ANALYSIS OF FINANCIAL STATEMENTS

Recall
Preliminary questions
1. What is the goal of accounting?
-
2. Give examples of financial statements
-
3. Briefly discuss the predictive value of financial statements
-
4. Briefly discuss the confirmatory value of financial statements
-

Analysis of Financial Statements

Measuring and Evaluating Financial Performance

Things to consider in measuring and evaluating financial performance

 General categories to evaluate for each event
o
 Particular elements to consider within each category
o
 How to measure performance for each element
o .

Horizontal, Vertical, and Ratio Analyses

Purpose:
- Managers analyze financial statements to evaluate past performance and to make
business forecasts

Horizontal analyses
- AKA trend analysis or time-series analysis
- Horizontal(trend) analysis are conducted to recognize important financial changes that
unfold over time
- Period to period comparison in order to identify sustained changes(trends)
- Calculated in terms of year-to-year peso and percentage changes
- Ex. increase of cost of goods sold of the current year compared to cost of goods sold in
prior years.
How to compute the percentage change?
Formula: [(CY – Pyt) / Pyt] x 100
Where CYt = Current Year’s total
PYt = Prior Year’s total