LIQUIDITY RATIOS

o Current Ratio= Current Assets/ Current Liabilities

For every peso of Current Liabilities, Monkey Business has a P 2.78 of

Current Assets ready to pay the currently maturing obligations.

Practice Makes Perfect has P 2.78 Current assets for every peso of currently
maturing obligations.

 Quick Ratio or Acid Test Ratio= Quick Assets/ Current Liabilities

For every peso of Current Liabilities, Practice Makes Perfect has a P 2.28 of
Quick Assets ready to pay currently maturing obligations.

Practice Makes Perfect has a P 2.28 Quick Assets for every peso of currently
maturing obligations.

 Absolute Ratio= Absolute Assets/Current Liabilities

For every peso pf Current Liabilities, Practice Makes Perfect has a P 2.28 of
Cash and Marketable Securities ready to pay currently maturing obligations.

Practice Makes Perfect has a P 2.28 of Absolute Assets for every peso of
currently maturing obligations.

LIQUIDITY/EFFICIENCY RATIOS

 Inventory Turnover= Cost of Goods Sold/ Average Inventory

Practice Makes Perfect was able to sell its inventory 4.8x in 2020.

 Days Inventory= 360 days (or the Normal Operating Days)/

Inventory Turnover

Practice Makes Perfect sold its inventory every 75 days in 2020.

 Receivable Turnover= Net Credit Sales/ Average Receivables

Practice Makes Perfect collected its receivables 6.67x in 2020.

 Days Receivable= 360 (or the Normal Operating Days)/ Receivable

Turnover

Practice Makes Perfect collected its receivables every 54 days in 2020.

  Payable Turnover= Net Credit Purchases/ Average Accounts
(Trade) Payables

Practice Makes Perfect paid its obligation 3.93 in 2020.

 Days Payable= 360 (or the Normal Operating Days)/ Payable

Turnover

Practice Makes Perfect paid its (trade) obligations every 27 days.

 Operating Days= Days Receivable + Days Inventory

Practice Makes Perfect can complete its operating cycle in 129 days.

 Working Capital= Current Assets- Current Liabilities

Practice Makes Perfect has P 1,783,000 of working capital used in the

operations of the business.

 Working Capital Turnover= Net Sales/ Average Working Capital

Practice Makes Perfect has a sufficient Working Capital to cover the needs in
the Operations.

Leverage Ratios

 Debt Ratio= Total Liabilities/ Total Assets

56.30% of the Assets of Practice Makes Perfect were acquired through

borrowing. Or, the creditors of Practice Makes Perfect has a 56.30% claim on
their Assets.

For every peso of Practice Makes Perfect Assets, P0.56 was acquired
through borrowing.
 Equity Ratio= Total Shareholder’s Equity/ Total Assets

43.70% of Practice Makes Perfect Assets were acquired through

shareholder’/ owner’s investment. Or, the investors of Monkey Business have
43.70% claim in the company’s assets.

For every Peso of Practice Makes Perfect Assets, .43 was acquired from
owner’s/ shareholders’ investment.
  Debt to Equity Ratio= Total Liabilities/ Total Equity

For every Peso of invested capital, there is also a 1.28 borrowing.

 Times Interest Earned Ratio= Earnings Before Interest and Taxes/

Interest Expense

Practice Makes Perfect was able to earn its interest 4 times in 2020.
Profitability/ Efficiency Ratios

 Return on Sales= Net Income/ Net Sales

Practice Makes Perfect was able to generate 10.5% of income from its net
sales. Or, for every Peso of Net Sales, Practice Makes Perfect was able to
generate a net income of P.11

 Gross Profit Ratio= Gross Profit/ Net Sales

Practice Makes Perfect has 40% of its Net Sales to cover Operating
Expenses.

 Return on Assets= Net Income/ Average Total Assets

The Average Total Assets of Practice Makes Perfect generated an income of

89%. Or, for every Peso of Average of Total Assets, it contributed P0.09 to
net income.

 Return on Shareholders’ Equity= (Net Income-Preferred

Shareholders Dividends)/ Ave. Ordinary Shareholders’
Equity

The Average Shareholders’ Equity generated net income of 46.03%. Or, For
every Peso of the Average Shareholders’ Equity it contributed P 0.46 to net
income.

 Asset Turnover= Net Sales/ Average Total Assets

The Average Total Assets of Practice Makes Perfect resulted/ generated to a

89% sales. Or, The Average Total Assets of Monkey Business generated
sales 0.89 times in 2020.

 Earnings Per Share= (Net Income- Preferred Shareholders

Dividends)/ No. of Common Shares Outstanding
Ordinary shareholders of Practice Makes Perfect has a share in the net
income of P 3/ share.

 Dividends Per Share= (Dividends Declared- Preferred

Shareholders Dividends)/ No. of Common Shares
Outstanding

Growth Ratios/ Market Ratios

 Price Earnings Ratio= Market Price Per Share/ Earnings Per

Share
For every peso of Practice Makes Perfect investors’ Earnings, it is
valued at P 1.86 in the market. Or, the earnings of Monkey Business is valued
at 186%.

 Dividends Yield Ratio= Dividends Per Share/ Market Price

Per Share
For every peso of Monkey Business Market Price, it distributes dividends of
P0.43.

 Dividends Payout Ratio= Dividends Per Share/ Earnings Per

Share

Practice Makes Perfect distributed 39.33% of its earnings or income in 2020.

Book Value per Share

 Book Value per Share= (Total Shareholders’ Equity-

Preferred Shareholders Equity)/ No. of Common Shares
Outstanding

In case Practice Makes Perfect liquidates, each shareholder will receive P

13.35/ share.

Market Value to Book Value per Share

 Market Value to Book Value per Share= Market Price Per

Share/ Book Value Per Share

For every peso of Practice Makes Perfect Book Value, the market values it at
0.78.
IS PRACTICE MAKES PERFECT LIQUID?

1. Analyze the liquidity, solvency, profitability of Practice Makes Perfect for 2020.

Only from looking at Practice Makes Perfect current ratio (2.78) and Quick Ratio
(2.28) in which both measures a firm’s liquidity, for this case the figures computed
are acceptable. Thus, we can say that Practice Makes Perfect is Liquid.

IS PRACTICE MAKES PERFECT SOLVENT?

The time interest earned, debt-equity ratio and debt ratio are the tools we use for
solvency. For Practice Makes Perfect’s case the figures for the following are 4x,
1.28:1, and 56.30%. The time interest earned rate is low, the debt-equity ratio
indicates that there is 1.28 borrowing and the debt ratio which is 56.30% indicates
a high debt ratio which signifies financial risk. Therefore, we can say that Practice
Makes Perfect is not Solvent.

IS PRACTICE MAKES PERFECT PROFITABLE?

The Return on Sales is 10.5% which means it was able to come with a net
income of P 0.11. Gross Profit Ratio= 40% which covers operating expenses,
the Return on Assets is 9.31% which signifies the percent of the composition
of Net Income from assets, Asset Turnover is 0.89x, EPS=P 3 per share
Dividends Per Share= P 1.18/ share. Thus, with this figures we can say that
Practice Makes Perfect is Profitable