FINANCIAL STATEMENT ANALYSIS

1. HORIZONTAL ANALYSIS

Table 1.1
Horizontal Analysis
ABC Company
Statement of Financial Position
2021/2020 2022/2020
2020 2021 2023 Amount Change% ChangeAmount Change% Change
Cash and cash equivalents 23,500,900 27,530,200 30,100,550 4,029,300 17% 6,599,650 28%
Accounts receivable 99,959,791 108,929,482 115,037,772 8,969,691 9% 15,077,981 15%
Inventory 29,734,533 31,986,670 49,818,388 2,252,137 8% 20,083,855 68%
Prepaid items 2,508,808 2,291,392 2,844,588 -217,416 -9% 335,780 13%
Total current assets 155,704,032 170,737,744 197,801,298 15,033,712 10% 42,097,266 27%

Property and equipment, net 27,929,680 27,092,002 24,978,372 -837,678 -3% -2,951,308 -11%
Intangible assets 606,784 347,267 557,518 -259,517 -43% -49,266 -8%
Refundable security deposits 874,573 893,773 972,423 19,200 2% 97,850 11%
Deferred tax assets 268,971 536,662 720,552 267,691 100% 451,581 168%
Total noncurrent assets 29,680,008 28,869,704 27,228,865 -810,304 -3% -2,451,143 -8%

Total Assets 185,384,040 199,607,448 225,030,163 14,223,408 8% 39,646,123 21%

Accounts payable 32,832,049 40,578,688 47,210,389 7,746,639 24% 14,378,340 44%

Accrued expenses 4,300,150 4,524,960 5,025,800 224,810 5% 725,650 17%
Income tax payable 1,219,165 2,148,930 2,410,774 929,765 76% 1,191,609 98%
Total current liabilities 38,351,364 47,252,578 54,646,963 8,901,214 23% 16,295,599 42%

Bonds payable 10,000,000 10,000,000 10,000,000 0 0% 0 0%

Total noncurrent liabilities 10,000,000 10,000,000 10,000,000 0 0% 0 0%

Share capital (P1,000 par) 15,000,000 15,000,000 15,000,000 0 0% 0 0%

Retained earnings 122,032,676 127,354,870 145,383,200 5,322,194 4% 23,350,524 19%
Total equity 137,032,676 142,354,870 160,383,200 5,322,194 4% 23,350,524 17%

Total Liabilities and Equity 185,384,040 199,607,448 225,030,163 14,223,408 8% 39,646,123 21%
 Table 1.2

Income Statement
2021/2020 2023/2020
2020 2021 2023 Amount Change % Change
Amount Change% Change
Sales 214,064,354 233,972,888 256,753,477 19,908,534 9% 42,689,123 20%
Cost of Sales 113,292,210 121,401,418 129,816,881 8,109,208 7% 16,524,671 15%
Gross Profit 100,772,144 112,571,470 126,936,596 11,799,326 12% 26,164,452 26%
Less: Operating Expenses 22,337,438 27,093,199 28,062,304 4,755,761 21% 5,724,866 26%
Net Operating Income 78,434,706 85,478,271 98,874,292 7,043,565 9% 20,439,586 26%
Less: Finance Costs 3,378,612 4,452,839 4,200,500 1,074,227 32% 821,888 24%
Income before Tax 75,056,094 81,025,432 94,673,792 5,969,338 8% 19,617,698 26%
Less: Income Tax Expense 5,097,550 5,703,237 6,300,250 605,687 12% 1,202,700 24%
Net Income 69,958,544 75,322,195 88,373,542 5,363,651 8% 18,414,998 26%
 2. VERTICAL ANALYSIS

Table 2.1
Statement of Financial Position
2020 2021 2023
Amount % Amount % Amount %
Cash and cash equivalents 23,500,900 13% 27,530,200 14% 30,100,550 13%
Accounts receivable 99,959,791 54% 108,929,482 55% 115,037,772 51%
Inventory 29,734,533 16% 31,986,670 16% 49,818,388 22%
Prepaid items 2,508,808 1% 2,291,392 1% 2,844,588 1%
Total current assets 155,704,032 84% 170,737,744 86% 197,801,298 88%

Property and equipment, net 27,929,680 15% 27,092,002 14% 24,978,372 11%
Intangible assets 606,784 0% 347,267 0% 557,518 0%
Refundable security deposits 874,573 0% 893,773 0% 972,423 0%
Deferred tax assets 268,971 0% 536,662 0% 720,552 0%
Total noncurrent assets 29,680,008 16% 28,869,704 14% 27,228,865 12%

Total Assets 185,384,040 100% 199,607,448 100% 225,030,163 100%

Accounts payable 32,832,049 18% 40,578,688 20% 47,210,389 21%

Accrued expenses 4,300,150 2% 4,524,960 2% 5,025,800 2%
Income tax payable 1,219,165 1% 2,148,930 1% 2,410,774 1%
Total current liabilities 38,351,364 21% 47,252,578 24% 54,646,963 24%

Bonds payable 10,000,000 5% 10,000,000 5% 10,000,000 4%

Total noncurrent liabilities 10,000,000 5% 10,000,000 5% 10,000,000 4%

Share capital (P1,000 par) 15,000,000 8% 15,000,000 8% 15,000,000 7%

Retained earnings 122,032,676 66% 127,354,870 64% 145,383,200 65%
Total equity 137,032,676 74% 142,354,870 71% 160,383,200 71%

Total Liabilities and Equity 185,384,040 100% 199,607,448 100% 225,030,163 100%
 Table 2.2
Income Statement

2020 2021 2023

Amount % Amount % Amount %
Sales 214,064,354 100% 233,972,888 100% 256,753,477 100%
Cost of Sales 113,292,210 53% 121,401,418 52% 129,816,881 51%
Gross Profit 100,772,144 47% 112,571,470 48% 126,936,596 49%
Less: Operating Expenses 22,337,438 10% 27,093,199 12% 28,062,304 11%
Net Operating Income 78,434,706 37% 85,478,271 37% 98,874,292 39%
Less: Finance Costs 3,378,612 2% 4,452,839 2% 4,200,500 2%
Income before Tax 75,056,094 35% 81,025,432 35% 94,673,792 37%
Less: Income Tax Expense 5,097,550 2% 5,703,237 2% 6,300,250 2%
Net Income 69,958,544 33% 75,322,195 32% 88,373,542 34%
3. RATIO ANALYSIS
3.1. Liquidity Ratios

Table 3.1.1.
Working Capital
Working Capital = Current Asset - Current Liabilities

2021
Current Assets 170,737,744
Current Liabilities 47,252,578
Working Capital 123,485,166

2022
Current Assets 197,801,298
Current Liabilities 54,646,963
Working Capital 143,154,335

Table 3.1.2.
 Current Ratio
Current Assets
Current Ratio =
Current Liabilities

2021
Current Assets 170,737,744
Curren Liabilities 47,252,578
Current Ratio 3.61

2022
Current Assets 197,801,298
Curren Liabilities 54,646,963
Current Ratio 3.62

Table 3.1.3.
Acid Test Ratio
Quick Asset
Acid Test Ratio =
Current Liabilities

2021
Cash & Cash Equivalents 27,530,200
Accounts Receivable 108,929,482
Quick Asset 136,459,682
Current Liabilities 47,252,578
Acid Test Ratio 2.89

2022
Cash & Cash Equivalents 30,100,550
Accounts Receivable 115,037,772
Quick Asset 145,138,322
Current Liabilities 54,646,963
Acid Test Ratio 2.66
 Table 3.1.4.
Cash Ratio
Total Cash
Cash Ratio =
Current Liabilities

2021
Total Cash 27,530,200
Current Liabilities 47,252,578
Cash Ratio 0.58

2021
Total Cash 30,100,550
Current Liabilities 54,646,963
Cash Ratio 0.55
3.2. Solvency Ratios

Table 3.2.1 Table 3.2.2

Debt Ratio Debt to Equity Ratio
Total Liabilities Total Liabilities
Debt Ratio = Debt to Equity Ratio =
Total Assets Shareholder's Equity

2021 2021
Total current liabilities 47,252,578 Total current liabilities 47,252,578
Total noncurrent liabilities 10,000,000 Total noncurrent liabilities 10,000,000
Total Liabilities 57,252,578 Total Liabilities 57,252,578
Total Assets 199,607,448 Total Equity 142,354,870
Debt Ratio 29% Time Interest Ratio 0.40

2022 2022
Total current liabilities 54,646,963 Total current liabilities 54,646,963
Total noncurrent liabilities 10,000,000 Total noncurrent liabilities 10,000,000
Total Liabilities 64,646,963 Total Liabilities 64,646,963
Total Assets 225,030,163 Total Equity 160,383,200
Debt Ratio 29% Time Interest Ratio 0.40
 Table 3.2.3
Time Interest Ratio
Earning before interest and taxes
Time Interest Ratio =
Interest Expense

2021
Earning before interest & taxes 85,478,271
Interest Expense 4,452,839
Times Interest Earned Ratio 19.20

2022
Earning before interest & taxes 98,874,292
Interest Expense 4,200,500
Times Interest Earned Ratio 23.54
3.3. Efficiency Ratios

Sales
Fixed Asset Turnover =
Table 3.3.1.
Average Net Fixed Assets
Table 3.3.2
Time Interest Ratio
2021
Fixed Asset Turnover
Net Fixed Asset - 2020 27,929,680
Net Fixed Assets - 2021 27,092,002
Net Sales Average Net Fixed Assets 27,510,841
Asset Turnover Ratio =
Average Total Assets Sales 233,972,888
Fixed Asset Turnover 8.50
2021
Total Assets - 2020 185,384,040
Total Assets - 2021 199,607,448 2022
Average Total Assets 192,495,744 Net Fixed Asset - 2021 27,092,002
Net Sales 233,972,888 Net Fixed Assets - 2022 24,978,372
Asset Turnover Ratio 1.22 Average Net Fixed Assets 26,035,187
Sales 256,753,477
Fixed Asset Turnover 9.86
Total Assets - 2021 199,607,448
Total Assets - 2022 225,030,163
Average Total Assets 212,318,805.5
Net Sales 256,753,477
Asset Turnover Ratio 1.21

Table 3.3.3 Table 3.3.4

Accounts Receivable Turnover Ratio Number of Days in Receivable

Accounts Receivable Net Credit Sales Number of Days In Accounts 365 days
Turnover Ratio = Average Accounts Receivable
Receivable = Accounts Receivable Turnover
2021
Accounts Receivable - 2020 99,959,791 2021
Accounts Receivable - 2021 108,929,482
Average Accounts Receivable 104,444,636.50
No. of Days in a Year 365
Net Sales 233,972,888 AR Turnover Ratio 2.24
AR Turnover Ratio 2.24 No. of Days in AR 162.95

2022
Accounts Receivable - 2021 108,929,482 2022
Accounts Receivable - 2022 115,037,772
No. of Days in a Year 365
Average Accounts Receivable 111983627
Net Sales 256,753,477 AR Turnover Ratio 2.29
 Table 3.3.5 Table 3.3.6
Inventory Turnover Ratio Number of Days in Inventory

Cost of Goods Sold Number of Days In 365 days

Inventory Turnover Ratio = Inventory = Inventory Turnover
Average Inventory
2021
2021 No. of Days in a Year 365
Inventory Turnover Ratio 3.93
Inventory - 2020 29,734,533 No. of Days in AR 92.88
Inventory - 2021 31,986,670
Average Inventory 30,860,601.50
2022
Cost of Goods Sold 121,401,418 No. of Days in a Year 365
Inventory Turnover Ratio 3.93 Inventory Turnover Ratio 3.17
No. of Days in AR 115.14

2022
Inventory - 2021 31,986,670
Inventory - 2022 49,818,388
Average Inventory 40,902,529.00
Inventory Turnover Ratio 3.17

3.4. Profitability Ratio

Table 3.4.1 Table 3.4.2

Gross Profit Ratio Return on Sales
Gross Profit Net Income
Gross Profit Ratio = Return on Sales =
Net Sales Net Sales

2021 2021
Gross Profit 100,772,144 Net Income 75,322,195
Sales 214,064,354 Net Sales 233,972,888
Gross Profit Ratio 47% Return on Sales 32%

2022 2022
Gross Profit 112,571,470 Net Income 88,373,542
Sales 233,972,888 Net Sales 256,753,477
Gross Profit Ratio 48% Return on Sales 34%

Table 3.4.3
Earnings Per Share
Net Income
Earning Per Share =
No. of Common Stock Oustanding Share

2021
Net Income 75,322,195
 Earning Per Share 5,021.48

2022
Net Income 88,373,542
15,000
Earning Per Share 5,891.57

Table 3.4.4 Table 3.4.5

Return on Assets Return on Equity

Net Income Net Income

Return on Assets = Return on Equity =
Average Total Assets Total Shareholder's Equity

2021 2021
Total Assets - 2020 185,384,040 Total Equity - 2020 137,032,676
Total Assets - 2021 199,607,448 Total Equity - 2021 217,354,870
Average Total Assets 192,495,744 Average Total Equity 177,193,773
Net Income 75,322,195 Net Income 75,322,195
Return on Equity 39% Return on Equity 43%

2021 2022
Total Assets - 2021 199,607,448 Total Equity - 2021 217,354,870
Total Assets - 2022 225,030,163 Total Equity - 2022 265,383,200
Average Total Assets 212,318,806 Average Total Equity 241,369,035
Net Income 88,373,542 Net Income 88,373,542
Return on Equity 42% Return on Equity 37%
 Table 3.4.6 Table 3.4.7
Basic Earnings Per Share Book Value of securities

Earnings before interest and taxes Value of Each Security

Basic Earning Power = Book Value of Securities =
Average Total Assets No. of Shares Outstanding

2021 2021
Total Assets - 2020 185,384,040 Share Capital 15,000,000
Total Assets - 2021 199,607,448 Retained Eanings 127,354,870
Average Total Assets 192,495,744 Value of Each Security 142,354,870
Earnings before interest and taxes 85,478,271 No. of Shares Outstanding 15,000
Basic Earning Power 44% Book Value of Securities 9,490.32

2022 2022
Total Assets - 2021 199,607,448 Share Capital 15,000,000
Total Assets - 2022 225,030,163 Retained Eanings 145,383,200
Average Total Assets 212,318,806 Value of Each Security 160,383,200
Earnings before interest and taxes 98,874,292 No. of Shares Outstanding 15,000
Basic Earning Power 47% Book Value of Securities 10,692.21
 3.5. Market Value Ratio

Table 3.5.1 Table 3.5.2

Return on Assets Book Value Per Share
Market Price Per Share of Common Stock Total Equity
Price Earnings Ratio = Book Value Per Share =
Earnings Per Share No. of Common Shares Outstanding

2021 2021
Market Price Per Share of C/S 6,000 Total Equity 142,354,870
Earnings Per Share 5,021.48 No. Of C/S Outstanding 15,000
Price Earnings Ratio 1.19 Book Value Per Share 9,490.32

2022 2022
Market Price Per Share of C/S 8,000 Total Equity 160,383,200
Earnings Per Share 5,891.57 No. Of C/S Outstanding 15,000
Price Earnings Ratio 1.36 Book Value Per Share 10,692.21

Table 3.5.3
Market Book Ratio
Market Price Per Share
Market Book Ratio =
Book Value Per Share

2021
Market Price 6,000
Outstanding Share Common Share 15,000
Market Price of Share 90,000,000
Book Value Per Share 9,490
Market Book Ratio 9,483
 Market Price 8,000
Outstanding Share Common Share 15,000
Market Price of Share 120,000,000
Book Value Per Share 10,692
Market Book Ratio 11,223

FINANCIAL STATEMENT ANALYSIS NARRATIVE

Using horizontal analysis, ABC Company's financial statement and income statement show significant changes from 2020 to
2022. Total assets increased from 8% in 2021 to 21% in 2022, primarily due to the rise in current assets from 10% to 27%. Non-
current assets experienced a decline of 3% in 2021 and 8% in 2020 due to depreciation and amortization of property, equipment, and
intangible assets. Total liabilities increased by 23% in 2021 and 42% in 2022, primarily due to current liabilities like accounts payable,
accrued expenses, and income tax payable. Non-current liabilities remained unchanged. Total equity increased by 4% in 2021 and
17% in 2022 due to growth in retained earnings. The company's net income increased significantly, reaching 8% in 2021 and 26% in
2022, indicating a sustained profitability over the two years.
By means of vertical analysis, the base amount of assets, liabilities, and equity for each line item was identified. In 2020 saw
retained earnings have the largest share of assets at 66%, while accounts receivable made up 54% of total assets. The corporation
continued to be funded by equity in 2021 and 2022, as evidenced by the fact that 29% of assets were financed by liabilities and 71%
by equity. On the other hand, compared to 2020, a decline in equity and a rise in liabilities point to a move from equity financing to
debt financing. The figure also demonstrates that retained earnings, which make up the largest share (66%) of the company's assets,
are more heavily financed by stock than by debt. Table 2.2 reveals that costs accounted for 53% of the company's total sales in 2020,
52% in 2021, and 51% in 2022, with gross profits at 47.8% and 49.9%, respectively. Operating costs accounted for 10%, 12%, and
11% of total sales, while interest and income tax expenses remained at 2%. The basic assets, liabilities, and equity for each line item
were determined using vertical analysis.
With a current ratio of 3.61 in 2021 and 3.62 in 2022, the ABC Company has demonstrated a high level of liquidity in terms of
meeting its short-term liabilities with current assets. Even if its quick assets are used, the firm can still pay its current liabilities
because its ratios of 2.89 and 2.66 in 2021 and 2022 are more than one. The current ratios, acid test ratios, and working capital
findings for both years are beneficial because they are more than 1. However, when the cash ratio was used, the outcome was
adverse. This signifies that the corporation cannot meet its present obligations solely with cash.

In analyzing the entity's solvency, debt accounts for 29% of total assets in 2020 and 2021. Because the debt ratio is less than 50%,
the corporation is always reliant on equity funding. Furthermore, the corporation maintained a debt-to-equity ratio of 0.40 for both
years, demonstrating that equity weighs more than debt. The corporation can pay interest on their operational profits 19 times in
2021 and 24 times in 2022.
As for how profitably the company uses its assets, in 2021 and 2022 the asset turnover ratio is just 1.22 and 1.21,
respectively. This is highly disadvantageous since it means the asset can only produce sales once a year. But when fixed assets are
considered, ratios of 8.50 and 9.86 are obtained, suggesting that the fixed assets have been well reinvested in order to generate
sales. The accounts receivable turnover indicates that in 2021 and 2022, the company was only able to convert receivables into cash
2.24 and 2.29 times, respectively. This suggests that the company's collection efforts are lacking. The days it took for the receivable
to become cash—162.95 days in 2021 and 159.39 days in 2022—further support this. Regarding the entity's inventory, only the years
2021 and 2022 will see replenishments between 3.93 and 3.17 times. In both years, it took more than 92.88 and 115.4 days for the
inventory stock to be converted into sales transactions. Weak sales and excess inventory are evident from the higher number of days
and decreased turnover.
Ratios of profitability quantify the income generated by revenue, operating expenses, capital, and assets. According to the
company's gross profit ratio, for every P1.00 sold in 2021, 0.47 and 0.48 centavo were generated; in 2021 and 2022, however, the
entity's returns on assets were 39% in 2021 and 42% in 2022. The entity realized returns on equity of 43% and 37% on the
investment made by the shareholders. For 2021 and 2022, it gets 32% and 34% of the sales return, respectively. The increased
return on equity, sales, and assets shows how well the company manages its resources to turn a profit.
Market value ratios are also used in relation to the company's stock price to evaluate book value per share and earnings, both
of which are advantageous to investors. Price-earnings ratios for the company are 1.19 in 2021 and 1.36 in 2022. Better pricing and
significant potential for future investors are indicated by the ratio's lower values for both years. Regarding the market book ratio of the
entity, for each peso invested by its stockholders, the entity is trading at P9,483 in 2021 and P11,223 in 2021.