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ESTHER DANIEL INTERNATIONAL, INC.

MANAGEMENT REPORT FOR

COLLECTION PROGRAM IMPROVEMENT PLAN

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Prepared by:

Arguilles, Christeren B.

Armayan, Richel Marie L.

Omaña, Quennie S.

Salcedo, Michelle Renee C.

Suson, Jessa Mae E.

Group 8; MWF 3:30 PM – 4:30 PM ARC

 NARRATIVE REPORT

Esther Daniel International, Inc. horizontal analysis of its statement of financial position shows that its total
assets and total liabilities and stockholders’ equity as of the end of the calendar year of 2018 amounted to
₱28,508,325. This reflects a growth of 80% from its amount at the end of 2013. Breaking it down year to
year, the company shows a favorable trend of more than 50% increase each year as compared to its 2003
ending balance – an average of 65.8% per year. This year, however was its highest ever, the only time it
earned an increase of more than 70%. By account, we can see an upward trend for the company’s assets in
the six-year analysis. Its cash balance, particularly, grew 511% since 2003 – an average of 218.8% per year.
While its receivable and inventory account did show a decrease in the first year, as well as an even higher
decrease in the second year for the receivables, both accounts were able to recover and reflect an upward
trend coming to 2008. The company’s property and equipment account, though showed a downward trend
of increase for the four years in the analysis, reflected an upward growth for 2008 with an increase of 75%
from the account’s balance of ₱12,299,178 in 2003.

For the company’s liabilities, the accounts payable which is its only current liability account, showed an
ending balance for the year 2008 of ₱5,000,263 from its 2003 balance of ₱3,212,940. This reflects a positive
growth of 56%. Although we can see from the analysis that for the first two years, the account balance
decreased by 6 and 4 percent respectively, the account has been showing an upward trend for the remaining
years of the analysis. The company had mortgage payable starting only from 2004 and since then it has
been showing a downward trend, reflecting that the company has been paying off its mortgage loans each
year. Because of the mortgage payable’s decreases in balance which is more than the increases of the
accounts payable, the company’s total liabilities, although each year’s balance is higher relative to the 2003
balance, shows a downward trend of increases – from a 278% increase in 2004 to only a 102% increase in
2008 from its ending balance in 2003. The company’s stockholders’ equity, however, is showing an upward
trend of increases. The account’s balance in 2008 is 174% of its balance in 2003 – an average increase of
34.5% each year, although its higher increases were earned in the most recent years.

The company’s working capital shows an upward trend. It earned a dramatic increase in 2007 with 253%
increase from 2003 and a 386% increase in 2008. This is an effect of the company’s steep upward trend in
cash as well as a generally upward movements in the company’s other current assets which far more exceeds
the increases in its current liabilities. This is also favorable for the company as its not keeping too low a
working capital which could put its short-term financial health at risk with potential liquidity problems nor
is the company keeping too high of its working capital that it’s tying up more funds than necessary for
operational efficiency making it not use its excess assets effectively to generate maximum possible revenue.
This is also reflected in the company’s current ratio which also shows an upward trend. The current ratio
which is a liquidity ratio indicates that Esther Daniel International, Inc. has the ability to service its current
obligations and remain solvent in the short-term. The company has always had a current ratio of more than
one which is good and favorable for the company. As with the working capital, this trend is a result of the
upward trend in the company’s current assets which exceeds the increasing trend of its current liabilities.
For a more accurate gauge of the company’s liquidity and ability to meet its short-term obligations, quick
ratio which is another liquidity ratio might be more preferable as it involves only the company’s most liquid
assets. The company’s quick ratio although took a dip in 2005, showed an increase of 34% in 2008. Overall,
it showed an upward trend, except for that one year it showed a decrease which is attributable to the
significant decrease in the company’s receivables in 2005. However, it does not mean that the company is
doing good with its quick ratio. A figure of 1 is considered to be the normal quick ratio, as it indicates that
the company is fully equipped with sufficient assets that can be instantly liquidated to pay off its current
liabilities. The company has always had a quick ratio of less than 1 which indicates that it may not be able
to pay off its current liabilities in the short term using its most liquid assets. The company has, however,
been doing better in recent years with quick ratio almost 1.

An activity ratio, the accounts receivable turnover ratio, measures the number of times receivables turn over
in a year and reveals how successful the company is in collecting its outstanding receivables. The
company’s receivable turnover, however, is relatively low at 7.25 in 2004 and 7.91 in 2008 with a
downward trend of variances in its value until 2007 then took an increase in 2008. The decrease in the ratio
in 2007 might also be attributable to the movement in the value of the company’s receivable which had a
smaller increase in 2007 compared to the increase in the account’s value in 2006. However, the movement
in the receivable turnover in 2005 and 2006 didn’t mirror the movement in the company’s accounts
receivable balance in 2005 and 2006. But as for 2008, the increase in the account receivable is reflected
also in the increase in the receivable turnover ratio. In accounts receivable turnover ratio, a higher number
is preferred because it indicates a shorter time between sales and cash collection. The result of the analysis
indicates that while the receivable turnover ratio of the company is not too low, it’s also not high enough
for operational efficiency. This can suggest that the company may have poor collecting processes, a bad
credit policy or none at all, or bad customers or customers with financial difficulty.

IAPIL NI SA INYO DAY.

Theoretically, a low ratio can also often mean that the company has a high amount of cash receivables for
collection from its various debtors, should it improve its collection processes. Generally, however, a low
ratio implies that the company should reassess its credit policies in order to ensure the timely collection of
imparted credit that is not earning interest for the firm.

evaluating accounts receivable on a more frequent basis and take a more assertive stance in the collection
of accounts receivable and delinquent accounts.