ACTIVITY 3

1. INCOME STATEMENT
2020 2019 2018

Sales 100% 100% 100%

Cost of good sold 67.86% 67.83% 67.25%
Gross Profit 32.14% 32.17% 32.75%
Selling, general and 14.53% 14.93% 14.71%
administrative expense
Depreciation 6.53% 7.18% 7.25%
EBIT 11.07% 10.06% 10.80%
Interest expense (net 0.54% 0.77% 0.52%
income of interest)
Earnings before Taxes 10.53% 9.28% 10.28%
Taxes 3.16% 2.79% 3.08%
Net Income 7.37% 6.50% 7.20%

BALANCE SHEET
(P in thousands)
Assets 2020 2019 2018
Current assets
Cash 9.80% 8.84% 9.38%
Account receivable 20.75% 20.57% 12.72%
Inventory 17.10% 16.40% 15.42%
Total current assets 47.64% 45.82% 37.52%
Net fixed assets 52.36% 54.18% 62.48%
Total assets 100.00% 100.00% 100.00%

2.
Liabilities 2020 2019 2018
Current liabilities
Accounts payable 9.54% 9.23% 8.11%
Accrued expense 9.86% 10.73% 7.63%%
Short term debt 14.45% 15.73% 9.66%
TOTAL CURRENT 33.85% 35.69% 25.40%
LIABILITIES
Long term debt 11.44% 10.38% 11.49%
Other liabilities 8.42% 4.93% 5.84%
TOTAL LIABILITIES 52.16% 51.01% 42.73%
OWNER`S EQUITY
Common equity 47.84% 48.88% 52.27%
TOTAL LIABILITIES AND 100% 100% 100%
OWNER`S EQUITY
3. MOON MOON INDUSTRY AVERAGE
2020 2019 2018 2020
LIQUIDITY
Current ratio 1.41 1.28 1.48 2.10
Quick ratio 0.09 0.82 0.87 1.10
Cash ratio 0.29 0.25 0.37 0.39
FINANCIAL LEVERAGE
RATIO
Debt ratio 0.52 0.51 0.43 0.25
Times interest 20.44 13.04 20.84 19.00
earned ratio
Cash average ratio 32.49 22.35 34.83 35.00
ASSET MANAGEMENT
RATIOS
Inventory turnover 4.32 4.24 4.78 5.20
Day`s sales in 84.57 86.04 76.30 70.19
inventory
Receivable turnover 5.24 4.99 8.63 6.81
Day`s sales in 9.64 73.18 42.32 53.60
receivable
TOTAL ASSET 1.09 1.03 1.10 1.80
TURNOVER
PROFITABILITY RATIOS
(NET)Profit Margin 7.37% 6.50% 7.20% 8.60%

Return on total assets 8.02% 6.67% 7.89% 15.48%

Return on equity 16.75% 13.61% 13.78% 20.59%
Market value ratios
Earnings per share EFS $1.95% $1.46% $1.39 Not meaningful
Price/earnings (P/E) 16.92 26.11 23.04 21.00
Earnings growth rate 25.13% 4.79% 17.45% 18.00%
PEG ratio 0.68 5.45 1.32 Not meaningful
Book Value $11.64% $10.69 $10.08 4.26
Market-to-book-value 2.84 3.55 3.18
ratio
Use the common size statements and the ratio analysis that you have prepared to comment on
Moon-Moon`s:
A. LIQUIDITY
- Current ratio and cash ratio both increased from the last year`s ratio however, it declined from the
2018’s ratios. Similarly , quick ratios decreased over the three consecutive years . so generally
Liquidity ratios indicate deteriorating ratios . other than that , ratios were worse than the 2020
industry average.

B. SOLVENCY
- Debt ratio constantly increased for the three consecutive years. Indicating high risk or
deterioration on the ratio and obviously it exceeds the 2020 industry average which indicates as a
worse result. However times interest earned of the company had increase and exceed the industry
average indicating an improvement for its ability to cover interest payment from its operating profits .
cash average ratio also decreased indicating a deterioration and loss on ability to pay to its borrowers
interest expense.

C. ASSET MANAGEMENT
- In regards with the inventory , both inventory turnover and day’s sales in inventory indicate
deterioration of ratios . though inventory turnover slightly increased from previous year’s ratio but it
wasn’t enough to meet the industry average ratio, indicating worse than 2020 industry.

4.
Average similarly with the days sales in inventory has increased which means the managing of the
inventory wasn’t efficient .
- Receivables turnover and total turnover, both slightly improved than the previous year however it
declined compared to 2018’s ratios, other than that both ratios are worse than 2020 industry average
which implies deterioration . Moreover days sales in receivable indicate deteriorating ratio and worse
than the industry average.

D. PROFITABILITY
- All profitability ratios indicate improving ratios over three successive year, however they are still
worse than the industry average on 2020. sometimes net profit margin is slightly close from the
industry average ratio , which implies slight profitability for the company after considering all related
expense .
- EPS slightly improve over the three-year period , however 2020 price earnings ratio and market
book ratio drop off from the past three years and became worse than the industry average.

4. Express Moon moon’s ROE in terms of the DuPont identity. Which ratios are contributing to moon
moon below average ROE?
ROE = NET income/stockholders equity = net income /sales (profit margin) x sales/total asset(asset
turnover) x Total assets/stockholders equity (financial leverage)
ROE = 278.95/1,665
= 278.95/ 3,784 x 3,480/1,665
=.0737 x 1.09 x 2.09
=16.79 Asset Turnover and financial leverage greatly affect moon moons

5. Base on your analysis in question . I though 4, why do you think Moon Moon’s recent stock
performance has been disappointing?
- Indicating the year 2020 , almost all rations worsen and needs to be monitored.
ACTIVITY 4

1.
Problem 1
Cash Flow from
Operating Activities (P817,000)
Investing Activities (2,567,000)
Financial Activities 3,459,000
Income in cash P75,000

Cash balance , beginning P950,000

Cash balance, end 1,025,000
Income in cash P75,000

Problem 2
Earnings before interest and taxes P62,000,000
Les: Taxes 17,000,000
Eat P45,000,000
Add: Depreciation 5,000,000
Operating cash flow P50,000,000

Free cash flow = Operating cash flow - investment in operating capital

= P50,000,000 - [P320,000,000 +(20,000,000-P12,000,000)]
Free cash Flow= P50,000,000 - P40,000,000 = P10,000,000

Problem 3
Free cash flow = operating cash flow - investment in operating capital
P23,000,000 = operating cash flow - P13,000,000
Operating cash flow = P23,000,000 + 13,000,000
Operating cash flow = P36,000,000

2.
EBIT P45,000,000
Less: Taxes 17,000,000
EAT P28,000,000
Add: Depreciation 8,000,000
Operating cash flow P36,000,000

Problem 4
Notes Payable, Beginning P208,000,000
Payment 23,000,000
Notes payable , end P185,000,000
Problem 5
Gabrielle Corporation
Income Statement
For the year ended December 31, 20X4
(In million of pesos)

20X4
Net Sale P107.1
Less: Cost of good sold 75.6
Gross Profit 31.5
Less: Depreciation 6.0
EBIT 25.5
Les: (interest taxes (25%) ----
(Net income) EBIT 37.33
Less: Taxes (25%) 9.33
Net Income P28

3.

Problem 7

Required 1

Product
Super-fast Dynamic shot Total
Amount % Amount % Amount %
Sales P150,000 100% P250,000 100% P400,000 100%
Variable 30,000 20% 160,000 64% 190.000 47.5%
expenses
Contribution P120,000 80% P90,000 36% P210,000 52.5%
margin
Fixed expenses 183,000
Net operating P26,250
income

Required 2.
Peso sales on break -even = Fixed expresses/overall CM ratio
= P 183,750/52-5%
= P 350,000

Required 3
P1000,000 x 52.5%
CM ratio = P52,500
Activity 5

Problem 3
Required 1
Profit = Unit CM x Q - fixed Expenses
P0 = (P30 -P20) x Q - P7,500
P0 = P10 x Q - P7,500
P10Q = P7,500
Q =750 units
Required 2
Sales (at the budgeted volume of P1,000 units) P30,000
Less: Break even sales ( at 150 units) 22,500
Margin of safety (in pesos) P7,500

Problem 4
Require 1
Contribution margin P48,000
Divided by net operating Income 10,000
Degree of operating Leverage 4.8
Required 2
Degree of operating leverage 4.8
X percent increase in sales 5%
24%

Amount percent of sales

Required 3
Sales [P80,000 + (80,000 x 5%)] P84,000 100%
Variables expenses [P32,000 +(32,000 x 5%)] P33,600 40%
Contribution Margin P50,400 60%
Fixed expenses P38,000
Net Operating Income P12,400
Net Operating Income reflecting change in sales P12,400
Original net operating income P10,000
Percent change in net operating income 24%

Problem 5
Required 1
Profit = Unit CM x Q - fixed expense
P0 = (P30 - P12) x Q - P216,000
P0 = P18xQ - P216,000
P18Q = P
Q = 12,000 units at P30 per unit, P360,000

Required 2
The total contribution margin at a break-even point is P216,000
Fixed Expense = total contribution margin ( in break-even point)
Required 3
Total Unit
Sales (P17,000 units x P30 units) P510,000 P30
Variable expense (17,000 units x P12 unit) P204,000 P12
Contribution Margin P306,000 P18
Fixed expense P216,000
Net Operating income P90,000

Required 4
Margin of Safety in peso
Margin of safety in pesos = Total- break-even sales
Margin of safety in pesos = P90,000/P450,000
= 20%

Required 5
The CM ratio is 60%
(P270,000/P450,000 = 0.60)
P50,000 incremental sales x 60% CM ratio = P30,000