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Handout 040 Analysis of Financial Statements through Ratios

Please use this handout for

Lesson 040 Financial Statements Analysis 2 -
Ratio Analysis and Interpretation

Grumpy Cat Company decided to undergo financial analysis of their operations for 2020 and 2019. You
are being hired as the financial analyst who will help Grumpy Cat understand each component better. The
following information was provided to you:

Grumpy Cat Company Comparative

Statements of Financial Position
December 31, 2020 and 2019

2020 2019
ASSETS
Current Assets
Cash and cash equivalents P1,896,337 P1,456,997
Trade and other receivables 653,974 885,697
Marketable equity securities 468,220 450,000
Merchandise inventory 677,520 756,442
Other current assets 8,650 40,619
Total current assets 3,704,701 3,589,755

Noncurrent assets
Property, plant and equipment, net 4,302,981 4,506,669
Investment in associate 530,978 389,664
Investment property, net 3,597,556 3,699,754
Other noncurrent assets 220,000 385,600
Total noncurrent assets 8,651,515 8,981,687

TOTAL ASSETS P12,356,216 P12,571,442

LIABILITIES AND EQUITY

Current liabilities
Trade and other payables P 658,000 P 556,000
Income tax payable 500,000 458,800
Current portion of bonds payable 1,000,000 1,320,000
Other current liabilities 125,000 88,200
Total current liabilities 2,283,000 2,423,000

Noncurrent liabilities
Bonds payable 4,283,694 5,663,997
Other noncurrent liabilities 80,000 88,000
Total noncurrent liabilities 4,363,694 5,751,997

Shareholders' Equity
Ordinary share capital 2,000,000 2,000,000
Ordinary share premium 500,000 500,000
Retained earningsordinar 2,209,522 1,896,445
Retained earnings – bonds 1,000,000 -
Total shareholders’ equity 5,709,522 4,396,445

TOTAL LIABILITIES AND EQUITY P12,356,216 P12,571,442

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 Grumpy Cat Company
Statement of Comprehensive Income
For the year ended December 31, 2020

2020
Net Sales P4,000,000
Less: Cost of goods sold 1,630,880
Gross profit 2,369,120
Less: Selling expenses 224,891
Administrative expenses 188,845
Other expenses 67,000
Operating income 1,888,384
Less: interest expense 12,560
Net income before tax 1,875,824
Income tax expense 562,747
Net income P1,313,077

Compute for the following ratios and interpret:

1. Current Ratio - CR
2. Acid Test Ratio - ATR
3. Cash Ratio - CR
4. Debt Ratio - DR
5. Debt to Equity Ratio -DER
6. Times Interest Earned Ratio - TIER
7. Asset Turnover Ratio
8. Inventory Turnover Ratio (and days sales in inventory)
9. Accounts Receivable Turnover Ratio (and days in receivables)
10. Gross Profit Ratio - GPR
11. Return on Assets - ROA
12. Return on Equity - ROE