The document provides lessons on various business applications including solving partnership and tax problems, performing financial statement analysis through vertical analysis, horizontal analysis, and ratio analysis. It includes examples of computing partnership shares based on profit percentages, calculating net income after taxes, converting an income statement to percentages for vertical analysis, calculating various ratios like return on investment, profit margin, current ratio, and debt ratio. It also demonstrates analyzing trends over multiple periods through horizontal analysis.
The document provides lessons on various business applications including solving partnership and tax problems, performing financial statement analysis through vertical analysis, horizontal analysis, and ratio analysis. It includes examples of computing partnership shares based on profit percentages, calculating net income after taxes, converting an income statement to percentages for vertical analysis, calculating various ratios like return on investment, profit margin, current ratio, and debt ratio. It also demonstrates analyzing trends over multiple periods through horizontal analysis.
The document provides lessons on various business applications including solving partnership and tax problems, performing financial statement analysis through vertical analysis, horizontal analysis, and ratio analysis. It includes examples of computing partnership shares based on profit percentages, calculating net income after taxes, converting an income statement to percentages for vertical analysis, calculating various ratios like return on investment, profit margin, current ratio, and debt ratio. It also demonstrates analyzing trends over multiple periods through horizontal analysis.
At the end of this lesson, the students should be able to:
1. solve partnership problems; 2. solve tax problems; 3. perform vertical analysis of financial statements; 4. perform horizontal analysis of financial statements; and 5. perform ratio analysis. Partnership Problems Partners A, B, and C share profits and losses: 20% to A, 30% to B, and 50% to C. Compute the share of each if the partnership earned a net income of ₱15,000. Given: A = 20% B = 30% C = 50% Net = ₱15,000 P = BR A = ₱15,000 × 20% = ₱3,000 B = ₱15,000 × 30% = ₱4,500 C = ₱15,000 × 50% = ₱7,500 Tax Problems A corporation earned ₱36,800 in net income before tax. If the corporation’s income tax is 35%, compute for the net income after tax.
Given: Net income before tax (NIBT) = ₱36,800
Income tax rate (ITR) = 35% Net income after tax (NIAT) = NIBT – Income Tax Tax Problems
common-size statement: Excelsior Enterprises Income Statement For the Month Ended June 30, 2010 Net Sales ₱150 000.00 Less: Cost of Sales ₱ 90 000.00 Gross Profit ₱ 60 000.00 Less: Operating Expenses ₱ 35 000.00 Net Income ₱ 25 000.00 Net Sales ₱150 000.00 Less: Cost of Sales ₱ 90 000.00 Gross Profit ₱ 60 000.00 Less: Operating Expenses ₱ 35 000.00 Net Income ₱ 25 000.00
Net Sales 100%
90,000 Less: Cost of Sales = 60% 150,000 60,000 Gross Profit = 40% 150,000 35,000 Less: Operating Expenses = 23.33% 150,000 25,000 Net Income = 16.67% 150,000 Ratio Analysis – Profitability Ratios
1. Return on Owner’s Investment (ROI)
If a company earns a net profit of ₱100,000 and the capital of the owner is ₱1,000,000, the ROI would be: 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 ROI = 𝑂𝑤𝑛𝑒𝑟 ′ 𝑠 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 ₱100,000 = ₱1,000,000 = 10% Ratio Analysis – Profitability Ratios
2. Profit Margin or Return of Sales (ROS)
If a company earned a net profit of ₱100,000 from the generated sales of ₱900,000, the return on sales or profit margin would be: 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 ROI = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 ₱100,000 = ₱900,000 = 11.11% Liquidity/Solvency Ratios 1. Current Ratio If a company has ₱300,000 current assets and ₱100,000 current liabilities, its current ratio would be: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 Current ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 ₱300,000 3 = = ₱100,000 1 = 3:1 For every ₱1 of liability or debt, the company has ₱3 to pay it. Liquidity/Solvency Ratios 2. Debt Ratio Assuming a firm with total liabilities of ₱450,000 and total assets of ₱900,000, the debt ratio would be: 𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 Debt ratio = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 ₱450,000 1 = = ₱900,000 2 = 1:2 The firm has ₱1 liability for ₱2 total assets. Horizontal Analysis Let us study the following trend analysis of the comparative income statements of a certain firm: 201B 201A Amount % (P000) (P000) (P000) R Q2 Q1
Sales 150 125 25 20.00
Cost of Sales 90 70 20 28.57 Gross Profit 60 55 15 27.27 Operating Expenses 35 45 (10) (22.22) Net Income 25 10 15 150.00 Horizontal Analysis Getting the percent of increase/(decrease): Q 2 − Q1 R= Q1 150,000 − 125,000 25,000 = = = 𝟐𝟎% 125,000 125,000
For the operating expenses:
35,000 − 45,000 (10,000) R= = = (𝟐𝟐. 𝟐𝟐%) 45,000 45,000 Exercises: 1. What is the tax rate of a product if Martin paid ₱2,354 with included ₱87 as sales tax? 2. Bea and Camille agreed to share profits and losses according to their capital ratio. Using Bea’s capital of ₱16,000 and Camille’s ₱25,000, find the share of each in a net loss of ₱5,500. 3. If a company has a return of investment of 15% and a capital of ₱1,700,000, what is the company’s net profit? 4. A company has a current ratio of 4:1. If the company has ₱100,000 current assets, what is their current liabilities?