Cashflow statement
- Provides an analysis of inflows and/or outflows of cash from/to operating, investing and
financing activities
— Direct method
The operating cash flow section of the CFS under the direct method would show each major
class of gross cash receipts and gross cash payments
Operating expense
- Normal operation of business — salary, purchases & wages
Cash Inflows(debit)
1. Receive sales of Goods/ service rendered
2. Cash received from royalties, fees, commision & other revenue
Cash outflows (credit)
1. Utilities expense/ paid operating expense
2. Interest paid
Investing
Cash inflows (debit)
1. Cash received from sales of PPE
2. Cash received from collection of long term receivables
Cash outflows (credit)
1. Cash paid for acquisition of PPE
2. Cash paid for loans ( creditors / lenders- mga tao )
Financial activity
Cash inflow (credit)
1. Investment by owner
2. Obtain or net process bank loan
Cash outflows (debit)
1. Owners withdrawal
2. Cash pay to bank loan
3. Cash paid to shareholders / dividends if it's corporate
Note:
Interest - operating expense
Loans - financing activities
Analysis & Interpretation of Financial
Statements
Objective :
1. Liquidity - currently maturing obligation ( short term )
- Can pay short term obligation ( utilities, salaries , ect)
2. Solvency - obligation ( long term ), mom current liabilities such as creditors & banks
3. Stability - continue the business in longer period of time
4. Profitability - generate/ make income
1.Vertical Analysis
- Common size and used in SFP & SCI
- Looks only at one year
- Each item of the financial statement show the percentage of the base figure
- Express each like
Vertical analysis answers:
- How much is the percentage of each time in finnacial statement to the total base .
Key definition
- Compare accounts easily .
Why use vertical analysis?
- Converts raw numbers to percentage to see money figures and what expenses is mostly
used.
VERTICAL ANALYSIS FORMULA
STATEMENT OF FINNACIAL POSITION:
Account title. - Part
Percentage = ------------------ x 100
Total asset. - Whole ( base)
STATEMENT OF COMPREHENSIVE INCOME:
Accounts tittle. - Part
Percentage = ------------------- x 100
Net sales. - Whole ( base)
Example:
Expenses 60, 000
Percentage = ------------------------ = 0.2
Sales. 300,000
0.2 x 100 = 20%
Part = 60, 000
Whole = 300, 000
2. Horizontal analysis
- Knows as trend analysis
- Calculate changes
- Comparison
- Multiple accounts in period
- Increase or decrease it interpret result and evaluate finance
All items in financial statement may be subjected to horizontal analysis
It answers:
Is the business getting worse or better carving a clearer image of your business
Vertical analysis Horizontal analysis
Component percentage Two or more accounting period
One accounting period only The changes over time (decline or increase)
Show component of accounts and structure Trend analysis performance
2.1 Absolute change
- Peso amount ( increased or decreased)
HA = Current year - Base year
Example:
Sales 2024 2025 2026
500, 0000 560, 000 640, 000
HA = Current year - Base year
= 640, 000 - 560, 0000
= 80, 000
Interpretation:
The sale increased by 80,000 for the year 2026 in summary there is a growth
2.2 Percentage change
- If + - growth
- If - - decline
FORMULA:
CY - BY
PA = —-------- x 100
BY
Example:
CY - BY
PA = —-------- x 100
BY
640, 000 - 560, 000
PA = —--------------------------- x 100
560,000
PA = 14.29%
Interpretation:
The salary increase/growth by 14.29% for the the year 2026
3. Ratio Analysis
- Relationship of item in SFP and SCI are being established
- Composed of numerators and denominators
- Good business usually ranges to 1 - 2
Why is it important?
It tell us the efficiency of the invested asset to create revenue this is called asset turnover
a. Liquidity ratios:
a.1 Current Ratio or Bankers Ratio
- Current obligation ( short terms )
Formula :
CURRENT ASSET
CR: = —-----------------------
CURRNET LIABILITY
NOTE: BAD IF MORE THAN 2
Example:
CIB- 50, 000
AR- 40, 000. CA
NOTES RECIEVED - 35, 000. CR. = —-----
MI - 24, 000. CL
PREPAID EXP - 1, 000
CURRENT LIABILITIES- 50, 000. 150, 000
—------------ x 100
50, 000
3 of 3%
Asste — 3: 1 — Liability
Notes : 2 is strong liquidity
Interpretation: the current ratio indicate for every one peso of current liabilities there is 3 peso
of current asset to pay
b. Working capital
- Available resources that can be used to meet the daily operation needed for the
business
- Pondo na kwarta
Formula :
Working capital= CURRENT ASSETS - CURRENT LIABILITIES
EXAMPLE
Current asset : 150,000
Current liability: 50,000
Working capital = 50,000 - 50,000
= 100,000
c. Acid- test ratio
- Quick ratio
- Excluded the merchandise inventory and prepaid expenses
- Only includes the asset that can be easily converts into cash
FORMULA:
Quick asssst
Acid test ratio = —--------------------
Current liability
Example:
125,000
—----------
50,000
= 2.5 or 2.5:1
Interpretation:
The asset test ratio 2.5 : 1 indicates that everyone peso of the current liability there's a 2.5 peso
of quick asset pay
d. Inventory ratio
- Ikapila gi kompra
a. Rate of inventory turnover
- High rates = to high demands
- Indicates the number of time the merchandise replaced
Formula:
Cost of goods sold
Rate of inventory turnover = —-------------------------
Average inventory
MI,E + MIB
Average inventory =. —-—-----------
2
EXAMPLE:
Merchandise inventory Beginning - 30,000
Add: purchases - 140,000
Cause of goods for sale = 170, 000
Less: merchandise inventory end : 20,000
Cost of good sold( COGS) : 150,000
Average inventory:
20,000 + 30,000
Average inventory =. —-—-----------
2
50,000
Average inventory =. —-—----------
2
Average inventory =. 25, 0000
Rate of Inventory turnovers:
Cost of goods sold
Rate of inventory turnover = —-------------------------
Average inventory
150,000
Rate of inventory turnover = —-------------------------
25,000
Rate of inventory turnover = 6 times
Interpretation:
It it took six times the merchandise replace
b.Number of days sales in inventory
- Length of time to acquire cell or replace the merchandise inventory
FORMULA:
365 days
Number of days sales in Inventory= —-------------------------------
Rate of inventory turnover
365
—-------
6 times
= 60. 83 days or 61 days
Interpretation:
It took 61 days to acquire sale and replace merchandise inventory
4. Profitability
- Ability of the company to generate income
- Ability of the business to generate earnings after paying all cause and expenses
- It matters because it measures business performance
- It could attract investors
- It can expand growth and pay employees
What u need in calculating it ?
Net sales
- COGS
—————
GROSS PROFIT
- OPERATING EXPENSE
—————————————
NET PROFIT ( INCOME)
a. Gross profit ratio
- Measures profitability before operating expense
Gross profit
Cross profit ratio = —---------------------- x 100
Net sales
- Express in percentage
Example
Net sales : 1 million
Cost of goods sold: 700, 00
300,000
Cross profit ratio = —---------------------- x 100
1, 000, 000
= 0.3 x 100
= 30%
Interpretation:
Before deducting the operating expense for every 100 peso of sales the business earn 30 pesos
as gross profit the remaining 70 pesos was used to cover the cost of goods sold
b. Net income ratio
- Measures profitability after deducting expenses
- Indicates overall profitability and efficiency in managing the business overall cost
FORMULA:
Net income
NET PROFIT RATIO= —---------------- x 100
Net sales
Net income= Gross profit - Operating expense
EXAMPLE:
NET SALES : 1 million
COST OF GOODS SOLD : 700,000
GROSS PROFIT : 300,000
OPERATING EXPENSE : 200, 000
100,000
NET PROFIT RATIO= —---------------- x 100
1 million
= 0.1 x 100
= 10%
Interpretation:
A net profit ratio of 10% means that for every 100 pesos of sales the business and php10
as a net profit after the all expenses have been deducted this reflects the overall
efficiency and profitability of the business