FINANCIAL
STATEMENT
ANALYSIS
Tools and techniques developed by the financial
analysts that helps evaluate the company’s
performance and conditions
In this Types of financial statements
chapter, we Different tools and techniques in
analyzing the financial statements
will explore of the company
the following: different performance measurement
The significance and formulas of the
ratios that reflects the liquidity, solvency,
efficiency, and profitability of the company
FINANCIAL STATEMENT
- is a report that shows the financial
activities and performance of a business over
a specific period. It is used by lenders and
investors to check a business's financial
health and earnings potential.
4 BASIC FINANCIAL
STATEMENTS
BALANCE SHEET
INCOME STATEMENT
STATEMENT OF CASH FLOW
STATEMENT OF CHANGES IN OWNER’S EQUITY
CORE PRINCIPLE
=
STUFF STUFF
THAT A THAT A
BUSINESS BUSINESS
OWNS OWES
CORE PRINCIPLE
STUFF STUFF
THAT A THAT A
BUSINESS = BUSINESS
OWNS OWES
ASSETS = LIABILITIES + EQUITY
for third parties for owners
ACCOUNTING PRINCIPLE
ASSETS = LIABILITIES + EQUITY
for third parties for owners
BALANCE SHEET
- is a financial report that outlines the financial condition of a company by
summarizing its assets, liabilities, and equity at a specific point in time. It's
often referred to as a STATEMENT OF FINANCIAL POSITION
because it shows the financial health and stability of the business.
BALANCE SHEET
Statement of Financial Position
INCOME STATEMENT
- provides a detailed account of a company's
financial performance over a specific period
(such as a month, quarter, or year). It
summarizes the company’s revenues, expenses,
and profits or losses during that time.
also known as PROFIT AND LOSS STATEMENT (P&L)
STATEMENT OF CASH FLOW
- is a financial report that shows how cash moves in and out of a business during a
specific period. It tracks the company's cash inflows (money coming in) and cash
outflows (money going out) related to operating, investing, and financing activities.
This statement helps assess a company's liquidity and ability to generate cash to pay its
obligations, invest in growth, or return money to shareholders.
Cash flow statements are typically split into three sections:
1.Cash flows from operating activities – These refer to the cash
flows related to your primary business activities that involve
generating revenue and paying day-to-day expenses.
2.Cash flows from investing activities – These are the cash flows
related to your long-term assets and investments. That would include
the acquisition or disposition of equipment, vehicles, and real estate.
3.Cash flows from financing activities – These refer to the cash
flows related to debt and equity financing, such as payments toward
outstanding debts and proceeds from the sale of securities.
STATEMENT OF CHANGES IN OWNER’S EQUITY
- is a financial statement that provides a detailed summary of
the changes in the owner's equity during a specific accounting
period. It reflects how the equity of the business has changed
due to various factors like the owner's contributions,
withdrawals, net income or loss, dividends, and other
comprehensive income.
FIND AN APP:
ACCOUNTING PRINCIPLE
ASSETS = LIABILITIES + EQUITY
for third parties for owners
ACCOUNTING PRINCIPLE
EQUITY
for owners
= LIABILITIES - ASSETS
for third parties
The term “owner’s equity” is typically used for a sole proprietorship.
It may also be known as “shareholder’s equity or stockholder’s
equity” if the business is structured as an LLC or a corporation.
Is owner’s equity an asset?
Business owners may think of owner’s equity as an asset, but it’s not
shown as an asset on the balance sheet of the company. Why?
Because technically owner’s equity is an asset of the business
owner—not the business itself.
Can owner’s equity be negative?
Owner’s equity can be negative if the business’s liabilities are greater
than its assets. In this case, the owner may need to invest additional
money to cover the shortfall.
What’s included in
owner’s equity?
Beginning Balance of Owner's Equity: This is the equity amount at the start of the period, carried over
from the end of the previous accounting period.
Represents any new funds or assets invested into the business
Owner Contributions or Capital Additions: by the owner or shareholders during the period. For
corporations, this includes issued shares or new stock.
The net result of the business's operations for the period
Net Income or Loss (revenues minus expenses). This figure is typically taken from the
income statement.
Dividends or Withdrawals: In corporations, dividends are payments made to shareholders
out of profits, reducing equity.
Ending Balance of Owner's Equity: This is the new equity total at the end of the accounting period
after all contributions, earnings, distributions, and adjustments are
factored in.
PREPARE
A STATEMENT
OF CHANGES IN The following balances were retrieved
OWNER’S from the records of Maria’s Laundry
EQUITY Shop for the year ended December 31,
2019:
Capital, January 1, 2019- P 600,000
Withdrawals 150,000
Additional Investments 100,000
Net Income 45,000
PREPARE
A STATEMENT
In this case Platinum Karaoke Corp
OF CHANGES IN wants to know their ending balance of
SHAREHOLDER’S equity (December 31, 2023):
EQUITY •The corporation started the year with
₱500,000 in equity.
•They contributed an additional ₱50,000.
•The business earned a net income of
₱100,000.
•Dividends of ₱20,000 distributed to
other shareholders.
Importance of the Statement
of Changes in Owner’s Equity
• It helps stakeholders (owners, investors, creditors) understand how
the equity in the business has changed over time.
• It provides insight into how much of the company’s profits
are retained within the business versus distributed.
• For owners, it shows the financial returns on their investments and
contributions to the business.
4 BASIC FINANCIAL
STATEMENTS
BALANCE SHEET
INCOME STATEMENT
STATEMENT OF CASH FLOW
STATEMENT OF CHANGES IN OWNER’S EQUITY
FINANCIAL STATEMENT ANALYSIS
FINANCIAL STATEMENT ANALYSIS
• Horizontal Analysis
• Vertical Analysis
• Financial Ratios
• Dupont Technique
