What is a saving ratio?

Before we define what the savings ratio is, we first have to define what savings are. In this WIKI, savings are
defined as the amount of money you have left after you deduct all your expenses from your income. Savings
can also be a specific amount in your budget that you set aside for the future. Savings can be kept for
retirement, an emergency fund, or for a future purchase. 

For example, you decide you want to start putting away money for your savings account. Instead of saving
extra pocket change and coins, you decide you can set aside Php 100 every week. You’re not sure what you’re
going to do with your savings, but you want to make sure you have some cash available when you need it in
the future.

To find out how much of your income goes to savings, you can use the savings ratio. In this WIKI, savings ratio
is defined as the percent of your average monthly income that goes to savings. This ratio is also an indicator of
your savings and spending habits.

Why do I need to learn how to compute for the saving ratio?

Having good saving habits is important. This allows you to have ready cash when you suddenly need it. With
savings, you won’t need to make a loan or use credit. For example, if someone in your family suddenly needs
to go to the hospital, you can use your savings to pay for the expenses.

Learning how to compute for the savings ratio is important because it puts your financial habits in perspective,
especially when it comes to your expenses. You can use this ratio to determine what changes you need make in
order to increase your savings ratio.

What does saving ratio look like?

Savings Ratio

The savings ratio shows you how much of your average monthly income is contributed to your savings. 

For this ratio, what is considered “best” or “good” is determined by each person’s individual situation. People
who have higher income also tend to have a higher savings ratio because they have more disposable income. It
is a good practice to put at least 10% aside for savings just in case of an emergency. 

Having a 0% savings ratio means you’re only making enough income to pay for all your expenses. A negative
savings ratio means you’re not making enough income to pay for all your expenses.
How do I compute for saving ratio?

Savings Ratio

Locate the surplus or total cash flow and monthly income in you personal cash flow statement.

Refer to the formula for savings ratio in the previous section. Compute for savings ratio by dividing surplus or
total cash flow by monthly income and multiplying the result by 100. You may use a calculator or a Google
Sheet. Make sure you only have two numbers after the decimal point. 

What are Asset Management Ratios?

In Accounting, you learned what assets are. Companies acquire assets in order to create profits. Businesses buy all
sorts of equipment and supplies in order to help them generate a profit. Asset Management Ratios are used to
analyze how well companies use their assets in order to generate money for the business.

There are two types of Assets Management Ratios that you will learn:

Accounts Receivable Ratio. This ratio represents how fast a company collects money from their Sales. In Accounting
Management 1, you learned that most Sales are paid on account initially. This ratio will tell a company if they are able
quickly turn these Receivables into money for the company.

Inventory Turnover Ratio. This ratio indicates how fast a company sells its inventory.

Why do I need to learn about Asset Management Ratios?

It is important to learn Asset Management Ratios because learning them is a good indicator that a business can
actually make money. It can tell you whether a business is efficient in its use of assets in order to earn money. It can
also tell a business whether they should evaluate their people, processes, tools, and methods in order to make their
businesses more efficient in the use of their assets.

What does an Asset Management Ratio look like?

Accounts Receivable Turnover

Accounts Receivable (AR) is included in current assets because it is expected to turn into cash quickly. This ratio shows
how long it takes a company to collect cash owed by customers. The value of AR turnover is the number of times AR is
collected per year. These values are taken from the balance sheet and income statement.

For example, these values are taken from each company’s financial statements. 
Note: This data is taken from 2013, accounts receivable and net sales values are in the millions.

Based on the table, Jollibee collects AR 24-25 times a year, or every 14-15 days. San Miguel collects only 4-5 times a
year, or every 82 days. Century Foods collects AR 8 times a year, or every 44-45 days. 

Inventory Turnover

This ratio shows how many times a year a company sells and replaces inventory. These values can be taken from the
balance sheet and income statement.

For example, these values are taken from each company’s financial statements. 

Note: This data is taken from 2013, COGS and inventory values are in the millions.

Based on the table, Jollibee replaces inventory 18 times a year, or every 20 days. San Miguel replaces inventory 8
times a year, or every 46 days. Century Foods replaces inventory 4 times a year, or every 86 days. 

The following table is the industry average for the food processing industry:

To find out which company has the best accounts receivable turnover, compare the three companies against the
industry average. Based on the industry average, you can rank the three companies as follows: 
Jollibee (high)

Century Foods (below low)

San Miguel Foods (below low)

To find out which company has the best inventory turnover, compare the three companies against the industry
average. Based on the industry average, you can rank the three companies as follows: 

Jollibee (above high)

San Miguel Foods (average)

Century Foods (below low)

This means, among the three companies, Jollibee is the best choice for investment based on asset management ratios.
The ratios are a strong indicator that Jollibee can turn inventory into sales and collect money owed by their customers
frequently.

How do I calculate Asset Management Ratios?

Accounts Receivable Ratio

Locate the total Accounts Receivable in the Balance Sheet of the company you are analyzing.

Locate the total Net Sales in the Income Statement of the company you are analyzing.

Refer to the formula for accounts receivable ratio in the previous section. Compute for accounts receivable turnover
ratio by dividing net sales by accounts receivable. You may use a calculator or a Google Sheet. Make sure you only
have two numbers after the decimal point. 

Compare your results with an industry average. Access your/your facilitator’s Chromebook to view the industry
average.

Based on the ratio, you will be able to analyze the results as below:

A High Ratio could indicate the following:

The company’s collection department is aggressive in collecting receivables from customers.

The company has strict policies on issuing credit to customers.

A Low Ratio could indicate the following:

There are still a lot of receivables that have not yet been collected from customers.

The company may have a very relaxed credit policy or the company may not have one at all.

The company’s customers may also be having financial difficulties. 

You can compute for the average collection period by dividing 365 by the accounts receivable turnover ratio. The
result will show you how many days it takes for a company to collect accounts receivable, on average, over the period
of one year.

Inventory Turnover Ratio 

Locate the total Inventory in the Balance Sheet of the company you are analyzing.
 Locate the total Cost of Goods Sold in the Income Statement of the company you are analyzing.

Refer to the formula for inventory turnover ratio in the previous section. Compute for inventory turnover ratio by
dividing cost of goods by inventory. You may use a calculator or a Google Sheet. Make sure you only have two
numbers after the decimal point. 

Compare your results with an industry average. Access your/your facilitator’s Chromebook to view the industry
average.

Based on the ratio, you will be able to analyze the results as below:

A High ratio indicates that the business is buying or producing inventory at almost the same rate that the products get
sold. This doesn’t automatically mean that it’s a good thing. It can indicate that the business doesn’t have enough
money to purchase additional Inventory or that they may not understand how large their market is and have potential
customers that can no longer buy products because there isn’t enough.

A Low ratio indicates that the business has more inventory than they can sell. This isn’t necessarily a bad thing. It
could mean that the business is preparing for an increase in sales in the near future. An example of this is most
department stores before the Christmas season, stores generally get higher sales during this season so they stock up
on Inventory before it to make sure that they can keep up with the demand of their customers.

You can compute for the average turnover period by dividing 365 by the inventory turnover ratio. The result will show
you how many days it takes for a company to sell and replace inventory, on average, over the period of one year.

"Total Market Performance  ." Total Market Stock Performance, Stock Quotes - CSIMarket. N.p., n.d. Web. 13 June 2017.

What are profitability ratios?

Before we define profitability ratios, we first have to define profit. 

Profit is money a company makes from selling goods or services. In financial statements, you can see this in the income
statement. Profit is computed by deducting your total expenses from your total income. If the result is positive, this
means you made money (net income) or you made a profit. If the result is negative, this means you lost money or a loss
(net loss). 

For example, you want to make some extra pocket money by selling cellphone load. You can buy a retailer SIM card for
Php 20 and 200 load credits for Php 180. You can sell each load credit for Php 1.25. If you sell 200 credits, you can make
Php 250 in total. This means, you can earn a profit of Php 50. 

Profitability refers to how well a company can make money by managing costs and selling their product or service.
Profitability ratios show you how profitable the different elements in a business are (Profitability Ratios, 2006). 

Why do I need to learn how to compute for profitability ratios?

We can use the profitability ratios to find out the following:

How well the company is operating.

How well the company produces the products and/or provides the services it sells.

How well the company is managing the other expenses that aren’t related to the costs of producing the products and/or
providing the services. 
How well the company is managing all its expenses. 

Profitability ratios are important for investors because this tells them if a company is making enough profit. Businessmen
can use the ratios to find out if they need to reduce operating expenses or overhead to improve profits. 

We can find out how well a company is performing in the industry by comparing the results of these ratios to an industry
average. An industry average is the low, average, and high values of a ratio based on a specific industry. The industry
average can be found on websites such as CSI Market, which is included in the additional resources section. 

What do profitability ratios look like?

(1st tab)

Profit Margin (Net Profit Margin)

The profit margin shows how much profit a company makes for every peso they earn in sales (Profit Margin, 2003).
Profit margin is also known as net profit margin. These values can be taken from the income statement. The profit
margin is reflected in percentages. 

For example, these values are taken from each company’s financial statements. 

Note: This data is taken from 2013, net profit and net sales values are in the millions.

Based on the table, San Miguel has the highest profit margin with 6.78%. Or, for every peso they make in sales, they earn
6.78 centavos in profit. Jollibee has the second highest profit margin with 6.25%. Finally, Century Foods has the lowest
profit margin compared to the first two companies with 3.91%. 

The industry average for profit margin is 8%. This means, the three companies in this example perform below average,
or make less profit, compared to other companies in the industry.

(2nd tab)

Gross Margin

The gross margin shows you how much profit a company makes after deducting the expenses needed to make the
product or service (Gross Margin, 2005). This ratio tells you how well a company is producing its product or service.
These values can be taken from the income statement. The gross margin is reflected in percentages. 

For example, these values are taken from each company’s financial statements. 

Note: This data is taken from 2013, COGS and net sales values are in the millions.

Based on the table, Century Foods has the highest gross margin with 17.48%. This means, Century Foods produces their
product or service cheaper than Jollibee or San Miguel. San Miguel has the second highest gross margin with 15.53%.
Finally, Jollibee has the smallest gross margin between the three companies with 14.45%. 

The industry average for gross margin is 10%. This means, the three companies in this example all perform above
average for the industry. This means, the companies in the example produce their product efficiently or at lower costs
compared to other companies in the same industry.

How do I compute for profitability ratios?

(1st Tab)

Profit Margin (Net Profit Margin)

Locate the total net profit or net income in the income statement of the company you are analyzing.

Locate the total net sales in the income statement of the company you are analyzing.

Refer to the formula for profit margin in the previous section. Compute for profit margin by dividing net profit by net
sales and multiplying the result by 100. You may use a calculator or a Google Sheet. Make sure you only have two
numbers after the decimal point. 

Compare your results with an industry average. Access the link CSI Market in the additional resources section.  

Determine what the results of your profit margin could indicate. A consistently high value for Net Profit Margin means
that a company is operating with advantages against its competitors. It also means that there is enough of a cushion for
the business in case there will be instances where business may not be doing so well. 

(2nd Tab)

Gross Margin
Locate the total net sales in the income statement of the company you are analyzing.

Locate the total cost of sales or cost of goods in the income statement of the company you are analyzing.

Refer to the formula for gross margin in the previous section. Compute for gross margin by dividing net sales minus cost
of goods by net sales and multiplying the result by 100. You may use a calculator or a Google Sheet. Make sure you only
have two numbers after the decimal point. 

Compare your results with an industry average. Access the link CSI Market in the additional resources section.  

Determine what the results of your gross margin could indicate. A high value for this ratio means that the company is
able to sell its inventory at a higher profit percentage. 

WIKI Title:

WIKI: Credit, Investment, and Risk

Description:

WIKI that provides information of Credit, Investment, and Risk.

What is credit, investment, and risk?

In this WIKI, credit is defined as borrowed money or a loan that you can use to purchase goods and
services when you need them. You can get credit from a credit grantor or lender, such as another person
you know, a bank, or a credit card company. By using credit, you agree to pay back your loan, plus any
interest or finance charges, within an agreed-upon time to your lender (What is Credit, 2016). 

For example, your mom decides to use her credit card to buy a new refrigerator. 
Based on the graphic, if you had the money to buy it at the time, the refrigerator will cost Php 10,000.
Unlike using the credit card, you can pay back your loan and the credit card fee of Php 2,000 pesos in 12
months. Some people prefer to use a credit card because you can get the item you want to buy
immediately and pay your loan on a later date.

An investment is defined as an asset that you buy because that asset can provide income, value, or can
be sold at a higher price in the future. For example, buying an apartment is an investment. An
apartment is an expensive investment, usually costing between 1 and 3 million, but it can be sold for a
higher price in the future or provide income if you decide to rent out the apartment to tenants. 

Finally, risk is the possibility of losing money from an investment or due to non-payment of loans. An
example of this is when people start a business, there is a possibility that the business may fail. This is a
risk the business owners understand and are still willing to take. The amount of risk of opening up a
business depends factors like competition, target market, etc. Any type of investment will have some
risk involved. What will be important to determine is whether the potential to earn outweighs the risk.

Why are credit, investment, and risk important?

These three elements are important considerations in your financial plan because they can contribute to
the success of achieving your financial goals. 
For example, your financial goal is to start a business that is going to cost you Php 700,000 by the end of
2017. You won’t realistically be able to save enough money by that time. You decide to take a loan so
that you can take advantage of not having any other businesses competing with yours. In this case, if
you wait until you have enough money to start the business, other people may have already started a
business similar to yours. This can mean that you won’t make as much money as you would have if you
had started early.

This business that you have started is considered an investment. You put your money into it in order for
you to be able to make more money. As an individual or a business owner, you would also need to other
investments. This is because, if your business were to fail, you would have no other source of income.
Apart from this, there may still be loans that you will have to pay for. Having other investments makes
sure that your money isn’t all in just one location.

The possibility of losing all your money or having loan companies take your business as payment is
considered a risk. It is important to learn about the risks of having credit and investments. This is so that
you can weigh whether the risk is worth it.

What do credit, risk, and investment look like?

Here are examples and sources of credit:

There are two types of credit: close-end and open-end.

Close-end credit is paid for in installments or as a whole amount by a specific date based on an
agreement between a lender and borrower. Common lenders for this type of loan are banks, real estate
or auto companies (“in-house financing”), and money lending companies.

Here are some examples:

Real estate or housing loans - the value of house, apartment, or land is typically paid for in monthly or
annual installments that can span from 3, 5, 10, to 15 years. The lender can be a bank or government
institution (Pag-ibig). The real estate company can also be a lender in the form of “in-house financing.”

Auto or car loans - the value of the car is typically paid for in monthly or annual installments that can
span 3 or 5 years. The lender can be a bank or the auto company. The auto company also offers  
different loan packages in the form of “in-house financing.” 

Unlike open-end credit, the terms of the loan, such as the interest rate and monthly installment amount,
cannot be changed and the payment deadline has a specific date.

Open-end credit is paid for continuously as you purchase items and you’re billed regularly to make at
least a partial minimum payment. One of the most common sources of open-end credit is a credit card.
A credit card user has a maximum amount of credit they can borrow that can be used at any time. Each
month, there’s a minimum amount or portion of the loan and interest that the user needs to pay for.
Ideally, you want to pay off the loan as soon as possible because the portion of the loan you haven’t
paid for still incurs interest until the debt is fully paid.

Unlike close-end credit, the amount you need to pay for can keep growing because the portion of the
loan you have not yet paid back incurs interest indefinitely.

For both types of credit, the amount you can loan is based on a credit rating or a credit score,
symbolized by a letter grade such as AA or AB. A credit rating is used for businesses and credit scores are
used for individuals. Both are made by credit rating agencies and are based on a company or individual’s
financial history. If you have a history of paying back loans or credit card bills on time, you will have a
higher credit score or credit rating. Alternatively, if you have a history of delayed payments or not
paying back loans, your credit score or rating will be lower.

Here are examples of short-term and long-term investments: 

Short-term - these are investments that can be turned into cash in less than a year. Unlike long term
investments, short term investments will most likely be sold or collected within the year. For example,
you can join a “lending club” (also called a cooperative and microlending) which is a peer-to-peer
investing and loaning set-up. Most companies usually have something similar to this. Employees
contribute a specific amount every month and this amount earns interest after a set period of time,
usually 1 year.

Long-term -  these are investments that an individual or company may not sell in the immediate future
or in less than one year. For example, a tuna canning company purchases a new automated canning
machine. The company is not likely to sell this long-term asset in the immediate future because the
equipment is intended to cut production costs in the foreseeable future, or at least for the duration of
its service life.

Here are some examples of risk:

Credit Risk -  This is when individuals or businesses cannot pay their debts. An example is when a person
buys a car through a loan and can no longer pay for the loan.

Political Risk - These are risks brought by possible changes in government policies. These can be changes
like changing the tax amount for investments or changing policies that make acquiring raw materials
more difficult.

Market Risk - This refers mostly to stocks where the price of stocks changes a lot during a day. Changes
to these prices can be quite drastic, which is how people make money from it. It can also cause huge
losses in an investment.

How do I use credit, risk, and investment?

Identifying sources of and uses of credit

Credit card companies - These companies offer credit card services. A user applies for a credit card, and
if approved, each user is granted an amount of credit and a payment card they can use to pay for goods
and services. Most banks also offer credit card services. 

Banks - Banks also offer other loans for different purposes. The amount usually depends on a person’s
credit rating, collateral, cosigner or borrower for the loan. Some examples include, housing, auto or car,
personal, and business loans. 
Savings and loan associations - A saving and loan association is a company that connects lenders and
borrowers through short-term and long-term investments and loan services. Lenders contribute an
amount of money as a short term or long term investment. The lending association invests these funds
in different avenues and that includes dispensing loans to borrowers. 

Friends and family - The amount you can loan depends on many personal factors and the money your
friends and family are willing to loan you. Typically, there is no formal contract but a mutual or verbal
agreement to when and how much the loan will be paid back

Evaluating Credits and Loans:

Length of term - If possible, choose lowest possible length of term. Some loans vary in length of
payment, they can be a year to 3 years. Credit cards won’t usually have a definite term length. Generally
shorter terms mean that you will have to pay higher each month. If you look at the total amount you will
have to pay, paying the higher amount each month actually saves you more money. It also makes sure
that you don’t have liabilities the fastest.

Interest Rate - Loans and credit card companies publish their interest rates. What you will want to
determine is whether it is a simple or compound interest. If it is compound, whether they compound it
daily, monthly, or annually.

Total Amount Owed - Calculate the total amount that you will owe. This includes the amount that was
borrowed, interest charges, and any other financial fees. You will have to evaluate which loan will have
you paying the least amount at the end of the loan. The most common mistake people make in loans, is
only looking at the monthly payment rather than the overall payment to be made. For credit cards, you
may want to look at any membership and annual fees.

Monthly Fees - Ensure that you can make payments for the loan each month. Factor what you will be
spending in the next months and ensure that you can make the payment. Not being able to pay for a
loan causes higher interests to be charged. It also causes loan and credit companies to possibly not loan
you any more money in the future. It can also lead to a lawsuit.

Sources of Investments:

Stocks - Stocks are essentially being able to own part of a company. When companies want to gain
additional cash, they can sell part ownership of their company in the form of stocks. People who buy
stocks earn money based on the price of the stocks. You would need to be able to catch the stock at a
lower price and sell it at a higher price.

Bonds - Bonds are also termed as debt investments. You loan your money to companies or the
government. In turn, they pay you back over time. The amount that you will earn here would be based
on the interest that is added to the amount borrowed.

Mutual Funds - Mutual Funds are like a community pot. Funds are collected from various investors and a
money manager handles these funds and put them in various investments with the purpose of making
money for the investors.

Real Estate - This concept is simple, you buy either commercial or residential properties. You then
choose to either sell them or rent them out. Since real estate values generally increase over the years,
you are likely to make money from them.

Savings Account - This is probably one of the lowest risk investments out there. This translates into not
being as profitable as other investments though. Here, money you deposit into the bank is loaned by the
bank to others.
 Evaluating Investments:

Identify different investment options that can benefit you or the business based on your financial goals.
Consider what you or your employees use often and identify ways you can cut costs, increase
production, or simplify a task. For example, a small bakery can benefit from investing in a larger oven in
order to increase production.

Consider your ability to purchase or pay for an investment. Will you use the cash you have available?
Will you obtain a loan to purchase the investment? If you obtain a loan, will you be able to pay for the
monthly fee and interest? Using the previous example, the bakery can purchase a new oven using the
current cash they have available.

Consider your a ability to wait for the return of the investment. For example, you purchased an
apartment for Php 2,000,000 pesos. If you rent out the apartment for Php 20,000 a month, it will take
several years before you can get back and profit from your investment. 

Evaluating Risk:

Risk-Reward Concept - This concept essentially means that the greater the risk, the greater the potential
reward. It could also mean that there could also be greater loss.

Time Horizon - Determine the amount of time that you have. Whether it’s a loan or an investment, you
have to find out if you have enough time. It can either be enough time to make sure that you have paid
off liabilities, or enough time to make sure that you’ve received enough profits from your investment.
There are investments that will take a longer time before you reap its rewards. As an example, higher
risk stocks take longer to mature

Bankroll - Determine the amount that you are willing to lose. This sounds quite negative, but this makes
risk assessment more real. You have to know what your limits are in taking risks. For the money that you
invest, can you afford to lose it all?

WIKI Title: WIKI: Financial Plan

Description: WIKI that contains information on how to understand the Financial Plan.

What is a Financial Plan?

A Financial Plan is a document that looks at and analyzes current financial situation and uses that information in order to
come up with a prediction of what the future financial situation might be. This can be used by either individuals or
businesses to achieve a certain Financial Goal.

It looks at various financial statements such as: the Income Statement, Balance Sheet, and Cash Flow Statement. These
statements are analyzed in order to determine a person’s or a company’s current financial status. From this financial status,
predictions can be made regarding what the financial status will be in the future. 

Once these predictions have been made, you would look at these predictions and evaluate them based on what items can
be adjusted in order to make sure that the Financial Goal is achieved.

Why do I need to learn how to create a Financial Plan?

When you look at Financial Goals, it can be quite scary since you’re not sure if you can reach it. Financial Plans outline the
various steps that you’re going to take in order to achieve the Financial Goal. Having a Financial Plan breaks down the
Financial goal into a series of tasks. These tasks, once completed move you closer to achieving the Financial Goal.

Having a written out Financial Plan, also makes you more accountable to achieving it as you already have the steps and
adjustments that need to be performed in order to reach your target Financial Goal.

What does a Financial Plan look like?

Financial Plans for both individuals and businesses look similar to each other in structure. View the SAMPLE: Personal
Financial Plan.

How do I create a Financial Plan?

Make adjustments to your expenses. Evaluate the expenses that you have and determine which ones you can possibly
decrease. An example of this is when you’re starting, businesses need to invest a lot in Marketing to make sure that their
target market is aware of them. Once the business already has a steady customer base, you can begin to lower this expense
since you just have to maintain your customers.

Forecast your Income Statement. In order for you to do this, you will need to do the following:

Look at the horizontal analysis you have for your Revenue account. If your business has already existed for years and is
stable, you can get the average of this. If your business is just starting out, you will have to be a bit more conservative. This is
because, when your business is starting, you will grow your customers very fast since you started with no customer. After
the initial growth, the growth of your revenue won’t be as big as it was in its first years of operations. In the example below,
the business grew by 72% and 31% in the first 3 years. In the fourth year, we’re going to be more conservative by saying that
we are expecting a growth of 10% instead.

Add the percentage of growth to the previous period’s Revenue amount.

For most of the other values, you can use the average of your vertical analysis and multiply that to the projected Revenue
Amount. The exception to this would be Payroll, Insurance, Depreciation, and Rent since these values are not affected by
changes in Revenue.

Based on your projected Net Income, determine if you will be able to achieve your Financial Goal.

If you will not be able to meet your Financial Goal, you may choose to gain more funds by using Credits/Loans or
Investments. You may refer to the WIKI: Credit, Risk, and Investment. What you will have to consider is whether it is worth it
to get a loan or invest money elsewhere in order achieve your Financial Goal. You will also need to consider the amount of
time it will take to pay off your loan or to earn the money you need from your investment.

Revise your projection to reflect changes based on Investments and Credit by doing the following:

Loans and credit:

Include the monthly payments as part of your expenses.

Add the amount that you obtained from the loan or credit.

Investments

Include the monthly interest or earnings that you receive from your Investments.

Include any projected losses that you incur as part of your Investments.

Adjust your Financial Goal if necessary.

WIKI: Liquidity Ratios

What are liquidity ratios?

Before we define what liquidity ratios are, we first have to define what asset and liquidity are.

An asset is anything a person or a company owns. Assets can be considered liquid or non-liquid. Refer to the image
below: 

Liquidity describes how quickly and easily an asset can be bought or sold. Some assets are more liquid than others.
Property, such as land and houses, are the least liquid because it may take several months or years to sell. If you want to
sell non-liquid asset quickly, you may need to sell it for a price cheaper than you expected. 

A cellphone can be considered a liquid asset. Unlike property, you can sell a cellphone in a few days. For example, you
want to buy a new laptop that costs Php 10,000. You have Php 5,000 cash in savings and a cellphone you bought last
year for Php 12,000. You can’t exchange your cellphone for the new laptop, but you can sell the cellphone for cash that
you can add to your savings and buy the laptop. However, the price you can sell the cellphone will be a less than what
you bought it for, because the item is already used. 

Cash is considered the most liquid asset because you can quickly and easily convert cash into other assets (Liquidity,
2013). Unlike a cellphone, the value of cash does not change. For example, one hundred pesos will alway be worth one
hundred pesos when you use it to buy something from the store. 

Liquidity ratios describes a company’s ability to pay for everyday costs and operations (Liquidity Measurement Ratios,
2007). Liquidity ratios do this by comparing all of a company’s current assets to a company’s current liabilities.
Essentially, liquid ratios answer the question: Do I have enough money to pay for the bills?
Current assets are considered liquid, such as cash and inventory. Current liabilities are everyday costs or short term
obligations, such as rent, utilities, and labor. Ideally, a company should have the same amount or more of assets than
liabilities. This means, a company’s liquid assets can pay for their current liabilities.

Why do I need to learn how to compute for liquidity ratios?

We can use liquidity ratios to find out if a company can pay for short term obligations such as rent, labor, and utilities.
Investors can use these ratios to show them if a company has enough cash to support everyday operations. Businessmen
can use these ratios to find out if a company has too many assets that aren’t being used or utilized. 

We can find out how well a company is performing in the industry by comparing the results of these ratios to an industry
average. An industry average is the low, average, and high values of a ratio based on a specific industry. The industry
average can be found on websites such as CSI Market, which is included in the additional resources section. 

What do liquidity ratios look like?

(1st tab)

Current Ratio

Also called the working capital ratio, the current ratio includes all current assets and current liabilities, even though not
all current assets can be converted into cash quickly. The values can be taken from the balance sheet.  

For example, these values are taken from each company’s financial statements. 

Note: This data is taken from 2013, current assets and liabilities are in the millions.

Based on the table, all 3 companies have a current ratio greater than one. This means all the companies can pay for their
current liabilities using their current assets. 

(2nd tab)

Acid Ratio
Also called quick ratio, the acid ratio is considered a more conservative ratio because it excludes inventory that might
not turn into cash quickly. These values can be taken from the balance sheet. 

Ideally, you want an acid ratio of 1 or higher. This means, a company’s current assets are equal to or more than current
liabilities even without inventory. However, an acid ratio of 0.75 is still acceptable if a company’s current ratio is higher
than 1. This means, a company’s current assets are not enough to pay for a current liabilities unless the company sell its
inventory.

For example, these values are taken from each company’s financial statements. 

Note: This data is taken from 2013,  current assets, liabilities and inventory values are in the millions.

Based on the table, only San Miguel Food has an acid ratio above 1. This means San Miguel’s current assets are higher
even without current inventory, therefore San Miguel can pay for all short term liabilities even if they are not able to sell
all their inventory.

How do I compute for liquidity ratios?

(1st Tab)

Current Ratio

Locate the total current assets in the balance sheet of the company you are analyzing.

Locate the total current liabilities in the balance sheet of the company you are analyzing.

Refer to the formula for current ratio in the previous section. Compute for current ratio by dividing current assets by
current liabilities. You may use a calculator or a Google Sheet. Make sure you only have two numbers after the decimal
point. 

The result will show you how many assets you have in relation to liabilities. Ideally, you will want a ratio of 1:1 or more. 

Compare your results with an industry average. Access the link CSI Market in the additional resources section.  

Determine what the results of your current ratio could indicate. Getting a value means that your current assets equal
your current liabilities. A ratio of less than 1 is considered risky as it usually means that the business isn’t optimized
enough to be able to cover its debts. A ratio of more than 1 means that the company is able to successfully pay all of its
debts.
(2nd Tab)

Acid Ratio 

Locate the total current assets in the balance sheet of the company you are analyzing.

Locate the total current liabilities in the balance sheet of the company you are analyzing.

Locate the total inventory in the balance sheet of the company you are analyzing.

Refer to the formula for acid ratio in the previous section. Compute for the acid ratio by dividing current assets minus
total inventory by total liabilities. You may use a calculator or a Google Sheet. Make sure you only have two numbers
after the decimal point. 

The result will show you how much assets you have in relation to liabilities. Ideally, you will want a ratio of at least 0.75
or more.

Compare your results with an industry average. Access the link CSI Market in the additional resources section.  

Determine what the results of your acid ratio could indicate. A company with a value of 1 for this ratio means that they
have sufficient liquidity. Generally speaking, a higher value for this ratio is better. It becomes a concern when it is too
high. This means that there may be assets in the company that are not being properly utilized in order to bring additional
income.

WIKI: Debt Management Ratios

What are debt management ratios?

For this WIKI, Debt is defined as money someone borrows from another person or a company as a loan (Debt, 2003). Loans
are paid back with interest, or an additional portion of the original loan. This is true for businesses, individuals, and
households that obtain a loan.

Financing, on the other hand, is money given to a company by an investor in exchange for a portion of any profit the
company makes in the future. An investor might not get any money back if a company can’t make a profit. But a loan and
interest have to be paid back even if sales are low.

Debt management refers to how well a company or individual balances debt to avoid bankruptcy in the future. Bankruptcy
happens when a company can no longer pay for everyday expenses and keep the business open. For an individual,
bankruptcy happens when someone can no longer pay for everyday expenses such as rent, food, and utilities. 

Debt management ratios are ratios that show you how much a company relies on debt to keep the business running.
These ratios will also show you how much of your personal income go towards paying debt/s (Debt Management, 2008). 

Why do I need to learn how to compute for debt management ratios?

For personal finances, debt ratios help you analyze your current financial situation and determine aspects in your budget
that you can improve. This can also help you reconsider your financial goals because a debt ratio of 48% percent means
almost half your income goes to paying for debts.
For businesses, debt management ratios help you find out if a company can pay for non-current liabilities. Liabilities are
something you owe another person or company. Long term liabilities are liabilities that can’t be paid for in one year. You
can learn about liabilities in the WIKI: Accounting Equation.

This is important for investors because a company with a high debt ratio is a financial risk. A company that is a financial risk
is one that might not be able to pay back those debts and go bankrupt in the future. 

We can find out how well a company is performing in the industry by comparing the results of these ratios to an industry
average. An industry average is the low, average, and high values of a ratio based on a specific industry. The industry
average can be found on websites such as CSI Market, which is included in the additional resources section. 

What do debt management ratios look like?

Leverage (Debt to Equity Ratio)

Leverage (debt to equity ratio) shows you how much debt a company uses compared to money invested by investors.
These values can be taken from the balance sheet. 

For example, these values are taken from each company’s financial statements. 

Note: This data is taken from 2013, total liabilities and total equity values are in the millions.

Based on the table, San Miguel has the least amount of debt. Jollibee has slightly more debt than San Miguel. Century
Foods has the most debt, almost double, compared to the other two companies. 

The average debt ratio for this industry is 0.84. Only San Miguel falls below the industry average. This means, San Miguel
can pay long term liabilities and has the least financial risk of bankruptcy of the 3 companies.
Personal Finance: Debt Ratio (Debt to Income Ratio)

This ratio shows you how much percentage of debt you have compared to your income. Lending companies (such as banks
and credit companies) prefer someone with a low debt ratio because these people are most likely to be able to pay for
their debts or monthly installments. If your debt ratio is above 43%, this means you cannot take on more debt. Ideally, you
should have a ratio of 36% or lower, especially if you want to apply for a large long term loan.

These values can be taken from your monthly or annual budget or cash flow. 

(Total or monthly Debt /Total or monthly Income) * 100%

How do I compute for debt management ratios?

Leverage (Debt to Equity Ratio)

Locate the total equity in the balance sheet of the company you are analyzing.

Locate the total liabilities in the balance sheet of the company you are analyzing.

Refer to the formula for leverage in the previous section. Compute for the debt to equity ratio by dividing total liabilities
by total equity. You may use a calculator or a Google Sheet. Make sure you only have two numbers after the decimal
point. 

The result will show you how much debt you have in relation to equity. Ideally, you will want a ratio of around the average
or below for your industry.

Compare your results with an industry average. Access the link CSI Market in the additional resources section.  

Determine what the results of your debt to equity ratio could indicate. The optimal debt-to-equity ratio is 1. For most
companies, the acceptable ratio is at 1.5 - 2 or less. This value can still vary depending on the industry.

Personal Finance: Debt Ratio (Debt to Income Ratio)

Locate the monthly recurring debt and total monthly income in your personal cash flow statement.

Refer to the formula for personal finance: debt ratio in the previous section. Compute for the debt ratio by dividing
monthly recurring debt by gross monthly income and multiplying this by 100%. You may use a calculator or a Google
Sheet. Make sure you only have two numbers after the decimal point. 

The result will show you how much debt you have in relation to your income. Ideally, you will want a ratio below 48%.

What is a Financial Analysis?

In Accounting, you were able to prepare several types of financial statements. These financial statements contain a lot of
important information about how the business is performing. They can tell whether a business is making money or not, or
how much of your cash goes into your operations. This information alone isn’t enough to tell a business that they’re doing
better or worse, or how much of their profit goes into paying debts. Information from these statements still need to be
looked over and thought about. This is what Financial Analysis is for.
Financial Analysis is being able to look at the information that can be found on these financial statements, analyzing them,
and summarizing them in a format that shows relationships between the items within them.

Why do I need to learn Financial Analysis?

Being able to perform Financial Analysis is critical not only for businesses, but for individuals as well. Financial Analysis can
give you a lot of information. It can tell you how quickly you are able to turn your assets into cash. This is relevant because
the ability to have cash, makes you more able to acquire new assets, or pay for liabilities. 

You would also be able to determine which expense uses up majority of your income. This makes it easier for you to
determine which of these expenses you should adjust in order to make sure that you achieve your financial goal.

What does a Financial Analysis look like?

Attached below is an example of a Financial Analysis. You will be able to see a horizontal and vertical analysis. View the
SAMPLE: Personal Financial Plan.
Computer Programming is the process of instructing a computer on how to do a task. It is the craft of

writing useful, maintainable, and extensible source code which can be interpreted or compiled by a

computing system to perform a meaningful task. Programming a computer can be performed in one of

numerous languages.

Fields of Programming

Applications and Program development

Application and program development involves programs you work with on a daily basis. For example,

the Internet browser you are using to view this web page is considered a program.

Artificial Intelligence development

Artificial Intelligence or related fields involve creating the character interactions in computer games,

portions of programs that make decisions, chatbots, and more.

Database development

Database developers create and maintain collections of information.

Game development

Game development involves the development of computer games or other entertainment software.

Computer driver development

Computer drivers and programming hardware interface support are a necessity for hardware

functionality.

Internet and web page development

Internet and web page development are the essence of the Internet. Without developers, the Internet

would not exist.

Script development

Although it is not likely to become a career, knowing how to create and develop scripts can increase

productivity for you or your company; saving you countless hours.

Some examples of programming languages are SQL, Java, Javascript, C#, Python, C++, and HTML.

2 Why Do I Need To Learn Computer Programming?

Preview Close

General Setting Compose English

Programming skills are becoming ever more important, quickly turning into the core competency for all

kinds of 21st Century workers.

In the Lost Interview with Steve Jobs, Apple’s cofounder said, “I think everybody in this country should

learn how to program a computer because it teaches you how to think.”

Now that software is eating the world by automating all kinds of routine jobs, the basic knowledge of
how

lines of code create the digital worlds we explore every day is becoming a fundamental digital literacy.

Coding isn’t particularly easy to learn but that’s exactly why it’s so valuable. Even if you have no plans to

become a software developer, spend a few weeks or month learning to code and I can guarantee it will

sharpen your ability to troubleshot and solve problems.

3 How Does Computer Programming Work?

Computer programming is the process of developing and implementing various sets of instructions to

enable a computer to do a certain task. These instructions are considered computer programs and help

the computer to operate smoothly. The language used to program computers is not understood by an

untrained eye. Computer programming continues to be a necessary process as the Internet continues to

expand.

Binary code is the language that computers communicate with and use to process information. Our

human ability to communicate with others is done in a number of ways, through letters, numbers,

symbols, signs, and sounds. In other words, we use our senses to communicate with others. However, a

computer's ability to communicate and relate information is done in a much different way through '0s'

and '1s' this method of communication or computer language is what's known as 'binary code'.

How Binary Code works:

Binary code works by representing content (letters, symbols, colors) in a form that computers can

understand. This is done by breaking the content down into a numeric system of two digits '0' and '1'. To

accomplish this, computers use electrical impulses switching OFF and ON to represent these two digit

numbers. This can be better understood by understanding how a computer chip works.

A computer chip is made of millions of transistors that act as switches much like a light bulb in your

home. If you want light you move the switch to 'ON' to allow electricity to flow through the light bulb
thus

giving you light, but if you switch back to 'OFF' the light goes away because the electrical signal is

interrupted. The switching behavior from a computer chip is similar in the sense that it can only

understand two results, 'ON' and 'OFF'. These results correspond well with the two digits numeric

system of '1' and '0' best described as binary ('1' representing 'ON' and '0' representing 'OFF').

Every command that we give to computers is interpreted in binary language ('0s' and '1s'), and

everything that computers display back to us is display in a way that we can comprehend.

The following is a binary decoder key for the alphabet. Grey is zero and white is one.

But creating complex programs and applications can be difficult if all you're working with is 1 and 0. To

solve this, computer scientists have developed programming languages. Instead of using machine
code (Binary), everyday programmers can create and maintain solutions in a productive way.

A programming language is a special language programmers use to develop software programs, scripts,

or other sets of instructions for computers to execute. An example of a common programming language

is Javascript. JavaScript is a crossplatform, objectoriented scripting language. It is a small and

lightweight language. Inside a host environment (for example, a web browser), JavaScript can be

connected to the objects of its environment to provide programmatic control over them. Blockly is a

draganddrop platform for coding with Javascript. It is best used if the goal of the user is to understand

the logic behind programming, not the coding process itself.

4 How Does The Internet Work?

4/11/2017 LINC Academy

http://liveit.knowledgeplatform.com//Learning/Wiki/WikiCompose.aspx?
WikiId=2254&URLID=5jc2zwrexmvldebxbuqxrg 4/7

Before you go ahead and start creating a website, you need to form a basic understanding of what

websites are and how they work.

Before that, though, it's good to be aware of how the INTERNET, as a whole, works.

Watch this video for a brief explanation of what the internet is and how it works.

In a nutshell, the internet is a wire. This wire allows computers (desktops, laptops, smartphones,

servers, etc) to communicate with each other. All these computers have their own IP addresses a set

of directions that lead to a single computer on the internet. Servers, which contain webpages and files,

are directly connected to wire. All the webpages on the internet are stored in any of the millions of

servers all around the world.

Having a computer, a modem, and a router is not enough. You will need a subscription with an Internet

Service Provider (ISP) in order to connect to the internet. ISPs are PLDT, Globe, Smart, SkyCable, etc.

An ISP is your gateway to the Internet and everything else you can do online. The second your

connection is activated and set up, you'll be able to send emails, go shopping, do research and more.

Because of this, your computer (which is a client), is NOT directly connected to the wire. It's indirectly

connected to it, through the ISP.

Now that you have the hardware and an internet subscription, you can simply open your web browser

and type in a website name. A website name, also known as domain name, is a nickname for a specific

server's IP address. Domain names, which are made up of words and easytoremember letters, are

substitutes to IP addresses, which are long and usually composed of numbers.

When you type in Facebook.com in your browser, your browser translates Facebook.com into its IP
address format. Since Facebook is one of the busiest websites on the internet, it has several thousand

servers distributed among data centers. That means that Facebook has at least 60,000 different IP

addresses. Using any single one of those will give you the same results. When the browser translates

the domain name to its IP address format, your modem sends the website request to your ISP. Your ISP

then sends the request over to the server that houses Facebook. The server then sends over the data

that you need to complete the website. This process takes just milliseconds to complete.

4/11/2017 LINC Academy

http://liveit.knowledgeplatform.com//Learning/Wiki/WikiCompose.aspx?
WikiId=2254&URLID=5jc2zwrexmvldebxbuqxrg 5/7

5 How Do Websites Work?

As mentioned previously, websites are stored in servers. These servers have a unique ID, known as an

IP address, so that your ISP knows where to find that server on the internet.

So how do websites work? Watch this video to find out.

In order to have a website published on the internet, you need to avail of a hosting service. Bluehost,
the

author of the video, is one of the many companies in the world that offer website hosting for a fee.
These

companies have hundreds of servers, ready to store your website's files so that anyone on the internet

can see your website at any time.

There are different types of websites, which are used by visitors in search for information or are used for

buying and selling any stuff online. There are many things you can do online, like online gaming, surf

variety of products from ecommerce websites, find great deals, sell your old stuff, interact with your

friends and many more. Though Websites can be divided into a variety of categories and subcategories,

here is a broader division of types of websites.

1. Weblogs, Blogs, or Online Diaries

These websites are personal diaries written by individuals solely for the purpose of writing on their

interested topics and get their works in front of other blog readers and visitors. There are many blog

building tools like Blogger.com, WordPress.com and many others.

http://www.vivisrandomramblings.com/

http://naturemoms.com/blog/

http://tinycartridge.com/

2. Company or Organization Website

Any company or any organization has its own online presence with a company website. It offers various
products and services that are showcased on the website so that web users can know about it. For

example, a company creating some goods, with the use of company website, put down the various

locations of the shops and dealers for the products, featured on the website.

http://ayalaeducation.com/

http://www.lenovo.com/ph/en/

http://www.globe.com.ph/

3. Social Networking Website

Social interactions, online meetings, chatting, social updates exist on social networking websites, also

called social media. Some of the most popular social media are Facebook, Twitter, Google Plus, etc.

These websites are commonly used by teens, and younger public.

https://www.facebook.com/?sk=nf

https://twitter.com/

https://www.linkedin.com/

4. Ecommerce Website

Ecommerce websites are online markets for any product you want to buy online. You can choose a

variety of products of any kind from different ranges. You get the variety in products, good deals to buy,

easy selection and safe transactions doing commerce on the web. Some examples of ecommerce

websites are Amazon, Ebay, Flipkart, and many more.

http://www.nationalbookstore.com.ph/

http://www.zalora.com.ph/women/?catalogtype=Main

http://www.lazada.com/

5. Search Engine

It delivers searches related to any query entered by a user on search engine website. By using special

algorithms and technology, it gives the most appropriately related site links for the user to find the

content they need to know. Some examples are Google.com, Yahoo.com and many others.

https://www.google.com.ph

https://sg.yahoo.com/

6. Forums

Forums are used by its users to talk about a particular topic or start a discussion among themselves and

find answers to the queries. It is a kind of interaction as in a social networking website.

http://www.pinoyexchange.com/

http://www.femalenetwork.com/girltalk/

7. File Sharing and Download Sites

Search for media, software or pdf files and share it or download them onto your PC from file sharing and
download sites. You may also upload files on them if allowed, for further use or for others to download.

https://www.dropbox.com/

https://www.mediafire.com/

http://www.4shared.com/

WIKI: WEBSITE DESIGN

1 What is website design?

Web design is the planning and creation of websites. This includes the information architecture, user

interface, site structure, navigation, layout, colors, fonts, and imagery.

Everything about your website including the content, the way it looks, and the way it works is

determined by the website design. Web design is a process of conceptualizing, planning, and building a

collection of electronic files that determine the layout, colors, text styles, structure, graphics, images,
and

use of interactive features that deliver pages to your site visitors.

When you're ready to build a website, you have several options. If you are not familiar with HTML

programming language and Web design applications, there are a number of other options for creating

your Web design:

Hire a professional website design expert to create and build a unique Web site.

Create your own website design using offtheshelf software such as FrontPage® or

Dreamweaver®. (These software packages do require technical expertise.)

Use online website design tools that have a WYSIWYG interface.

2 Why do I need to learn website design?

Learning web design and development can give you the creative edge that's rare in today's world. It is

extremely valuable to understand the fundamentals of web design if you want to work in digital

marketing, social media or design.

Nowadays, almost all jobs require a level of computer literacy. As everything we do becomes more and

more automated, having fundamental knowledge and background in web design and development will

give you an advantage when you start working. Being able to design and build a website from scratch

will give you a new perspective, appreciation, and understanding of how websites actually work. It will

also practice your analytical and problem solving skills.

3 What does a website layout look like?

To design your website, you will go through the process of paper prototyping. In human–computer

interaction, paper prototyping is a widely used method in the usercentered design process. It involves

creating rough, even handsketched, drawings of an interface to use as prototypes, or models, of a

design. While paper prototyping seems simple, this method of usability testing can provide a great deal

of useful feedback which will result in the design of better products. This is supported by many usability

professionals.

Here are examples of paper prototypes of webpages:

Elements of Web Design

Web design uses many of the same key visual elements as all types of design such as:

Layout: This is the way the graphics, ads and text are arranged. In the web world, a key goal is to help

the view find the information they seek at a glance. This includes maintaining the balance, consistency,

and integrity of the design.

Colour: The choice of colours depends on the purpose and clientele; it could be simple blackandwhite

to multicoloured design, conveying the personality of a person or the brand of an organization, using

websafe colours.

Graphics: Graphics can include logos, photos, clipart or icons, all of which enhance the web design. For

user friendliness, these need to be placed appropriately, working with the colour and content of the
web

page, while not making it too congested or slow to load.

Fonts: The use of various fonts can enhance a website design. Most web browsers can only read a

select number of fonts, known as "websafe fonts", so your designer will generally work within this
widely

accepted group.

Content: Content and design can work together to enhance the message of the site through visuals and

text. Written text should always be relevant and useful, so as not to confuse the reader and to give them

what they want so they will remain on the site. Content should be optimized for search engines and be

of a suitable length, incorporating relevant keywords.

Creating UserFriendly Web Design

Besides the basic elements of web design that make a site beautiful and visually compelling, a website

must also always consider the end user. Userfriendliness can be achieved by paying attention to the

following factors.

Navigation: Site architecture, menus and other navigation tools in the web design must be created with

consideration of how users browse and search. The goal is to help the user to move around the site with

ease, efficiently finding the information they require.

Multimedia: Relevant video and audio stimuli in the design can help users to grasp the information,

developing understanding in an easy and quick manner. This can encourage visitors to spend more time

on the webpage.
Compatibility: Design the webpage, to perform equally well on different browsers and operating

systems, to increase its viewing.

4 How do I create a paper prototype?

Though paper prototyping has been around since the 1980s and has had different variations, there are

some standard practices to follow. Justin Mifsud, UI Designer and Owner of UsabilityGeek, explains

these steps in a post for his site:

Sketch each screen — Each screen's sketch should be creative — for example, a pull down

menu can be folded underneath the paper at first — but also individual and separate from the

rest.

Create user scenarios — Create a realistic scenario to run through, either to demonstrate for

a presentation, or for your testtakers to try to figure out.

Rehearsal — Run through the different scenarios until the “human computer” works like a real

machine.

Presentation/Test — Now you're ready for the presentation or usability test. For

presentations, just run through the scenario as rehearsed.

For every link and button on your website, be prepared to have a matching sketch ready to

display.