Pretest – Teacher’s Copy

FS Analysis MAS #7

Write your solution in a separate yellow paper, make it legible and box your final answer. Only blue or black pen is allowed.

1. Net Sales for the year were P720,000, cost of goods sold, operating expenses and income tax, 655,200.
Asset Turnover during the year was 1.8 times. Compute the return on assets.

Solution:
First, get Net Income:
NI = Sales - COGS
= P720,000 - 655,200
= P64,800

ROA = NI / Total Assets ATO = Sales / Total Assets

= P64,800 / 400,000 1.8 = P720,000 / Total Assets
= 16.2% Total Assets = P400,000

Alternative Solution:
Profit Margin = P64,800 / P720,000 Sales = 9%

ROA = ATO x Profit Margin

= 1.8 x 9%
= 16.2

2. Return on Assets, 15%; Asset Turnover, 1.5 times; Net income, 600,000. How much were net sales and
net profit margin?

Solution:
ROA = ATO x Net Profit Margin
15% = 1.5 x X%
Net Profit Margin = 10%
Net Profit Margin = Net Income / Net Sales
10% = P600,000 / X
Net Sales = P6,000,000

3. What is the rate of return on net sales if the asset turnover is 3.5 times and 14% is earned on the asset?

Solution:
ROA = ATO x Net Profit Margin
14 = 3.5 x X%
Net Profit Margin = 4%

4. The current ratio is 2.5 to 1; the acid-test ratio is 0.9 to 1; liquid assets are P270,000. The only non-liquid
asset is inventory. How much were current liabilities? How much is inventory?

Solution:
Getting Current Liabilities:
Acid-Test Ratio = Liquid Assets / Current Liabilities
0.9 = P270,000 / X
Current Liabilities = P300,000

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FS Analysis MAS #7

Current Ratio - Acid-Test Ratio = Portion of Ratio pertaining to Inventory

2.5 - 0.9 = 1.6

Getting Inventory, end:

1.6 = Inventory? / Current Liabilities of P300,000
Inventory = P480,000

5. Accounts receivable equal 45 days credit sales. The coming year should see sales of P900,000 spread
evenly over the year. How much should Accounts Receivable be at the end of the year?

Solution:
Daily Credit Sales = Sales / 360 days
Daily Credit Sales = P900,000 / 360 days
= P2,500 per day

AR = Daily Credit Sales x Day Sales Outstanding

AR = 2500 x 45
AR = P112,500

6. A company had current assets of P600,000. It then paid a current liability of P90,000. It then paid a
current liability of P90,000. After the payment current ratio was 2 to 1. How much were current liabilities
before the payment was made?

Solution:
Current Ratio = CA / CL
2 = (600,000 - 90,000) / (X - 90,000)
X = 345,000
X is CL before Payment

7. Stern Company has 100,000 shares of common stock and 20,000 shares of preferred stock outstanding.
There was no change in the number of common or preferred shares outstanding during the year. Preferred
stockholders received dividends totaling P140,000 during the year. Common stockholders receive
dividends totalingP210,000. If the dividend payout ratio was 70%, how much is the net income?

Solution:
NI attributable to Common = Net Income - Preferred Dividends

Dividend Payout Ratio = Dividend to Common Shares / NI attributable to Common

70% = P210,000 / ( X - P140,000)
X = P440,000
X is Net Income

8. Thee market price per share of Fallen Co. stock at the beginning of the year was P60.00 and at the end
of the year was P72.00. Net income for the year was P48,000. Dividends to the preferred stockholders for
the year totaled P12,000, and dividends of P2.50 per share were paid in the 6,000 shares of common stock
outstanding during the year. What is the price-earnings ratio at year end?

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FS Analysis MAS #7

Solution:
Price to Earnings Ratio = Market Price / EPS
EPS = Net Income Attributable to Common / # of Common Shares

First get EPS:

EPS = (P48,000 NI - P12,000 Preferred Dividends) / 6,000 Common Shares
EPS = 6

Then, get P:E Ratio:

P:E Ratio = P72 Market Price / 6 EPS
P:E Ratio = 12

9. Camper Company has 40,000 shares of common stock outstanding. The following Data pertain to these
shares for the most recent year:

Price originally issued P25 per share

Book value, December 31 P40 per share
Market value, January P50 per share
Market value, December 31 P60 per share

The total dividend on common stock was P480,000.

What is Camper Company’s dividend yield ratio for the year?

Solution:
Dividend Yield Ratio = Dividends Per Share to Common / MV per share
= (P480,000 / 40,000 shares) / P60/sh
Dividend Yield Ratio = 20%

10. Selected data from Perry Corporation’s financial statements follow:

Current Ratio 2.0
Acid-test ratio 1.5
Current liabilities P120,000
Inventory Turnover 8
Gross Profit margin as a percentage of Sales 40%

The company has no prepaid expenses and there were no changes in inventories during the year.
How much was Perry Corporation’s net sales for the year?

Solution:
First, get Inventory amount:
Current Assets = P120,000 CL x 2.0 CR = 240,000
Acid Assets = P120,000 CL x 1.5 Acid Ratio = 180,000
Current Assets - Acid Assets = Inventory
240,000 - 180,000 = P60,000

Then, get COGS:

COGS = Inventory x ITO
COGS = 60,000 x 8 = P480,000

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FS Analysis MAS #7

Finally, get Sales using : (TN: Don’t be tricked by GP rate)

Sales 100%
COGS (60%)
GP 40% >>> This is GP rate based on sales

Sales 100% P800,000 [P480,000/60%]

COGS (60%) P480,000
GP 40% P320,000

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