ANALYSIS ON FINANCIAL STATEMENT

HORIZONTAL AND VERTICAL ANALYSIS

LEARNING OBJECTIVES:
-THE STUDENT MUST LEARN THE TERMS AND DEFINITION IN FINANCIAL STATEMENT
-ANALYZE FINANCIAL STATEMENT HORIZONTALLY
-ANALYZE FINANCIAL STATEMENT VERTICALLY
-PREPARE ANALYSIS COMPUTATION USING MICROSOFT EXCEL
 FINANCIAL STATEMENTS

Financial statements are a group of significant reports that summarize an organization's

financial performance, financial condition, and cash flows. The main objective of financial
statements is to provide information about financial strength of the business, reporting of
the performance, results, financial stability.
It is important for the owners or managers of the entity to be able to evaluate the results of
all their business activities. This analysis can help them:
- Confirm past expectations
- Evaluate present financial results
- Predict future outcomes
TWO WAYS OF FS ANALYSIS

VERTICAL ANALYSIS
HORIZONTAL ANALYSIS
HORIZONTAL ANALYSIS

 Horizontal analysis is an approach used to analyze financial statements by comparing

specific financial information for a certain accounting period with information from
other periods
VERTICAL ANALYSIS

 Vertical analysis is a method of analyzing financial statements that list

each line item as a percentage of a base figure within the statement.
 TERMS AND DEFINITION IN FINANCIAL STATEMENT

 ASSETS:
an asset is any resource that a business owns or controls. It's anything that could be sold for money.

Cash- cash and cash equivalents refers to the line item on the balance sheet that reports the value of a company's
assets that are cash or can be converted into cash immediately.

Supply- the quantity of product or service a business has to offer to its client at a particular point in time.

Inventory- Inventory refers to all the items, goods, merchandise, and materials held by a business for selling in the
market to earn a profit.

Equipment- is a tangible long-term asset that benefits a business over several years of use. Computers, trucks and
manufacturing machinery are all examples of equipment.
TERMS AND DEFINITION IN FINANCIAL STATEMENT

Liability- is something a person or company owes, usually a sum of money. Liabilities are settled over time through the
transfer of economic benefits including money, goods, or services.

Accounts payable - or "payables," refer to a company's short-term liabilities owed to its creditors or suppliers, which have
not yet been paid

Notes payable- are long-term liabilities that indicate the money a company owes its financiers—banks and other financial
institutions as well as other sources of funds such as friends and family.

Capital- in business refers to the sum of financial assets that are required to produce goods or services. These funds can be
used to initiate operations, meet daily expenses or grow and expand the business.
INCOME STATEMENT

Definition:
An income statement is a financial statement that shows you the company’s income and
expenditures. It also shows whether a company is making profit or loss for a given period
Importance:
An income statement helps business owners decide whether they can generate profit by
increasing revenues, by decreasing costs, or both.
DIFFERENCE BETWEEN BALANCE SHEET AND INCOME
STATEMENT

Balance Sheet Income Statement

Shows the financial Assesses the profit or

position of the business at loss of a business
a specific point in time over a period of time.