Financial Statement Analysis

Posted on Oct 6, 2024 in Mathematics

1. Horizontal Analysis

Number: 2009-2008

Percentage: ((2009/2008) -1) * 100

Interpretation: Balance Sheet

Total assets at the end of 2009 increased by S/. 3751 (6.47%) compared to the beginning of the year. Liabilities increased by S/. 3750 (6.47%) and shareholders’ equity increased by S/. 735 (2.28%).

Total cash and bank at the end of 2009 was S/. 38,743 higher (10.93%) than at the beginning of the year.

Total Accounts Receivable Trade at the end of 2009 was S/. 11,530 higher (31.65%) than at the beginning of the year.

Interpretation: Statement of Profits and Losses

Cost of sales increased by 15.03% and administrative expenses increased slightly by 5.71%.

Overall, operating expenses increased by 15.18%, while gross profit decreased by 3.13%.

The increase in operating income and net profits are not entirely favorable and require further study of the costs, comparisons, and analysis before reaching a conclusion.

2. Vertical Analysis (Qty * 100) / Total Assets = …%

Interpretation – Balance Sheet

The main changes in the percentages of the company’s assets are listed in the categories of current assets. In the liabilities and equity sections of the balance sheet, the biggest changes in the percentages are shown in current liabilities and retained earnings, which increased very slightly from 29.65% to 30.84% of total liabilities and equity. In 2009, there is a comparable decrease in liabilities of 41.68%.

One can see that current assets (S/. 38,668) cover current liabilities (S/. 25,007). However, the most relevant items within current assets are stocks at 33.60% (S/. 20,708) and accounts receivable at 18.71% (S/. 11,530).

In non-current assets, the most relevant item is property, machinery, and equipment at 20.41%, as it is an industrial enterprise. Financial investments comprise 15.44%, primarily in the agricultural sector (Agrícola Pampa Baja SAC).

Interpretation – Statement of Profit and Loss

In the vertical analysis of profit and loss, each item is expressed as a percentage of net sales.

The decrease in gross profit percentage from 33.37% in 2008 to 29.64% in 2009 is 3.73 percentage points, which translates to S/. 8,261 in real terms.

Interpretation of Ratios

  • 1) General Liquidity Ratio: In 2009, the company has a ratio of 1.55, which indicates that for every S/.1 of short-term obligation, it has S/. 1.55. In relation to the previous year, liquidity decreased by S/. 0.15, which is favorable.
  • 2) Acid Test: In 2009, the institution has a ratio of 0.72, meaning for each S/.1 of current liabilities, it has S/. 0.72 of liquid assets. The previous year showed a ratio of 0.73.
  • 3) Inventory Turnover: In 2009, the company has a ratio of 0.95 times per year (or every 379 days), compared to 0.86 times in 2008 (or every 418 days).
  • 4) Average Inventory Holding Period: In 2009, the company has a lower ratio of 378.52 days compared to 2008, which was 418.21 days.
  • 5) Fixed Asset Turnover: In FY 2009, the company has a ratio of 2.22, which means that for every S/.1 of net fixed assets, it generated S/. 2.22 in sales.
  • 6) Total Asset Turnover: In 2009, the company presented a ratio of 0.45, which indicates that for every S/.1 of its total assets, it generated S/. 0.45 of sales. There was no significant increase compared to the previous year, in which each S/.1 of assets generated S/. 0.44.
  • 7) Accounts Receivable Turnover: In 2009, the company has a ratio of 2.43 times per year (or every 148 days), compared to 2008, which presented a ratio of 2.93 times per year (or every 122.67 days).
  • 8) Average Collection Period: The average collection period for 2009 is 148 days, while in 2008, it was 122.86 days.
  • 9) Degree of Capital Intensity: In 2009, the percentage of fixed assets invested in capital assets was 20%, compared to 21% in 2008 (1% higher).
  • 10) Depreciation Grade: In 2009, the depreciation percentage of capital goods is 68%.
  • 11) Cost of Sales / Sales: In 2009, 70% of the revenues generated by the company through sales were absorbed by the costs involved in the production of products.
  • 12) Operating Expenses / Sales: In 2009, operating expenses represented 30% of sales, compared to 29% in 2008.
  • 13) Financial Expenses / Sales: In 2009, financial costs represented 13% of sales, compared to 21% in 2008.
  • 14) Total Debt Ratio: The debt ratio of 0.47 indicates that for every S/.100 of total assets, S/. 0.47 belongs to others (creditors).
  • 15) Fixed Asset Coverage Ratio: The coverage ratio of 2.92 indicates that for every S/.100 of fixed assets, S/. 2.92 are financed with permanent capital.
  • 16) Interest Coverage Ratio: The company has a ratio of 0.26 in 2009, which indicates that it has S/. 0.26 of profit before tax to cover every S/.1 of interest. In relation to 2008, this showed a decrease of S/. 0.02.
  • 17) Return on Investment: In 2009, the company shows a 7% return on investment.
  • 18) Return on Equity: The return on investment for the entity’s owners is 2% for 2009, meaning that for every S/.100 of equity, the entity gained S/.2.
  • 19) Operating Profit Margin: In 2009, the company has a 30% operating profit margin. This indicates that after deducting all costs and expenses (including interest and taxes), the company has a profit of S/.30 for every S/.100 of sales. This is significantly lower compared to the previous year, in which the institution had S/.15 of profit for every S/.100 of net sales.
  • 20) Net Profit Margin: For 2009, the company presents a 3% net profit margin, meaning that for every S/.100 of total assets, the institution generated S/.3 of net income.