FINANCIAL ANALYSIS
47
Unit 4: Financial analysis
UNIT OBJECTIVES - MỤC TIÊU
DURATION (9 periods) - THỜI LƯỢNG HỌC (9 TIẾT)
• Provide students with the language and knowledge related to the work of financial analysis.
Cung cấp cho sinh viên vốn ngôn ngữ và kiến thức liên quan đến công việc phân tích
tài chính.
• Provide students with the language and method to write a classification essay.
Cung cấp cho học viên ngôn ngữ và phương pháp để viết một bài luận phân loại.
• At the end of this unit, students will be able to tell and write about main types of financial
analysis, the main characters of each type and some ratios in analyzing financial statements.
Sau khi kết thúc bài học này, sinh viên có thể nói và viết về các cách phân tích tài chính cơ
bản, những đặc điểm chính của từng loại và một số chỉ số trong phân tích báo cáo tài chính.
In this unit, we will learn language and knowledge related to main types
of financial analysis, the main characters of each type and some ratios
in analyzing financial statements.
Trong bài học này, chúng ta sẽ học về ngôn ngữ và kiến thức liên quan
tới các phương thức phân tích tài chính, đặc điểm của từng loại và các
chỉ số trong phân tích các báo cáo tài chính.
48
Unit 4: Financial analysis
Match the terms or concepts in column A with their definitions in column B. The
suggested time to do this exercise is 10 minutes.
Column A Column B
1 Business cycle A A detailed examination or report on financial
performance
2 Financial instrument B The difference between the price of goods paid by a
shopkeeper and the price paid by the customer
3 Financial statement
analysis

with different stages in a production process
49
Unit 4: Financial analysis
Text A: Read the text do exercise 2.1 and 2.2 below. The suggested time for
reading the text and completing the exercise is 30 minutes.
FINANCIAL ANALYSIS
Financial analysis
F
inancial statement analysis
is the process of examining
relationships among financial
statement elements and making
comparisons with relevant
information. It is a valuable tool
used by investors and creditors,
financial analysts, and others in
their decision-making rocesses
related to stocks, bonds, and
other financial instruments.
The goal in analyzing financial
statements is to assess past
performance and current
financial position and to make
predictions about the future
performance of a company.
Investors who buy stock
are primarily interested in a
company's profitability and
their prospects for earning a
return on their investment by

hen an analyst compares
financial information for
two or more years for a single
company, the process is referred
to as horizontal analysis, since
the analyst is reading across the
page to compare any single line
item, such as sales revenues.
In addition to comparing dollar
amounts, the analyst computes
percentage changes from year
to year for all financial statement
balances, such as cash and
inventory. Alternatively, in
comparing financial statements
for a number of years, the
analyst may prefer to use a
variation of horizontal analysis
called trend analysis. Trend
analysis involves calculating
each year's financial statement
balances as percentages of the
first year, also known as the
base year. When expressed
as percentages, the base year
figures are always 100 percent,
and percentage changes from
the base year can be determined.
Vertical Analysis
W

between items on two financial
statements. After calculating
ratios for each year's financial
data, the analyst can then examine
trends for the company across
years. Since ratios adjust for
size, using this analytical tool
facilitates intercompany as well
as intracompany comparisons.
Ratios are often classified
using the following terms:
profitability ratios (also known
as operating ratios), liquidity
ratios, and solvency ratios.
Profitability ratios are gauge
of the company's operating
success for a given period
of time. Liquidity ratios are
measures of the short-term
ability of the company to pay its
debts when they come due and
to meet unexpected needs for
cash. Solvency ratios indicate
the ability of the company to
meet its long-term obligations
on a continuing basis and thus
to survive over a long period of
time. In judging how well on
a company is doing, analysts
typically compare a company's

companies may select different,
although equally acceptable,
methods of accounting for
inventories and other items.
Making meaningful comparisons
is also hampered when a company
or its competitors have widely
diversified operations.
T
he tools of financial
statement analysis, ratio
and percentage calculations,
are relatively easy to apply.
Understanding the content of
the financial statements, on the
other hand, is not a simple
task. Evaluating a company's
financial status, performance,
and prospects using analytical
tools requires skillful application
of the analyst's judgment.
2.1
Questions T/F
1. The purpose of analyzing the financial statements is only to make prediction
about the future performance of a company.
2. Financial analysts often specialize in assessing the performance of many dif-
ferent industries at the same time.
3. Trend analysis assesses the performance of a company in a year based on the
comparison between the figures of that year to that of the base year.
4. It is more difficult to compare common-size balance sheets and income sheets

inancial ratios are calculated from one or more pieces
of information from a company's financial statements.
For example, the "gross margin" is the gross profit from
operations divided by the total sales or revenues of a
company, expressed in percentage terms. In isolation, a
financial ratio is a useless piece of information. In context,
however, a financial ratio can give a financial analyst an
excellent picture of a company's situation and the trends
that are developing.
A
ratio gains utility by comparison to other data and standards. Taking our example, a gross
profit margin for a company of 25% is meaningless by itself. If we know that this
company's competitors have profit margins of 10%, we know that it is more profitable than
its industry peers which are quite favourable. If we also know that the historical trend is upwards,
for example has been increasing steadily for the last few years, this would also be a favourable
sign that management is implementing effective business policies and strategies.
2.2
F
inancial ratio analysis groups the ratios into categories that tell us about different facets of
a company's finances and operations. An overview of some of the categories of ratios is
given below.
• Leverage Ratios which show the extent that debt is used in a company's capital structure.
• Liquidity Ratios which give a picture of a company's short term financial situation or
solvency.
• Operational Ratios which use turnover measures to show how efficient a company is in
its operations and use of assets.
• Profitability Ratios which use margin analysis and show the return on sales and capital
employed.
• Solvency Ratios which give a picture of a company's ability to generate cash flow and pay
it financial obligations.

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Unit 4: Financial analysis
2.3
3. What can be inferred from the example of the gross profit margin?
a. the ratios are especially useful by comparison to others
b. the ratios themselves can show a company’s financial performance
c. there’s no need to look at the historical trend when analyzing the ratios
4. What does the word “itself” in the sentence: “Taking our example, a gross profit margin
for a company of 25% is meaningless by itself” refer to?
a. a company b. a gross profit margin c. 25%
5. What’s the INCORRECT statement?
a. Historical data and fundamental changes should be used independently.
b. Credit analysts pay attention to liquidity and leverage ratios most of all.
c. Equity analysts are interested in the operational and profitability ratios.
Fill in the blanks with the words given below
Ratio Analysis (1) _________ the business owner/manager to spot trends in a business and
to (2) _______ its performance and condition with the (3) _________ performance of similar
businesses in the same (4) _________. To do this, compare your ratios with the average of
businesses (5) _________ to yours and compare your own ratios for several (6) _________
years, watching especially for any unfavorable (7) _________ that may be starting. Ratio
analysis may provide the all-important early warning (8) _________ that allow you to solve
your business (9) _________ before your business is destroyed by (10) _________.
Listening 1
Listen to a lecture about the financial ratio analysis and answer the following questions
1. What does ratio analysis provide?
…… ……….
2. How is horizontal analysis used?
…… ……….
3. What about vertical analysis?
…… ……….

management to discuss plans and prospects, any problem areas identified in the analysis,
and possible solutions.
Match the terms or expressions in column A with their definitions in column B.
The suggested time to do this exercise is 5 minutes
4.1
2.3
Column A Column B
1. The current ratio (or working capital) measures
liquidity – i.e. having enough cash to meet
short-term obligations. It shows if a business
can pay its most urgent debts.
A
Sales volume
__________________________
Number (or wages) of employees
2. A company’s profit margin or return on sales
is the percentage difference between sales
income and the cost of sales.
B
(long-term) loan capital
__________________________
Shareholders’ equity or net assets
3. Productivity shows the amount of work or
sales per employee.
C
Current assets
_____________
Current liabilities
4. Earnings per share relates the company’s
profits to the number of ordinary shares it

5. A …… … is someone who buys shares, expecting the market to rise.
a. bear b. bull c. dog d. stag
6. A …… … is a speculator who expects share prices to fall.
a. bear b. bull c. dog d. stag
7. A …… … is a person who buys new issues of shares hoping to sell them quickly at
a profit.
a. bear b. bull c. dog d. stag
8. I’ve put part of the money into an instant ……… account.
a. access b. excess c. exit d. entrance
9. Bonds issued by the government are often known as ………
a. gelts b. guilt’s c. gilts d. debits
10. What kind of ……… can I expect on my investment?
a. reward b. prize c. surplus d. return
11. You should have as diversified a ……… of shares as possible.
a. case b. file c. portfolio d. folder
12. In real ……… the $1,000 you invested would be worth $5,000 today.
a. words b. facts c. factors d. terms
13. The higher the risk you ……… , the more money you could make.
a. take b. do c. make d. invest
14. The market has been extremely ……… over the past few years.
a. volatile b. wavering c. shocking d. moving
4.2
56
Unit 4: Financial analysis
Based on the information in the two texts above, answer the following questions
in your own words
1. What’s financial statement analysis?
…… ……………
2. What’s the purpose of analyzing financial statements?
…… ……………

In a classification essay, a writer organizes, or sorts, things into categories.
2. Three steps to effective classification:
Step 1: Sort things into useful categories.
Step 2: Make sure all the categories follow a single organizing principle.
Step 3: Give examples that fit into each category.
3. Finding categories
This is a key step in writing a classification essay. To classify, or sort, things in a logical
way, find the categories to put them into. For example, say you need to sort the stack of
papers on your desk. Before you would put them in random piles, you would decide what
useful categories might be: papers that can be thrown away; papers that need immediate
action; papers to read; papers to pass on to other coworkers; or papers to file.
4. Thesis statement of a classification essay
The thesis statement usually includes the topic and how it is classified. Sometimes the
categories are named.
(topic) (how classified) (category) (category) (category)
Ex: Tourists in Hawaii can enjoy three water sports: snorkeling, surfing, and sailing.
5. How to write an effective classification essay
A. Determine the categories. Be thorough; don't leave out a critical category. For example,
if you say water sports of Hawaii include snorkeling and sailing, but leave out surfing,
your essay would be incomplete because surfing is Hawaii's most famous water sports.
On the other hand, don't include too many categories, which will blur your
classification. For example, if your topic is sports shoes, and your organizing principle
is activity, you wouldn't include high heels with running and bowling shoes.
B. Classify by a single principle. Once you have categories, make sure that they fit into the same
organizing principle. The organizing principle is how you sort the groups. Do not allow a
different principle to pop up unexpectedly. For example, if your unifying principle is "tourist-
oriented" water sports, don't use another unifying principle, such as "native water sports,"
which would have different categories: pearl diving, outrigger, or canoe racing.
C. Support equally each category with examples. In general, you should write the same
quantity, i.e., give the same number of examples, for each category. The most

- Liquidity
- Liquidity ratio
N
- Net sales revenue
O
- Operational ratio
P
- Profitability ratio
R
- Ratio analysis
S
- Solvency
- Solvency ratio
T
- Trend analysis
V
- Vertical analysis
- Năm căn bản/ chuẩn/ gốc
- Chu kỳ kinh doanh
- Người/Chuyên viên phân tích tín dụng
- Chứng khoán nợ
- Công cụ tài chính (như chứng khoán, cổ phần, tiền…)
- Phân tích báo cáo tài chính
- Mức lãi gộp/ biên lãi gộp (bán hàng)
- Lợi nhuận gộp/ lãi mộc
- Phân tích theo chiều ngang
- Mức quay vòng vốn, khả năng thanh toán, tính lỏng
- Tỷ suất thanh toán, tỷ suất lưu động
- Doanh thu ròng
- Tỷ suất kinh doanh

1. Vans which a delivery company owns and uses to deliver
goods.
2. Vans for sale in a showroom.
3. A showroom owned by a company that sells vans.
4. A showroom rented by a company that sells cars.
5. A sum of money that a company has to pay its supplier in the next six months.
Revision A
59
UNIT OBJECTIVES - MỤC TIÊU
• Review the topics introduced in Unit 1, Unit 2, Unit 3 and Unit 4 through reading and
vocabulary exercises.
Ôn tập các chủ đề đã học ở bài 1, bài 2, bài 3 và bài 4 thông qua các bài đọc và từ vựng.
1
1.1
6. Money which customers owe, that will definitely be paid in the next 60 days.
7. Money which a bankrupt customer owes, that will certainly never be paid.
8. The client list of a successful training company, all of which are successful businesses.
9. A five year loan from a commercial bank.
10. The client list of a training company, with names of clients that have all gone bankrupt.
Match the words or expressions in the column A with their definition in column B
Revision A
60
1.2
Column A Column B
1 Articles of Co-partnership (n) A The contract telling the terms, conditions and
purposes of a corporation.
2 Articles of Incorporation (n) B Separate unit for ownership or legal purpose
3 Bankrupt (adj) C Unable to pay one’s debts and legally releases
from the liability.
4 Board of Directors D A group of persons elected by stockholders to

my profession (4) …………
Sometimes we act as (5)………… : specialist outside accountants who audit a company’s
accounts, that is, we check them at the end of the particular period to see if they give a true
and (6)…………. (an accurate and complete picture). An audit can take several days, even
for a fairly small company.
When a company’s results are presented in a way that makes them look better than they
really are, even if it follows the rules, it may be accused of creative accounting or
(7)………… Of course, I never do this!
Revision A
61
1.3
2
1. “We had to find a lender who was prepared to finance an
exciting new company.”
2. “Our lending to companies takes the from of conditional loans
or debentures.”
3. “If you do not keep up with the repayments, we may sell your
home to recover our money”.
4. “The company is highly geared so I wouldn’t invest in it.”
5. “We owe our supplier $12,000 and we have a loan of $8,000 so
the total is about $20,000.”
auditors fair view
accounts accountancy
accountant window dressingthe
bookkeepers
Financial statement and analysis
Match the explanation in column A with its words in column B
Choose the most suitable answers for the following questions
1. The money raised from several international banks will help __________ the airline's move
to a new airport.

E Dividends
6 Individuals who invest their money in a company
hope to regularly receive these
F Finance director
7
A plan of cash income and cash spending for a specific
period of time
G Financial advisor
8 Cash items, or items that can easily be changed into
cash for the present financial year
H Fixed assets
9 Major spending on large items necessary for the
business, such as property or equipment
I Pre-tax profit
10 Someone who advised people on how to manage their
financial affairs
J Profit and loss report
3. The company was unable to pay its debts and was therefore declared ________.
a. bankrupt b. written off c. uneconomic d. indebted
4. The bank has agreed a/an ____ of $1m to finance the purchase of the new building.
a. allowance b. loan c. accommodation d. advance
5. Last year they made a big profit from ________ of their new product range.
a. lending b. purchases c. sales d. taxes
6. At the end of a difficult year, the company are predicting pre-tax __________ of $5.7m
compared with $9.8m last year.
a. benefits b. profits c. gains d. winnings
7. Goodfood Ltd. recorded sales last year of about $1.7b and shareholders are expecting to
receive a high ____________ on their shares.
a. dividend b. payout c. margin d. interest
8. The shares that we bought in one of the new dotcom companies are expected to

is for something that is not normally repeated, for example the sale of a subsidiary company
or the costs of restructuring. A company’s (7) ……………is before charges like these are
taken away; it net profit is afterwards. The final figure for profit or loss is what people call
informally the (8)…………… . This is what they really worry about!
If the company is making a loss, commentators may say that it is (9)………… They may also
use expressions with (10)…………. , saying, for example that a company is bleeding red ink
or hemorrhaging red ink”.
Revision A
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