Financial Statement Analysis

1. Tulips Company has a DSO of 40 days, and its annual sales are P7,300,000. What is its accounts receivable
balance? (Use 365 days) _____________________

2. Jasmine Inc. has an equity multiplier of 2.4, and its assets are financed with some combination of long-term
debt and common equity. What is its debt-to-assets ratio?____________________

3. Alessandra Company has P10 billion in total assets. Its balance sheet shows P1 billion in current liabilities, P3
billion in long-term debt, and P6 billion in common equity. It has 800 million shares of common stock
outstanding, and its stock price is P32 per share. What is Alessandra Company market/book ratio?
______________________

4. A company has an EPS of P2.00, a book value per share of P20, and a Market/book ratio of 1.2 times. What is
its P/E ratio?____________________

5. A firm has a profit margin of 2% and an equity multiplier of 2.0. Its sales are P100 million, and it has total
assets of P50 million. What is its ROE?________________________

6. Mindanao Mining has P6 million in sales; its ROE is 12%, and its total assets turnover is 3.2 times. The
company is 50% equity financed, and it has no preferred stock outstanding. What is its net income?
______________________

7. Assume the following relationships for Woody Corp: Sales/Total assets is 1.5 times. Return on assets (ROA) is
3.0%, and Return on equity (ROE) is 5.0%. Assume the company uses debt and common equity, calculate Woody
Corp. profit margin_________________ and debt-to-assets ratio______________

8. Giselle Company has P12 Billion in assets, and its tax rate is 40%. Its basic earning power (BEP) ratio is 15%,
and its return on assets (ROA) is 5%. What is its times- interest-earned (TIE) ratio?______________________

9. Pomelo Company’s ROE last year was only 3%; but its management has developed a new operating plan that
calls for a debt-to-assets ratio of 60%. Which will result in annual interest charges of P300,000. The firm has no
plans to use preferred stock. Management projects as EBIT of P1,000,000 on sales of P10,000,000, and it expects
to have a total assets turnover ratio of 2.0. Under these conditions, the tax rate will be 34%. If the changes are
made, what will be the company’s return on equity?____________________

10. The A Company has P1,312,500 in current assets and P525,000 in current liabilities. Its initial inventory level
is P375,000 and it will raise funds as additional notes payable and use them to increase inventory. How much
can its short-term debt (notes payable) increase without pushing its current ratio below 2.0?
____________________

11. James Inc. currently has P750,000 in accounts receivable, and its day sales outstanding (DSO) is 55 days. It
wants to reduce its DSO to 35 days by pressuring more of its customers to pay their bills on time. If this policy is
adopted, the company’s average sales will fall by 15%. What will be the level of accounts receivable following
the change? (Use 365 days)_______________________
12. Esther Company can open a new store that will do an annual sales volume of P960,000. It will turnover its
assets 2.4 times per year. The profit margin on sales will be 7 percent. What would be net income?___________
and return on assets?__________

13. a). Alpha Industries had an asset turnover of 1.4 times per year. If the return on total assets was 8.4 percent,
what was Alpha’s profit margin?______________ b.) The following year, on the same level of assets, Alpha’s
asset turnover declined to 1.2 times and its profit margin was 7 percent. How did the return on total assets
change from that of the previous year?___________________

14. a.) King Company has a return on asset ratio of 12 percent. If the debt-to-total assets ratio is 40 percent,
what is the return on equity?__________________ b.) If the firm had no debt, what would the return-on-equity
ratio be?___________

15. A firm has sales of P1.2 million, and 10 percent of the sales are for cash. The year-end accounts receivable
balance is P80,000. What is the average collection period? Use 36 days)___________________________

16. Charlie Corporation has accounts receivable turnover equal to 12 times. If accounts receivable are equal to
P90,000, what is the value for average daily credit sales?______________________

17. Jerry Company has P4,000,000 in yearly sales. The firm earns 3.5 percent on each peso of sales and turns
over its assets 2.5 times per year. It has P100,000 in current liabilities and P300,000 in long-term liabilities. a.
What is its return on stockholder’s equity?________________ b. If assets base remains the same as computed in
(a) but total asset turnover goes up to 3, what will be the new return on stockholders’ equity? (Assume that the
profit margin stays the same as do current and long-term liabilities)._____________

18. The Global Corporation has three subsidiaries:

Medical Supplies Heavy Machinery Electronics

Sales P20,000,000 P5,000,000 P4,000,000

Net Income after taxes 1,200,000 190,000 320,000

Assets 8,000,000 8,000,000 3,000,000

a. Which division has the lowest return on sales?_________________

b. Which division has the highest return on assets?________________

c. Compute the return on assets for the entire corporation?______________

d. If the P8,000,000 investment in the heavy machinery division is sold off and redeployed in the medical
supplies subsidiary at the same rate of return on assets currently achieved in the medical supplies division, what
will be the new return on assets for the entire corporation?________________
19. Construct the current assets section of the statement of financial position from the

following data:

Yearly sales (Credit) P420,000

Inventory turnover 7 times

Current Liabilities P80,000

Current Ratio 2

Average collection period 36 days

Compute the following:

a. Cash _________________

b. Account receivable _________________

c. Inventory _________________

d. Total current asset _________________

20. Complete the statement of financial position and sales information using the following

financial data:

Debt-to-assets ratio : 50%

Current Ratio : 1.8 times

Total assets turnover : 1.5 times

Day sales outstanding : 36.5 days (calculation is based on a 365-day year)

Gross profit margin on sales : 25%

Inventory turnover ratio : 5 times

Assets; Liabilities and Shareholder’s Equity

Cash ?_____ Accounts Payable ?______

Accounts Receivable ?_____ Long-term Debt P60,000

Inventories ?______ Common stock ?______

Fixed assets ?______ Retained earnings P97,500

Total Assets P300,000 Total Liabilities & shareholder’s? ______

=========== Equity ============

Sales ?____________ Cost of goods sold ?_______________

Answers:

1. 800,000

2. 0.58

3. 4.27

4. 12

5. 8%

6. 112,500

7. Profit Margin 2% ; D-A 40%

8. 2.25

9. 23.10%

10. 262,500

11. 405,682

12. NI 67,200 ; ROA 16.8%

13. a. 6% ; b. 8.4%

14. a. 20% ; b. 12%

15. 27 days

16. 3,000

17. a. 11.67% ; b. 14%

18. a. Heavy equipment 3.8% ; b. Medical Supplies 15% ; c. 9% ; d. 14.32%

19. a. 58,000 ; b. 42,000 ; c. 60,000 ; d. 160,000

20. Cash 49,500 Accounts Payable 90,000

A/R 45,000 Long term debt 60,000
Inventories 67,500 Common Stock 52,500
Fixed Asset 138,000 Retained Earnings 97,500
Total 300,000 Total 300,000

Sales 450,000
COGS 337,500