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Chapter 13

Chapter 13

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Published by 'Jemuel Vales

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Categories:Types, Business/Law
Published by: 'Jemuel Vales on Feb 18, 2011
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CHAPTER 13FINANCIAL STATEMENTS ANALYSIS
[Problem 1]Twig CompanyComparative Balance SheetDecember 31, 2006 and 2007
Increase (Decrease)ASSETS2007 2006Amount
Percentage
Cash P3,000 P5,000 P(2,000) (40.0)Accounts Receivable40,00025,00015,000 60.0Inventory27,00030,000(3,000)(10.0)Long-term investments15,000015,000 0.0Land, building andequipment (net)100,00075,00025,00033.3Intangibles10,00010,00000.0Other assets5,00020,000(15,000)(75.0)Total P200,000 P165,000 P35,000 21.2LIABILITIES & STOCKHOLDERS’ EQUITYCurrent liabilities P30,000 P47,000 P(17,000) (36.2)Long-term liabilities88,00074,00014,00018.9Total liabilities118,000121,000(3,000)(2.5)8% Preferred stock10,0009,0001,00011.1Common stock54,00042,00012,00028.6Additional paid-in-capital5,0005,00000.0Retained earnings13,000(12,000)25,0000.0Total stockholdersequity82,00044,00038,00086.4Total liabilities and owners’equity P200,000 P165,000 P35,000 21.2
2.
Twig CompanyCommon-size Balance SheetDecember 31, 2006 and 2007
 
ASSETSCash1.50%3.03%Accounts Receivable20.0015.15Inventory13.5018.18Long-term investments35.0036.36Land, building and7.500.00equipment (net)50.0045.46Intangibles5.006.06Other assets2.5012.12Total100.00100.00LIABILITIES and STOCKHOLDERS’ EQUITYCurrent liabilities15.0028.48Long-term liabilities44.0044.85Total liabilities59.0073.338% Preferred stock5.005.46Common stock27.0025.45Additional paid-in-capital2.503.03Retained earnings6.50(7.27)Total stockholder's equity41.0026.67Total liabilities and stockholders’equity100.00%100.00%3. CommentsBased on the data as calculated, the following may be derived:a.The company’s financial position is becoming stronger and more stable as its totalrevenues increase by 21.2% coupled with a decline in liabilities of 25% with an overallimpact in stockholder’s equity of 86.4% increase.b.The increase in the overall net wealth of the company is engineered by reducinginvestments of working capital assets to 35.0% from 36.36% and a decrease in the contra-working capital liabilities from 28.48% to 15.0%.c.The company’s working capital strategy is to increase its accounts receivable to customerswhile reducing inventory and accounts payable at the same time. This strategy apparentlypays off as the net income increases to the benefit of stockholders and other stakeholders.d.The increase in non-current assets, particularly, land, buildings, and equipment is financedby long-term creditors and sets the overall tone of the firm’s financial structure.[Problem 2]1. Metro Company
 
Comparative Income StatementFor the years ended, December 31, 2006 and 2007(in thousands)
Increase (Decrease)20072006Amount%Sales P45,000 P50,000 P(5,000) (10.00)Less: Sales returns1,0002,000(1,000)(50.00)Net sales44,00048,000(4,000)(8.33)Less: Cost of goods sold24,00035,000(11,000)31.43Gross profit20,00013,0007,00053.85Less: Selling and general expenses12,00010,0002,00020.00Operating income8,0003,0005,000166.67Less: Other expenses3,0003,500(500)(14.29)Income (loss) before income tax5,000(500)4,500-Less: Income tax (refund)2,000(200)2,200-Net Income (Loss) P3,000 P(300) P3,300 110.00
2. Metro CompanyCommon-size Income StatementFor the years ended, December 31, 2006 and 200720072006Sales102.27%104.17%Less:Sales returns2.274.17Net sales100.00100.00Less:Cost of goods sold54.5472.92Gross Profit45.4627.08Less: Selling and general expenses27.2720.83Operating income18.196.25Less: Other expenses6.827.29Income (loss) before income tax11.371.04Less: Income tax (refund)4.540.42Net Income (Loss) 6.83% 0.62%3. CommentsBased on the data as calculated, the following may be stated:a.The significant improvement in the operating results of Metro Company is primarilyattributed to its ability to reduce its cost of production by 18.38% (i.e., 72.92% - 54.54%).b.The operating performance would have been better had the operating expenses beencontained instead of increasing it by 6.44% (i.e., 27.27% - 20.83%).c.The company’s operating strategy is working well and may be applied once more in thefollowing year to produce a better return on sales and return on assets. Albeit, thegeneration of sales should be intensified to forestall the downward trend in sales.

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