PAMANTASAN NG LUGSOD NG MARIKINA

COLLEGE OF MANAGEMENT AND TECHNOLOGY

FINANCIAL ANALYSIS & REPORTING

BY
NILO N. IGLESIAS, CPA, MBA, REA
Financial Analysis & Reporting
After studying this module, you will be able to:
Identify the basic financial statements
Explain the contents of financial statements
Spell out the basic objectives of analyzing financial statements
Apply the techniques and financial tools in evaluating the
company’s financial position and operating performance

Understanding Financial Financial

Financial Statement Statement
Statements Analysis I Analysis II
To identify and describe the basic
financial statements
Know the objectives of financial Understanding
statements Financial Statements
Know the objectives of financial
reporting
Identify the features in the Basic Financial Statements
preparation of financial position, Statement of Financial Position
income statement and Income Statement
comprehensive income
Statement of Comprehensive
Prepare statement of financial Income
position, income statement and
comprehensive income in
accordance with financial reporting
standards.
Module 1

UNDERSTANDING
FINANCIAL STATEMENTS
Part 1
Introduction to Basic
Financial Statements
What is a Financial
Statement?
Definition
Financial statements are the means by
which the information accumulated
and processed in financial accounting is
periodically communicated to the
users.

It is structured financial representation

of the financial position and financial
performance of an entity.
Objectives
The objective of the general purpose
financial statements is to provide useful
information regarding:
financial position of the company
cash flows of an entity
success of its operations
policies and strategies of management
insight into its future performance.
Users of Accounting Information
Internal Users:
Business Owners
Board of Directors
Managerial Personnel
External Users:
Existing and potential investors
Lenders
Government agencies
Non-managerial personnel
Customers
Public
 Before
Four Basic Financial Statements

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 Now
Six Basic Financial Statements

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 Topic 1
Statement of Financial
Position
(Balance Sheet)
Statement of Financial Position

The financial position comprises the

assets, liabilities and equity of an entity at
particular time

Specifically, financial position pertains to

the liquidity, solvency and the need of the
entity for additional financing

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 Statement of Financial Position
Assets

Economic resources controlled by the entity as a

result of past events and from which future
economic benefits are expected to flow to the
enterprise
CURRENT NON-CURRENT
ASSETS ASSETS

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Statement of Financial Position
Current Property, Other Non-
Assets Plant and current
Equipment Assets

Current Non-current Deferred tax

Liabilities Liabilities liabilities

Equity

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Current
Assets Operating Cycle

Sell Products

Time required
to purchase or
manufacture
Collect Cash
inventory

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 Current
Assets

Cash and cash Equivalents

Financial Assets (Marketable Securities)

Trade & Other Receivable

Inventories

Prepaid expenses

17
 Current
Assets

Present
Readily
Highly liquid insignificant risk
Short - term convertible to
investment of changes in
cash
value

Cash and cash Equivalents

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Cash and Cash Equivalents

Cash on Hand

a) Local Currency

b) Foreign
Currency

Checks & Other

Cash Items

Cash Equivalents
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Due from Banks

Resident Banks

Non-Resident
Banks

Resident Banks-
Clearing Account

20
 Current
Assets

Must be May be
Must be highly
Short - term relatively presented as
liquid
riskless Investment

Financial Assets (Marketable Securities)

21
 Current
Assets

Reported on
Customer’s the balance
outstanding sheet at their
balance on Net Realizable
credit sales Value

Trade Receivable

22
 Trade & Other Receivables

Receivables supported by oral or informal promises to pay or

formal promise to pay reduce by estimated losses from
uncollectible accounts called Allowance for Doubtful Accounts.

Trade Receivable refers to claims arising from sale of

merchandise or services in the ordinary course of
business.
Notes Receivables are those supported by formal
promise to pay in the form of notes.
Non-trade Receivables represent claims arising from
sources other than the sale of merchandise or
services in the ordinary course of business.
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 Current
Assets

Advances to
Accrued Employees &
Interest on Officers,
Notes collectible
Receivables currently

Other Receivables

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 Current
Assets

Items used in the

Items held for manufacturing of
sale products that will
be sold

Inventories

25
 Inventories
Inventories are assets held for sale in the ordinary course of
business, in the process of production for such sale or in the form of
materials and supplies to be consumed in the production process or
in rendering of services.

Inventories are broadly classified into inventories of a trading

concern and inventories of manufacturing concern.
“Merchandise Inventory” is generally applied to goods held by a
trading concern.
Finished Goods are completed products which are ready for sale.
Goods in Process or work in process are partially completed products
which require further process.
Raw Materials are goods that are used in the production process.
Factory or Manufacturing Supplies may be referred to as indirect
materials.

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 Current
Assets

Examples: Rent,
Expenses paid insurance,
in advance property taxes,
etc.

Prepaid expenses

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 Prepaid Expense
Examples

Fire Insurance
Premium

Property/
Advance Rental Business Taxes

Advance Interest Payment

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Statement of Financial Position
Current Property, Other Non-
Assets Plant and current
Equipment Assets

Current Non-current Deferred tax

Liabilities Liabilities liabilities

Equity

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 Property,
Plant and
Equipment

• Also called tangible long-lived or

capital assets

• Encompasses company’s fixed assets

• Produce economic benefits

• Fixed assets other than land are depreciated over a

period of time they benefit the firm.

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Business Premises, Furniture, Fixtures &
Equipment
Names: PPE, fixed assets,
tangible assets, long-lived
assets
Used in the conduct of the
business operations

Except Land, Acquisition Cost

is spread over its useful life

Cost
Less: Accumulated Depreciation
& Impairment Losses
Net Book Value

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Statement of Financial Position
Current Property, Other Non-
Assets Plant and current
Equipment Assets

Current Non-current Deferred tax

Liabilities Liabilities liabilities

Equity

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 Other Non-
current
Assets

LONG TERM
INVESTMENT
INTANGIBLES

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Long –Term Investment

Investment in
Subsidiaries

Investment in
Associates-Equity
Method

Investment
Property

Cash Surrender
Value of Life
Insurance

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Other Intangible Assets

Identifiable (separable or
arises from contractual or
from other legal rights)

Non-monetary asset

Without physical
substance

Common Examples:
goodwill, patents,
copyrights, trademarks,
franchises

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 Other Non-
current
Assets

Long-term Long-Term
advances to Refundable
Officers Deposits

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Statement of Financial Position
Current Property, Other Non-
Assets Plant and current
Equipment Assets

Current Non-current Deferred tax

Liabilities Liabilities liabilities

Equity

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Statement of Financial Position
Liabilities

Obligations of entity arising from past transactions or

events, the settlement of which is expected to result in an
outflow from the entity resources embodying economic
benefits.

Present obligation may be legal obligation or constructive

obligation.

CURRENT NON-CURRENT
LIABILITIES LIABILITIES

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 Current
Liabilities

Trade and Other Payable

Notes Payable-Short Term Debt

Current Maturities of Long-Term Debt

Warranty Liabilities

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 Current
Liabilities

Trade Payable

Short term obligations:

Accounts Payable

Arises from credit extended by

suppliers for the purchase of goods
and services.

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 Current
Liabilities

Trade Payable

Short term obligations:

Notes Payable

Arises from credit extended by

suppliers for the purchase of goods
and services, in the form of
promissory note.

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 Current
Liabilities

Other Payable

Short term obligations

Accrued Interest on Note payable
Income Tax Payable
Dividend Payable

Arises from obligating event that

creates either legal obligations or
constructive obligations.

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Trade and Other Payables

Accounts Payable

Notes Payable

Interest Payable,
Salaries Payable,
Utilities Payable,
Accrued liabilities
Unearned Income

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 Accrued Liabilities

Result from the recognition of an expense in the accounting

records prior to the actual payment of cash.

Cash Outlay

Reporting Date

Accrued Liabilities
(Current Liability)

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Accrued Liabilities

If salaries of employees for the second

half of the month are paid on the 5th day
of the succeeding month……

Employees already rendered their services

prior to actual payment of salaries, the
unpaid salaries is considered as ACCRUED
LIABILITIES.

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 Deferred (Unearned) Revenues

Cash is received but the goods/products are not yet delivered or

services are not yet performed.
Example: The extra office room is rented out to a company starting
Sept. 1, 20X1. One year rent was collected in advance.

Collection Date Reporting Date

9/1/20X1 12/31/20X1

Revenue Deferred Revenue

Sept. 1, 20X1 to Dec. 31, 20X1 Jan. 1, 20X2 to Aug. 31, 20X2

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 Deferred (Unearned) Revenues
Examples

Advance Interest
Received

Advance Cash
Deferred Receipts of
Liabilities (Tax) Rental of
Properties for
Lease
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 Current
Liabilities
Notes Payable- Short Term Debt

Short term obligations

Bank loan evidence by a promissory notes

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Other Liabilities

Other taxes and

licenses payable

Withholding Tax,
SSS, Philhealth, Pag-
Ibig Contribution
Payable

Loan Payable, Bonds

Payable

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 Current
Liabilities

Current Maturities of Long-Term Debt

When a firm has a long term

debt outstanding, the portion
of the principal that will be
repaid during the upcoming
year is considered as current
liability.

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Statement of Financial Position
Current Property, Other Non-
Plant and current
Assets Equipment Assets

Current Non-
current Deferred tax
Liabilities liabilities
Liabilities

Equity

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 Non-
current
Liabilities

Obligations with maturities

beyond one year

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Statement of Financial Position
Current Property, Other Non-
Assets Plant and current
Equipment Assets

Current Non-current Deferred tax

Liabilities Liabilities liabilities

Equity

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 Deferred tax
liabilities

These are the amounts of income

taxes payable in future periods in
respect of taxable temporary
differences

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Statement of Financial Position
Current Property, Other Non-
Assets Plant and current
Equipment Assets

Current Non-current Deferred tax

Liabilities Liabilities liabilities

Equity

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Statement of Financial Position
Equity
Residual interest in assets that remain after
deducting liabilities

Assets Liabilities
It includes….
Capital contribution by the owners of the
entity
Profit
Loss
Distribution to owners

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 Equity Accounts
Sole
Cooperative Partnership Corporation
Proprietorship

Capital Contribution
Paid-up Share Owner’s Capital Partner A Capital Paid-in Capital
Capital – (e.g. Juan Cruz Capital) Partner B Capital - Preference share
(Common/Pref.) - Ordinary Share
Subscribed Share - Share Premium
Capital

Capital Withdrawal
Treasury Share Owner’s Drawings Partner A Drawings Treasury Stock
Capital – (e.g Juan Cruz Partner B Drawings
(Common/Pref.) Drawings)

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 Equity Accounts
Sole
Cooperative Partnership Corporation
Proprietorship

Income and Loss Accumulation

Undivided Net Income (Loss) Income (Loss) Retained Earnings
Surplus Summary Summary Net Income/Loss
- Appropriated for future
Net Loss expansion/ unappropriated

Other Accounts
Donations/Grants
Reserves
Statutory Funds
Reserve Fund (>10% of net
surplus); Coop Educ. &
Training Fund (based on
coop’s By-Laws; Community
Devt. Fund (>3% for projects
&/or activities); Optional
Fund (net surplus <7%)
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 Equity

Paid in Capital- Ordinary Share

The amount listed under the share capital account is

based on the par or stated value of the shares issued.

ORDINARY SHAREHOLDERS

Do not ordinarily receive a fixed return

Have voting privileges.
Can benefit from stock ownership through potential price appreciation.

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 Equity

Paid in Capital – Preference Share

The amount listed under the share capital account is

based on the par or stated value of the shares issued.

PREFERENCE SHAREHOLDERS

Ordinarily receive a fixed return

Have NO voting privileges.
Can benefit from claims on dividends and net assets in event of liquidation.

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 Equity

Share Premium

Reflects the amount by which the original sales

price of the stock shares exceeded par value.

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 Equity

Retained Earnings

Accumulated earnings reinvested in the operations of

the business.

Sum of every peso a company has earned since its

inception.

Should not be confused with cash or other financial resources to satisfy

financial obligations

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 Equity

Other Equity Accounts

Accumulation of unrealized gains or losses on

investment in debts.

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Easy Company provided the following information on December 31, 2020:
Debit Credit
Accounts Payable 350,000 350,000
Accounts Receivable 450,000 450,000
Property, Plant & Equipment 5,600,000 5,600,000
Accumulated Depreciation 1,200,000 1,200,000
Mortgage Payable, due in 5 years 1,500,000 1,500,000
Share Capital, P 100 par 4,000,000 4,000,000
Share Premium 500,000 500,000
Cash & Cash Equivalents 800,000 800,000
Accrued Expenses 100,000 100,000
Inventories 900,000 900,000
Long-Term Investments 950,000 950,000
Note Payable-Long Term Debt 500,000 500,000
Note Payable-Short Term Debt 200,000 200,000

Office Supplies Unused 50,000 50,000

Patent 800,000 800,000
Prepaid Rent 150,000 150,000
Retained Earnings 1,350,000 1,350,000
9,700,000 9,700,000

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 Easy Company
Statement of Financial Position
December 31, 2020
Assets
Note
Current Assets:
Cash and Cash Equivalents P 800,000
Accounts Receivables 450,000
Inventories 900,000
Prepaid Expenses (1) 200,000
Total Current Assets P 2,350,000
Noncurrent Assets:
Property, Plant & Equipment (2) 4,400,000
Long-Term Investments 950,000
Intangible Assets (3) 800,000
Total Noncurrent Assets 6,150,000
Total Assets P 8,500,000
Liabilities and Stockholders' Equity
Current Liabilities:
Trade & Other Payable (4) P 450,000
Notes Payable-Short-Term Debt 200,000
Total Noncurrent Liabilities P 650,000
Noncurrent Liabilities:
Mortgage Payable, due in 5 years 1,500,000
Note Payable-Long-Term Debt 500,000
Total Noncurrent Liabilities 2,000,000
Shareholders' Equity:
Share Capital, P 100 par 4,000,000
Share Premium 500,000
Retained Earnings 1,350,000
Total Shareholders' Equity 5,850,000
Total Liabilities & Shareholders' Equity P 8,500,000

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Notes to the Financial Statements

Note 1 - Prepaid Expenses

Office Supplies Unused P 50,000
Prepaid Rent 150,000

Total Prepaid Expenses P 200,000

Note 2 - Property, Plant and Equipment

Property Plant and Equipment P 5,600,000
Accumulated Depreciation 1,200,000

Carrying Amount P 4,400,000

Note 3 - Intangible Assets

Patent P 800,000

Note 4 - Trade and Other Payables

Accounts Payable P 350,000
Accrued Expenses 100,000

Total P 450,000

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To identify and describe the basic
financial statements
Know the objectives of financial Understanding
statements Financial Statements
Know the objectives of financial
reporting
Identify the features in the Basic Financial Statements
preparation of financial position, Statement of Financial Position
income statement and Income Statement
comprehensive income
Statement of Comprehensive
Prepare statement of financial Income
position, income statement and
comprehensive income in
accordance with financial reposting
standards.