New Era University

College of Accountancy

FINANCIAL MANAGEMENT
FINANCIAL STATEMENT ANALYSIS

The Financial Statements of Gian Company are given below:

GIAN COMPANY
BALANCE SHEETS
As of December 31

ASSETS
2019 2018

Current Assets
Cash P 45,000 P 50,000
Accounts Receivable 212,500 207,500
Inventory 155,000 140,000
Total Current Assets 412,500 397,500

Plant and Equipment 1,885,000 1,662,500

Accumulated Depreciation ( 480,000) ( 375,000)
Net 1,405,000 1,287,500

TOTAL ASSETS P 1,817,500 P 1,685,000

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LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts Payable P 55,000 P 47,500
Accrued Expenses 112,500 110,000
Total Current Liabilities 167,500 157,500
Long-Term Debt 250,000 237,500

Total Liabilities 417,500 395,000

Stockholders’ Equity
Common Stock, no par value 1,000,000 1,000,000
Retained Earnings 400,000 290,000
Total Stockholders’ Equity 1,400,000 1,290,000

TOTAL LIABILITIES AND

STOCKHOLDERS’ EQUITY P 1,817,500 P 1,685,000
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 GIAN COMPANY
INCOME STATEMENT
For the year ended December 31, 2019

Sales P 2,162,500
Cost of Goods Sold 1,206,250

Gross Profit 956,250

Depreciation P 105,000
Other Operating Expenses 533,750 638,750
Income before interest and taxes 317,500
Interest Expense 17,500
Income before Taxes 300,000
Income taxes at 35% rate 105,000

Net Income P 195,000

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During 2019 the firm declared and paid cash dividends of P85,000. There were 50,000
shares of common stock outstanding throughout the year. The market price of the stock at
year end was P16.25. All sales and purchases are on credit.

Required:
1. Compute the following ratios as of the end of 2019 or for the year ended
December 31, 2019, whichever is appropriate:
a. Current Ratio = 2.46
b. Quick Ratio = 1.54
c. Accounts Receivable Turnover= 10.3
d. Days’ credit sales in accounts receivable = 35 days
e. Inventory turnover = 8.18
f. Days’ sales in inventory = 45 days
g. Days’ purchases in accounts payable = 16 days
h. Gross profit Ratio = 44.22% or 0.44219653179
i. Return on Sales = 0.15
j. Return on assets (ROA) = 0.17
k. Return on Equity (ROE) = 0.14
l. Earnings per share (EPS) = 3.9
m. Price-earnings ratio (PE) = 4.17
n. Dividend Yield = 0.1
o. Payout ratio = 0.44
p. Debt ratio = 0.23
q. Times Interest Earned = 18.14
 2. Prepare Common size statements for Gian Company for 2019 and 2018.

GIAN COMPANY
BALANCE SHEETS
As of December 31

ASSETS
2019 2018

Current Assets
Cash 2.48% 2.97%
Accounts Receivable 11’69% 12.31%
Inventory 8.53% 8.31%
Total Current Assets 22.70% 23.59%

Plant and Equipment 103.71% 98.66%

Accumulated Depreciation ( 26.41%) ( 22.25%)
Net 77.30% 76.41%

TOTAL ASSETS 100% 100%

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LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts Payable 3.03% 2.82%
Accrued Expenses 6.19% 6.53%
Total Current Liabilities 9.22% 9.35%
Long-Term Debt 13.75% 14.09%

Total Liabilities 22.97% 23.44%

Stockholders’ Equity
Common Stock, no par value 55.02% 59.35%
Retained Earnings 22.01% 17.21%
Total Stockholders’ Equity 77.03% 76.56%

TOTAL LIABILITIES AND

STOCKHOLDERS’ EQUITY 100% 100%
========== ==========

GIAN COMPANY
INCOME STATEMENT
For the year ended December 31, 2019

Sales 100%
Cost of Goods Sold 55.78%

Gross Profit 44.22%

Depreciation 4.86%
Other Operating Expenses 24.68% 29.54%
Income before interest and taxes 14.68%
Interest Expense 0.81%
Income before Taxes 13.87%
Income taxes at 35% rate 4.86%

Net Income 9.01%

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3. Perform a horizontal analysis on the statements of Gian Company by

determining the changes, both in pesos and percentages, between the 2019 and
2018 figures.
ASSETS
CHANGE IN PESO CHANGE IN RATE

Current Assets
Cash (10.00%) (5,000)
Accounts Receivable 5,000 2.41%
Inventory 15,000 10.71%
Total Current Assets 15,000 3.77%

Plant and Equipment 222.500 13.38%

Accumulated Depreciation ( 105,000) ( 28.00%)
Net 117,500 9.13%
TOTAL ASSETS 132,500 7.86%
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LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts Payable 7,500 15.79%
Accrued Expenses 2,500 2.27%
Total Current Liabilities 10,000 6.35%
Long-Term Debt 12,500 5.26%

Total Liabilities 22,500 5.70%

Stockholders’ Equity
Common Stock, no par value 0 0.00%
Retained Earnings 110000 37.93%
Total Stockholders’ Equity 110000 8.53%
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY 132,500 7.86%
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