15-5 Financial Statement Analysis Outline

Xavier University
Ateneo de Cagayan
Cagayan de Oro City, Philippines
15-5 FINANCIAL STATEMENT ANALYSIS

OUTLINE
Passed to:
Ma’am Zola Caumban
AEC 35 - International Business and Trade
Passed by:
Guiling, Anna Azriffah Janary S.
Jardenico, Diana Lynne
Pandapatan, Sittie Hidaya
September 27, 2019

II – BS ACCOUNTANCY (ACB)
FINANCIAL STATEMENT ANALYSIS
Financial statement analysis is an evaluation of the financial statements to

identify significant trends or relationships among the items contained within them. For
example:
Financial ratios are often used to identify important relationships. Financial

statement analysis begins with the information directly provided on the financial
statements and builds upon that information to provide a more comprehensive
understanding of a company financial situation. On the surface, financial statements can
provide answers to key questions asked by management, investors, lenders, and other
parties interested in a firm's performance.
For example, the income statement answers the question:
How much did the firm earn or lose from operations during the period?
However, while it may be useful to know how much a company earned or lost.
This may not be enough information by itself to determine whether to invest in the
company or loan money to it.
Financial statement analysis goes beyond the surface details. For example, a
trend analysis of net income would examine how net income has changed from year to
year for the past five or ten years. Another analysis of net income would compare it to
sales revenue; net income divided by sales revenue equals profit margin. Investors and
other financial statement users may be interested in whether profit margin is increasing
or decreasing. An investor may be interested in how one company profit margin
compares to another company profit margin.
FINANCIAL RATIOS
A financial ratio shows the relationship of one number on a financial statement to

another number. Financial ratios are designed to assess different aspects of the firm: s
financial situation. Financial ratios enable meaningful comparisons among companies
o£ different sizes to assess which companies are performing better and which are
performing worse.
For example:
DEBT RATIO
Debt Ratio is a financial ratio that indicates the percentage of a company's assets that
are provided via debt. It is the ratio of total debt and total assets. or alternatively. When
comparing two companies, the total dollar amount of debt is less important than the
ratio of total debt to total assets. It shows how much the company relies on debt to
finance assets. The debt ratio gives users a quick measure of the amount of debt that
the company has on its balance sheets compared to its assets. The higher the ratio, the
greater the risk associated with the firm's operation. The debt ratio is calculated as
follows:
Total Liabilities
Debt Ratio=
Total Assets
CURRENT RATIO
The current ratio is a liquidity ratio that measures whether a firm has enough
resources to meet its short-term obligations. It compares a firm's current assets to its
current liabilities and is expressed as follows: The current ratio is an indication of a
firm's liquidity. One of the most frequently used financial ratios is called the Current
Ratio, which is calculated as:
Current Assets
Current Ratio=
Current Liabilities
EVALUATING TRENDS
Trend analysis is a technique used in technical analysis that attempts to predict

the future stock price movements based on recently observed trend data. Trend
analysis is based on the idea that what has happened in the past gives traders an idea
of what will happen in the future. Financial analysts, investors, lenders, and other
parties analyze the financial statements to determine how well the company is
performing and how well it is likely to do in the future. Positive trends in financial
performance are indicators that the company has positive future prospects. This is good
news for investors and typically all other stakeholders.

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Xavier University

15-5 FINANCIAL STATEMENT ANALYSIS

September 27, 2019

Financial statement analysis is an evaluation of the financial statements to

Financial ratios are often used to identify important relationships. Financial

For example, the income statement answers the question:

A financial ratio shows the relationship of one number on a financial statement to

Trend analysis is a technique used in technical analysis that attempts to predict

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