Preface: Standards On Financial Presentation and Reporting

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Preface
This learning module is conceptualized and come into fruition as the answer to con-
tinuous learning despite the COVID-19 pandemic using the blended learning mo-
dalities. This was conceived as a vital tool in delivering learning and foster under-
standing of financial analysis as instrumental in the decision-making of every busi-
ness organization.
The module is broadly divided into four units. Each unit begins with course learn-
ing outcomes and specific learning outcomes and is divided into lessons that were
interrelated with each other. Each lesson starts with warm up activities and end
with learning activities. There are also Units with case analysis as provided for in
the major performance output of the course syllabus.
Unit I discusses the conceptual framework of financial reporting. There are two les-
sons that covers the fundamental requirements of the Framework and the different
Standards on financial presentation and reporting.
Unit II presents the financial statement analysis process. It also presents the most
common tools and techniques as well as the sample illustration of interpretation
and conclusion. There are four lessons that will enable the learners to analyze the
operating performance of the business relative to its liquidity, profitability, activity,
asset and debt utilization.
Unit III contains equity valuation as an important basis for a business decision-
making. There are two lessons that presents the basic concepts as well as the differ-
ent valuation methods.
Unit IV provides simple steps on preparing a presentation that serves as the final
requirement of the subject. Practical steps and tips are provided for the learners to
apply.
The authors hope that the student’s yearning for better understanding on financial
analysis will be addressed by this module.
-Marichu B. Montecillo,DM
-Nestor Jr. P. Peñalver,MM

-Analee S. Pepito,CPA
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MODULE FINANCIAL REPORTING STANDARDS:

CONCEPTUAL FRAMEWORK AND SALIENT
I FEATURES
Lesson I
Introduction to Financial Reporting

What do we have in
this module? Lesson II
Salient Features of Financial

Reporting
Course Learning Outcome: Examine the financial reporting standards applicable to Philippine
business.
Specific Learning Outcomes:
Summarize the financial reporting standards from International Financial Reporting Standards (IFRS)
Evaluate the financial standards applicable to a specific financial activity.
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Case Analysis on Financial Reporting Standards:
Koss Corporation: How $34 Million Disappeared.

Koss Corporation is a publicly traded company that designs and sells stereo headphones. The
Koss family controls a majority of the Company’s stock. On November 17, 2010, Sujata “Sue” Sachde-
va, the former Vice-President of Finance was sentenced to 11 years in prison for embezzling $34 million
from the Company. Her attorney claimed that she was a shopaholic. From 1992 to 2009, Sachdeva was
the Principal Accounting Officer, Secretary, and Vice-President of Finance at Koss. As a result of the
embezzlement, Koss Corporation was required to restate its financial statements for 2008, 2009, and
the first quarter of 2010. Sachdeva used the embezzled funds to sustain a lavish lifestyle including pur-
chasing a vacation ownership interest in Hawaii, a Mercedes Benz, and other automobiles. She also
used the proceeds to pay for luxury travel and numerous personal items, including luxury clothing,
furs, designer shoes, jewelry, and art. One neighbor stated that packages delivered to her front porch
would sometimes reach 6 feet high! Sachdeva also maintained a large household staff. Such purchases
were well beyond her Koss salary (approximately $175,000). She explained her life style by stating that
her husband earned a couple of million dollars a year and that they both came from wealthy families.
The massive misappropriation was ultimately discovered when American Express notified the Company
that funds were being wired from a Company bank account to pay for expenses on Sachdeva’s personal
credit card. According to the SEC, Sachdeva authorized at least 206 wire transfers of funds from Koss
bank accounts to pay for her American Express credit card bills and issued more than 500 cashier’s
checks from company accounts to pay for personal expenses. Sachdeva used the cashier’s checks to
make direct payments to retailers, such as Neiman Marcus and Saks Fifth Avenue. Sachdeva attempt-
ed to conceal the identities of the recipients of the checks by using acronyms on the checks such as
“S.F.A. Inc.” for Saks Fifth Avenue, “N.M. Inc.” for Neiman Marcus, and others. Sachdeva was able to
conceal the fraud by directing other Koss employees to make numerous fraudulent entries in Koss’s
books and records. Julie Mulvaney, the Company’s senior accountant who was responsible for making
journal entries, reconciling accounts receivable, reconciling the Company’s bank statements, ordering
cashier’s checks, processing wire transfers, and checking the daily bank account balances assisted
Sachdeva in covering up the fraud. Other information about the Company:
Michael Koss simultaneously held 5 senior management positions: Vice Chairman, Chief
Executive, Chief Operating Officer, President, and Chief Financial Officer. Koss had little
or no educational background or experience in the areas of accounting or finance and
allegedly delegated important responsibilities typically performed by the CFO to Sachde-
va on a regular basis.
Koss did not have an internal audit function.
Koss Corporation’s control environment appears to have been remarkably relaxed and its
corporate board rarely changed. Excluding a member added in 2006 and founder John
Koss, board members had an average tenure of 27 years.
Unlike the proxy statements of typical public companies, Koss made no mention of any ac-
counting expertise among audit committee members.
Because it was a small company, Koss was not subject to a section of the Sarbanes-Oxley
Act that requires outside auditors to evaluate a company’s internal controls over finan-
cial reporting. During the embezzlement, Koss’s audit fees were reduced by half from
$114,900 in 2007 to $63,600 in 2008. In 2006, Sachdeva co-chaired a fundraising gala
for Big Brothers Big Sisters with one of Koss’s outside auditors.
Required:
1. Assume that you are a member of the audit team. Identify the fraud risk factors for
misappropriation of assets that were present at Koss Corporation.
2. Is it appropriate for one individual to hold 5 significant senior management posi-
tions all at the same time in a publicly traded company? Why or why not?
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MODULE FINANCIAL STATEMENT

ANALYSIS ACROSS INDUSTIES
II
Lesson I
Introduction to Financial Statement

Analysis
Lesson II
Horizontal Analysis
Lesson III
Vertical Analysis
Lesson IV
Ratio Analysis
Course Learning Outcome: Assess corporate financial statements across in-

dustries.
Specific Learning Outcomes:

1. Examine the different elements of financial statements
2. Explain the concept of financial statement analysis and its importance to different
users
3. Discuss the steps in performing financial statement analysis
4. Identify the different tools used in financial statement analysis
5. Evaluate the appropriate tools for financial statement analysis
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LESSON INTRODUCTION TO
FINANCIAL STATEMENT
I ANALYSIS
The data below are results of the financial statement analysis

performed on two companies. You are to determine which
company perform better in terms of the ratios presented. Place a tick mark
(/) on the column next to the company of your choice.
The first item is already done for you.
Bukid’s In- Lungsod Agri-venture

corporated
Ratio
Return on Equity 8% 10% /
Current Ratio 2.3:1 1.7:1
Quick Ratio 1.5:1 1.2:1
Receivable Turnover 5 times 4 times
Inventory Turnover 6.2 times 5.1 times
Return on Sales 10% 12%
Debt ratio 48% 50%
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Financial statement is part of a yearly com-

pilation of reports prepared by companies
that is commonly called as Annual Report.
The report is composed of quantitative
and qualitative information. The expla-
nation as the results of the financial anal-
ysis and other significant non-financial additional
information form part the qualitative part of the report
while the financial statement mainly comprised the quantitative
part of the Annual Report.
The preparation of financial statement is not the end but merely

the beginning of its purpose. In order for the financial statement
to be useful in decision making, it has to undergo a process
called financial statement analysis.
Definition
Financial statement analysis is the process of evaluating the company’s financial performance and its
overall financial health in order to arrive a better and reliable decision.
Users of Financial Statements
The various users interested in the analysis of financial statements are:
1. Investors
2. Management 6. Tax Authorities
3. Trade unions 7. Employees
4. Lenders 8. Researchers
5. Suppliers 9. Government
Objectives of Financial Statement Analysis Source:www.cleverism.com
Below are the most common objectives that diverse users of financial statement are interested:
1. Profitability. As an objective of analysis, profitability refers to capacity of the firm to generate suffi-
cient revenue that will result to a positive and ample profit.
2. Liquidity or Short-term Solvency. This objective refers to the capacity of the firm to pay its currently
maturing obligation.
3. Stability or Long-term Solvency. This refers to the paying capacity of the firm to settle its long-term
obligations.
4. Asset Utilization. It is also called Activity. This refers to how efficient the company in utilizing their
resources.
5. Debt utilization. It is also called Leverage. This refers to the overall debt status of the firm.
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Limitations of Financial Statement Analysis
1. It does not consider changes in purchasing power of currencies.
2. It does not consider inconsistencies and dissimilarities in accounting principles, policies,
and procedures used by the firms in the industry.
3. Financial data is not adjusted for price changes or inflation/deflation mainly because the
cost principle is used to prepare financial statements.
4. Differences in fiscal year ends making comparison of companies’ difficult if the industry is
cyclical.
5. The diversity of the companies’ operation make it difficult to classify for comparison pur-
poses.
Differences in accounting methods, such inventory and depreciation methods, makes compar-
ison difficult for companies.
Financial Statement Analysis Process
Different Standard Used in Financial Statement Analysis

There are 4 most common standard that a company can used in performing financial state-
ment analysis:
1. Previous Year’s Financial Data. Preparation of Finan-
cial Statement (FS)
2. Budgeted Data
3. Competitor’s Data
4. Industry Average
Analysis of Financial
Statement
Interpretation of FS
Analysis
Conclusion
Recommendation
Accessibility is an important factor when selecting what standard to choose. The information
which is quickly retrievable at a least cost should be the choice in the analysis.
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Practical Steps in Financial Statement Analysis
1. Know the firm first.
Know their vision and mission, strategies, organizational structure and their nature of opera-
tion. Knowledge on the company background is essential prior to the conduct of the analysis.
2. Know the objective/s of the analysis.
Determine what the company’s wants you to assess. It can the liquidity, profitability, solvency
or other objectives, if not all objectives of the financial analysis.
3. Know the standard of the analysis.

Standard in analysis serves as the benchmark, the basis for conclusion.
4. Know the macroeconomic factors.
Factors such as changes in market preferences, economic conditions, changes in laws and
additional government policies and regulations and etc. can affect the performance and finan-
cial health of the firm
5. Analyze the company’s financial statements.
Analyzing the financial statement means doing computations using the appropriate tools that
will address the objective of the analysis.
6. Interpret the results of the analysis.
When interpreting, it is important to account and justify for the changes or increases and de-
creases of the accounts in the financial statement. Cross link the changes with the other ele-
ments of the financial statement
7. Draw conclusion.
The conclusion must address the objectives of the analysis. It should address whether has
increased or decreased in their liquidity, profitability, stability, asset utilization or debt-
utilization.
8. Make recommendation.
Different Techniques in Financial Statement Analysis
Cross-sectional analysis. It is also known Time series analysis. It is also called as

as inter firm comparison. This analysis helps intra-firm comparison. According to this
in analysing financial characteristics of an method, the relationship between different
enterprise with financial characteristics of items of financial statement is established,
another similar enterprise in that accounting comparisons are made and results ob-
period. For example, comparing Globe Tele- tained. For example, comparing Ayala
com and PLDT Corp. 2018 and 2019 financial statement
or BPI Malaybalay and BPI Valencia
Cross-sectional time series analysis. This analysis is intended to compare the financial
characteristics of two or more enterprises for a defined accounting period This approach is
most effective in analysing of financial statements. For example is comparing the financial
statements of Coca-Cola and Pepsi Co. for the years 2016 to 2018.
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Tools in Financial Statement Analysis

The following are the important tools which are commonly used for analyzing and in-
terpreting financial statements:
Horizontal Analysis
1.1Comparative financial statements
1.2. Trend percentage analysis
2. Vertical Analysis
3. Ratio Analysis
4. Cash Flows Statement Analysis
Learning Activities
Activity 1. Identify the different tools used in financial statement analysis based from
the results presented below.
RESULT TOOL USED

10% of Sales
2.50:1.0
36 times
Increased by Php 25,000
225 days
74% of total assets
Gross profit variance of Php 12,000
(Php 23,000)
Activity 2: Online Quiz (will be downloaded in Google forms)
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LESSON
HORIZONTAL ANALYSIS
II
Provided below are data extracted from the annual financial re-
port of Berry Bags Inc. for the comparative year 2019 and 2018. Based
from your learnings in your prerequisite subjects, you are to compute
for the change in amount and the percentage change. After computing,
you are to answer the questions presented after the table.
2019 2018 Change Percentage

in Change
Amount
Sales Php 960,000 Php 1,275,000
Cost of Sales 640,000 850,000
Gross Profit 320,000 425,000
Operating Expens- 180,000 220,000
Operating Income 140,000 205,000

Interest Expense 10,000 95,000
Taxable Income 130,000 110,000
Income Tax 39,000 33,000
After-tax Profit 91,000 77,000
Which year has a better Sales? __________________
Which year yield more gross profit? __________________
How much is the difference is the company’s operating income from 2018 to 2019?
__________________
Which year is more profitable? _________________
Self Assessment
After answering the warm-up activity above:
Did you find it easy to calculate the required figures?
Were you able to correctly assess the information based from

your prior knowledge?
How did you find the level of difficulty of the activity?
What are the challenges that you have met while answering the
questions?
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The importance of having a reliable basis for decision making can-
not be undermined in modern business world. Without sufficient data
that will help give meaning to the figures in the financial statement can
either me or break a company. This is why companies resort to different
tools and techniques in analyzing their financial statement for it to be
useful in the decision making.
Definition of Horizontal Analysis
Horizontal analysis, also called dynamic analysis or trend analysis, is the comparison of fi-
nancial information of a company with historical financial information of the same company
over a number of reporting periods.
Purpose of Horizontal Analysis
The main purpose is to see if the numbers are high or low in comparison to past records,
which may be used to investigate any causes for concern. For example, certain expenditures
that are high currently, but were well under budget in previous years may cause the man-
agement to investigate the cause for the rise in costs; it may be due to switching suppliers or
using better quality raw material.
Advantages Disadvantages
Company can review its performance in The aggregated information expressed in the financial
comparison to the previous periods statements may have changed over time
Allows investors and analysts to see what Changes can cause variances to creep up when account
has been driving a company's financial balances are compared across periods.
performance over a number of years
Enables to spot trends and growth pat- It can be manipulated to show comparisons across peri-
terns such as seasonality. ods.
Enables management to assess relative

changes in different line items over time,
and project them into the future.
Comparative financial statements
Comparative study of financial statements is the comparison of the financial statements of the
business with the previous year’s financial statements.
Comparative Balance Sheet
The comparative balance sheet shows the different assets and liabilities of the firm on different
dates to make comparison of balances from one date to another. The comparative balance sheet
has two columns for the data of original balance (increase/decrease) in figures. The fourth column
may be added for giving percentages of increase or decrease. When looking into the liquidity position
of a concern, the analyst should examine the working capital in both the years. Working capital refers
to the excess of current assets over current liabilities. When looking into the long-term financial posi-
tion of the concern, the changes in fixed assets, long-term liabilities and capital one should be exam-
ined. When profitability is the concern of the analyst, the study of increase or decrease in profit will
help the interpreter to observe whether the profitability has improved or not.
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Yushua Corporation
Comparative Statement of Financial Position
As of December 31, 2018 and 2019
Assets 2019 2018 Change in Amount PHP Change in %
Current Assets
Cash PHP 40,000 PHP 20,000 Php 20,000 100
Marketable Securities 350,000 250,000 100,000 40
Receivables 330,000 300,000 30,000 10
Prepaid Expenses 2,000 - 2,000 -
Total Current Assets 722,000 570,000 152,000 26.67
Non-current Assets
Building 170,000 270,000 (100,000) (37.3)
Machinery 600,000 400,000 200,000 50
Furniture 25,000 20,000 5,000 25
Other Fixed Assets 30,000 25,000 5,000 20
Total Fixed Assets 825,000 715,000 110,000 13.49
Total Assets PHP 1,547,000 PHP 1,285,000 262,000 20.39
Liabilities
Current Liabilities
Accounts Payable 45,000 50,000 (5,000) (10)
Short-term Notes 120,000 100,000 20,000 20
Accrued Expenses 10,000 5,000 5,000 100
Total Current Liabili- 175,000 155,000 20,000 12.9

ties
Non-current Liabilities
Bond Payable 300,000 200,000 100,000 50
Mortgage Payable 150,000 100,000 50,000 50
Total Non-current 625,000 455,000 170,000 37.36

Liabilities
Equity
Ordinary Shares 700,000 500,000 200,000 40
Retained Earnings 222,000 330,000 (108,000) (32.73)
Total Liabilities and PHP 1,547,000 PHP 1,285,000 262,000 20.39

Equity
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Interpretation
The comparative balance sheet of the company reveals that during 2019 there has been an
increase in fixed assets by 110,000 or 13.49%. This increase could be due to additional
purchases of fixed assets. Mortgage Payable have relatively increased by Php 50, 000 and
Ordinary shares has increased by Php 200, 000. The increase in ordinary shares is due to
the additional issuances of shares for the year 2019. The increase in both ordinary shares
and mortgage payable indicates that the company financed its fixed assets acquisition from
the long-term sources.
On the other hand, the current assets have increased by Php 152, 000 or 26.67%. A signifi-
cant increase in marketable securities by Php 100,000 or 40% was due to the increase in
short-term investments of the company. Cash has increased by Php 20,000 due to the col-
lection of customer accounts and additional borrowings of the company. Moreover, the cur-
rent liabilities have increased only by Php 20,000 or 12.9%. This further confirms that the
company has used long-term finances even for the current assets resulting into an im-
provement in the liquidity position of the company.
Retained earnings have decreased from Php 330,000 to Php 222,000 or 32.73% which
shows that the company has utilized surplus for the payment of dividends to shareholders
either in cash or by way of bonus. The overall financial position of the company is favora-
2. Comparative Income statement

The comparative income statement gives an idea of the progress of a business over a period of
time. The changes in money value and percentage can be determined to analyse the profitabil-
ity of the business. Like comparative balance sheet, income statement also has four columns.
Yushua Corporation
Comparative Income Statement
Year Ended December 31, 2018 and 2019
2019 2018 Change in Amount PHP Change in %
Net Sales PHP 900,000 PHP 785,000 Php 115,000 14.65 %
Less: Cost of Sales 500,000 450,000 50,000 11.11 %
Gross Profit 400,000 335,000 65,000 19.40 %
Operating Expenses:
Selling Expenses 90,000 80,000 10,000 12.50 %
General and Administra- 72,000 70,000 2,000 2.80 %

tive Expenses
Total Expenses 162,000 150,000 12,000 8.0 %
Operating Income 238,000 185,000 53,000 28.65 %
Less: Interest Expenses 30,000 25,000 5,000 20 %
Taxable Income 208,000 160,000 48,000 30 %
Income Tax 80,000 70,000 10,000 14.28 %
Net Income PHP 128,000 PHP90,000 38,000 42.22 %
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Interpretation
The comparative income statement given above shows that there has been an increase in net
sales of 14.65%. The cost of goods sold has increased by 11%. This has resulted in increase of
gross profit by 19.4%. Operating expenses have increased by 8%. The increase in gross profit
is sufficient to cover the operating expenses. There is also an increase in net profit after tax of
Php 38000 or 42.22%.
It is concluded from the above analysis that there is sufficient progress in the performance of
the company and the overall profitability of the company
is favorable.
Trend Analysis
The trend analysis is a technique of studying several financial statements over a series of
years. In this analysis, the trend percentages are calculated for each item by taking the figure
of that item for the base year taken as 100. Generally the first year is taken as a base year.
The analyst is able to see the trend of figures, whether moving upward or downward
In brief, the procedure for calculating trends is as:
– One year is taken as a base year which is generally is the first year or last year.
– Trend percentages are calculated in relation to base year
Illustration:
The following are data extracted from the Income Statement of Will Barry Enterprise, Inc.
2015 2016 2017 2018
Net Sales Php 200,000 Php 190,000 Php 249,000 Php 260,000
Less: Cost of Sales 120,000 117,800 139,200 145,600
Gross Profit 80,000 72,000 100,800 114,400
Less: Operating Ex- 20,000 19,400 22,000 24,000

penses
Net Income PHP 60,000 PHP52,800 PHP78,800 PHP90,400
Will Barry Enterprises, Inc.
Trend Analysis
2015 2016 2017 2018
Net Sales 100% 95.0% 124.5% 130.0%
Less: Cost of Sales 100% 98.2% 116.0% 121.3%
Gross Profit 100% 90.3% 126.0% 143.0%
Less: Operating Ex- 100% 97% 110.0% 120.0%

penses
Net Income 100% 88% 131.3% 150.67%
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Interpretation
On the whole, 2016 was not a favorable year but the recovery was made during 2017. In this
year, there is increase in sales as well as profit. Figures from 2016 when compared with 2015
reveal that the sales have come down by 5%. However, the cost of goods sold and the expens-
es have decreased only by 1.8% and 3% respectively. This has resulted in decrease in Net
profit by 12%. The position was recovered in 2017 with a positive growth in both 2017 and
2018. Moreover, the increase in profit by 31.3% (2017) and 50.6% (2018) is much more than
the increased in sales by 20% and 30% respectively.
Learning Activities
Activity 1.
Fill in the blanks with appropriate word/words :
1. Comparative statement is a _______________ for financial statement analysis.
2. _______________ is the comparison of the financial statement of business
with the previous years financial statement.
3. Comparative ______________ shows the different assets and liabilities of
the firm on different dates to make comparison of balance from one
date to another.
4.___________________ income statement gives an idea of the progress of a
business over a period of time.
5. When computing for the percentage change in comparative statement, the change in
amount is divided by the ________________.
6. Change in amount for comparative statement is also called ______________________.
Assets 2018 2017 Liabilities 2018 2017

Current Assets Current Liabilities
Cash PHP 40,000 PHP 20,000 Accounts Payable 45,000 50,000
Marketable 350,000 250,000 Short-term Notes 120,000 100,000
Securities
Receivables 330,000 300,000 Accrued Expenses 10,000 5,000
Prepaid Expenses 2,000 - Non-current Liabilities
Non-current Assets Bond Payable 300,000 200,000
Building 170,000 270,000 Mortgage Payable 150,000 100,000
Machinery 600,000 400,000 Equity
Furniture 25,000 20,000 Ordinary Shares 700,000 500,000
Other Fixed Assets 30,000 25,000 Retained Earnings 222,000 330,000
Total Assets PHP 1,547,000 PHP 1,285,000 Total Liabilities and PHP 1,547,000 PHP 1,285,000
Equity
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Research-based Activity
Form a group with 4 members. A FB Messenger group is created for you to interact with
your classmates. You can reach them out in forming your group. Follow the directions
specified below for your activity.
Choose an existing public corporation (which means corporations that are listed in the
Philippines Stock Exchange), research and extract the comparative financial statements of
this corporation. Compute the change in amount and change in percentage of the firm’s
financial statement. After computing, make an assessment on the company’s liquidity, sol-
vency and profitability. Submit your output in our google classroom. For those who have
difficulties in accessing the google classroom, you may upload your output via the FB Mes-
senger group created for the class.
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Why Is Financial Analysis Important?

It Tracks Your Progress
Analyzing your financial data also means identifying your financial upsides and
downsides. When you track your finances over a certain period of time and hold it
in comparison to your past performance, you’ll decipher the key factors that
caused any change in your numbers. Such information can be used to project
any possible shortfalls in the future, and prepare backup measures in case any disruptions hap-
pen. Adjust your funds, remove unnecessary items and cut down some expenses to increase your sav-
ings.
Outplay Your Competitors

Analysing your income statement gives you better visibility of your financial health. Income statement
analysis features a company’s revenue and loss over a specific time, or more commonly known as profit
and loss (P&L) statements. This document calculates your financial ratios so you can compare one com-
pany to another, thus, giving you better chances of strategizing long-term plans for your compa-
ny. Dominate the competition by establishing a comprehensive gameplay for your team, so they can nav-
igate the business even when you’re in the red.
Get Visibility On Your Financial Status

Cash flow statement analysis shows how your finances moves inside and outside the business. It enlists
all your cash inflows and cash outflows, which is vital for identifying the company’s liquidity and sol-
vency.
With a clear idea on how your funds are circulating, you can further improve how you allocate your fi-
nances among your assets and also save a lot of money by cutting down some of your big expendi-
tures.
LESSON
III VERTICAL ANALYSIS
Vertical Analysis
Vertical analysis is done by analysing a financial statement of a particular period, where each
line item in an income statement is listed as a percentage of another item. This is used to have
an insight into the relative proportions of account balances. Vertical analysis is also a great
help for trend analysis in seeing relative changes in accounts over time.
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Provided below are data extracted from the annual financial report
of Berry Bags Inc. for the comparative year 2019 and 2018. Based from
your learnings in your prerequisite subjects, you are to compute for the
common size percentage for 2018 and 2019. After computing, you are to
answer the questions presented after the table.
2019 2018 % 2018 % 2019

Sales Php 960,000 Php 1,275,000
Cost of Sales 640,000 850,000
Gross Profit 320,000 425,000
Operating Ex- 180,000 220,000
Operating In- 140,000 205,000
Interest Ex- 10,000 95,000
Taxable Income 130,000 110,000

Income Tax 39,000 33,000
After-tax Profit 91,000 77,000
1. Which year has a better Sales? __________________
2. Which year yield more gross profit? __________________

3. How much is the difference is the company’s operating income from 2018 to 2019?
__________________
4. Which year is more profitable? _________________
Self Assessment
After answering the warm-up activity above:
Did you find it easy to calculate the required figures?

Were you able to correctly assess the information based from your prior knowledge?

What are the challenges that you have met while answering the questions?
Definition of Vertical Analysis

Vertical analysis is conducted on financial statements for a single time period only. Each
item in the statement is shown as a base figure of another item in the statement, for a
given time period, usually for year. Typically, this analysis means that every item on
an income and loss statement is expressed as a percentage of gross sales, while every
item on a balance sheet is expressed as a percentage of total assets held by the firm.
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Vertical analysis is also called static analysis because it is carried out for a single time period.
Common size Statement of Financial Position

A statement where balance sheet items are expressed in the ratio of each asset to total assets
and the ratio of each liability is expressed in the ratio of total liabilities is called common size
balance sheet.
The common size statement may be prepared in the following way.
– The total assets or liabilities are taken as 100
– The individual assets are expressed as a percentage of total assets i.e.
100 and different liabilities are calculated in relation to total liabilities.
For example, if total assets are Php100,000 and total inventory is
Php10,000, then inventory will be 10% of total assets
Illustration:
Below are the data from the financial statement of Bangs Corporation
Statement of Financial Position

As of December 31, 2018
Assets
Current Assets
Cash PHP 5,000,000 8.16%
Marketable Securities 2,000,000 3.26%
Receivables 6,000,000 9.79%
Inventories 5,200,000 8.48%
Prepaid Expenses 100,000 .16%
Total Current Assets Php 18,300,000 29.85%
Non-current Assets
Fixed Assets 24,000,000 39.15%
Long-term Investment 12,000,000 19.58%
Intangible Assets 6,000,000 9.79%
Other Non-current Assets 1,000,000 1.63%
Total Non-current Assets Php43,000,000 70.15%
Total Assets PHP 61,300,000 100.00%
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Liabilities
Current Liabilities
Accounts Payable 4,600,000 7.51%
Short-term Notes 1,000,000 3.26%
Accrued Expenses 200,000 0.33%
Total Current Liabilities Php6,800,000 11.10%
Non-current Liabilities
Long-term Loan 10,000,000 16.31%
Bond Payable 300,000 0.49%
Total Non-current Liabilities 10,300,000 16.80%
Total Liabilities 17,100,000 27.90%
Shareholder’s Equity
Ordinary Shares 18,000,000 29.36%
Reserves 16,000,000 26.10%
Retained Earnings 10,200,000 16.64%
Total Shareholder’s Equity Php 44,200,000 72.10%
Total Liabilities and Equity PHP 61,300,000 100.00%
Interpretation
Most of the company’s resources are allocated in the non-current assets which at 70.15% of
its assets. Only more a third of the assets is allocated to current assets at 29.85%. In the
similar manner, 27.9% of the total resources have been provided by the creditors, and the
remaining 72.1% have been sourced from the shareholders and earnings of the company.
The company does did not use financial leverage to finance the acquisition of property, plant
and equipment, and in handling operations.
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Let’s answer this one!
https://www.chegg.com/homework-help/questions-and-answers/please-
provide-excel-spreadsheet-comparative-income-statement-vertical-analysis
-please-att-q12729695#question-transcript
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Here!
Instruction: Please provide an EXCEL SPREADSHEET of a VERTICAL ANALYSIS of the
Tractor Supply Company. A sample of expected output is shown below.
Tractor Supply Company
Consolidated Balance Sheets
(in thousands, except per share amounts)
Vertical Analysis
2015 2014 2015 2014
Account Name
Cash and Cash 63,813 51,134 ? ?

Equivalents
Tractor Supply Company
Consolidated Balance Sheets
(in thousands, except per share amounts)
Vertical Analysis
2015 2014 2015 2014
Account Name
Net Sales 6,226,507 5,711,715 ? ?
https://www.chegg.com/homework-help/questions-and-answers/please-provide-
excel-spreadsheet-comparative-income-statement-vertical-analysis-please-att-
q12729695#question-transcript
33
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Select at least 5 account titles to interpret from the Comparative Statement of Financial
Position based on the result of your analysis.
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Select at least 5 account titles to interpret from the Comparative Statement of Financial
Performance based on the result of your analysis.
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LESSON
IV RATIO ANALYSIS
Before starting the lesson, let’s have a warm up activity!
B A L A N C E S H E E T D G H
G J F G H J T J I K U H S C C
S H J G J C S L J H S A E W E
J D C N G A A G A S X P H F S
A S S E T S S M C D C R B N D
J D S A A H X N Y F M O H D F
V M F L N F S T J S B F S A R
W R E G G D I N V E N T O R Y
F S H F K U J N H A E R C A J
V M D H Q T G J V S A A H T F
S J S E L K U R S E B Z S I J
V F D G B B M K A G K L E O K
P R O F I T C M H J D S T S B
S F B N K L J S D N H S F N X
V D D H L I A B I L I T I E S
SELF-ASSESSMENT
How did you find the activity? Was it easy or difficult?
Were the concepts familiar to you?
Introduction
The goal of financial management is to maximize the stockholders’ wealth through the current value of
the existing stock (Ross et al., 2008). A common mistake in financial management is the belief that the
finance manager should maximize the firm’s accounting profits. Nonetheless, accounting profits should
not be discarded as they directly affect the firm’s stock price. In the same manner that accounting infor-
mation is presented in the financial statements, it is an important tool to understand why the company
is performing the way it is and as a forecasting device as to where it is going.
Financial Statement analysis is an evaluation of the past and current performance

of the firm and its forecast in the future (Palepu et al., 1996). It allows comparison of one
company with another. Since financial statement analysis looks
at relationships inside and outside the firm, a firm of one size
can be directly compared with similar firms or with industry av-
erages or norms to determine how the company is faring vis-à-
vis its competitors (Gitman et al., 2003).
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What is Ratio Analysis?
Ratio analysis is a form of Financial Statement Analysis that is used to obtain a quick
indication of a firm's financial performance in several key areas.
Ratios can be expressed in three different ways:
1. Ratio (e.g., current ratio of 2:1)
2. % (e.g., profit margin of 12%)
3. Php (e.g., EPS of Php1.50)
CAUTION!
“Using ratios and percentages without considering the underlying causes may be
hazardous to your health!” lead to incorrect conclusions.”
LIQUIDITY RATIOS
Liquidity ratios are group of ratios that measure the ability of the business to pay their short-
term obligation. These ratios utilize the current assets and current liabilities for analysis.
Liquidity as an objective answers the question: “Does the company has enough current to pay
its current obligations?”
The most common ratios used in assessing the liquidity of the firm are
the following:
1. Current Ratio
2. Quick Ratio or Acid-test Ratio
Current Ratio
Current ratio is also called banker’s ratio. It indicates the extent to which current liabilities
are covered by current assets. It is the most commonly used measure of liquidity of compa-
nies. The formula of current ratio is:
Current Ratio=
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Interpretation:
A 2:1 current ratio means that the company has Php2.00 current assets that it can use to pay
for every Php1.00 current obligation. This current ratio entails that the company has more
than enough capacity to settle its short-term obligations. Therefore, the company is consid-
ered to be liquid.
Quick Ratio
Quick Ratio reflects the firm’s ability to pay its short-term obligations. Thus, the higher the
quick ratio, the more liquid the firm is. It is a more severe test of immediate solvency; test of
ability to meet demands from current assets.
Quick Ratio =
Interpretation:
Quick acid test ratio allows one to focus on a more immediate measure of liquidity by adding
cash, accounts receivable and marketable securities. The firm assumes that the accounts re-
ceivables are properly managed and collected in a short period of time. The higher the value
the more liquid the firm is.
ACTIVITY RATIOS
Activity Ratios or Asset Management Ratios measure the firm’s efficiency in managing its as-
sets. These ratios are used to determine how rapid various accounts are converted into sales
or cash. Generally, a high turnover ratio is associated with good asset management and a low
turnover ratio with bad asset management.
Accounts Receivable Turnover
This estimates how fast the accounts receivable is converted into cash during the year. It
measures how efficient the collection of the accounts receivable.
Accounts Receivable Turnover =
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Interpretation
In general, the higher the turnover, the better. It means that the firm’s customers are
prompt payers. However, an excessively high ratio may indicate that the company’s credit
policy is too strict, with the company not tapping the potential for profit through sales to
customers in higher risk classes. On the other hand, an extremely low accounts receivable
turnover means that the company is too lax in its credit policy.
Average Collection Period
This measures the efficiency of the firm’s collection policy by computing the number of days
to collect the receivables.
Average Collection Period =
Interpretation
The higher days for a sale to be converted into cash, there exists a risk that customer’s ac-
counts may become uncollectible. One of the possible causes of such increase is that the
company is more lenient in selling on credit to customers. The firm must be able to check or
possibly think of revising its policy with regard to granting credit.
Inventory Turnover
This shows the efficiency of the firm in handling its inventory. It measures how fast the in-
ventory is turned into sales. A low inventory turnover rate may point to overstocking obsoles-
cence, or deficiencies in the product line or marketing effort.
Inventory Turnover =
Interpretation
If the inventory turnover declines, this indicates a problem with regard to stocking goods. An
attempt should be made to determine whether an increase in the inventory is caused by un-
salable items.
Average Age Inventory
In this ratio, it measures the average number of days to sell or consume the average invento-
ry. The higher the number of days, the greater risk of obsolescence.
Average Age Inventory =
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Operating Cycle
The operating cycle measures the time it takes to convert the inventories and receivables to
cash. Hence, a short operating cycle is desirable.
Operating Cycle =
Interpretation
If the operating cycle is longer, this is an unfavorable trend since an increased operating cycle
means that a considerable amount of money is tied up in non-cash assets. The firm must look
into the possibility of reducing the operating cycle to improve its liquidity. Too much funds
tied in the inventory and receivables lead to an increased cost of doing business due to loans.
Total Asset Turnover
This measures the firm’s ability to generate sales successfully. A low asset turnover ratio may
be due to many factors, and it is important to identify the underlying reasons. For example,
the value of investment in assets excessive when compared with the value of the input? If so,
the company might want to consolidate its present operation, perhaps by selling some of its
assets and putting the proceeds in a high-return investment or using them to expand into a
more profitable area.
Total Asset Turnover =
Interpretation
A high total asset turnover indicates an efficient asset management. However, since total as-
set turnover is composed of current and fixed assets, all other ratios like inventory turnover,
receivable turnover are part of the analysis in the total assets turnover.
Interpretation
A high total asset turnover indicates an efficient asset management. However, since total
asset turnover is composed of current and fixed assets, all other ratios like inventory
turnover, receivable turnover are part of the analysis in the total assets turnover.
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LEVERAGE RATIO
Leverage Ratios indicate up to what extent the firm has financed its investments by borrow-
ing. Firms that use debt financing rather than equity financing increase the risk of the firm.
The more debt they incur, the higher their leverage ratio is and the higher the financial risk
they face.
Debt Ratio
This ratio shows the portion of the total assets financed by the creditors. The provider of
funds other than the stockholders prefers to see a low debt ratio because there is a greater
chance for creditors to collect their receivables when the firm goes bankrupt.
Debt Ratio =
Debt-to-Equity Ratio
This measures the proportion of the total liabilities to the invested capital. A high debt-to-
equity ratio means that the firm financed the assets mostly by debt. A low ratio means that
the firm paid for the assets by means of capital infusion by the stockholders.
Debt-to-Equity Ratio =
Time Interest Earned Ratio
This reflects the number of times the earnings before tax and interest expense cover the in-
terest expense. It measures how capable the firm is in paying its interest obligations. The in-
crease on the times-interest earned ratio is a positive indicator that the firm is capable of
paying its maturing interest obligations.
Time Interest Earned Ratio =
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PROFITABILTY RATIOS
These are indicators of good financial health and

evaluate how effectively the firm is being man-
aged to earn a satisfactory profit and return on
investment. Profitability ratio measures manage-
ment effectiveness in terms of rate of return to
sales, assets and equity.
Gross Profit Margin
It is a measurement of a company’s manufacturing and distribution efficiency during

the production process. The gross profit tells the percentage of sales left after sub-
tracting the cost of goods sold. Firms with higher gross profit margin than its compet-
itors in the industry are more efficient. Investors tend to pay more businesses that
have higher efficiency rating than their competitors, as these businesses should be
able to make a decent profit as long as overhead cost are controlled.
Gross Profit Margin =
Net Profit Margin Ratio
Profit Margin Ratio =
Return on Investment
This measures the income generated for every peso investment made in the firm.
The higher the income generated per peso investment, the better.
Return on Investment =
Return on Equity
This measures the rate of return earned on common stock equity. Stockholders in-
vest in a firm with the expectation of a return on their money.
Return on Equity =
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Earnings Per Share
This measures the income generated per common stock held. It is computed by divid-
ing net income after tax minus the preferred stock dividend requirement by the num-
ber of shares of common stock outstanding. Earnings per share is a useful indicator
of the firm’s profitability. However, earnings per share tends to be lower when there
are more common shares issued. For this reason, firms prefer accumulating funds by
issuing bonds so as not to dilute the earning per share.
Earnings Per Share =
Book Value Per Share
It is the total of the common stock, premium on paid-in capital,

and retained earnings less treasury stock minus preferred stock di-
vided by the number of common shares outstanding. Book value is
the value of the firm on the p
erspective of accounting while market value signifies the market

valuation of the firm’s equity.
Book Value Per Share =
LIMITATIONS OF RATIO ANALYSIS
Ratio analysis is a very useful tool when working with the figures presented in the fi-
nancial statements. It helps identify the firm’s strengths and weaknesses. However,
despite the numerous uses of financial ratios, they have also have their limitations.
Some of which are listed as follows:
Variation in the practices and methods in the application of accounting from one
firm to another may result in a meaningless comparison of financial ratios.
Although financial ratio has a predictive value, ratios are still static and a mere
estimate of the future
Transactions are recorded based on acquisition costs and do not consider the
effects of inflation
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Financial ratio analysis is essential in comparing firms belonging to the same indus-
try. Firms whose activities are well diversified are too difficult to be classified in an
industry.
Although industry averages are published, at times, it is difficult to use them because
of the complexities of the different sectors belonging to the industry.
A ratio does not shoe its major components; thus, it is incorrect and misleading to in-
terpret a particular ratio without considering its composition.
Activity No. 1
For item 1-15, use the following data.
Data of ABC Corporation are as follows:
ABC Coporation
Statement of Financial Position
December 31, 2019
LIABILITIES AND
ASSETS EQUITY
Cash P50,500 Accounts Payable P65,000
Accounts Re-
ceivable 52,000 Long-term Debt 75,500
Inventories 60,500 Common Stock 53,500
Fixed Assets 137,000 Retained Earnings 106,000
TOTAL LIABILITIES AND
TOTAL ASSETS P300,000 EQUITY P300,000
ABC Coporation
Income Statement
December 31, 2019
Sales P450,000
Cost of Sales (324,000)
Gross Profit P126,000
General and Administrative Expenses (27,500)
Earnings Before Interest and Tax 98,500
Interest Expense (12,000)
Earnings Before Tax 86,500
Tax (30%) (25,950)
Net Income P60,550
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Compute for: (Show your solutions. DOUBLE RULE YOUR FINAL ANSWERS)
Take note: You may use only the current year without averaging.
Current Ratio
Inventory Turnover
Net Profit Margin Ratio
Quick Acid Test Ratio
Accounts Receivable Turnover
Return on Equity
Debt Ratio
Return on Assets
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Time Interest Earned Ratio
Total Asset Turnover
Return on Equity
Net Profit Margin
Operating Cycle
From the financial statement that you used in your research based activity for the Module II
Lesson 2 and 3, you are required to compute for the two ratio under each of the following ob-
jectives:
1. Liquidity 3. Activity 5. Debt Utilization
2. Profitability 4. Asset Utilization
After computing for the ratio, make an interpretation, conclusion and recommendation from
the results of the computation. Submit your output in our google classroom. For those who
have difficulties in accessing the google classroom, you may upload your output via the FB
Messenger group created for the class.
Congratulations! You are moving on to a new and exciting

chapter. I wish you all the best for the future that lies ahead and
for the next chapter!
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MODULE EQUITY VALUATION

LESSON
III I
INTRODUCTION TO
EQUITY VALUATION
Specific Learning Outcomes
1. Discuss the different types of equity valuation models.
2. Analyze the company value based on equity valuation models.
3. Make financial decision using equity valuation models.
Write five words that you can associate with the words provided below. You are
given 10 minutes to finish this activity.
1. Equity 2. Stocks 3. Valuation 4. Stock Market
5. Investment
After answering the warm-up activity above: Were you able to correctly assess
the information based from your prior knowledge?
What are the challenges that you have met while answering the questions?
Introduction
Analysts gather and process information to make investment decisions, including buy and
sell recommendations. What information is gathered and how it is processed depend on the
analyst and the purpose of the analysis. Throughout finance, one rule always holds true.
The general belief is that the value of any asset or security is exactly equal to the discounted
present value of all the cash flows that can be derived from it in future periods. Using this
principle, one can easily value securities like debt. This is because they have a finite exist-
ence. The cash flows derived from them can be easily predicted. However, equity valuation is
not so simple. Equity represents a partnership in the business. As such, it represents an
attempt to value cash flows which are uncertain and unpredictable.
Equity valuation refers to the process of determining the fair market value of equity securi-
ties. It also refer to all tools and techniques used by investors to find out the true value of a
company’s equity. It is often seen as the most crucial element of a successful investment de-
cision.
Importance of Equity Valuation
Systemic. Equity valuation therefore is the backbone of the modern financial system. It ena-
bles companies with sound business models to command a premium in the market. On the
other hand, it ensures that companies whose fundamentals are weak witness a drop in their
valuation.
Individual. On a micro level, equity valuation is beneficial for the entire stock market ecosys-
tem. Markets receive information every moment and make an attempt to factor the financial
effect of this information in the stock price. Individual estimates of the effect vary and as
such different people may come up with different stock prices.
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Process of Conducting Equity Valuation
Equity valuation is followed differently by different individuals. The following are the processes
of equity valuation.
Understand the macroeconomic factors and the industry: No company operates in vacuum.
The performance of every business is influenced by the performance of the economy in
general as well as the industry in which it operates.
Make a reasonable forecast of the company’s performance: Mere extrapolation of the com-
pany’s current financial statements does not constitute a good forecast. A good forecast
takes into account how the company may change its scale of production of the forth-
coming future. Then, it also takes into account how changes in this scale will affect the
costs.
Select the appropriate valuation model: There are multiple valuation models available. All
these valuation models do not necessarily lead to the same conclusion. Therefore, it is
the job of the analyst to understand which model would be most appropriate given the
type and quality of data available.
Arrive at a valuation figure based on the forecast: Apply the valuation model and come up
with an exact numerical value which according to the analyst defines the worth of the
business. Investors prefer a range so that they clearly know what their lower and upper
bounds for bidding should be.
Take action based on the arrived valuation: Finally, the analyst has to give a buy, sell or
hold recommendation based on the current market price and what analysis shows is
the intrinsic worth of the company.
Market Value, Intrinsic Value and Investment Value

Market Value simply means the value of the company or an asset as denoted by its ongoing
market price. As market prices vary wildly, so does the market value of any company or any
asset which is listed on it.
Intrinsic Value is that value which is imbibed in the asset. It only considers that value which
can be derived from incremental cash flows that will be produced by a firm.
Investment value is the amount of money an investor would pay for a property. It refers to an
asset's specific value based on certain parameters. It is an individual's measurement of the
asset's property value.
Applications of Equity Valuation

Stock Picking
The most common application of equity valuation is related to stock picking. All the
stocks would always be valued correctly and it would be impossible to make any supernor-
mal profits from investing in these stocks. Any investor must always have their own estimate
of value of the stock, which they derive from their very own equity valuation model. They
must constantly be on the lookout for undervalued stocks
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Estimating the Market Sentiment
The idea is to arrive at a fair valuation and then compare them with the values prevalent
in the market. If the market is overvaluing most of the stocks, then investors are expecting
a positive future and the sentiment is positive. The converse of this is also true. Hence, eq-
uity valuation can be used as a tool to read the market.
Listing Of Private Businesses
Private businesses and capital markets have a symbiotic relationship. When a private busi-
ness initially lists itself on the market and becomes a public company, it faces a problem.
Using equity valuation models, analysts can arrive at a relatively precise price supported by
facts and data which is usually acceptable to both the counterparties involved in the trade.
Mergers and Acquisitions
There is also considerable ambiguity over the price to be paid when mergers and acquisi-
tions happen. Both individual entities need to be valued and then the combined entity
needs to be valued. Then gains from merging the business or “synergy” have to be found
out. Based on the bargaining power and the risk-reward bearing agreement of the venture,
a fair valuation can be arrived at which is acceptable to both the acquirer and the acquired.
To sum it up, valuation is the lifeblood of financial services. All sorts of organizations, from
merchant banks to portfolio management companies need this knowledge. Also, it is an im-
perfect knowledge hence companies are willing to spend more and more money to hire peo-
ple they believe have a good understanding of the concept of valuation.
Learning Activity
Activity 1. True or False. Write True if the statement is true and False if otherwise.
____________1. It refers to all tools and techniques used by investors to find out the true value of a
company’s equity.
____________2. Equity valuation enables companies with sound business models to command a premi-
um in the market.
____________3. Individual estimates of the effect of financial information do not vary and as such dif-
ferent people may come up with different stock prices.
____________4. The performance of every business is not influenced by the performance of the economy
in general as well as the industry in which it operates.
____________5. All the valuation models do not necessarily lead to the same conclusion.
____________6. The analyst has to give a buy, sell or hold recommendation based on the current mar-
ket price and what analysis shows is the intrinsic worth of the company.
____________7. Any investor must always have their own estimate of value of the stock, which they de-
rive from their very own equity valuation model.
____________8.Equity valuation can be used as a tool to read the market.

____________9. Market value only considers that value which can be derived from incremental cash
flows that will be produced by a firm.
___________10. Investment value is the amount of money an investor would pay for a property.
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Activity 2. Research-based activity

You are to research for any news article of company’s investment decision that is associated
with equity valuation such as news on mergers, acquisitions, private company going public
and other equity valuation related information. Rubric for grading is provided below. Follow
the format when you are to present the output:
Summary of the article
Terms/Concepts used in the article
Brief comments/reactions of the article
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LESSON
EQUITY VALUATION
II
Part-I. Identification. This is to test whether you still remember the
basic terms on equity valuation that you have learned in your
previous related subjects. Identify the term or concept each
statement is referring.
1. It is the method of calculating theoretical values of companies and their stocks.

2. It is a stock whose dividends are expected to grow at a constant rate in the foreseea-
ble future.
3. It is a hybrid form of financing, sharing some features with debt and some with
common equity
4. The annualized percentage rate of growth that a particular stock's dividend under-
goes over a period of time.
5. It represents the claim of the preferred stockholder against the value of the firm.
Self-assessment
Where the terms easy to identify?

Upon reading the statements, can you explain the term each statement is referring
to?
What are the difficulties you come across in answering the activity?
Introduction
“Valuation” or the process of assigning a fixed numerical value to the present and poten-
tial of a business is considered by many experts to be the most important part of corpo-
rate finance and financial markets. The reason for this is that the accuracy of the value
derived can never be known. It is not a verifiable fact and there is no right or wrong an-
swer. Rather, the valuation is an opinion that is based on the expertise of the person
conducting the exercise. Let’s see the kind of decisions that need to be made based on
the value derived from equity valuation.
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In general:
If Intrinsic Value > Market Price, the stock is undervalued. The investor will want to buy the stock.
If Intrinsic Value = Market Price, the stock is fairly valued. The investor is neutral about the stock
price.
If Intrinsic Value < Market Price, the stock is overvalued, and investor expects its price to fall.
The analyst can use a variety of models to estimate the intrinsic value of equities. One such model is
the Dividend Discount Model. Under this model the value of a stock is calculated as the present val-
ue of all future dividends from the stock.
Classification of Equity valuation methods
Balance sheet methods
Discounted cash flow methods
Relative valuation methods.
Balance Sheet Methods
Balance sheet methods are the methods which utilize the balance sheet information to value a com-
pany. These techniques consider everything for which accounting in the books of accounts is done.
Book Value Method
In this method, book value as per balance sheet is considered the value of equity. Book value means
the net worth of the company. Net worth is calculated as follows:
Net Worth = Equity Share capital + Preference Share Capital + Reserves & Surplus – Miscellaneous
Expenditure (as per B/Sheet) – Accumulated Losses.
Example: If,
 Total Stockholders' Equity = Php 10,000,000
 Number of Common Shares = 1,000,000
 Number of Preferred Shares = 1,000
Call Price of Preferred Shares = Php104
Then,
 Book Value for Common Shareholders = (Php10,000,000 - (1,000 × Php104))/1,000,000 = Php9.90

per Share
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Liquidation Value Method
In liquidation cost method, liquidation value is considered the value of equity. Liquidation value is the
value realized if the firm is liquidated today.
Liquidation Value = Net Realizable Value of All Assets – Amounts paid to All Creditors including Pref-
erence Shareholders.
Example: If
 Total Net Realizable Assets = Php 80,000,000
 Short Term Debt = 5,000,000
 Long term Debt = 25,000,000
 Number of preferred shares = 1,000
Call Price of Preferred Shares = Php104
Then
Liquidation Value= Php 80,000,000 – 5,000,000-25,000,000 – (1,000 × Php104)
= Php 49,896,000
Replacement Cost Method

In replacement cost method the value of equity is the replacement value. It means the cost that would be
incurred to create a duplicate firm is the value of the firm. It is assumed that the market value and re-
placement value will coincide in the long run. The famous ratio by James Tobin is Tobin q which tends
to become 1. Tobin q is the ratio of market value to replacement cost.
Equity Value = Replacement Cost of Assets – Liabilities
Discounted Cash Flow Methods

Discounted cash flow methods are based on the fact that present value all future dividends and the fu-
ture price represent the market value of equity.
1.Dividend Discount Model

This dividend discount model finds the present value of future dividends of a company to derive the
present market value of equity. There are various models with different assumptions of a period of divi-
dends and growth in dividends. To calculate the value of a stock based on the dividend using the divi-
dend growth model, you’ll need three pieces of information:
1. The current dividend payout

2. The growth rate of the dividend
3. Your required rate of return
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The model's assumptions are that: (i) the dividend growth rate is constant; the growth rate cannot equal or
exceed the required rate of return; the investor's required rate of return is both known and constant. In
practice, a company's earnings and growth rates are not known and not constant.
a. Multi-stage Dividend Discount Models:
P=D(1+g)/(1+k) + D(1+g)(1+g)/(1+r)(k-g)
Where: P=security\'s price; D=dividend payout ratio; g=dividends\' expected growth
rate; k=required rate of return.
The model's assumptions are that: (i) the dividend growth rate is constant; the growth rate cannot equal or
exceed the required rate of return; the investor's required rate of return is both known and constant. In
practice, a company's earnings and growth rates are not known and not constant.
a. Multi-stage Dividend Discount Models:
P=D(1+g)/(1+k) + D(1+g)(1+g)/(1+r)(k-g)
Where: P=security\'s price; D=dividend payout ratio; g=dividends\' expected
growth rate; k=required rate of return.
Multistage models can accommodate any number of patterns of future streams of expected divi-
dends. Spreadsheets enable the analyst to build and analyze many permutations on such models.
However, care must be taken when choosing the model's inputs, lest the results become meaning-
less.
Example: As per market price data, JFC is on track for a full year dividend pay out of Php1.95 per
share. JFC puts the five-year annual dividend growth at 3.51%. If the required rate of return is 10%
and the previous day’s closing stock price of JFC was Php36.67. What is the value of JFC shares?
Given:
1. Current dividend = Php1.95
2. Growth of dividend = 0.0351
3. Required rate of return = 0.1
Value= (1.95 + (1 + 0.0351))/(0.1 – 0.0351) = 1.9851/0.0649 = Php30.59
Based on the dividend growth rate of 3.51%, the model says that JFC should be worth 30.59. Based
from the closing price of JFC, it appears that the shares are overvalued.
Example: What would be the current price of a stock when dividends are expected to grow at a 25%
rate for three years, then grow at a constant rate of 5%, if the stock’s required return is 13% and next
year’s dividend will be Php4.00?
The idea to solve this problem is to assume that you hold the stock for three years and sell the stock
at the end of year 3. After year 3, the dividends have a constant growth rate of 5%. By observ-
ing this constant growth rate of dividends, you can use the dividend growth model to calcu-
late the stock price at year 3, which is P3=Div4/(r-g), where r=13% and g =5%.
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Then the current stock price is the present value of three dividends received in each year in
the next three years, and the stock price at year 3.
Free Cash Flow Model
This model is based on free cash flows of the company. Similar to above model, it discounts the
free future cash flows of the company to arrive at an enterprise value. To find the value of equity,
value of debt is deducted from enterprise value
Discounted cash flow methods include dividend discount models and free cash flow models.
Lastly, relative valuation methods are a price to earnings ratios, price to book value ratios, price
to sales ratios etc.
Free Cash Model
This model is based on free cash flows of the company. It discounts the free future cash flows of
the company to arrive at an enterprise value. To find the value of equity, value of debt is deduct-
ed from enterprise value.
When valuing a company, it’s important to distinguish between the Enterprise Value and Equity
Value. The Enterprise Value is the value of the entire business without taking its capital structure
into account. Equity Value is the value attributable to shareholders, which includes any excess
cash and exclude all debt and financial obligations.
The type of value you’re trying to arrive at will determine which cash flow metric you should
use.
Use FCFE to calculate the net present value (NPV) of equity.
Use FCFF to calculate the net present value (NPV) of the enterprise.
Relative Valuation Methods
Earnings multiple or Relative Valuation methods are also called comparable methods because
they use peers or competitors value to derive the value of the equity. The importance here is of
deciding which factor to be considered for comparison and which companies should be consid-
ered peers. Following are the well-known methods used for such comparison.
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1.Price to Earnings
The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is
the most popular metric of stock analysis, although it is far from the only one you should consider.
You calculate the P/E by taking the share price and dividing it by the company’s EPS.
P/E = Stock Price / EPS
For example, a company with a share price of Php40 and an EPS of 8 would have a P/E of 5
(Php40 / 8 = 5).
What does P/E tell you? The P/E gives you an idea of what the market is willing to pay for the com-
pany’s earnings. The higher the P/E the more the market is willing to pay for the company’s earn-
ings. Some investors read a high P/E as an overpriced stock and that may be the case.
Price to Book Value Ratios

Also known as price-to-book value, this ratio tries to establish a relationship between the book val-
ues expressed in the balance sheet and the actual market price of the stock.
Value = Market price per share / book value per share
or= Market capitalization / book value
Example:
Assume there is a company whose publicly traded stock price is Php 20 and it has 100,000 outstand-
ing equity shares. The book value of the company is Php1,500,000. The Market-Book ratio is com-
puted as follows:
Market-to-book value ratio = 20* 1 00 000 / 1,500,000 = 2,000,000/1,500,000 = 1.33
Here, the market perceives a market value of 1.33 times the book value to company.
Market-to-book value ratio less than 1= UNDERVALUATION – an investment opportunity
= OVERVALUATION – Misrepresented books

Market to Book Greater than 1 = UNDERVALUATION – Book Values are just an Accounting figure
Price to Sales ratio
*Share price= the number of outstanding shares multiplied by the share price
The lower the P/S ratio, the more attractive the investment. Price-to-sales provides a useful measure
for sizing up stocks. If a company isn't earning a profit yet, investors can look at the P/S ratio to de-
termine whether the stock is undervalued or overvalued. If the P/S ratio is lower than comparable
companies in the same industry that is profitable, investors might consider buying the stock due to
the low valuation.
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Example: A company has 1,000,000 outstanding shares at Php 30.00 per share, while its total reve-
nue for the year is Php 18,000,000. The P/S ratio is calculated as follows:
P/S ratio= (1,000,000 x Php30) / Php 18,000,000
= 1.67
All things being equal, a low P/S is good news for investors, while a very high P/S can be a warn-
ing sign.
Learning Activities:
Activity 1. Multiple Choice. In a separate sheet/ word document, write the letter of your choice. For
the computation, provide the solution for each problem.
1.According to the dividend discount model, the current value of a stock is equal to the:
A) present value of all expected future dividends.
B) sum of all future expected dividends.
C) next expected dividend, discounted to the present.
D) discounted value of all dividends growing at a constant rate.
E) none of the above
2.If a stock’s P/E ratio is 13.5 at a time when earnings are Php3 per year, what is the stock’s current
price?
A) Php 4.50
B) Php 18.00
C) Php 22.22
D) Php 40.50
E) None of the above
3. A stock paying Php 5 in annual dividends sells now for Php 100 and has an expected return of
20%. What might investors expect to pay for the stock one year from now?
A) Php 182.00
B) Php 186.00
C) Php 115.00
D) Php 110.00
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4.How much should you pay for a share of stock that offers a constant dividend growth rate of 10%,
has a discount rate of 16%, and pays a dividend of Php 3 next year?
A) Php 42.00
B) Php 45.00
C) Php 45.45
D) Php 50.00
5.The price of a stock will likely increase if:
A) the investment horizon decreases.
B) the growth rate of dividends increases.
C) the discount rate increases.
D) dividends are discounted back to the present.
6.What should be the price for a common stock paying Php 3.50 annually in dividends if the growth
rate is zero and the discount rate is 8%?
A) Php 22.86
B) Php 28.00
C) Php 42.00
D) Php 43.75
8.What is the expected constant growth rate of dividends for a stock currently priced at Php 50, that
is expected to pay a dividend of Php 5 next year, and has a required return of 20%?
A) 13%
B) 10%
C) 11%
D) 12%
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9.If the (current) dividend yield is 5% and the stock price is $25, what will the year three dividend
be if dividends grow at a constant 6%?
A) Php 1.33
B) Php 1.40
C) Php 1.58
D) Php 1.67
10. What would be the current price of a stock when dividends are expected to grow at a 25%
rate for three years, then grow at a constant rate of 5%, if the stock’s required return is 13%
and next year’s dividend will be Php 4.00?
A) Php 61.60
B) Php 62.08
C) Php 68.62
D) Php 79.44
Part-II. True or False. Write True if the statement is true and False if otherwise. (2 points each)
Unlike interest payments on debt which are tax deductible, dividends must be paid out of after-
tax income.
The priority of the claims against the assets of the firm belonging to debt holders, preferred
stockholders, and common stockholders is the same.
The value of the equity securities, as with other assets, is based upon the discounted value of
their expected future cash flows.
Stocks which are experiencing the above pattern of growth are called constant growth stocks.
The use of preference shares as a source of financing over ordinary shares increases the probabil-
ity of bankruptcy for the firm.
The dividends on preferred stock, like the coupon payments on debt, are generally fixed.
There are stocks whose dividends are growing at a rate which mirrors the long-term growth rate of
the economy.
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Activity 2. Case Analysis. This activity is your major output for this module. You are to read the
case presented and present your output in a separate paper/ Microsoft word. Format of the case is
attached below as well as the rubric for grading. Submit the case analysis output in our google
classroom/ fb group chat.
JAZZ is a rapidly growing “specialty” pharmaceutical company. Unlike standard pharmaceu-

tical companies, specialty firms focus on niche diseases and chronic conditions; often, there are few-
er than 200,000 patients suffering from these diseases.
The company recorded $923 million in revenue and $423 million in EBITDA in the last twelve
months (LTM) as of this case study, and currently trades at LTM revenue and EBITDA multiples of
10x and 22x, respectively.
Its stock price has increased dramatically over the past year, rising from $60 per share to over
$170 per share before it fell back down to the $130-$140 range recently.
The company’s growth has been driven by strong sales of its key product, Xyrem, a patentpro-
tected “orphan drug” for treating cataplexy and excessive daytime sleepiness (EDS) in patients with
narcolepsy. As of the end of the company’s most recent fiscal year, Xyrem was treating 11,250 pa-
tients. The company also sells and develops other drugs, but Xyrem comprises 66% of its sales. The
key risk factor is that the company’s patents on Xyrem expire in 5-6 years’ time and it is unable to
make up lost revenue by discovering or acquiring other viable drugs; generics may come to the mar-
ket even sooner than that due to several pending lawsuits.
The “Bull Case” for JAZZ is that Xyrem continues to grow rapidly in both pricing and volume;
once the patents expire, it is able to make up the difference by shifting into other products. The
“Bear Case” is that the company is not able to replenish its drug pipeline, or that Xyrem sales fall
rapidly due to earlier-than-expected generics.
Your job is to decide which of these views, if any, is correct, and to then make an investment
recommendation (for the hedge fund / asset management and equity research cases), or a client rec-
ommendation on the company’s best options going forward.
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Rubric for Case Analysis

Criteria Excellent Good Fair Poor
20 points 15 points 10 points 5 points
Identification of Identifies and under- Identifies and under- Identifies and under- Identifies and un-
the main issues stands all the main stands most of the stands some of the derstands few of the
and/or prob- issues in the case main issues in the main issues in the main issues in the
lems. study. case study. case study. case study.
Analysis of the Insightful and thor- Insightful and thor- Insightful and thor- Incomplete analysis
key issues. ough analysis of all the ough analysis of most ough analysis of some of the key issues
key issues. of the key issues. of the key issues.
Alternative solu- Alternatives cover all Alternatives cover most Alternatives cover Incomplete analysis
tions and/or the key issues with of the key issues some of the key issues of alternatives with
options. method to evaluate all with method to evalu- no evaluation
equally. with method to evaluate.
ate.
Observations Well-reasoned, Solid, well-thought out Shallow observations Superficial
and/or recom-
mendations on logical, relevant observations and rec- and recommendations observations and
effective solu- ommendations on ef- on effective solutions
tions. observations and fective solutions to to recommendations
many of the problems/ on effective solu-
recommendations on issues. some of the tions to a few of the
effective solutions to problems/issues.
most of the problems/ problems/issues.
issues.
Writing Writing is totally free of There are few spelling There are several There are many
grammar and spelling or grammatical errors.
Skills/ errors. spelling or grammati- spelling errors and
Professional Most ideas are clearly cal errors. grammatical
Clear, concise and presented and refer-
Presentation. creative ences are used. Some ideas are mistakes. Ideas are
hard to follow.
presentation of ideas Clearly presented.
and properly References are not
References are used.
referenced.
sporadic or not used.
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MODULE PRESENTATION OF CORPORATE

FINANCIAL STATEMENT ANALYSIS
IV
Lesson I
Corporate Financial Statement
Analysis Presentation
Specific Learning Outcomes
1. Prepare financial statement analysis presentation using power point presentation
2. Make recommendations from the results of the financial statement analysis.
3. Create a video as introduction to the financial statement analysis presentation
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LESSON
I Create a Presentation in PowerPoint
The result of financial statement analysis is useless if not communicated to the users and
decision makers. Financial data has a reputation for being boring and a financial presen-
tation can make even the experienced professional feel anxious.
It is important to prepare ahead of time your financial presentation. You also need to cre-
ate a financial data presentation you’re excited to give, the one that holds the interest of
your audience instead of making them feel uninterested.
Giving meaning to your numbers, making your financial information visual and interesting
to look at and engaging with your audience will help ensure your finance meetings become
the interesting and would make audience looking forward to the next presentation.
The Practical Steps to Creating a Powerpoint Presentation

Create a presentation
Open PowerPoint.
Select an option:
A. Select Blank Presentation to create a presenta-
tion from scratch.
B. Select one of the templates.
C. Take a Tour, and then select Create, to see tips
for using PowerPoint.
Add a slide
1. Select the slide you want your new slide to follow.

2. Select Home > New Slide.
3. Select Layout and the theme want from the drop-down.
Add and format text
1. Place the cursor where you want, and type.

2. Select the text, and then select an option on
the Home tab: Font, Font size, Bold, Italic, Underline,
…
3. To create bulleted or numbered lists, select the text,
and then select Bullets or Numbering.
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Add a picture, shape, or chart
1. Select Insert.
2. To add a picture:
 Select Picture.
 Browse for the picture you want and select Insert.
 To add a shape, art, or chart:
 Select Shapes, Icons, SmartArt, or Chart.
 Select the one you want.
https://support.microsoft.com/en-us/office/create-a-presentation-in-powerpoint-422250f8-5721-
4cea-92cc-202fa7b89617
Smart Ways To Make a Financial Presentation More Interesting
The following are tips to make a financial presentation interesting and make sure people listen to what
you have to say.
1. Communicate the story behind the data
When you plan your financial analysis presentation, plan to tell the who, what, when, where
and why behind the numbers. Data will appeal to people's analytical brains, but to maintain
their interest you also have to use examples to explain who the numbers affect, where the fig-
ures come from and why they are important. But, remember this: keep it simple.
2. Follow the 10-20-30 rule
Guy Kawasaki's 10-20-30 rule is simple: a presentation should include: ten slides, last twenty
minutes, and use thirty point font. By following this process, you keep the presentation concise
and it forces you to get to the point. This sets up ideal conditions for your audience to tune in
to what you're saying.
3. Hide your notes and bullet points
Make sure your handouts and slides don’t detract from what you're saying. Remember that you
and what you have to say are the main event. Keep your slides simple and then expand and ex-
plore with your own commentary.
4. Minimize texts per slide
Too much text will kill any presentation. People just don't respond to blocks of
uninterrupted information. To make a financial presentation interesting, slides ensure you

have at least a few interesting and relevant graphics. A well-designed, simple presentation will
catch your listeners’ eyes and attention.
5. Seek opinion from experienced colleagues
Once you’ve planned what to say and what materials you will use, you have to know how you're
going to say it. This means learning to communicate with your audience by taking some tips
from the masters. How you talk affects how people listen, so work on your public speaking abili-
ties even if you only present in the meeting room.
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Learning Activity
In your previous lessons, you are asked to form a group with 4 members and choose an existing public
corporation (which means corporations that are listed in the Philippine Stock Exchange), research and
extract the comparative financial statements of this corporation. You are also required to conduct a
financial statement analysis using the following tools: horizontal analysis, vertical analysis, and ratio
analysis. After the computations, you also asked to interpret the results thereof and make necessary
conclusions and recommendations.
From the research based activity you have on financial analysis, you are to present a 10-minute finan-
cial statement analysis of the company that you have chosen. After the presentation, your instructor/
professor will be asking questions to validate the results of your analysis. This activity will serve as
your final requirement for this subject. The financial statement presentation will utilize Powerpoint or
other presentation templates/software. The final presentation will be through google meet, zoom, face-
book room, whichever is convenient. In case of connectivity issues, you can make a video of your group
making the financial statement presentation and send it in the google classroom. Take note of the tips
provided above so you will be able to provide an interesting presentation.
Follow the format of the slide presentation below:
Name of the Company
Brief Description of the company
Financial Statement of the company
Horizontal Analysis Data
Vertical Analysis Data
Ratio Analysis Data
Recommendation
The interpretation of the horizontal, vertical, and ratio analysis will be presented orally while the slides
for the figures under which tools are presented. In no case, the interpretation will form part of the
slides. Therefore, members of the group tasked to present must show mastery of the interpretation.
The rubrics for grading the presentation and the financial statement analysis is presented below.
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References:
Aduana, N. L. (2015). Financial Statements: Preparation, Presentation, Analysis, and Interpretation. Quezon City,
Philippines: C & E Publishing, Inc.
Anastacio, M.F.L.,Dacanay R.C., & Aliling L.E.(2010). Fundamental of Financial Management with Industry-Based
Perspective. Quezon City, Phils.:Rex Book Store,Inc.
Asset management ratios. Retrieved from https://www.readyratios.com/reference/asset/
Conceptual Framework of Financial Reporting Retrieved from www.ifrs.org https://www.ifrs.org/issued-
standards/list-of-standards/conceptual-framework/
Equity Valuation: Concepts and Basic Tools. Retrieved from https://www.cfainstitute.org/en/membership/
professional-development/refresher-readings/2020/equity-valuation-concepts-basic-tools
Financial Ratios Cheat Sheet. Retrieved from https://corporatefinanceinstitute.com/resources/ebooks/financial-
ratios-cheat-sheet/
Fuhrmann, R. (2020, May 2020). The Comparables Approach to Equity Valuation. Retrieved from https://
www.investopedia.com/articles/investing/080913/equity-valuation-comparables-approach.asp
Gibson, C. (2009). Financial Reporting and Analysis 11th Edition. Cengage Learning. USA.
Gitman, L. J., & Joenhnk, M. D. (2005). Princiiples of Managerial Finance. Singapore: Pearson Education, Inc.
Henry, E., Robinson, T. & van Greuning, J.H. (2011). Financial Analysis Techniques. CFA Insitute. Retrieved from
www.cfainstitute.org
How to Create a PowerPoint Presentation. Retrieved from https://www.instructables.com/id/How-to-Create-a-
PowerPoint-Presentation/
Lam, N., Yuen, KP., & Kwong, J. (2016). Advanced Financial Reporting: An IFRS Perspective. Singapore. McGraw
Hill Education (Asia)
List of IFRS Standards. Retrieved from https://www.ifrs.org/issued-standards/list-of-standards/
Mcgowan, C., Billah, N. & Yakob, N. (2015). Liquidity Analysis of Selected Public-Listed Companies in Malaysia.
Issues in Economics and Business. 1. 1. https://www.researchgate.net/
publication/281222971_Liquidity_Analysis_of_Selected_Public-Listed_Companies_in_Malaysia
Palepu, K. G., Bernard, V.L., & Healy, P.M. (1996). Business Analysis and Valuation: Using Financial Statements:
Text and Cases. Ohio: South-Western College Publishing.
Ross, S. A., Westerfield, R. W., Jaffe, J., & Jordan, B. D. (2008). Modern Financial Management. New York:
McGrawHill Irwin.
Said, H. B.(2013). Impact of Ownership on Debt Equity Ratio: A Static and a Dynamic Analytical Framework. Inter-
national Business Research,6,6
Samuel, J. M., Wilkes, F.M., & Brayshaw, R. E. (1999). Financial Management and Decision-making. London: Inter-
national Thomson Business Press.
Subramanyam, K.R. & Wild, J.J. (2009). Financial Statement Analysis 10 th Edition. Boston: McGraw Hill Irwin
Timbang, F. L. (2015). Financial Management Part I. Quezon City, Philippines.: C & E Publishing, Inc.
Trounce, D. (2019, September 9). How To Turn a Powerpoint Presentation Into a Video. Retrieved from https://
helpdeskgeek.com/office-tips/how-to-turn-a-powerpoint-presentation-into-a-video/
https://www.cfainstitute.org/membership/professional-development/refresher-readings/2019/financial-
statement-analysis-an-introduction
http://8thinktank.com/business/5-effective-steps-in-analyzing-financial-statements/
https://study.com/academy/lesson/equity-valuation-definition-process.html
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Preface: Standards On Financial Presentation and Reporting

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Preface: Standards On Financial Presentation and Reporting

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FMPr2

-Nestor Jr. P. Peñalver,MM

MODULE FINANCIAL REPORTING STANDARDS:

Introduction to Financial Reporting

Salient Features of Financial

Specific Learning Outcomes:

Evaluate the financial standards applicable to a specific financial activity.

Case Analysis on Financial Reporting Standards:

Koss Corporation: How $34 Million Disappeared.

Koss did not have an internal audit function.

MODULE FINANCIAL STATEMENT

Introduction to Financial Statement

Course Learning Outcome: Assess corporate financial statements across in-

Specific Learning Outcomes:

4. Identify the different tools used in financial statement analysis

5. Evaluate the appropriate tools for financial statement analysis

The data below are results of the financial statement analysis

The first item is already done for you.

Bukid’s In- Lungsod Agri-venture

Financial statement is part of a yearly com-

The preparation of financial statement is not the end but merely

Users of Financial Statements

The various users interested in the analysis of financial statements are:

3. Trade unions 7. Employees

Objectives of Financial Statement Analysis Source:www.cleverism.com

Financial Statement Analysis Process

Different Standard Used in Financial Statement Analysis

3. Know the standard of the analysis.

Different Techniques in Financial Statement Analysis

Cross-sectional analysis. It is also known Time series analysis. It is also called as

Tools in Financial Statement Analysis

RESULT TOOL USED

Activity 2: Online Quiz (will be downloaded in Google forms)

2019 2018 Change Percentage

Operating Income 140,000 205,000

Which year yield more gross profit? __________________

Which year is more profitable? _________________

Were you able to correctly assess the information based from

Enables management to assess relative

Comparative financial statements

Comparative Balance Sheet

Assets 2019 2018 Change in Amount PHP Change in %

Cash PHP 40,000 PHP 20,000 Php 20,000 100

Marketable Securities 350,000 250,000 100,000 40

Receivables 330,000 300,000 30,000 10

Prepaid Expenses 2,000 - 2,000 -

Total Current Assets 722,000 570,000 152,000 26.67

Building 170,000 270,000 (100,000) (37.3)

Machinery 600,000 400,000 200,000 50

Furniture 25,000 20,000 5,000 25

Other Fixed Assets 30,000 25,000 5,000 20

Total Fixed Assets 825,000 715,000 110,000 13.49

Total Assets PHP 1,547,000 PHP 1,285,000 262,000 20.39

Accounts Payable 45,000 50,000 (5,000) (10)

Short-term Notes 120,000 100,000 20,000 20

Accrued Expenses 10,000 5,000 5,000 100

Total Current Liabili- 175,000 155,000 20,000 12.9

Bond Payable 300,000 200,000 100,000 50

Mortgage Payable 150,000 100,000 50,000 50

Total Non-current 625,000 455,000 170,000 37.36

Ordinary Shares 700,000 500,000 200,000 40

Retained Earnings 222,000 330,000 (108,000) (32.73)

Total Liabilities and PHP 1,547,000 PHP 1,285,000 262,000 20.39