ANALYSIS OF FINANCIAL

STATEMENTS 1I
Horizontal and Vertical Analysis
At the end of the lesson, you should be able to learn:

1.Analyze financial statements horizontally

2.Analyze financial statements vertically
IN THE LAST LESSON, WE LEARNED….

At the end of the lesson, you should be able to learn:

Comparative Financial Statements
1. General objective of financial statements analysis
2. Analyze versus Interpret
3. Cardinal rules to be followed
4. Limitations of the financial statements
5. Kinds of Financial Ratios and use of ratio analysis
6. Techniques in analyzing financial statements
FINANCIAL STATEMENTS ANALYSIS
It is important for the owners and managers of the
entity to be able to evaluate the results of all their
business activities. The analysis can help them:
Confirm past expectations
Evaluate present financial results
Predict future outcomes
FINANCIAL STATEMENTS ANALYSIS
TECHNIQUES IN ANALYZING FSs:
1. Comparative Statements
2. Horizontal Analysis
3. Vertical Analysis
4. Dynamic Ratio Analysis or Analysis through ratio
interpretation
HORIZONTAL ANALYSIS
 Is the method of comparing and analyzing financial results of
different accounting periods in each financial statement
account and element
Under this technique, each item in the financial statements of
the current period is compared with the previous period. The
increase or decrease in peso amount will be expressed in
percentage or as a ratio to be more meaningful.
HORIZONTAL ANALYSIS

See print-out for Exercise

VERTICAL ANALYSIS
 Is the method of analyzing financial results expressing each financial
statement account and element as a component of a base.
 Under this technique, the ratio of each item in the financial statements
to a certain base item is obtained and is expressed in percentage. In the
Statement of Comprehensive Income the base item is the net sales. In
the Statement of Financial Position, the base item is the total assets.
 Statements, which show only the COMPONENT PERCENTAGES of
each item without the corresponding amount is called “COMMON
SIZE STATEMENTS”
VERTICAL ANALYSIS
VERTICAL ANALYSIS
See print-out
Exercise