FINANCIAL

STATEMENT
ANALYSIS
• Financial statement statement is the process of identifying financial strengths
and weaknesses of the firm by properly establishing relationship between the items
of the balance sheet and the profit and loss account.
Methods or Techniques in FS Analysis
(a) Comparative Statements
(b) Schedule of changes in working capital
(c.) Common size percentages,
(d) Funds analysis
(e.) Ratio analysis
• Financial statements are prepare to meet external reporting obligations and
also for decision making purposes. It also involves careful selection of data
from financial statements in order to assess and evaluate the firm’s past
performance, it’s present condition, and future business potentials.
Objectives of Financial Statement Analysis
• 1. profitability of the business firm
• 2. Firm’s ability to meet its obligations
• 3. Safety of the investment in the business
• 4. Effectiveness of management in running the firm.
Tools and Techniques in Financial Statement
Analysis
• 1. Horizontal and Vertical Analysis
• 1.a Horizontal / Trend Analysis – is the comparison of two or more year’s financial data. It
is facilitated by showing changes between years in both peso and percentage.
• Formula:
Percentage Change = (Most Recent Value – Base Period Value) / Base Period Value

• 2. Ratio Analysis
 Increase/Decrease
2017 2016 Pesos Percent
Sales 10,000 8,000 2,000 25%
• Vertical Analysis is the procedure of preparing and presenting common
size statements. Common size statement is one that shows the items
appearing on it in percentage form as well as in peso form. Each item is
stated as a percentage of some total of which that item is a part.