Q4, LK1

Saint John School Written Work:

of San Juan, San Ildefonso, Bulacan, Inc.
_______________
BUSINESS FINANCE Performance Task:
Lesson: Efficiency Ratio or Turnover Ratio
Quarter 4, Week 1 Date: March 4 - 8, 2024 _______________
Name: Section:

At the end of this learning kit, you will be able to:

1. Compute and interpret efficiency ratios.
DAY
1
DEFINE ME, PLEASE
WHAT TO DO: Define the following words. (RX2)

1. Profitability - ________________________________________________________________________________
2. Liquidity - __________________________________________________________________________________
3. Activity - ___________________________________________________________________________________
4. Debt - ______________________________________________________________________________________
5. Market - ____________________________________________________________________________________

2014
Net Sales 52 501 085
Cost of Sales 41 954 730
Gross Profit 10 546 355
Operating Expenses 6 497 659
Operating Income 4 048 696
Interest Expense 250 000
Income before taxes 3 798 696
Taxes 1 139 609
Net Income 2 659 087

2014
Assets
Current Assets
Cash 1 062 527
Trade Receivables 2 300 500
Inventories 4 849 304
Other Current Assets 1 050 000
9 262 331

Noncurrent Assets
Property, Plant, Equipment, Net 12 200 000
Other Noncurrent Address 835 689
13 035 689

Total Assets 22 298 020

Liabilities and Equity

Current Liabilities
Trade Payables 5 050 810
Income Taxes Payable 433 051
Current Position of Long-term Debt 2 250 000
Other Current Liabilities 85 600
7 819 461
 Noncurrent Liabilities
Long-term debt, Net of Current Portion 2 000 000
Total Liabilities 9 819 461
Stockholders’ Equity
Capital Stock 8 000 000
Retained Earnings 4 478 559
Total Stockholders’ Equity 12 478 559
Total Liabilities and Stockholders’ 22 298 020
Equity

DAY
2
 Efficiency Ratio or Turnover Ratio
Efficiency ratios, otherwise known as turnover ratios, are called as such because they measure the management’s efficiency
in utilizing the assets of the company.

1. Total asset turnover ratio

2. Fixed asset turnover ratio
3. Accounts receivable turnover ratio
4. Inventory turnover ratio
5. Accounts payable turnover ratio
Total Asset Turnover Ratio
o It measures the company’s ability to generate revenues for every peso of asset invested. It is an indicator of how
productive the company is in utilizing its resources.
o Formula: Asset Turnover Ratio = Sales ÷ Total Assets
o Solution: 52 501 085 ÷ 22 298 020 = 2.35
Fixed Asset Turnover Ratio
o If a company is heavily invested in property, plant, and equipment (PPE) or fixed assets, it pays to know how
efficient the management of these assets is.
o Formula: Fixed Asset Turnover Ratio = Sales ÷ PPE
o Solution: 52 501 085 ÷ 12 200 00 = 4.30
Accounts Receivable Turnover Ratio
o It measures the efficiency by which accounts receivable are managed. A high accounts receivable turnover ratio
means efficient management of receivables.
o Formula: Accounts Receivable Turnover Ratio = Sales ÷ Accounts Receivable
o Solution: 52 501 085 ÷ 2 300 500 = 22.82
Inventory Turnover Ratio
o It measures the company’s efficiency in managing its inventories.
o Formula: Inventory Turnover Ratio= Cost of Sales ÷ Inventories
o Solution: 41 954 730 ÷ 4 849 304 = 8.65
Accounts Payable Turnover Ratio
o It provides information regarding the rate by which trade payables are paid. Any operating company will prefer
to have a longer payment period for its accounts payable but this should be done only with the occurrence of the
suppliers.
o Formula: Accounts Payable Turnover Ratio = Cost of Sales ÷ Trade Accounts Payable
o Solution: 41 954 730 ÷ 5 050 810 = 8.31
Operating Cycle and Cash Conversion Cycle
o By adding the average collection period and days’ inventories, the operating cycle can be computed. It covers
the period from the time merchandise is bough to the time the proceeds from the sale are collected.
o Formula: Operating Cycle = Days’ Inventories + Days’ receivables
o Solution: 42 + 16 = 58 days
Cash Conversion Cycle or Net Trade Cycle
o Formula: Cash Conversion Cycle = Operating Cycle – Days’ Payable
o Solution: 58 days – 43 days = 15 days

DAY
3
Below are the financial statements of Gina’s Laundry Shop.
Gina’s Laundry Shop
Consolidated Statements of Profit or Loss
For the Years Ending December 31, 2013 and 2012

2013 2012
 Net Sales/ Revenues 4 762 662 132 4 542 811 597
Cost of Sales 4 178 329 699 3 899 858 751
Gross Profit 795 443 543 741 963 967
Operating Expenses 568 148 309 462 184 796
Operating Income 116 184 123 168 768 060
Other Revenues and Expenses, Net 88 928 261 103 032 748
Income before Interest and Taxes 205 122 384 271 800 808
Interest Expense 62 579 720 61 331 464
Income before taxes 142 532 664 210 469 344
Income tax expense 63 259 148 60 851 855
Net Income 79 273 516 149 617 489

Gina’s Laundry Shop

Consolidated Statements of Financial Position
December 31, 2013 and 2012

2013 2012
Assets
Current Assets
Cash 452 793 185 483 659 792
Trade and Other Accounts Receivable 662 959 385 483 654 618
Trade Inventories 97 993 792 94 112 288
Other Current Assets 81 819 507 228 397 279
Total Current Assets 1 295 565 869 1 289 823 977
Noncurrent Assets
Property, Plant, Equipment, Net 470 409 909 423 404 905
Intangible Assets 1 207 986 875 1 233 706 280
Other Noncurrent Assets 340 405 976 276 990 380
Total Noncurrent Assets 2 018 802 760 1 934 101 565
Total Assets 3 314 368 629 3 223 925 542

Liabilities and Stockholders’ Equity

Current Liabilities
Trade and Other Account Payables 796 512 928 721 486 162
Loans Payable 415 611 000 417 111 000
Current Portion of Long-term Debt 894 845 892 69 298 336
Income Taxes Payables 39 273 210 37 553 462
Total Current Liabilities 2 146 243 030 1 245 448 960
Noncurrent Liabilities
Long term debt, Net of Current Portion 1 500 247 801 040 752
Other Non Current Liabilities 121 194 817 117 111 220
Total Noncurrent Liabilities 122 695 064 918 151 972
Total Liabilities 2 268 938 094 2 163 600 932
Total Equity
Capital Stock 237 795 455 237 795 455
Additional Paid In Capital 196 806 598 176 806 287
Retained Earnings 401 680 302 400 138 910
Others 209 148 136 245 583 958
Total Equity 1 045 430 535 1 060 324 610
Total Liabilities and Equity 3 314 368 629 3 223 925 542

WHAT TO DO: Compute the following:

a. Total Asset Turnover Ratio d. Accounts Payable Turnover Ratio
b. Accounts Receivable Turnover Ratio e. Operating Cycle or Cash Converting Cycle
c. Inventory Turnover Ratio f. Net Trade Cycle

DAY
4
QUIZ TIME!
A quiz will be
conducted during class
Saint John School hour covering the
previous discussion.
of San Juan, San Ildefonso, Bulacan, Inc.
Q4, LK2
BUSINESS FINANCE Written Work:
Lesson: Liquidity Ratio
Quarter 4, Week 2 Date: March 11 - 15, 2024 _______________
Name: Section:
At the end of this learning kit, you will be able to:
1. Learn how to solve and interpret liquidity ratios each.
DAY
1
LIFE & LIQUIDITY
WHAT TO DO: How can you relate the word liquidity in your everyday lives? Give at least three (3)
statements/scenarios.

1.________________________________________________________________________________________
2.________________________________________________________________________________________
3.________________________________________________________________________________________

2014
Net Sales 52 501 085
Cost of Sales 41 954 730
Gross Profit 10 546 355
Operating Expenses 6 497 659
Operating Income 4 048 696
Interest Expense 250 000
Income before taxes 3 798 696
Taxes 1 139 609
Net Income 2 659 087

2014
Assets
Current Assets
Cash 1 062 527
Trade Receivables 2 300 500
Inventories 4 849 304
Other Current Assets 1 050 000
9 262 331

Noncurrent Assets
Property, Plant, Equipment, Net 12 200 000
Other Noncurrent Address 835 689
13 035 689

Total Assets 22 298 020

Liabilities and Equity

Current Liabilities
Trade Payables 5 050 810
Income Taxes Payable 433 051
Current Position of Long-term Debt 2 250 000
Other Current Liabilities 85 600
7 819 461

Noncurrent Liabilities
Long-term debt, Net of Current Portion 2 000 000
Total Liabilities 9 819 461
Stockholders’ Equity
Capital Stock 8 000 000
 Retained Earnings 4 478 559
Total Stockholders’ Equity 12 478 559
Total Liabilities and Stockholders’ Equity 22 298 020

DAY
2
Liquidity Ratios
Liquidity ratios measure the ability of a company to pay maturing obligations from its current assets. Two liquidity ratios;
current ration and the acid-test ratio or sometimes called quick asset ratio.

Current Ratio
o Current Assets include cash and other assets which are expected to be converted to cash within 12 months such
as accounts receivables and inventories
o Cash liabilities include obligations that are expected to be settled or paid within 12 months.
o Formula: Current Ratio = Current Assets ÷ Current Liabilities
o Solution: (9 262 331 ÷ 7 819 461) = 1.18

Acid-Test Ratio or Quick Asset Ratio

o The quick asset ratio is a stricter measure of a company’s liquidity position.
o Formula: Quick Asset Ratio = (Current Assets – Inventories) ÷ Current Liabilities
o Solution: (1 062 527 ÷ 2 300 500) ÷ 7 819 461 = 0.43

DAY
3
IMPORTANCE
WHAT TO DO: Give at least three (3) most liquid assets and five (5) importance of using it to settle the
liabilities of the company.

Most Liquid Assets Importance

1. ____________________ 1. _____________________________
2. ____________________ 2. _____________________________
3. ____________________ 3. _____________________________
4. _____________________________
5. _____________________________

DAY
4
Below are the financial statements of Gina’s Laundry Shop.
Gina’s Laundry Shop
Consolidated Statements of Profit or Loss
For the Years Ending December 31, 2013 and 2012

2013 2012
Net Sales/ Revenues 4 762 662 132 4 542 811 597
Cost of Sales 4 178 329 699 3 899 858 751
Gross Profit 795 443 543 741 963 967
Operating Expenses 568 148 309 462 184 796
Operating Income 116 184 123 168 768 060
Other Revenues and Expenses, Net 88 928 261 103 032 748
Income before Interest and Taxes 205 122 384 271 800 808
Interest Expense 62 579 720 61 331 464
Income before taxes 142 532 664 210 469 344
Income tax expense 63 259 148 60 851 855
Net Income 79 273 516 149 617 489

Gina’s Laundry Shop

Consolidated Statements of Financial Position
December 31, 2013 and 2012
2013 2012
 Assets
Current Assets
Cash 452 793 185 483 659 792
Trade and Other Accounts Receivable 662 959 385 483 654 618
Trade Inventories 97 993 792 94 112 288
Other Current Assets 81 819 507 228 397 279
Total Current Assets 1 295 565 869 1 289 823 977
Noncurrent Assets
Property, Plant, Equipment, Net 470 409 909 423 404 905
Intangible Assets 1 207 986 875 1 233 706 280
Other Noncurrent Assets 340 405 976 276 990 380
Total Noncurrent Assets 2 018 802 760 1 934 101 565
Total Assets 3 314 368 629 3 223 925 542

Liabilities and Stockholders’ Equity

Current Liabilities
Trade and Other Account Payables 796 512 928 721 486 162
Loans Payable 415 611 000 417 111 000
Current Portion of Long-term Debt 894 845 892 69 298 336
Income Taxes Payables 39 273 210 37 553 462
Total Current Liabilities 2 146 243 030 1 245 448 960
Noncurrent Liabilities
Long term debt, Net of Current Portion 1 500 247 801 040 752
Other Non Current Liabilities 121 194 817 117 111 220
Total Noncurrent Liabilities 122 695 064 918 151 972
Total Liabilities 2 268 938 094 2 163 600 932
Total Equity
Capital Stock 237 795 455 237 795 455
Additional Paid In Capital 196 806 598 176 806 287
Retained Earnings 401 680 302 400 138 910
Others 209 148 136 245 583 958
Total Equity 1 045 430 535 1 060 324 610
Total Liabilities and Equity 3 314 368 629 3 223 925 542

WHAT TO DO:
2. Cite on the internet for the average liquidity ratios of every
1. Compute the following:
business and compare the ratios of Adora’s Department Store
a. Current Ratio
in two consecutive years.
b. Acid-test Ratio

_________________________________________________________________________________________________________________________________________

References: Q4, LK3

1.
Saint John School
Canayan, A., Borja, D.V. (2017). Business Finance, REX Bookstore.

Written Work:
of San Juan, San Ildefonso, Bulacan, Inc.
_______________
BUSINESS FINANCE
Performance Task:
Lesson: Leverage Ratio
Quarter 4, Week 3 Date: March 18 - 22, 2024 _______________
Name: Section:
At the end of this learning kit, you will be able to:
1. Understand the concept leverage ratio;
2. Solve each leverage ratio.

DAY
1
WAY-MAKER
WHAT TO DO: Search for the ways that company used to measure the company’s ability to meet long-term obligations.
Write your answer on the space provided below. Explain your answer in 1 to 2 sentences.
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________

2014
Net Sales 52 501 085
Cost of Sales 41 954 730
Gross Profit 10 546 355
Operating Expenses 6 497 659
Operating Income 4 048 696
Interest Expense 250 000
Income before taxes 3 798 696
Taxes 1 139 609
Net Income 2 659 087

2014
Assets
Current Assets
Cash 1 062 527
Trade Receivables 2 300 500
Inventories 4 849 304
Other Current Assets 1 050 000
9 262 331

Noncurrent Assets
Property, Plant, Equipment, Net 12 200 000
Other Noncurrent Address 835 689
13 035 689

Total Assets 22 298 020

Liabilities and Equity

Current Liabilities
Trade Payables 5 050 810
Income Taxes Payable 433 051
Current Position of Long-term Debt 2 250 000
Other Current Liabilities 85 600
7 819 461

Noncurrent Liabilities
Long-term debt, Net of Current Portion 2 000 000
Total Liabilities 9 819 461
Stockholders’ Equity
Capital Stock 8 000 000
 Retained Earnings 4 478 559
Total Stockholders’ Equity 12 478 559
Total Liabilities and Stockholders’ Equity 22 298 020

DAY
2
Leverage Ratio
Shows the capital structure of a company, that is, how much of the total assets of a company is financed by the debt and
how much is financed by stockholders’ equity. Leverage ratios can also be used to measure the company’s ability to meet
long-term obligations.

The capital structure of a company is influenced by the following factors:

1. Nature of business. 5. Bond and stock market conditions
2. Stage of business development 6. Financial flexibility
3. Macroeconomic conditions 7. Regulatory environment
4. Prospects of the industry and expected growth 8. Taxes
rates 9. Management style
The following leverage ratios:
Debt Ratio
o Debt ratio measures how much of the total assets are financed by the liabilities.
o Formula: Debt Ratio = Total Liabilities ÷ Total Assets
o Solution: 9 819 461 ÷ 22 298 020 = 0.44
Debt to Equity Ratio
o It is a variation of debt ratio. A debt to equity ratio of more than one means that a company has more
liabilities as compared to stockholders’ equity.
o Formula: Debt to Equity Ratio = Total Liabilities ÷ Total Stockholders’ Equity
o 9 819 461 ÷ 12 478 559 = 0.79
Interest Coverage Ratio
o Provides information if a company has enough operating income to cover interest expense
o Interest Coverage Ratio: EBIT ÷ Interest Expense
o Solution: 4 048 696 ÷ 250 000 = 16.19
o EBIT stands for earnings before interest and taxes

DAY
3
Below are the financial statements of Gina’s Laundry Shop.
Gina’s Laundry Shop
Consolidated Statements of Profit or Loss
For the Years Ending December 31, 2013 and 2012

2013 2012
Net Sales/ Revenues 4 762 662 132 4 542 811 597
Cost of Sales 4 178 329 699 3 899 858 751
Gross Profit 795 443 543 741 963 967
Operating Expenses 568 148 309 462 184 796
Operating Income 116 184 123 168 768 060
Other Revenues and Expenses, Net 88 928 261 103 032 748
Income before Interest and Taxes 205 122 384 271 800 808
Interest Expense 62 579 720 61 331 464
Income before taxes 142 532 664 210 469 344
Income tax expense 63 259 148 60 851 855
Net Income 79 273 516 149 617 489

Gina’s Laundry Shop

Consolidated Statements of Financial Position
December 31, 2013 and 2012

2013 2012
Assets
 Current Assets
Cash 452 793 185 483 659 792
Trade and Other Accounts Receivable 662 959 385 483 654 618
Trade Inventories 97 993 792 94 112 288
Other Current Assets 81 819 507 228 397 279
Total Current Assets 1 295 565 869 1 289 823 977
Noncurrent Assets
Property, Plant, Equipment, Net 470 409 909 423 404 905
Intangible Assets 1 207 986 875 1 233 706 280
Other Noncurrent Assets 340 405 976 276 990 380
Total Noncurrent Assets 2 018 802 760 1 934 101 565
Total Assets 3 314 368 629 3 223 925 542

Liabilities and Stockholders’ Equity

Current Liabilities
Trade and Other Account Payables 796 512 928 721 486 162
Loans Payable 415 611 000 417 111 000
Current Portion of Long-term Debt 894 845 892 69 298 336
Income Taxes Payables 39 273 210 37 553 462
Total Current Liabilities 2 146 243 030 1 245 448 960
Noncurrent Liabilities
Long term debt, Net of Current Portion 1 500 247 801 040 752
Other Non Current Liabilities 121 194 817 117 111 220
Total Noncurrent Liabilities 122 695 064 918 151 972
Total Liabilities 2 268 938 094 2 163 600 932
Total Equity
Capital Stock 237 795 455 237 795 455
Additional Paid In Capital 196 806 598 176 806 287
Retained Earnings 401 680 302 400 138 910
Others 209 148 136 245 583 958
Total Equity 1 045 430 535 1 060 324 610
Total Liabilities and Equity 3 314 368 629 3 223 925 542

1. Compute the following:

a. Debt Ratio 2. Cite on the internet for the leverage ratios that are
b. Debt to Equity Ratio considered bad or good for every business and compare the
c. Times Interest earned ratios of Adora’s Department Store in two consecutive years.

DAY
4
QUIZ TIME!
A quiz will be conducted during class hour covering the previous discussion.

_________________________________________________________________________________________________________________________________________

References:
1. Canayan, A., Borja, D.V. (2017). Business Finance, REX Bookstore.