FINANCIAL ANALYSIS

It refers to an assessment of the viability, stability,

and profitability of a business, sub-business or
project.

It is performed by professionals (financial analyst)

who prepare reports using ratios and other
techniques, that make use of information taken
from financial statements and other reports.
FINANCIAL ANALYST

A financial analyst is responsible

for a wide range of activities
including gathering data,
organizing information, analysing
historical results, making forecasts
and projections, making
recommendations, and
generating Excel models,
presentations, and reports.
HORIZONTAL
ANALYSIS
Horizontal analysis entails selecting several years
of comparable financial data. One year is selected
as the baseline, often the oldest. Then, each
account for each subsequent year is compared to
this baseline, creating a percentage that easily
identifies which accounts are growing and which
accounts are shrinking.
VERTICAL
ANALYSIS
Vertical analysis entails choosing a specific line item
benchmark, then seeing how every other component on a
financial statement compares to that benchmark. Most
often, net sales is used as the benchmark. A company
would then compare cost of goods sold, gross profit,
operating profit, or net income as a percentage to this
benchmark. Companies can then track how the percent
changes over time.
ACCOUNTING EQUATION
On a company’s balance sheet, it shows
that a company’s total assets are equal
to the sum of the company’s liabilities
and shareholders’ equity.

(Asset = Liabilities + Equity)

 ASSETS
Assets represent the ability your business has to provide goods and
services. Or in other words, it includes all things of value that are used
to perform activities such as production and sales. Assets are divided
into short-term assets which are expected to be consumed within a
year and long-term assets extend their use over the one-year period.

Examples:

• Cash
• Prepaid expenses
• Equipment and machinery
• Inventory
• Buildings or property
 LIABILITIES
Liabilities (or obligations) are assets owed to
creditors. Creditors include people or entities the
business owes money to, such as employees,
government agencies, banks, and more. We classify
liabilities the same way we do assets, based on
current, or long-term periods of time. Current or
short-term liabilities are employee payroll,
invoices, utility, and supply expenses. Long-term
liabilities cover loans, mortgages, and deferred
taxes.
 EQUITY
The equity is the value of assets that belong to the
owner(s). More specifically, it’s the amount left once
assets are liquidated and liabilities get paid off.

Shareholders’ equity represents the amount of

money that would be returned to shareholders if all
of the assets were liquidated and all of the company’s
debt was paid off.
ACCOUNTING METHODS

An accounting method refers to the rules a company

follows in reporting revenues and expenses.

1. CASH ACCOUNTING: an accounting method that is

relatively simple and is commonly used by small
businesses.

 Transactions are only recorded when cash is spent or

received.

2. ACCRUAL ACCOUNTING: based on the matching

principle, which is intended to match the timing of revenue
and expense recognition.

 By matching revenues with expenses, the accrual

method gives a more accurate picture of a company's
true financial condition.
CASH ACCOUNTING VS ACCRUAL ACCOUNTING
 WHAT IS A FINANCIAL STATEMENT?

A financial statement is a quantitative way of showing how a

company is doing.
Three different ways of representing the financial state of a
company:
1. Cash Management (can the company meet its
obligations?)
2. Profitability (Is it making money?) - the income statement
3. Assets versus Liabilities (what is the value of the
company? Who owns what?) - the balance sheet
Each one of these questions is answered by our Financial
Statements.
 THE BIG THREE

• Cash Flow Statements

• These answer the important managerial question “do I have enough
cash to run my business”
• Income Statements
• This is the financial sheet that tells you if your company is profitable or
not.
• Balance Sheets
• How much debt do I have? How large are my assets? This sheet tells
you the answer to these questions.
 CASH FLOW STATEMENTS

• A report of all a firm’s transactions that involve cash

• The key elements are revenues (money flowing in) and
expenses (money flowing out).
• Cash flow statements compare the sum of the
revenues to the sum of the expenses on a regular time
basis – usually monthly.

“Manning Electronics” (Engineering 9) – Did Ms. Manning

have enough cash to buy that piece of equipment for her
boat business?
WHAT ARE REVENUES?

• Sales
• Interest from firm’s investments (e.g., a company savings account)
• Royalty and Licensing payments for appropriate use of firm’s
intellectual property

Another source of cash inflow, but not a revenue is the cash the
firm receives from borrowing money.
 FIXED COSTS

• Rent payments
• Salaried employees
• Capital Investments and (some) maintenance
• Utilities (phone, water, electric, etc)
• Insurance
• Taxes (on property, plant, and equipment)
• Advertising (*)
• Others things that do not depend on number of units produced.
VARIABLE COSTS

• Materials Cost
• Supplies
• Production Wages
• Outside / Contracted labor
• Advertising (*)
• Sales Commissions / Distribution Costs
• Equipment Maintenance
• Other things that depend on the number of units produced (e.g. royalties paid)
CUMULATIVE CASH FLOW -
CASH BALANCE

• Just like the average person keeps their checking account balance –
a firm also needs to know their cumulative cash flow or cash
balance.
• It is an easy calculation – simply take the cumulative cash flow from
this month and add it to the previous month’s cash balance.
• Your very first month’s cumulative cash balance is your first month’s
monthly cash flow added to your start-up capital (probably an initial
loan or first round financing).
 IMPORTANCE OF INCOME STATEMENT

• Assessing Profitability: The income statement allows stakeholders to evaluate a

company's profitability by analyzing the relationship between revenues and
expenses.
• Performance Evaluation: Comparing income statements across different periods
helps assess a company's financial performance over time.
• Investment Decision-Making: Potential investors use the income statement to gauge
a company's financial health and profitability before making investment decisions.
 ASPECTS OF INCOME STATEMENT

• Revenue Recognition: The income statement begins with reporting the

company's revenues, which are derived from the sale of goods,
provision of services, or other operating activities. Operating Expenses:
Operating expenses represent the costs incurred to generate revenues.
They include expenses such as salaries, rent, utilities, marketing, and
administrative expenses.
• Non-Operating Items: Non-operating items include gains or losses from
activities outside the company's core operations, such as interest
income, interest expense, gains or losses from investments, or one-
time extraordinary events.
COMPARISON (CONT.)

• Further the Income Statement’s year-end figures for COGS, Salary,

Rent, Advertising, and sales should be the 12 month totals of the
cash-flows corresponding to the respective line item
• Likewise, depreciation and taxes should be equal for that fiscal year
BALANCE SHEETS

• Unlike Cash-Flow and Income Statements, Balance Sheets lists

ASSETS and LIABILITIES

• Examples of Assets include:

• Land and Capital Equipment less accrued depreciation
• Intellectual Property (if purchased)
• Cash on Hand (which is equal to the year end Cumulative Cash Balance)
• Accounts Receivable
• Inventory
• Retained Earnings from Previous Years
ASSETS

1. Current Assets:
 Cash and cash equivalents

 Marketable securities

2. Non-current Assets (also known as long-term assets):

 Property, plant, and equipment

 Intangible assets (e.g., patents, trademarks)

 Investments in other companies

 LIABILITIES

1. Current Liabilities:
 Accounts payable (outstanding bills to suppliers)

 Short-term debt (e.g., loans, lines of credit)

2. Non-current Liabilities (also known as long-term liabilities):

 Long-term debt (e.g., bonds, mortgages)

 Deferred tax liabilities

 Pension obligations
EQUITY

• Shareholders' equity, also known as owners' equity or net worth, represents the residual
interest in the assets of a company after deducting its liabilities. It includes:
1. Contributed Capital:

 Common stock

 Preferred stock

 Additional paid-in capital

2. Retained Earnings:

 Accumulated profits or losses

 Dividends sign up with the one up liquidity ratio

BALANCE SHEETS (CONT.)

• Examples of Liabilities include:

• Short Term Debt (loans)
• Long Term Debt (bond issues, etc)
• Accounts Payable
• Interest Payable
• Taxes Payable

• The difference between Assets and Liabilities is your EQUITY

WHAT ARE
FINANCIAL RATIOS?
FINANCIAL RATIOS ARE POWERFUL TOOLS TO HELP SUMMARIZE FINANCIAL STATEMENTS
AND THE HEALTH OF A COMPANY OR ENTERPRISE. FINANCIAL RATIOS ARE WIDELY USED IN
FINANCIAL ANALYSIS TO DETERMINE HOW COMPANIES ARE PERFORMING INTERNALLY
AND/OR RELATIVE TO ONE ANOTHER. THESE RATIOS GENERALLY FALL WITHIN ONE OF FOUR
TYPES OF MEASUREMENTS: PROFITABILITY, LIQUIDITY, SOLVENCY, AND VALUATION.
UNDERSTANDING AND APPLYING RATIOS FROM ALL OF THESE CATEGORIES CAN ENABLE
INVESTORS TO MAKE SMARTER STOCK PURCHASES AND POTENTIALLY AVOID HEFTY LOSSES.
WORKING CAPITAL RATIO
Working capital represents a company’s ability to pay its current
liabilities with its current assets. It's a metric that provides an
overview of financial health and liquidity, indicating whether current
liabilities can be paid by existing assets.
DEBT-EQUITY RATIO

Debt-to-equity (D/E) ratio is used to evaluate a company’s financial

leverage and is calculated by dividing a company’s total liabilities by its
shareholder equity. D/E ratio is an important metric in corporate finance.
It is a measure of the degree to which a company is financing its
operations with debt rather than its own resources. Debt-to-equity ratio
is a particular type of gearing ratio.
BREAK-EVEN ANALYSIS
A break-even analysis is a financial calculation that weighs the costs of a
new business, service or product against the unit sell price to determine
the point at which you will break even. In other words, it reveals the point
at which you will have sold enough units to cover all of your costs.
RETURN ON INVESTMENT
Return on investment (ROI) is a performance measure used to evaluate
the efficiency or profitability of an investment or compare the efficiency of
a number of different investments. ROI tries to directly measure the
amount of return on a particular investment, relative to the investment’s
cost.
ACCOUNTING RATE OF RETURN

The accounting rate of return (ARR) is a formula that reflects the

percentage rate of return expected on an investment or asset, compared
to the initial investment's cost.
INTERNAL RATE OF RETURN

The internal rate of return (IRR) is a metric used in financial analysis to

estimate the profitability of potential investments. IRR is a discount rate
that makes the net present value (NPV) of all cash flows equal to zero in a
discounted cash flow analysis.
DEPRECIATION
Is an accounting method of allocating the cost of a tangible or physical
asset over its useful life or life expectancy. Depreciation represents how
much of an asset’s value has been used up.
34

CAPITAL
CAPITAL: a term for financial assets, such as funds
held in deposit accounts and/or funds obtained from
special financing sources.
- Anything that confers value or benefit to its owner, such as
factory and its machinery, intellectual property like patents,
or the financial assets of a business or an individual
 Equity Capital - is funds paid into a
business by investors in exchange for
Debt Capital - can be obtained common or preferred stock. This
represents the core funding of a
through private or government
business, to which debt funding may be
sources. added.
▸ Public Equity Capital
Working Capital - includes ▸ Private Equity Capital
a company’s most liquid
capital assets available for Trading Capital - may be
fulfilling daily obligations. held by individuals or
a. Current Assets – current firms who place a large
liabilities. number of trades on a daily
b. Accounts Receivable basis.
+ inventory – accounts
payable
INCUBATORS &
ACCELARATORS
BY : MACKQUE JUSTINE I. ANCIANO
INCUBATORS
A business incubator is a program that
supports early-stage startup companies to
expedite profitability and success. Incubators
provide startups with valuable resources such as
free office space, equipment, mentorship, a
collaborative community, and networking
opportunities with potential funding sources
 ACCELERAT
ORS
A startup accelerator program
expedites the growth of existing companies
that have developed business models and
validated products in the marketplace.
Startup accelerators providevcompanies with
valuable resources such as mentorship, free
coworking spaces, legal services to help
secure intellectual property, a collaborative
work ecosystem, and access to industry
influencers and potential investors.
 BUSINESS
INCUBATOR VS.
STARTUP
STAGE
ACCELERATOR: PROGR
SEED
KEY DIFFERENCES
OF AM
FUNDI
VENTU TIMELI
NG
RE
Incubators: Early-phase startups Incubators: Do not typically NE ventures in
Incubators: Develop
Accelerators: Speeding up the invest capital slower timeline
growth Accelerators: Invest capital to Accelerators: Have set time
provide ventures frame
 SHOULD YOU APPLY
TO AN
ACCELERATOR OR
INCUBATOR?
IDENTI
DETERMI
ASSESS THE FY
NE THE
STATE OF YOUR
TIMELINE
YOUR FUNDI
OF YOUR
PRODUCT NG
BUSINESS
NEEDS
 EXAMPLES

IDEASPACE QBO
This incubator and accelerator has Holistic incubator in the
invested in 74 tech startups since it Philippines that guides startups
was founded in 2012. from entry to exit.

AIM-DADO BANATAO ANGEL

INCUBATOR INVESTOR
A high-net-worth individual
Helps grow progressive and out-
of-the-box startups. who provides financial backing
for small startups or
entrepreneurs.
 ETHI CS
E t hi cs are more i mporta nt than ever in the
increa s ing ly c o m p l i c a t e d a nd g loba lized s o c i e t i e s of
today. Et hi cs are a s et of moral principles a nd v a lues
that direct p e o p l e' s beha v ior a nd d e c i s i o n - m a k i ng .

E t hi cs t o u ch on a wide range of i s s u e s in the m o d e r n

world, s u c h a s b u s i n e s s pra ctices, socia l justice, a nd
the u s e of technolog y.

E t hi cs in b u s i n e s s e s are widely a c k n o w l e d g e d to be
crucial, a nd m a n y org a niza tions ha ve c rea ted c o d e s
of eth i cs a nd ma d e other s t e p s to integrate e t h ics
into their opera tions.
BUS I NES S ETHI CS
The c o n c e p t of b u s i n e s s et hi cs ha s a long hist ory
that d a t e s b a c k to a ncient civilizations.

B u t th e id e a o f b u s in e s s e th ic s a s w e kn o w i t to d a y
ca n be tra ced b a c k to the industrial rev olution of the
1800s .

B u s i n e s s e t hi c s refers to the p rinc iples a nd v a lues

that g uide the beha v ior of indiv iduals a nd
organizations .

The w a y s an organization r e s p o n d s to r ight a nd

wrong is a reflection of i ts b u s i n e s s ethics. In m a n y
ways, b u s i n e s s e thi c s g o h a n d - i n - h a n d with socia l
res ponsibility.
 BUS I NES S ETHI CS
B u s in e s s e th ic s re fe rs to p o lic ie s a n d p ra c tic e s re la te d
to s u c h t h i n g s as:

C o r p o r a t e g o v e r n a n c e is the s y s t e m o f ru le s ,
p r a c t i c e s a n d p r o c e s s e s b y which a c o m p a n y is
dire c t e d a n d controlled.
Briber y refers to re c eiving of a n y item of value a s a
m e a n s of influencing the a c t i o n s of an individual
h o l di n g a pu bl i c or legal du t y
D is c rim in a t io n o c c u r s when y o u are treated l e s s
f avo rabl y than a nothe r p e r s o n in a similar s itua tion
a n d this treatment c a n n o t be objectively a n d
r e a s o n a b l y justified
F idu c ia ry re s po n s ibil it y is an obligation that
p r e v e n t s one pa rt y from ac t in g in their own interest
rather than in the interest of the organization.
 PRINCIPLES OF
ETHICAL BUSINESSES
Th e 11 p rin c ip le s o f b u s in e s s e th ic s in c lu d e :
Integrity
Honesty
F a irn e s s
C o m p a s s io n
Leadership
Re s p e c t
L oy a l t y
Tr a n s p a r e n c y
E n v iro n m e n ta lly c o n s c io u s
Law-abiding
Re s p on s i b i l i t y
 IMPORTANCE OF
BUSI NESS ETHI CS
• s t a n d a r d s h elp s c o m p a n i e s c o m p l y with laws
an d regulations, re du c i n g the r is k o f le g a l
Reppeut
n aaltie s and A
t ion: d h eurin
laws its g. to e th ic a l
Legal co mp liance : A dh e rin g to ethical
s t a n d a r d s h e lp s c o m p a n ie s b u ild a
po•s itSocial
ive reputation, wh ich isB uim
responsibility: s i npo
e srta
s e nt
s have
for attracting c u s t o m e rs , e m pl o yees,
a n d investors .

Em p loy e e m ora le : A c o m p a n y th a t
a re s po n s ibil it y to o pe ra t e in a m a n n e r
o p e r a t e s ethically c re a t e s a p o s itiv e
th a t b e n e fits s o c ie ty and th e
w o rk e n v iro n m e n t, w h ic h c a n im p ro v e
environment. A dh e rin g to e th ic a l
e m p l o y e e morale a n d r e d u c e turnover.
s t a n d a r d s he l ps c o m p a n i e s fulfill this
Cu st o mer trust: C o m p a n i e s that have a responsibilit y, c o n t ribu t in g to a better
s t ro n g c o m m i t m e n t to e t h ic s are more a n d m o re s u s t a in a bl e future
l ike ly to w in th e tru s t o f th e ir
c u s t o m e rs .
 SOCIAL RESPONSIBILITY
Albeit falling under the category of While business ethics and social
b usin ess eth ic s, it foc uses m ore responsibility go hand-in-hand, there’s
intently on a company's soc ial often confusion about the distinction
resp on sib ilities. In regard s to soc ial between the two, especially because
responsibility, businesses should there are no widely accepted definitions
consider the obligation they owe to for both terms. Corporate social
"society at large" or feel b o u n d to responsibility, in particular, is used in
support those w ho are not directly many different ways by many different
associated with their operations. groups.

Focuses on Requires
ethical concerns accountability to
that affect the organization,
societies
Affects society stakeholders and
as a whole the public
BEING SOCIALLY RESPONSIBLE AND FOLLOWING BASIC
BUSINESS ETHICS HAVE THE FOLLOWING BENEFITS:
Gaining more customers: Consumers are more likely to
continually support businesses that care about the impact
they make.
Recruiting from a wider candidate group: Professionals are
increasingly searching for careers with companies that are
ethically and socially responsible.
Getting an advantage over similar businesses: Companies
that promote social responsibility often acquire more
customers than businesses in the same industry.
Creating a positive work culture: When employees agree
with a company's code of ethics and social responsibility,
they are more likely to feel motivated and support the
organization.
WHY SOCIAL RESPONSIBILITY IN BUSINESS
MATTERS
Social responsibility empowers employees to leverage the corporate
resources at their disposal to d o good.

Being a socially responsible c om p any can bolster a company's

image and build its brand.

Social responsibility programs can boost employee morale in the

workplace and lead to greater productivity, w hi c h has an i m p ac t on
h o w profitable the c om p any can be.

Businesses that i m p l e m en t social responsibility initiatives c an

increase customer retention and loyalty.

Socially responsible companies have the opportunity to stand out

from the competition because they cultivate superior and positive
brand recognition.
 DISTINCTION
OF B.E. AND C.S .R .
B u s in e s s e t h i c s re fe r to th e
S o c ia l re s p o n s ib ility, o n th e o th e r
ethical principles that g u id e
h a n d , re fe rs to th e v o lu n ta ry
b u s in e s s e s in th e ir d e c is io n
a c tio n s th a t a b u s in e s s ta k e s to
making.
a d d re s s s o c ia l is s u e s . Th is c a n
Mainly affect the e m p l o y e es ,
in c lu d e in itia tiv e s lik e
s ta k e h o ld e rs , s h a re h o ld e rs , a n d
e n v iro n m e n ta l s u s ta in a b ility
c o n s u m e rs or c lie n ts of a
p r o g r a m s or c o m m u n i t y o u t r e a c h
c o m p a n y, b u t c o r p o r a t e s o c ia l
p r o g r a ms .
r e s p o n s i b i l i t y a ffe c ts th e w h o le
The c o n c e p t that a c o m p a n y
of s ociety.
s h o u l d be socia lly a c c o u n t a b l e to
M o ra l p rin c ip le s th a t a c t a s a
i ts e lf, i ts s ta ke h o ld e rs , a s we ll a s
fra m e w o rk fo r th e w a y a c o m p a n y
the public.
o r b u s in e s s c o n d u c ts its e lf a n d
its t r a n sa ct io ns.
 AN INTERNATIONAL BUSINESS IS ANY
COMPANY THAT OPERATES AND
PRODUCES OR SELLS GOODS BETWEEN
TWO OR MORE COUNTRIES. THERE ARE
WHAT DOES IT THREE WAYS A BUSINESS CAN BE
MEAN TO BE AN CONSIDERED INTERNATIONAL:
INTERNA TIO NA L 1. It produces goods domestically and sells
BUSINESS? domestically and internationally.
2. It produces goods in a different country but
sells domestically.
3. It produces goods in a different country and
sells domestically and internationally.
Transitional
C orpora tions
have offices in multiple countries, each
responsible for a different facet of the
organization. For instance, marketing
may be based in London, research and
development in Bogota, and software
development in New York.
MULTINATIO
NAL
C ORPORATI
also have offices in multiple countries, but

ONS
unlike transnational corporations, each is a
microcosm of the larger organization. This
means each office has, for example, its own
leadership, marketing, sales, research and
development, technology, and human
resources teams.
M ULTINATIO
NA L VS
TRANSITION
AL
POLITICS A N D L AW S

International politics can color relationships

between nations and regulate what products
are allowed in and out of their borders.
Keeping up with current events can help you
prepare for the business impacts of shifts in
policy and foreign affairs.
E NVIRONME NT
There’s no global issue more pressing than
climate change. Unfortunately, globalization
can contribute significantly to its negative
effects due to increased transportation of
materials and products, business travel, and
the number of factories. If you’re engaging in
global business, keep sustainability in mind to
avoid contributing to climate change.
M AC RO E C O N O M I C S
Principles of macroeconomics can allow you to
compare countries’ financial health on a one-to-one
basis and draw connections between trends. Some
metrics to know include:
Gross domestic product (GDP)
Unemployment rate
Inflation rate
Degree of income inequality
Currency exchange rate
H U M A N RIGHTS
• Because laws dictating human rights (including labor
laws) differ from country to country, operating as a
global business requires research and critical thought to
ensure you’re not exploiting people for labor, even if it’s
technically legal. Ethics are required for making
decisions that may cost your business money at the
expense of protecting human rights.
 THY NK UNLIMITED

CULTURAL
DIFFERENCES A N D
L A N GUAG E
BARRIERS
Operating a global business requires knowing and
respecting other cultures. Without understanding the
areas you do business in, you could unintentionally
offend someone and harm your working relationships.
In the case of language barriers, this may require you to
hire translators and multilingual employees to bridge
the gap.