Financial Ratios

Through Ratio analysis, the financial statements users comes into possession of measures which
provide insight into the probability of operation, the soundness of the firms short term and long
term projected financial position and the efficiency with which management has utilized the
resources entrusted into it. Financial ratios can be used to analyze trends and to compare the
firm’s financial to those of other firms. In some cases, ratio analysis can predict future
bankruptcy. Financial ratios quantity many aspect of a business and are integral part of the
financial statement analysis. Financial ratio are categorized according to the financial aspect of
the business which the ratio measures.

Ratios must be used only as financial tools, that is, as indicators of weakness or strength and not
to be regarded as good or bad per se.

Ratio are composite of many different figures— some covering a time period, others an instant
time and others representing averages.

Liquidity Ratio provide information about the firm’s ability to pay its current obligation and
continue operation

Current Ratio is the test of ratio of short term debt paying ability.

Current Ratio= Current Liabilities/ Current Assets

2019 2020 2021 2022 2023

Current Liabilities 373095 405488 440417.6 477796.9 517367.9

Current Asset 3140218 3371175 3609636 3851766 4092701

Current Ratio 11.88% 12.03% 12.20% 12.40% 12.64%

Analysis

As Melt N’Dough grows in the food industry its projected current ratio increases from the year
2019 with 11.88% to 2023 with 12.64% and means its current assets could finance its short term
obligations

Solvency Ratio measures Melt N’Dough’s ability to meets it’s long term obligations and
survive in the long term. Analysis of the ratios provides insight on company’s capital structure
as well as the level of the financial leverage of the firm is using.

Total Debt Ratio measures the percentage of funds provided by the creditors.
Total Debt Ratio= Total Liabilities/ Capital

2019 2020 2021 2022 2023

Total Liabilities 373095 405488 440417.6 477796.9 517367.9

Total Liabilities + Equity 3245144 3470418 3703196 3939643 4174894

Total Debt Ratio 11.50% 11.68% 11.89% 12.13% 12.39%

Analysis

MND’s total debt ratio in 2019 is 11.50% and continuously increasing through 2023 having
12.39% means the firm is using a larger amount of financial leverage, which increases its
financial risk in the form of fixed interest payments.

Debt to Equity Ratio compares resources provided by creditors with resources provided by
shareholders

Debt to equity= Total Liabilities/ Equity

2019 2020 2021 2022 2023

Total Liabilities 373095 405488 440417.6 477796.9 517367.9

Partnership Equity 2872049 3064930 3262778 3461846 3657526

Debt to Equity Ratio 12.99% 13.23% 13.50% 13.80% 14.15%

Analysis

On its first year it has 12.99% up to 2013 of 14.15% of partnership equity is used to finance for
its liabilities. Melt N’Dough has an increasing ratio of debt to equity ratio in it operation of five
years and implies that they are risky to creditors and investors.

Profitability Ratio measures earnings in relation to some base, such as assets, sales or capital.

Profit margin measures the percentage of net income to sales

Net Profit Margin = Net Income/ Net Sales

2019 2020 2021 2022 2023

372048.6 385762.8 439662.6 497669.5 559087.1

Net income 372048.6 385762.8 439662.6 497669.5 559087.1

Net Sales 2483883 2628694 2781946 2944134 3115777

Net Profit rate 14.98% 14.68% 15.80% 16.90% 17.94%

Analysis

Its operation is increasing from first year of 14.98% to its fifth year of 17.94%, it only means that
MND is performing well and in every increase in its sales it can also double its net income even
if expenses may vary in the lapse of time.

Net Operating Income to Sales measures the percentage of operating income to sales

Net Operating Income to Sales= EBIT/ Net Sales

2019 2020 2021 2022 2023

Operating Income 531498 551089.7 628089.4 710956.4 798695.8

Net Sales 2483883 2628694 2781946 2944134 3115777

Operating Profit Rate 21.40% 20.96% 22.58% 24.15% 25.63%

Analysis

MND’s earnings’not affected of its income tax of the business to its sales from first year to
second year may have a slow growth ratio on its initial years of operation but could increase by
almost 2% of the third year operation and rising up to fifth year only means that just using MND
EBIT can cover its Sales Production and performing good in the industry.

Gross Profit Margin is a financial metric used to assess a company's financial health and
business model by revealing the proportion of money left over from revenues after accounting
for the cost of goods sold (COGS).

Gross Profit Margin= EBIT/Net Sales

2019 2020 2021 2022 2023

EBIT 1082083 1096096 1173096 1255963 1343702

Net Sales 2483883 2628694 2781946 2944134 3115777

Gross Profit Rate 43.56% 41.70% 42.17% 42.66% 43.13%

Analysis

MND’s Gross profit Margin varies it rates annually from 2019 of 43.56% and decrease by 1.86%
and increase of .47% the second year and constantly increasing up to its fifth year of operation
means that excluding the effect of Income Tax shows us MND’s can earn a half of its Net sales.

Return on Investment indicates whether management is using funds wisely

Return on Investment= Net income/ Average Total Asset

2019 2020 2021 2022 2023

Net Income 372048.6 385762.8 439662.6 497669.5 559087.1

Average Total Asset 1622572 1735209 1851598 1969821 2087447

ROA 22.93% 22.23% 23.75% 25.26% 26.78%

Analysis

The purpose of investing in assets is to generate sales, which leads to profit. The return on
investment ratio measures the profitability per peso of investment in the firm. It measures how
much net income was generated for each Php 1.00 of assets the company has.

MND’s Return on Investment is increasing from its first year up to its fifth year. Their estimates
in performing good managements of its resources of assets to increase sales improved its return
on investment ratio and could also attract investors to expand/grow in the food industry.

Return on Equity is a measure of the profitability of a business in relation to the book value of
shareholder equity.

Return on Equity= Net Income/ Total Stockholders’Equity

2019 2020 2021 2022 2023

Net Income 372048.6 385762.8 439662.6 497669.5 559087.1

Total Stockholders’Equity 2872049 3064930 3262778 3461846 3657526

ROE 12.95% 12.59% 13.48% 14.38% 15.29%

Analysis

Melt N’Dough’s generated, with the use of the equity invested by the partners could receive
after tax deductions on its first years is Php .1295 for every Php 1.00 of partners shareholders
equity for the first year and keeps on increasing to .1529 for every 1.00 in its fifth year.