, etc. While they help in generating more sales, they
are not included in the balance  sheet. However, if the company has done any expense
on intangible assets, it is recorded on the  financial statements.  

6. Errors and omissions - Basic recording of transactions may be carried out by an

accounting executive who may not be highly qualified for the position. In this case, it is
likely that  errors and omissions may happen. As consequence, misrepresentation in the
ultimate financial  statements would occur. 

7. Subject to fraud - There are many situations when the financial statement
becomes a  tool to commit fraud. Window dressing of financial statement by the
management team itself is  possible. An example of this is the case of Luckin Coffee in
China when on 2 April 2020, it  announced that an internal investigation found that its
 chief operating officer, Jian Liu, had  fabricated the company's 2019 sales by "around
RMB2.2 billion" (US$310  million)(www.complainceweek.com). 
8. No discussion of non-financial transactions - Financial statements do not
discuss  non-financial issues like the environment, social responsibility and governance
concerns, and  the steps taken by the company to improve the same. These issues are
becoming more relevant  in the current generation, and there is an increased
awareness amongst the companies and the  government. 
REFERENCES: 
Books 

Mejorada, N.D. Business Finance and Philippines Business Firms,

2006 Edition Websites 

https://www.investopedia.com/terms/f/financial-statements.asp 

https://www.accountingverse.com/accounting-basics/users-of-financial-

statements.html https://www.accountingtools.com/articles/users-of-financial-

statements.html https://www.wallstreetmojo.com/users-of-financial-statements/ 

https://efinancemanagement.com/financial-accounting/limitations-of-financial-

statements https://www.wallstreetmojo.com/financial-statement-limitations/ 

https://efinancemanagement.com/financial-accounting/limitations-of-financial-statements
Financial   Date Developed:  Document No. 
Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  7 of
URSB  12
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.

ACTIVITY 1 

1. In a coupon bond, make a sample format or illustration (with amounts) of the

following  financial reports: 
a. Balance Sheet 
b. Income Statement 
c. Cash Flow Statement 
 2. Present the financial report illustrated in front of the class. During presentation,
mention  the following: 
a. Type of financial report 
b. Use of the financial report 

Rubric in Activity 1
CRITERIA  GRADE  
NUMERICAL VALUE

1. Strong and clear views

2. Organization of thoughts

3. Confidence and stage presence

4. Creativity of the learning aid created 

GENERAL AVERAGE (Total Grades/4)

DESCRIPTION GRADE 
NUMERICAL VALUE

Excellent  1.00 – 1.20

Very Good  1.30 – 1.70

Good  1.80 – 2.10

Fair  2.20 – 2.90

Passing  3.00

Failed  3.01 – 5.00

Financial   Date Developed:  Document No. 

Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  8 of
URSB  12
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.

ACTIVITY 2 
 1. Group your class into nine (9) groups.  
2. The leader per group will participate in drawing lots to determine which among
the  following financial report users their group will represent: 
a. Management e. Government agencies 
b. Business competitors f. Investors 
c. Customers g. Lenders 
d. Employees h. Credit rating agencies 
i. Suppliers 

3. The groups will list the uses of financial reports to them depending on the user
they got  during the drawing of lots (Example: Group 1 got customer as user of
financial statements  so they will make a list of the uses of financial reports as
customers, and so on.)
Financial   Date Developed:  Document No. 
Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  9 of
URSB  12
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.

Rubric in Activity 2
CRITERIA  GRADE  
NUMERICAL VALUE

1. Strong and clear views

2. Organization of thoughts

3. Observance of proper decorum during group 

activity

4. Presence of teamwork

GENERAL AVERAGE (Total Grades/4)

DESCRIPTION  GRADE 
NUMERICAL VALUE

Excellent  1.00 – 1.20

Very Good  1.30 – 1.70

 Good  1.80 – 2.10

Fair  2.20 – 2.90

Passing  3.00

Failed  3.01 – 5.00

Financial   Date Developed:  Document No. 

Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  10 of
URSB  12
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.

SAQ1 
Match column A with Column B by putting the letter of your answer in the first
column
Item  COLUMN A  COLUMN B

1. Land is recorded in the books at Php 1M, its  acquisition A. Variation in accounting 
cost. Five years after, the balance sheet of  the company still principles
reflects the same amount.

2. Mr. Bueno, the accountant of ABC Co. is doing  kiting in the B. Presence of estimates
company’s books

3. A student stated in his thesis that XYZ Co. is  financially C. Errors and omissions
healthy after doing a comparative analysis  of the company’s
reports from 2016 and 2017 only.

4. Co. A record its uncollected receivables by setting  D. Subject to fraud

allowance for bad debts while Co. B recognize these 
uncollectibles through direct write-off. Both are 
manufacturers of electronic chips.

5. Abra sets its bad debts as 10% of sales.  E. Issues on intangible

assets

6. Mr. Dela Cruz, the company’s bookkeeper,  recorded a F. Specific time period
purchase as Php 699 instead of Php 669 reporting
 7. A company’s brand is something that is not  recorded in its G. No discussion of non-
financial statements financial  transactions

8. Jollibee has excellent marketing strategies not  reflected in H. The theory of agency
its financial reports

I. Transactions are
recorded at  historical costs

Financial   Date Developed:  Document No. 

Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  11 of
URSB  12
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.

ASAQ1 

1. I 

2. D 

3. F 

4. A 

5. B 

6. C 

7. E 

8. G
Financial   Date Developed:  Document No. 
Analysis and   July 2020 
Reporting Date Revised:  Issued by:  Page
  12 of
URSB  12
Developed by: TWG4 – FM2
Lead Writer: E. Yunzal 
Writers/Contributors: J.  Revision # 
Mercado, R. Calmada, E. 
Madriaga, J. Florendo Jr.