Week 2 (3chapter3finance
Week 2 (3chapter3finance
Week 2 (3chapter3finance
LEARNER’S MODULE
BUSINESS FINANCE: Chapter 3
First
Semester
2020 – 2021
School Year
1
WEEK 2
CONTENT: Analysis and Interpretation of Financial Statement
Learning Competencies
After reading this module, you will be able to analyze and interpret financial statements using
traditional approaches.
Introduction
Financial statement analysis is the process of selecting related data from financial statements
to evaluate the entity’s past financial position and operating performance and predict the outcome of
future operations.
The financial statements become more meaningful, understandable, and relevant to the users if
the pieces of information contained therein are analyzed and interpreted.
In this module, the methods of analyzing the financial statements include the following:
a. horizontal or comparative approach
b. vertical or common-size approach
c. trend approach
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Sample statement
Alpha Merchandising
Statement of Comprehensive Income
December 31, 2014 to 2018
(amounts in thousands pesos)
Answer:
Alpha Merchandising
Horizontal Analysis
Comprehensive Income
December 31, 2017 and 2018
3
Sales 4,933,000 4,551,000 382,000 8.4
Cost of goods sold 3,164,000 2,983,000 181,000 6.1
Gross profit 1,769,000 1,568,000 201,000 12.8
Operating expenses
Selling expenses 760,000 632,000 128,000 20.3
Administrative expenses 278,000 245,000 33,000 13.5
Total 1,038,000 877,000 161,000 18.4
Operating income 731,000 691,000 40,000 5.8
Interest expense 24,000 28,000 (4,000) (14.3)
Income before tax 707,000 663,000 44,000 6.6
Income tax 212,000 199,000 13,000 6.5
Net income 495,000 464,000 31,000 6.7
Sample statement:
Alpha Merchandising
Statement of Comprehensive Income
December 31, 2018
4
Sales 4,933,000
Cost of goods sold 3,164,000
Gross profit 1,769,000
Operating expenses
Selling expenses 760,000
Administrative expenses 278,000 1,038,000
Answer:
Alpha Merchandising
Statement of Comprehensive Income
December 31, 2018
Sales 100 %
Cost of goods sold 64.14 %
Gross profit 35.86 %
Operating expenses
Selling expenses 15.41%
Administrative expenses 5.64%
Total 21.05 %
Operating income 14.81 %
Interest expense 0.49
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Income before tax 14.32%
Income tax 4.30%
Net income 10.02 %
Sample statement
Alpha Merchandising
Statement of Comprehensive Income
December 31, 2014 to 2018
(amounts in thousands pesos)
Answer:
Alpha Merchandising
Trend Analysis of the Comprehensive Income
December 31, 2014 to 2018
2018 2017
Net sales 3,056,250 3,000,000
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Cost of goods sold 1,833,750 2,100,000
Gross profit 1,222,500 900,000
Operating expenses 300,000 337,500
Income before interest 922,500 562,500
Interest expense 112,500 112,500
Income before tax 810,000 450,000
Income tax- 30% 243,000 135,000
Income after tax 567,000 315,000
Problem 2: Prepare a common-size analysis of financial position of HENNEY Enterprise for the
year ended December 31, 2018 and make and interpretation.
Assets
Current assets
Cash and cash equivalents 686,250
Trading securities 337,500
Trade and other receivables 1.143,750
Inventories 100,000
Prepayments 45,000
Total current assets 2,512,500
Non-current assets
Property, plant and equipment 1,312,500
Long-term investment 562,500
Intangibles 112,500
Total non-current assets 1,987,500
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Liabilities and Owner’s Equity
Liabilities
Trade and other payables 581,250
Bonds payable 1,500,000
Total liabilities 2,081,250
Owner’s Equity
D. Henney, Capital 2,418,750
Total liabilities and owner’s equity 4,500,000
Problem 3: Prepare trend percentage of the following data from CITRUS Merchandising and make
and interpretation.
Source: Aduana, Nick L.. “Business Finance in the Philippine Setting for Senior Highschool” 2017