NOVEMBER 13,

2022

REPORTERS:
1. LUDY ESTIMO
2. MARY ROSE APOLINARIO
3. JEVY SONA
4. KARINA GUANZON
REPORTER: LUDY ESTIMO
WHY IS INTERPRETING FINANCIAL STATEMENTS
IMPORTANT?

Financial statements provide a snapshot of a

corporation's financial health, giving insight into
its performance, operations, and cash flow.
Financial statements are essential since they provide
information about a company's revenue, expenses,
profitability, and debt.
WHAT TO LOOK FOR WHEN REVIEWING FINANCIAL STATEMENTS?

What are some things you look for in financial

statements as an investor? When analyzing financial
statements, investors should consider reviewing a
company's net profit, sales and revenue growth,
debt level, profit margin, and free cash flow
WHAT ARE 2 MOST IMPORTANT FINANCIAL STATEMENTS SHEETS?

The balance sheet provides an overview of assets,

liabilities, and shareholders' equity as a snapshot in
time. The income statement primarily focuses on a
company's revenues and expenses during a particular
period.
WHAT ARE THE 2 MOST COMMONLY USED FINANCIAL STATEMENTS?

The three main types of financial statements are the

income statement, the balance sheet, and the cash
flow statement. Learn more about these documents
and how investors can use them to make more
informed investing decisions.
REPORTER: MARY ROSE
APOLINARIO
OVERVIEW
 EVIDENCE OF FINANCIAL PERFORMANCE

 RESULTS OF THE COMPANY’S OPERATING ACTIVITIES

 INVALUABLE INFORMATION TO HELP INVESTORS AND

MANAGERS MAKE SMARTER DECISIONS.
INCOME STATEMENT
An income statement summarizes revenues and expenses
and gains and losses, and ends with net income for a
specific period.
RELATED INCOME STATEMENT TERMINOLOGIES
REVENUE is the money generated from normal business operations, calculated as the average sales price times the number of units
sold. It is the top line (or gross income) figure from which costs are subtracted to determine net income. Revenue is also known as sales
on the income statement.
EXPENSES In accounting terms, expense is the operational cost that is paid to earn business revenues. It means
the outflow of cash in return for goods or services. Expenses can also be written as the sum of all the
operations that usually bring profit.

GAIN a general increase in the value of an asset or property. A gain arises if the current price of something is
higher than the original purchase price. For accounting and tax purposes, gains may be classified in several
ways, such as gross vs. net gains or realized vs. unrealized (paper) gains.

LOSSES a loss is a decrease in net income that is outside the normal operations of the business. Losses can
result from a number of activities such as; sale of an asset for less than its carrying amount, the write-down
of assets, or a loss from lawsuits.
TYPES OF ACCOUNTING PERIOD
Calendar year. Calendar year accounting period is the accounting period that uses the calendar year, which is
the common Gregorian calendar, and begins on January 1 and ends on Decem
Fiscal year. is defined as a period of 12 months that a company uses for its accounting purposes; for example,
reporting its spending and income. It helps in preparation of company financial statements.
WHY SHOULD PREPARE AN INCOME
STATEMENT ?
 Assist in better decision making

 Track the company's profitability

 Essential report for compliance

STATEMENT OF CASH FLOWS
* A financial statement that shows the firm’s cash flows over a given period
of time.

*It reports the amounts of cash that the firm generated and distributed during
a particular time period.

*The difference between cash sources and uses equals the change in cash on
the firm’s statement of financial position from the previous year’s cash
account balance.
CLASSIFICATION OF CASH FLOW
ACTIVITIES:
OPERATING
INFLOWS
ACTIVITIES OUTFLOWS

 Sales of goods  Payment for purchases of

 Revenue from services inventories
 Returns on interest earning  Payments for operating expenses
assets (interest) (salaries, rent, insurance, etc.)
 Returns on equity securities  Payments for purchases from
(dividends) suppliers other than inventory
 Receipts from contracts held for  Payments for lenders (interest)
dealing and trading purposes  Payments of taxes unless
 Tax refunds unless identified identified with financial and
with financing and investing investing activities.
activities.
INVESTING ACTIVITIES

INFLOWS OUTFLOWS
 Sales of long-lived assets such  Acquisitions of long-lived assets
as property, plant and such as property, plant and
equipment, intangibles and equipment, intangibles and other
other long-term assets long-term assets
 Sales of debt or equity securities  Purchases of debt or equity
of other entities securities of other entities
 Collection of loans (principal)  Loans (principal) to others (other
to others (other than advances than advances and loans made by
and loans made by financing financing institution)
institution)
FINANCING ACTIVITIES
OUTFLOWS
INFLOWS
 Repayment of debt principal
 Proceeds from borrowing (short-term
and long-term)
 Repurchase of a firm’s own
shares
 Proceeds from issuing the firm’s own
equity securities
 Payment of Dividends

 Acquisition of the enterprise’s

own shares
STATEMENT OF CASH FLOWS
(PRESENTATION)
What is Financial Performance?
Financial performance is a complete
evaluation of a company’s overall
standing in categories such as assets,
liabilities, equity, expenses, revenue, and
overall profitability. It is measured
through various business-related
formulas that allow users to calculate
exact details regarding a company’s
potential effectiveness.
The overall performance and position of the business
should be evaluated based on a set of criteria that
includes liquidity, solvency, profitability, financial
efficiency, and repayment capacity. Each of these
criteria measures a different aspect of financial
performance and/or position.
HOW DO YOU EVALUATE FINANCIAL
PERFORMANCE?

13 FINANCIAL PERFORMANCE MEASURES TO

MONITOR
1.Gross Profit Margin. Gross profit margin is a profitability
ratio that measures what percentage of revenue is left after
subtracting the cost of goods sold. ...
2.Net Profit Margin. ...
3.Working Capital. ...
4.Current Ratio. ...
5.Quick Ratio. ...
6.Leverage. ...
7.Debt-to-Equity Ratio. ...
8.Inventory Turnover.
9.Total Asset Turnover
10. Return on Equity
11. Return on Assets
12. Operating Cash Flow
13. Seasonality
WHY DO WE NEED TO EVALUATE
FINANCIAL PERFORMANCE?
Why Is Financial Performance Important? A company's
financial performance tells investors about its general
well-being. It's a snapshot of its economic health and the
job its management is doing—providing insight into the
future: whether its operations and profits are on track to
grow and the outlook for its stock.
WHAT ARE THE INDICATORS OF FINANCIAL
PERFORMANCE?
The most important financial performance indicators
for us are explained below:
Growth. ...
Profitability. ...
Liquidity. ...
Capital efficiency. ...
Capital management.
WHAT ARE THE THREE ELEMENTS OF
FINANCIAL PERFORMANCE?

What are the three elements of financial

performance?
Of these elements, assets, liabilities, and equity
are included in the balance sheet. Revenues
and expenses are included in the income
statement. Changes in these elements are
noted in the statement of cash flows.
HOW TO IMPROVE THE FINANCIAL
PERFORMANCE OF A COMPANY?
A FIRM'S FINANCIAL PERFORMANCE CAN BE IMPROVED BY
IMPLEMENTING THE FOLLOWING STEPS:
1. SELL OFF OBSOLETE OR UNNECESSARY ASSETS.
2. IMPROVE CASH INFLOWS BY SPEEDING DEBT RECOVERY.
3. GRADUALLY REDUCE DEBTS—TO ENHANCE DEBT-TO-EQUITY
RATIOS.
4. ENHANCE PROFITABILITY BY ELIMINATING UNNECESSARY
EXPENSES.
5. ENSURE PROPER INVENTORY MANAGEMENT—TO REDUCE
WASTAGE.
6. MAINTAIN SUFFICIENT WORKING CAPITAL—FOR TIMELY
FULFILLMENT OF OBLIGATIONS.
REPORTERS:
JEVY SONA & KARINA
GUANZON
FINANCIAL RATIO ANALYSIS
The results of the ratio analysis will
allow us to:
Appraise the position of a business
Identify trouble spots that need attention
Make projections and forecasts about the
course of future operations
FINANCIAL RATIO ANALYSIS

Liquidity Ratio
Asset Utilization Ratio
Inventory Ratio
Solvency Ratio
Profitability Ratio
LIQUIDITY RATIO
Ability to satisfy maturing short-term debt
using assets that most readily converted to
cash

3 BASIC MEASURE OF LIQUIDITY

Net Working Capital
Current Ratio
Quick Ratio
LIQUIDITY RATIO
Net Working Capital (NWC) - measure
of cash flow and should always be a
positive number. It measures the
amount of capital invested in resources
that are subject to quick turnover
LIQUIDITY RATIO

Net Working Capital (NWC)

NWC = Current Assets – Current Liabilities

LIQUIDITY RATIO
Current Ratio

Indicates the organization’s ability to meet

its current liabilities (those due within a
year) with its current assets

Current Ratio = Current Assets

Current Liabilities
LIQUIDITY RATIO
Quick Ratio

Indicates the organization’s ability to meet

its current liabilities with current assets
other than inventory
 Quick Asset or Acid Test Ratio = Cash + Marketable Security
Current Liabilities
ASSET UTILIZATION RATIOS

Reflect the way in which a business

enterprise uses its assets to obtain
revenue and profit.
One example is how well receivables
are turned into cash. The higher the
ratio, the more efficiently the business
manages its assets.
ASSET UTILIZATION RATIOS
Accounts Receivable Turnover
the number of times accounts receivable are
collected in the year. It is derived by dividing
net credit sales by average accounts receivable
Account Receivable Turnover = Net Credit Sales Average
Accounts Receivable
ASSET UTILIZATION RATIOS

 Accounts Collection Period

Accounts Collection Period = 365 days

Accounts Receivable Turnover
ASSET UTILIZATION RATIOS

 Daysin Accounts Receivable

 Days in Accounts Receivable =

Average Accounts Receivable Sales x 365

ASSET UTILIZATION RATIOS

Total Asset Turnover

 Indicates how efficiently the organization is utilizing its
assets to make money
 Total Asset Turnover = Net Sales

Average Total Assets

INVENTORY RATIOS

  Inventory Turnover
 Indicates how often the organization sells and replaces
its inventory over a specified period of time

 Inventory Turnover = Cost of Goods Sold

Average Inventory
INVENTORY RATIOS

  Average Age of Inventory

Average Age of Inventory = 365 days

Inventory Turnover
SOLVENCY RATIOS

 Provide data about the long-term solvency of a firm

Solvency Ratio = Net Worth

Long-Term Debt
SOLVENCY RATIOS

 Debt to Total Assets

 Indicates the proportion of assets that are financed with debt
(short and long-term debt)

Debt to Total Assets = Total Liabilities

Total Assets
PROFITABILITY RATIOS

Used to examine how successful a firm

is in using its operating processes and
resources to earn income
PROFITABILITY RATIOS

 Gross Margin (Profit) Rate

 Indicates how much is left after costs of good
sold

 Gross Margin (Profit) Rate = Gross Margin

Net Sales
PROFITABILITY RATIOS

 Surplus Margin on Sales

 Indicates how much of each sales is left over after
all expenses

Surplus Margin on Sales = Net Surplus

Net Sales
LIMITATIONS OF FINANCIAL ANALYSIS
1. The financial analysis does not contemplate cost price level changes

2. The financial analysis might be ambiguous without the prior knowledge of the
changes in accounting procedure followed by an enterprise

3. Financial analysis is a study of reports of the enterprise

4. Monetary data alone is contemplated in financial analysis while non-

monetary factors are overlooked

5. The financial statements are outlined on the ground of accounting concept,

as such, it does not mirror the
current position
6 STEPS AN EFFECTIVE ANALYSIS OF FINANCIAL STATEMENTS

 Identify the industry economic characteristics.

 Identify company strategies.

 Assess the quality of the firm's financial statements.

 Analyze current profitability and risk.

 Prepare forecasted financial statements value the firm.

REFERENCES
www.deskera.com/blog/income-statement/
Financial Reporting & Analysis by Charles H. Gibson
Financial Accounting 1 by Maria Elena Balatbat Cabrera
THANK YOU!