Financial

Statements and
Ratio Analysis
Members:
De Mesa, Kyla S.
Dela Pena, Charity
Delfin, Jhonalyn E.
Ortega, Chaterine N.
LICIAFANN TASTEMENT
FINANCIAL STATEMENT
AROTI LYNSINAS
RATIO ANALYSIS
HASC WFLO

CASH FLOW
COMEIN TASTEMENT

INCOME STATEMENT
CABALAN THEES
BALANCE SHEET
 Financial
Statement
A financial statement is a report that shows the financial
activities and performance of a business. It is used by
lenders and investors to check a business’s financial health
and earnings potential.

There are three main types:

✔Income Statement
✔Balance Sheet
✔Cash Flow Statement
 Income Statement

An income statement shows the profitability

of your business. It details how much money
your business earned and spent. The income
statement is also sometimes referred to as a
profit-loss statement or an earnings
statement.
 DM’S COMPANY
INCOME STATEMENT
FOR THE QUARTER ENDED SEPTEMBER 30, 2018

SALES 360,000.00

BEGINNING INVENTORY 100,000.00

ADD: PURCHASES 200,000.00
GOODS AVAILABLE FOR SALE 300,000.00
LESS ENDING INVENTORY 150,000.00
COST OF SALES 150,000.00

GROSS INCOME 210,000.00

INTEREST INCOME 4,000.00

TOTAL INCOME 214,000.00

SALARIES 30,000.00
RENT 60,000.00
SSS,PHILHEALTH, AND PAG – IBIG 5,000.00
COMMISSION 10,000.00
ADVERTISING 3,000.00
OFFICE SUPPLIES 1,000.00
JANITORIAL SUPPLIES 1,000.00
GASOLINE 30,000.00
DEPRECIATION - TRANSPORTATION EQUIP. 5,000.00
DEPRECIATION – OFFICE EQUIP. 3,000.00
DEPRECIATION - FURNITURE 1,000.00
TAXES AND LICENSES 3,000.00
INTEREST EXPENSE 2,000.00
TOTAL EXPENSES 154,000.00

NET INCOME 60,000.00

 Balance Sheet
Also known as Statement of Financial Position. It is based on the
equation: Assets = Liabilities + Shareholders’ Equity
Three main section:
1. Assets
2. Liabilities
3. Owner’s Equity
 Cash Flow Statement
● summarizes the amount of cash and cash equivalents
entering and leaving a company. Divided in three main
section:

1. Operating Activities: this section includes cash transactions

related to the core operations of the business.
2. Investing Activities: This part reflects cash flows related to
the acquisition and disposal of long-term assets.
3. Financing Activities: This section details cash flows
associated with funding the business
 LAURENCE COMPANY
CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2022
 Significance and uses of Financial
Statements
1. The Income Statement shows a company's financial performance over a
specific period, detailing revenues, expenses, and net income, which helps
assess profitability and operational efficiency.

2. The Balance Sheet provides a snapshot of a company’s financial position at a

specific point in time, listing assets, liabilities, and shareholders’ equity,
offering insights into liquidity, solvency, and capital structure.

3. The Cash Flow Statement tracks cash inflows and outflows across operating,
investing, and financing activities, helping evaluate a company’s cash-
generating abilities and its capacity to manage debts, invest in assets, and
sustain operations. Together, these financial statements give a comprehensive
view of a company’s financial health.
Ratio Analysis
Financial ratio analysis is the technique of
comparing the relationship (or ratio) between
two or more items of financial data from a
company’s financial statements. It is mainly
used as a way of making fair comparisons
across time and between different companies
or industries.
Liquidity Ratios
⮚ Determine whether an entity can be able to pay for
current liabilities as they become due with the use of
current assets
 Current Ratio
Answer the question:
Can company’s pay for their current liabilities with current asset?

FORMULA:

CALCULATION
₱3, 704, 701 ₱3, 589, 755
Current Ratio, 2020 = = 1.62 Current Ratio, 2019 = = 1.48
₱2, 283, 000 ₱2, 423, 000
INTERPRETATION
⮚ For both years, the entity's current assets are larger than
current liabilities. The entity can pay for their current
liabilities using their current assets since the ratio is
greater than 1.

REMEMBER THAT
⮚ CR > 1, entity can pay CL using CA
⮚ CR= 1, CA=CL
⮚ CR < 1, entity cannot pay CL using CA
 Acid Test Ratio
Answer the question
Can company pay for their current liabilities with quick
assets?
FORMULA:

CALCULATION
₱1, 896, 337 + 653, 974 + 468, 220
Acid Test Ratio, 2020 = = 1. 32
₱2, 283, 000

₱1, 456, 997 + 885, 697 + 450, 000

Acid Test Ratio, 2019 = = 1. 15
₱2, 423, 000
INTERPRETATION
⮚ For both years, the entity's quick asset are larger than
current liabilities. The entity can pay for their current
liabilities using their quick assets since the ratio is greater
than 1.

REMEMBER THAT
⮚ ATR > 1, entity can pay CL using QA
⮚ ATR = 1, QA= CL
⮚ ATR< 1, entity cannot pay CL using QA
 Cash Ratio
Answer the question
Can company’s cash pay for their current liabilities?
FORMULA:
CALCULATION

₱1, 896, 337

Cash Ratio, 2020 = = 0. 83
₱2, 283, 000

₱1, 456, 997

Cash Ratio, 2019 = = 0. 60
₱2, 423, 000
INTERPRETATION
⮚ For both years, the entity's current liabilities are larger than
cash. The entity cannot pay for their current liabilities using
their total cash since the ratio is less than 1.

REMEMBER THAT
⮚ Cash Ratio> 1, entity can pay CL using total cash
⮚ Cash Ratio= 1, Cash = CL
⮚ Cash Ratio< 1, entity cannot pay CL using total cash
Profitability Ratio
Measure how well does an entity generate income that relates to their revenues, operating
cost, assets and capital
Gross Profit
Answer the question
How much gross profit does the company makes after considering cost of goods that were
sold?

FORMULA:

CALCULATION

₱2, 369, 120

Gross Profit = = 59.
23% ₱4, 000, 000
INTERPRETATION
⮚ 59.23% of sales is the entity's gross
profit.

REMEMBER THAT
➢ Gross profit ratio represents the
amount of gross profit for every 1.00
sale
 Return on Assests
Answer the question:
How much was returned in the usage of assets to generate profit?

FORMULA:

CALCULATION
₱1, 313, 077
Return Assets, 2020 = = 10. 63%
₱12, 356, 216
INTERPRETATION
⮚ The entity enjoyed 10.63% returns in the usage
of it’s assets to generate profits.

REMEMBER THAT
➢ The higher the returns, the better
Returns on equity
Answer the question:
How much income was “returned” in the usage of equity to generate profit?

FORMULA:

CALCULATION

₱1, 313, 077

Returns on equity = = 23.00%
₱5, 709, 522
INTERPRETATION
⮚ The entity enjoyed 23% returns to the
shareholder investment.

REMEMBER THAT
➢ The higher the returns, the better
Solvency Ratios
determine whether an entity has more ownership rather
than debts. It is also called leverage ratios. These ratios
involve comparisons of debt, asset, equity, and interest.

Total liabilities
Debt Ratio =
Total assets

Total liabilities
Debt to Equity Ratio =
Shareholder's Equity

Earnings before interest and taxes

Times interest Earnings Ratio =
Interest Expenses
 Debt
Ratio
ANSWER THE QUESTION:
How much of the assets are financed by debt?

Total liabilities
Debt Ratio = Total assets

₱ 8,174,997
₱ 6,646,694 = 65.03%
Debt Ratio , 2020 = = 53.79% Debt Ratio , 2019 =
₱ 12,571,442
₱ 12,356,216

For 2020, 53.79% of assets are financed by debt, for 2019, 65.03% of assets are
financed by debt.In both years, debt is greater then equity since debt ratios are both
higher than 50%
 Debt to Equity Ratio
ANSWER THR QUESTION::
Which has more weight? Debt or equity?

Total liabilities
Debt to Equity Ratio =
Shareholder’s equity

₱ 6,646,694 ₱ 8,174,997
Debt to Equity Ratio ,2020, = = 1.16 Debt to Equity Ratio = = 1.86
₱ 5,709,522 2019 ₱ 4,396.445

For both years, debt has more weight than equity

since both ratios are greater than 1.
Times interest Earnings Ratio
ANSWER THE QUESTION:
How many times can an entity pay for interest expenses woth their operating income?

Earnings before interest and taxes

Times interest Earnings Ratio =
Interest Expenses

₱ 1,888,384
Times interest Earnings Ratio , 2020 = = 150.35
₱ 12,560

The company’s operating income can cover interest payment for 150 times
Efficiency Ratio
measure how well does an entity utilize their assets and resources to generate income.
Asset Turnover Ratio
Answer the question:
How many times can an entity generates sales with their total assets
resources

FORMULA:

CALCULATION

Asset Turnover Ratio = 4, 000, 000 = 0.32

(12,356,216+12,571,442)

INTERPRETATION
➢ the company’s assets can only generate sales 0.32 times
Inventory Turnover Ratio
Answer the question:
How many times can entity sell their incertories and have it replaced within a
period?
FORMULA:

CALCULATION

Asset Turnover Ratio = 1,630,880 = 2.27

(677,520+756,442)

INTERPRETATION
➢ the company’s inventory turnover is low
Accounts Receivable Turnover Ratio
Answer the question:
How many times can entity turns receivables to cash for a certain period?

FORMULA:

CALCULATION
4, 000, 000
Accounts Receivable Turnover Ratio = = 5.20
(653,974+885,697)

INTERPRETATION
➢ in a period, the company turns receivable into cash 5.20 times over the
whole period.
Interest Coverage Ratio
The interest coverage ratio is a debt and profitability ratio shows how
easily a company can pay interest on its outstanding debt. It is calculated by
dividing a company's earnings before interest and taxes (EBIT) by its interest
expense during a given period

FORMULA:
For example, Company A reported total
revenues of 10,000,000.00 with COGS (cost
of goods sold) of 500,000.00. In addition,
operating expenses in the most recent
reporting period were 120,000.00 in salaries,
500,000.00 in rent. 200,000.00 in utilities and
100,000.00 in depreciation. The interest
expense for the period is 3,000,000.00.
Sales Revenue
10,000,000.00
Cost of Goods Sold
(500,000.00)
Gross Profit
9,500,000.00

Total Expenses
Salaries
(120,000.00)
Rent
(500,000.00)
Utilities
(200,000.00)
Depreciation
(100,000.00)
Operating Profit (EBIT)
(8,580,000.00)

Interest Expense
(3,000,000.00)
Company A can pay its interest payments 2.86 times with its
operating profit.

INTERPRETATION
➢ The lower the interest coverage ratio, the greater the
company’s debt and the possibility of bankruptcy. A lower ratio
indicates that less operating profits are available to meet
interest payments and that the company is more vulnerable to
volatile interest rates. Therefore, a higher interest coverage
ratio indicates stronger financial health the company is more
capable of meeting interest obligations.
MARKET PROSPECT RATIO

-are used to compare publicly traded companies’ stock prices

with other financial measures like earnings and dividend rates. -
Investors use Market prospect ratios to analyze stock price
trends and help figure out a stock’s current and future market
value.
 1. Price-to-Earnings (P/E) Ratio: P/E Ratio =Market
Price per
Share
Earnings per
Example: Share(EPS)
500
• Market Price per Share: PHP 50 P/E Ratio= =50
• Earnings per Share (EPS): PHP 5 50
This means investors are willing to pay PHP 50 for every PHP 1 of earnings.

Market Price per Share

2. Price-to-Sales (P/S) Ratio: P/S Ratio: = Sales per Share
Example:
50
• Market Price per Share: PHP 50 P/S Ratio: = = 1.67
• Book Value per Share: PHP 30 30
A P/B ratio of 1.67 suggests that the market values the company at 1.67 times its book value.
3. Dividend Yield Annual Dividends per Share​
Formula: Dividend Yield
= Markert Price per
Share
Example:
• Annual Dividends per Share: PHP 2 2
• Market Price per Share: PHP 50
Dividend Yield = =0.04 or
50 4%
This means the company provides a dividend yield of 4%.
ASSESSMENT

1. ______________ It is a formal record of the financial activities and

positions of a business, organization or individual.
2. An ______________ or profit and loss account is one of the financial
statements of a company and shows the company’s revenues and
expenses during a particular period.
3. _________________ displays the company’s assets, liabilities and
shareholders equity at a point in time
4. _________________ is a financial statement that provides aggregate
data regarding all cash inflows that a company receives from its
ongoing operations and external investment sources. It also includes
all cash outflows that pay for business activities and investments
during a given period.
5. Financial _______________ is the technique of comparing the
relationship (or ratio) between two or more items of financial data
 ₱3,704,701
Current ratio, 2020 = = 1. 62
₱2,283,000

₱3,589,755
Current ratio, 2019 = = 1.48
₱2,423,000

Which of the following statements is correct regarding the current ratio of Grumpy Cat
Company?

A Both 2020 and 2019 current ratios are favorable

B Both 2020 and 2019 current ratios are unfavorable
C 2020 current ratio is favorable and 2019 current ratio is unfavorable
D 2020 current ratio is unfavorable and 2019 current ratio is favorable
 ₱ 6,646,694
= 53.39%
Debt ratio,2020 = ₱ 12,356,216

How will grumpy car company express the

accounting equation using assets, debt, and equity
percentages for 2020?
A. 100%= 18% + 82%
B. B. 100%= 82% + 18%
C. C. 100% = 54% + 46%
D. D. 100%= 46% + 54%
THANK
YOU!