TYPE OF FORMULAS COMPUTATIONS EXPLANATIONS

RATIOS
The firm has enough
2089 assets to pay its
519,000 2090 current
276,000 liabilities twice
= 1.88 unlike the previous
CURRENT RATIO = 2.07 year. Aside from
Current Asset that, they also able
Current Liability to increase its ratio;
thus, they have
been paying its
debts well.
For the current year
2089 the corporation has
345,000 enough liquid assets
276,000 to pay its current
ACID TEST =1.25 debts more than the
TURNOVER RATIO previous year. The .
2090 03 increase is
375,000 because of its
Cash + marketable 292,000 increase in cash,
securities + accounts =1.28 marketable
receivable_______ securities and
Current liability accounts receivable.
ACCOUNTS 3,280,000 In a year, the firm
RECEIVABLE 180,000+210,000 could be able to
TUROVER RATIO Net credit sales /2 collect its
Average receivables 16.82 times receivables or 16.82
times
AVERAGE AGE OF 360 days 360 It means that the
RECEIVABLE Receivable Turnover 16.82 company needs to
21.41 days wait for 21.41 days
before collecting the
debts owed by its
debtors.
INVENTORY Cost of Sales 2,120,000 This means that the
TURNOVER Average Inventory 112,000+150,000 firm could sell its
/2 inventory 16.18
times in a year. This
16.18 times indicates how the
firm is efficiently
selling its inventory
 AGE OF 360 days 360 days Before it could be
INVENTORY Inventory Turnover 16.18 able to sell its
22.25 days inventories, the firm
needs to wait for an
average of 22.25
days.
CURRENT ASSET Cost of Sales+OPEX 2,890,000 The firm could only
TURNOVER Average Current Asset 562,000 use its current
5.14 times assets 5.14 times in
generating its total
sales.
TIMES INTEREST Income before 2089 In comparison,
EARNED tax+interest expense 428,000+25,000 there was an
Interest expense 25,000 decrease in its ratio,
18.12 times from 18.12 to 13
2090 times. This is
360,000+30,000 because the interest
30,000 expense increased
13 times while the income
before tax
decreased.
DEBT TO EQUITY Total liabilities 2089 It is evident since
RATIO Total equity 876,000 the firm has a
774,000 greater amount of
1.13 liability than equity.
2090 This is an indication
942,000 that the company
858,000 poses a great
1.10 amount of risk
because of it heavy
reliance on
borrowing money
from outside
financing.
EQUITY RATIO Total Equity 2089 It is expected to
Total Assets 774,000 have a lower equity
1,650,000 ratio. Out of 100%
46.91% of its assets, only
2090 47.67% in 2090 and
858,000 46.91% in 2089 are
1,800,000 from its
47.67% shareholders.
 DEBT RATIO Total liabilities 2089 Basically this means
Total assets 876,000 that the firm is
1,650,000 heavily financed by
53.09% its creditors, an
2090 indication that the
942,000 firm has a larger
1,800,000 part of liabilities
52.33% forming 52.33% in
2090 and 53.09% in
2089 over its total
assets.
GROSS PROFIT Gross Profit 2089 The firm has 35.40%
MARGIN Net Sales 1,003,000 in 2090 and only
2,950,000 35% in 2089, of
35% each peso sales
2090 remaining after it
1,160,000 has paid for its
3,280,000 goods. This increase
35.40% is because of its
increase in its gross
profit.
RETURN ON SALES Income 2089 This can be
Net Sales 278,200 interpreted as: for
2,950,000 every peso of its
9.43% sales, the firm could
2090 have a return of
234,000 7.13% in 2090 and
3,280,000 9.43% in 2089. This
7.13% signifies that the
firm is not earning
well in 2090 as
compared to 2089
since there was as a
significant decrease
in its return on sales
RETURN ON EBIT 390,000 The company is
ASSETS average total assets 1,650,000+1,800,000 effectively using its
/2 assets in generating
its revenues. This
23% also means that 23%
of its revenues are
generally derived
 from each asset
they control.
NET PROFIT RATIO Net Profit 2089 For every peso of its
Net Sales 278,200 sales, the firm could
2,950,000 have a return of
9.43% 7.13% in 2090 and
2090 9.43% in 2089. This
234,000 signifies that the
3,280,000 firm is not earning
7.13% well in 2090 as
compared to 2089
since there was as a
significant decrease
in its return on sales
PRICE EARNING Price Per Share 2089 This signifies that
RATIO EPS _5_ the investors are
1.28 expecting a growth
in the future. The
3.91 pesos investors in the firm
2090 are willing to pay
_5_ 5.95 pesos for a
0.84 stock in 2090 while,
the investors in
5.95 pesos 2089 are only willing
to pay 3.91 pesos.

QUICK RATIO Quick Asset 2089 For the current year,

EPS 345,000 the corporation has
276,000 enough liquid asset
=1.25 to pay off its current
debts more than the
2090 previous year.
375,000
292,00
=1.28

EARNING PER net income - preferred 2089 This means that the
SHARE dividends 278,200 - 150,000 firm has 0.84 pesos
weighted ave. no. of 100,000 in each share of
common shares 1.28 pesos stock in 2090 while
2090 they have 1.28
234,000 - 150,000 pesos in 2089.
100,000
0.84 pesos
RETURN ON Net Income 234,000 This means that
EQUITY company generated
Average Total Equity 858,000+774,000
0.2868 pesos of
profit for every 1
peso of
/2
shareholders'
28.68% equity, giving the
stock an ROE of
28.68%.

UNIVERSITY OF SAN JOSE- RECOLETOS

Magallanes St. Cebu City, Philippines, 6000

FINANCIAL RATIOS
(Components and Analysis)
JOHN ROBERT C. PAGUNSAN
ACCOUNTING 206
9:30-10:30 MWF

MR. ELESTIO PADUL, CPA

PROFESSOR