Department of Accountancy

COLLEGE OF ARTS AND SCIENCES

San Beda College
Mendiola, Manila
Practice Exercise 1: Financial Statement analysis Chio, Jayson T.

1. Following are selected financial information taken from Sample One Company

As of December 31
X15 X14 X13
Cash 150,000.00 80,000.00 640,000.00
Notes and Accounts receivable, net 450,000.00 400,000.00 1,200,000.00
Merchandise Inventory 800,000.00 720,000.00 1,200,000.00
Marketable Securities 200,000.00 240,000.00 80,000.00
Land and buildings (net) 2,560,000.00 2,720,000.00 2,880,000.00
Bond Payable 2,080,000.00 2,160,000.00 2,240,000.00
Accounts payable 600,000.00 560,000.00 880,000.00
Note Payable- short term ----0-------- 160,000.00 320,000.00

For the year ended

X15 X14
Sales (10% cash, 90% credit) 18,400,000.00 19,200,000.00
Cost of goods sold 8,000,000.00 11,200,000.00
Operating expense 6450,000.00 ```5,000.000.00
Interest expense 120,000.00 100,000.00

Compute for the following ratios:

a. Current ratio for Dec. x15 X14 X13
b. Acid Ratio for Dec. x15 X14 X13
c. Accounts receivable turnover for Dec. x15 x14
d. Collection period for X15 X14 X13
e. Inventory turnover in x15 X14 X13
f. Holding period for inventory for X15 X14 X13
g. Times interest earned for the last three years
h. Return on equity for the last three years
i. Asset turnover for the last three years

2. The current assets of Lockout Enterprise consists of cash, accounts receivable, and inventory. The following information
is available:

Credit sales 75% of total sales

Inventory turnover 5 times
Working capital P1,120,000
Current ratio 2.00 to 1
Quick ratio 1.25 to 1
Average Collection period 42 days
Working days 360
What is the estimated inventory amount?

3. Questions a and b are based on the data taken from the balance sheet of Lee Bags Inc. at the end of the current year:

Accounts payable P145,000

Accounts receivable 110,000
Accrued liabilities 4,000
Cash 80,000
Income tax payable 10,000
Inventory 140,000
Marketable securities 250,000
Notes payable, short-term 85,000
Prepaid expenses 15,000
a) The amount of working capital is
b) The company’s current ratio is
c) The company’s acid ratio is

4. Malambot Hardware Store had net credit sales of P6,500,000 and cost of goods sold of P5,000,000 for the year. The
Accounts Receivable balances at the beginning of the year was P100,000 more than the ending balance, respectively.
a. If collection period is 80 days, how much was ending inventory

5. Selected information from the accounting records of PAKING Company follows:

Net sales P3,600,000
Cost of goods sold 2,400,000
Inventories at January 1 672,000
 Inventories at December 31 576,000
What is the number of days’ sales in average inventories for the year?

6. Sablay Consolidated Inc. has three companies whose income statements and balance sheets are summarized below:
James Wade Bosh
Sales 500,000.00 d g
Net Income 25,000.00 30,000.00 h
Total Assets 100,000.00 e 250,000.00
Total Asset turnover a f 0.40
Profit Margin b 0.40% 5%
Return on Assets c 2% i

Supply the missing data for the table above:

8. SAKANG Corporation has P800,000.00 of debt outstanding, and it pays an interest rate of 10% annually on its bank loan.
NOTRADE annual sales are P3,200,000.00, its average tax rate is 40%. If the company does not maintain TIE ratio of at least 4 times,
its bank refuse to renew its loan, and bankruptcy will result. Net Profit Margin of the company is 6%.
 What is the current times interest earned ratio?
 What is the operating profit margin for the year?

9. The following are selected information from MATETRADE Inc.:

Sales P1,500,000 Interest expense 10,000
Cost of goods sold 750,000 Operating expense 25,000
Dividends declared and 85,000 Outstanding shares 200,000
paid

Compute for
 Net operating income as a percentage of sales is
 Net income as a percentage of sales is
 Gross margin percentage is
 Earnings per share
 Payout ratio
 If shares are currently traded for P30, how much is price/ earnings ratio
 Dividend yield

10. SIGN-AND-TRADE (SNT) Corporation has Sales amounting to P2.75 Million with a net profit margin of 12%. Dividends were
declared and paid by the company to both its common and preferred stockholders. Currently, SNT has 10 thousand common stocks
outstanding. Dividends to preferred stockholders amounted to P30 thousand. Currently, SNT’s stocks are traded publicly and have a
quoted price of P1.5 per share.
 How much is SNT’s earnings per share?
 How much is SNT’s price-earnings per share?
11.
BBL Co.
Balance Sheet
12.31.200X
Current Assets:
Cash P ?
Accounts receivable, net ?
Inventory ?
Total ?
Plant and Equipment, net ?
Total Assets P ?

Liabilities:
Current liabilities 320,000
Bonds payable, 10% ?
Total liabilities ?
Stockholders' equity:
Common stock, P5 par value ?
Retained earnings ?
Total stockholders' equity ?
Total liabilities and stockholders' equity P ?

BBL Co.
Income Statement
For the Year Ended 12.31.200X
Sales P4,200,000
Less cost of goods sold ?
Gross margin ?
Less operating expenses ?
Net operating income ?
Less interest expense 80,000
Net income before taxes ?
Less income taxes (30%) ?
Net income ?

The following additional information is available about the company:

a. All sales during the year were on account.
b. There were no issues or retirements of common stock during the year.
c. The interest expense on the income statement relates to the bonds payable; the amount of bonds outstanding did not
change during the year.
d. Selected balances at the beginning of the current year (January, 200X) were:
Accounts receivable P 270,000
Inventory 360,000
Total assets 1,800,000

Selected financial ratios computed from the statements above for the current year are:
Earnings per share P 2.30
Debt-to-equity ratio 0.875 to 1
Accounts receivable turnover 14.0 times
Current ratio 2.75 to I
Return on total assets 18.0%
Times interest earned 6.75 times
Acid-test ratio 1.25 to 1
Inventory turnover 6.5 times
Compute the missing amounts on the company's financial statements

12. Assume you are an analyst evaluating Messo Company. The following data are available in your financial analysis (unless
otherwise indicated, all data are as of December 31, Year 5):
Retained earnings, December 31, Year 4 . . . . . $98,000
Gross profit margin ratio . . . . . . . . . . . . . . . . . 25%
Acid-test ratio . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 to 1
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . $280,000
Days’ sales in inventory . . . . . . . . . . . . . . . . . . 45 days
Days’ sales in receivables . . . . . . . . . . . . 18 days
Shareholders’ equity to total debt . . . . . . 4 to 1
Sales (all on credit) . . . . . . . . . . . . . . . . . $920,000

Common stock: $15 par value; 10,000 shares issued and outstanding; issued at $21 per share

Required:
Using these data, construct the December 31, Year 5, balance sheet for your analysis. Operating expenses (excluding taxes and cost of
goods sold for Year 5) are $180,000. The tax rate is 40%. Assume a 360-day year in ratio computations. No cash dividends are paid in
either Year 4 or Year 5. Current assets consist of cash, accounts receivable, and inventories.