Analysis of

Financial
Reports
 • In 1978, Century Pacific Food Inc. started
in the Philippines as a family business
focused on processing, manufacturing,
then exporting tuna products to leading
international brands.
Century
Pacific Food, • 1983 - launched 555 Sardines, the
Company’s first-ever branded product,
Inc. which captured the local taste profile.

• 1986 - Introduced to the sardine-loving

Filipinos the healthy goodness of tuna
with the launch of flagship
brand Century Tuna.
 • 1995 - Launched Argentina Corned Beef,
providing for the first time an affordable
option for what was once a strictly premium
product.
• 2001 - Acquired Blue Bay Tuna
• 2002 - Century Pacific entered into canned
Century liquid milk with the launch of
the Angel brand. And later acquired the
Pacific Food, heritage brand Birch Tree & re-launched
the Birch Tree Full Cream Milk Powder a year
Inc. later.
• 2017 - Grew its branded portfolio with the
acquisition of the Hunt’s license for the
Philippines, whose products include canned
pork and beans, where it maintains dominant
market leadership, as well as spaghetti,
tomato, and marinade sauce.
 The Balance
Sheet
The Balance Sheet gives a financial picture of
what a company is worth as of a particular
date, usually at the end of a month or year.

It lists:
(1) how much the company owns (assets),
(2) how much the company owes
(liabilities), and
(3) how much the owner (owner's equity) is
worth.
 The Basic • Remember that the basic accounting
equation states that assets equal the
Elements of sum of liabilities and owners' equity.
the Balance • Assets = Liabilities + Owners’
Sheet Equity
 • Assets: Things of value owned by a
company (economic resources of the
company) that can be measured and
expressed in monetary terms.
The Basic • Current assets: Assets that companies
consume or convert to cash within /
Elements of year or a normal operating cycle.
the Balance • Cash: Total cash in checking
accounts, savings accounts, and on
Sheet hand.
• Accounts receivable: Money owed to
a company by customers from sales
on account (buy now, pay later).
 • Assets:
• Merchandise inventory: Cost of
goods in stock for resale to
The Basic customers.
• Prepaid expenses: The purchases
Elements of of a company are assets until they
the Balance expire (insurance or rent) or are
consumed (supplies).
Sheet • Total current assets: Total of all
assets that the company will
consume or convert to cash within
1 year.
 • Assets:
• Plant and equipment: Assets that
will last longer than a year. These
assets are use in the operation of
The Basic the company.
Elements of • Building (net): The cost of the
building minus the depreciation
the Balance that has accumulated. Usually,
balance sheets show this as
Sheet "Building less accumulated
depreciation.“
• Land: This asset does not
depreciate, but it can increase or
decrease in value.
 • Assets:
• Total plant and equipment:
The Basic Total of building and land,
Elements of including machinery and
the Balance equipment.
Sheet • Total assets: Total of current
assets and plant and
equipment
 • Liabilities: Debts or obligations of the
company.
• Current liabilities: Debts or
The Basic obligations of the company that
are due within 1 year.
Elements of • Accounts payable: A current
the Balance liability that shows the amount the
company owes to creditors for
Sheet services or items purchased.
• Salaries payable: Obligations that
the company must pay within 1
year for salaries earned but unpaid.
 • Liabilities :
• Total current liabilities: Total
obligations that the company must
pay within I year.
The Basic • Long-term liabilities: Debts or
Elements of obligations that the company does
not have to pay within 1 year.
the Balance • Mortgage note payable: Debt owed
Sheet on a building that is a long-term
liability; often the building is the
collateral.
• Total liabilities: Total of current and
long-term liabilities.
 Stockholders' equity (owner's equity): The rights
or interest of the stockholders to the assets of a
corporation. If the company is not a corporation,
The Basic the term Owner’s Equity is used.
• Common stock: Amount of the initial and
Elements of additional investment of corporation
owners by the purchase of stock.
the Balance
• Retained earnings: The amount of
Sheet corporation earnings that the company
retains, not necessarily in cash form.
• Total stockholders' equity: Total of stock
plus retained earnings.
 Stockholders' equity (owner's equity):
• Total liabilities and stockholders'
equity: Total current liabilities,
The Basic long-term liabilities, stock, and
retained earnings. Represents all
Elements of the claims on assets—prior and
the Balance present claims of creditors,
owners' residual claims, and any
Sheet other claims.
• Total current liabilities: Total
obligations that the company
must pay within 1 year.
BALANCE
SHEET
BALANCE
SHEET
 • Comparison of reports that contain
data for two or more successive
accounting periods. To make this
possible, companies present a
Vertical statement showing the data from
these periods side by side.
Analysis
• Comparison of the percents in the
reports to industry percents and
the percents of competitors.
 Step 1.
Divide each asset (the portion) as a
percent of total assets (the base).
Multiply by 100. Round as indicated.
Preparing a
Vertical
Step 2.
Analysis Round each liability and stockholders'
equity (the portions) as a percent of
total liabilities and stockholders' equity
(the base). Multiply by 100.
 Vertical
Analysis of a ASSETS 2017
Balance Sheet In Million Pesos Percent
Cash and Cash 1,549 6.63
Equivalents
Trade and Other 5,329 22.81
Receivables
Contract Assets 186 0.79
Total Assets 23,359
 • We can also analyze balance sheets
for two or more periods by using
Horizontal horizontal analysis. Horizontal analysis
compares each item in 1 year by
Analysis amount, percent, or both with the
same item of the previous year.
 Step 1.
Calculate the increase or decrease
(portion) in each item from the base
year.

Preparing a Step 2.
Horizontal Divide the increase or decrease in Step
Analysis 1 by the old or base year.

Step 3.
Multiply by 100. Round as indicated.
BALANCE
SHEET
 Sample of a Horizontal Analysis

ASSETS 2017 2016 Increase

In Million Pesos (Decrease) Percent
Cash and Cash Equivalents 1,549 696 853 122.55
Trade and Other 5,329 3,955 1,374 34.74
Receivables
Total Assets 23,359 19,932 3,427 17.19
 INCOME STATEMENT

• A financial report that tells how well a

company is performing (its profitability or net
profit) during a specific period of time (month,
year, etc.).
• The income statement reveals the inward flow
of revenues (sales) against the outward or
potential outward flow of costs and expenses.
• Net income = Revenues - Operating Expenses
 Revenues: Total earned sales (cash or
credit) less any sales returns and
allowances or sales discounts.
• Gross sales: Total earned sales
before sales returns and allowances
INCOME or sales discounts.
STATEMENT • Sales returns and allowances:
Reductions in price or reductions in
revenue due to goods returned
because of product defects, errors,
and so on. When the buyer keeps
the damaged goods, an allowance
results.
 • Revenues:
• Sales (not trade) discounts:
Reductions in the selling price of
goods due to early customer
INCOME payment. For example, a store
may give a 2% discount to a
STATEMENT customer who pays a bill within
10 days.
• Net sales: Gross sales less sales
returns and allowances less sales
discounts.
 Cost of merchandise (goods) sold: All
the costs of getting the merchandise
that the company sold. The cost of all
unsold merchandise (goods) will be
subtracted from the ending inventory.
• Merchandise inventory, December
INCOME 1,2014: Cost of inventory in the
STATEMENT store that was for sale to
customers at the beginning of the
month.
• Purchases: Cost of additional
merchandise brought into the
store for resale to customers.
 Cost of merchandise (goods) sold:
• Purchase returns and allowances: Cost of
merchandise returned to the store due to
damage, defects, errors, and so on.
Damaged goods kept by the buyer result
in a cost reduction called an allowance.
INCOME • Purchase discounts: Savings received by
the buyer for paying for merchandise
STATEMENT before a certain date. These discounts
can result in a substantial savings to a
company.
• Cost of net purchases: Cost of purchases
less purchase returns and allowances less
purchase discounts.
 Cost of merchandise (goods) sold:

• Cost of merchandise (goods available

for sale): Sum of beginning inventory
plus cost of net purchases.
INCOME
• Merchandise inventory, December
STATEMENT 31,2014: Cost of inventory remaining
in the store to be sold.

• Cost of merchandise (goods) sold:

Beginning inventory plus net
purchases less ending inventory.
 3. Gross profit from sales: Net sales less cost of
merchandise (goods) sold.

4. Operating expenses: Additional costs of

operating the business beyond the actual cost
of inventory sold.
INCOME • a.-f. Expenses: Individual expenses broken
down.
STATEMENT • g. Total operating expenses: Total of all the
individual expenses.

5. Net income: Gross profit less operating

expenses.
 NET SALES
Net Sales = Gross sales - Sales Returns - Sales Discounts
and Allowance
 CALCULATING MERCHANDISE SOLD

Net Purchases = Purchases – Returns and Discounts

Cost of Merchandise (Goods) Sold =

Beginning Inventory + Net Purchases – Ending inventory
 GROSS PROFIT FROM SALES
This is the profit before operating expenses

Gross Profit from Sales = Net Sales - Cost of Merchandise

(Goods) Sold
 NET INCOME
This is the profit after operating expenses

Net Income = Gross Profit - Operating Expenses

INCOME STATEMENT
 Preparing a
• Divide Income Statement Item
Vertical Analysis
for Income with Net Sales (as base). Multiply
Statement with 100. Round as indicated.
 Preparing a Vertical Analysis for Income Statement

2018
Percent
In Million Pesos
Net Revenues 34,496 100
Cost of Goods Sold 25,973 75.29
 Step 1.
Calculate the increase or decrease
(portion) in each item from the base
year.

Preparing a Step 2.
Horizontal Divide the increase or decrease in Step
Analysis 1 by the old or base year.

Step 3.
Multiply by 100. Round as indicated.
INCOME STATEMENT
 Horizontal Analysis of an Income Statement

2017 2016 Increase

In Million Pesos (Decrease) Percent
Operating 5,482 5,218 264 5.06
Finance Costs 107 77 30 39
Other Expenses 40 51 (11) - 22
 Trend Analysis
When data cover several years, we can analyze changes that
occur by expressing each number as a percent of the base year.
The base year is a past period of time that we use to compare
sales, profits, and so on, with other years. We call this trend
analysis.
 Trend Analysis
COMPLETING TREND ANALYSIS
Step 1. Select the base year (100%).
Step 2. Express each amount as a percent of the base year
amount (rounded to the nearest whole percent).

For example,
Sales (2016) divided by Sales (2015) = multiplied by 100
INCOME STATEMENT
INCOME STATEMENT
 Trend Analysis of an Income Statement

2018 2017 2016 2015

In Million Pesos
Operating 4,721 5,482 5,218 3,529
Finance Costs 197 107 77 1
Other Expenses 164 40 51 35
Operating 134% 155% 148% 100%
Finance Costs 197% 107% 77% 100%
Other Expenses 468% 114% 146% 100%
 Trend Analysis of an Income Statement

2018 2017 2016 2015

In Million Pesos
Net Income 8,683 7,363 7,390 6,297
138% 116.9% 117.3% 100%
Total Expenses 5,081 5,629 5,346 3,566
1.42% 1.58% 1.50% 100%
 Net Income vs. Total Expenses
Century Pacific Food, Inc.
(2014 to 2018)
10,000
9,000
8,000
7,000
in Million Pesos

6,000
5,000
4,000
3,000
2,000
1,000
-
1 2 3 4 5
net income 5,565 6,297 7,390 7,363 8,683
total expenses 3,327 3,566 5,346 5,629 5,081
 A ratio is the relationship of one number
to another. Many companies compare
their ratios with those of previous years
and with ratios of other companies in the
industry.
Ratio Percentage ratios are used by companies
to determine the following:
Analysis 1. How well the company manages its
assets - asset management ratios.
2. The company's debt situation - debt
management ratios.
3. The company's profitability picture -
profitability ratios.
 A manufacturing company
requires efficient use of
inventory, equipment, and
Ratio Analysis personnel to develop its
for products.
Manufacturin
g
Companies
 Shows how effectively inventory is
managed by comparing cost of goods
sold with average inventory for a
period.
Inventory Measures how many times average
inventory is “turned” or sold during a
Turn Over period.
Ratio
Cost of Goods Sold divided by
Average Inventory
 2017 2016 2015
In Million Pesos
Inventory Cost of Goods 25,973 19,678 17,128
Turn Over Sold
Average 7,262 6,727 5,560
Ratio Inventory
Inventory Turn 3.58 2.93 3.08
Over Ratio
 The operating ratio shows the
efficiency of a company's
management by comparing the
total operating expense of a
Operating company to net sales. The
operating ratio shows how efficient
Ratio a company's management is at
keeping costs low while generating
revenue or sales.
 An operating ratio that is decreasing
is viewed as a positive sign, as it
indicates that operating expenses are
becoming an increasingly smaller
percentage of net sales. A company
Operating may need to implement cost controls
for margin improvement if its
Ratio operating ratio is increasing over
time.

(Operating Expenses + Cost of

Goods Sold) divided by Net Sales
 2017 2016 2015
In Million Pesos
Operating 5,482 5,218 3,529
Operating Expenses
Expenses Cost of Goods 25,973 19,678 17,128
Ratio Sold
Total 31,455 24,896 20,657
Net Revenues 34,496 28,288 23,325
Ratio 0.91 0.88 0.89
• A Company has P8, 000,000 of cost
of goods sold with a beginning
inventory of P120,000.00 and
ending inventory of 240,000.00.
Calculate the inventory turnover
ratio.

Solution:

Inventory turnover ratio = Cost of Goods Sold / Average Inventory

Average Inventory= beginning inv + Ending inv

2

Average Inventory= 120,000.00 + 240,000.00

2
=360,000.00

Inventory turnover ratio = 8, 000,000/360,000

= 22

The company has an inventory turnover of 22. In other words, within a year, Company tends to turn
over its inventory 22 time
• The Company has an operating
expenses of P9, 000,000.00, cost of
goods sold of P12, 000,000 and a
net sales of P25, 000,000. What is
the operating ratio?

Solution:

Operating Ratio = (Operating Expenses + Cost of Goods Sold) / Net Sales

Operating Ratio = (9, 000,000.00+ 12, 000,000)/ 25, 000,000

= .84

Thus, operating expenses are 84% of net sales