FINANCIAL

ANALYSIS
Horizontal Balance Sheet
Vertical Balance Sheet
Problem 2
Bulakbol Company Bulakbol Company
Balance Sheet Income Statement
December 31, 2021
December 31, 2021

ASSETS
Cash 90,000.00
Net sales 250000
Marketable Securities 100,000.00 Cost of Goods Sold:
Trade Receivable, net 40,000.00 Inventory, beg. 75,000
Inventory, at cost 50,000.00 Purchases 100,000
Prepaid expenses 10,000.00 Inventory, end -50,000 125,000
Property, plant and equipment 200,000.00
Gross Profit 125000
Total assets 490,000.00
Selling and Administrative Expenses 40000
LIABILITIES Income before taxes 85,000
Trade Payables 50,000.00 Taxes 17000
Accrued Expenses 30,000.00 Income after taxes 68,000
Mortgage Payable 100,000.00 Retained Earnings, beg. 50,000
Ordinary Share 150,000.00
Total 118,000
Share Premium 60,000.00
Retained Earnings 100,000.00 Dividends paid 18,000
Total Liabilities and Equity 490,000.00 Retained Earnings, end 100,000
Net Working Capital
= (Current Assets -Current Liabilities)
= 290,000-80,000
= 210,000

CURRENT RATIO
= Current Assets /Current Liabilities
Requirement 1
= 290,000/180,000
= 3.63

Acid test ratio

= Quick Assets/Current Liabilities
= 210,000/180,000
= 2.6
Receivable turnover
= Net credit sales / Ave. trade receivable
= 6.25
Collection period
= 360 days / Receivable turnover
= 57.6 days
Inventory turnover
Requirement 1
= Cost of sales / Ave. inventories
= 125,000/70,000 + 50,000/2
= 1.6
Days to sell inventories
= 360 days / Inventory turnover
= 225 days
Gross Profit (Gross Profit / Net Sale)
=125,000-250,000 x 100
=50%
On Sale (Net income/Net sale)
= 68,000÷250,000
=0.27

Debt to Equity Ratio (Total Liabilities/Total

Equity)
=180,000÷310,000
Requirement 1
=0.58

Debt Ratio (Total Liabilities/Total Assets)

=180,000÷490,000
=0.38

Equity Ratio (Total Equity/Total Assets)

=310,000÷490,000
=0.63
 5 reasons why we says
BULAKBOL COMPANY is
in good condition
 1
Working capital, also known as net working capital (NWC), is the
difference between a company’s 
Net Working Capital current assets such as cash, accounts receivable/customers’ unpaid
bills, and inventories of raw materials and finished goods.
current liabilities, such as accounts payable and debts.

Net Working Capital

= Current Assets – Current Liabilities
= 290,000 - 80,000
= 210,000
Net Working Capital is equal to 210,000

A company has negative NWC if its ratio of current assets to liabilities is less than one.
Therefore, The BULAKBOL Company ratios about 2.9 Current asset to 0.8 current liabilities
means that they can meet their obligations and don’t need outside capital to pay their
responsibilities.
 2 1
The current ratio, also known as the working capital ratio, measures
Current ratio the capability of a business to meet its short-term obligations that are
due within a year. The ratio considers the weight of total 
current assets  versus total  current liabilities. 
Current Ratio indicates the
Current Ratio financial health of a
= Current Assets /Current Liabilities company and how it can
maximize the liquidity of its
= 290,000/80,000 current assets to settle debt
= 3.63 and payables.

Current ratio is equal to 3.63

The business currently has a current ratio of 3.63 , meaning it can easily settle each
Peso on loan or accounts payable thrice . A rate of more than 1 suggests financial
well-being for the company. There is no upper-end on what is “too much,” as it can
be very dependent on the industry, however, a very high current ratio may indicate
that a company is leaving excess cash unused rather than investing in growing its
business.
 3 2 1
Acid Test Ratio The Acid-Test Ratio, also known as the quick ratio, is a liquidity ratio
that measures how sufficient a company’s short-term assets are to
cover its current liabilities.
In other words, the acid-test
Acid Test Ratio ratio is a measure of how
well a company can satisfy
= Quick Assets/Current Liabilities its short-term (current)
financial obligations. 
= 210,000/80,000
= 2.62
Acid Test ratio is equal to 2.62
 3 2 1
Acid Test Ratio
 3 2 1
Acid Test Ratio The Acid-Test Ratio, also known as the quick ratio, is a liquidity ratio
that measures how sufficient a company’s short-term assets are to
cover its current liabilities.
In other words, the acid-test
Acid Test Ratio ratio is a measure of how
well a company can satisfy
= Quick Assets/Current Liabilities its short-term (current)
financial obligations. 
= 210,000/80,000
= 2.62
Acid Test ratio is equal to 2.62
The higher the ratio, the better the company’s liquidity and overall financial
health. A ratio of 2.6 implies that the company owns 2.6 PESO of liquid
assets to cover each 1 PESO of current liabilities. However, it’s important to
note that an extremely high quick ratio (for example, a ratio of 10) is not
considered favorable, as it may indicate that the company has excess cash
that is not being wisely use growing its business. 
 4 3 2 1
Accounts receivable turnover and average collection period
The accounts receivable turnover ratio, also known as the debtor’s turnover ratio, is
an efficiency ratio that measures how efficiently a company is collecting revenue –
and by extension, how efficiently it is using its assets. The accounts receivable
turnover ratio measures the number of times over a given period that a company
collects its average accounts receivable.

Receivable turnover
= Net credit sales / Ave. trade receivable
=250,000/40,000
= 6.25
Collection period
= 360 days / Receivable turnover
= 57.6 days
 4 3 2 1
Accounts receivable turnover and average collection period

Receivable turnover
= Net credit sales / Ave. trade receivable
=
= 6.25
Collection period
= 360 days / Receivable turnover
= 57.6 days
 4 3 2 1
Accounts receivable turnover and average collection period
The accounts receivable turnover ratio, also known as the debtor’s turnover ratio, is
an efficiency ratio that measures how efficiently a company is collecting revenue –
and by extension, how efficiently it is using its assets. The accounts receivable
turnover ratio measures the number of times over a given period that a company
collects its average accounts receivable.

Receivable turnover The accounts receivable turnover ratio

= Net credit sales / Ave. trade receivable is an efficiency ratio and is an indicator
of a company’s 
=250,000/40,000
financial and operational performance.
= 6.25 A high ratio is desirable, as it indicates
Collection period that the company’s collection of
= 360 days / Receivable turnover accounts receivable is frequent
= 57.6 days and efficient. The BULAKBOL has 6.25
times means they are in good condition.
 5 4 3 2 1
Debt to Equity Ratio
The Debt-to-Equity ratio (also called
the “debt-equity ratio”, “risk ratio”, or Debt to Equity Ratio (Total Liabilities/Total Equity)
“gearing”), is a leverage ratio that =180,000÷310,000
calculates the weight of total debt and =0.58
financial liabilities against total 
shareholders’ equity. Unlike the debt-
assets ratio which uses total assets as
a denominator, the D/E Ratio uses
total equity. This ratio highlights how
a company’s capital structure is tilted
either toward debt or equity
financing.
Debt-to-equity ratio interpretation Your ratio tells you how
much debt you have per ₱ 1.00 of equity. A ratio of 0.6 means
that you have ₱ 0.60 of debt for every ₱1.00 in equity.
A ratio above 1.0 indicates more debt than equity.
PROBLEM 3
 .
QUESTION1.Fillinthe2021columninthedatapresentedbelow
Industry
Ratio 2019 2020 2021
2012
Current Ratio 2.5 2 1.88 2.25
Acid Test Ratio 1 0.9 1 1.1
Receivable Turnover 5x 4.5x 4x 6x
Inventory Turnover 3x 2x 1.71x 2x
Gross Profit Ratio 39% 41% 40% 33%
Net Profit Ratio 17% 15% 10% 15%
Return on Total Asset 10% 7% 6% 6%
QUESTION 2. Evaluate the position of the company from the above
table. Cite specific ratio level and trends as evidence.

Current Ratio 2019 2020 INDUSTRY

= Current Assets /Current Liabilities 2.5 2 2.25

= 7,500,000/4,000,000
= 1.87

Acid Test Ratio 2019 2020 INDUSTRY

= Quick Assets/Current Liabilities 1 0.9 1.1
= 4,000,000/4,000,000
=1
QUESTION 2. Evaluate the position of the company from the above
table. Cite specific ratio level and trends as evidence.

Receivable Turnover 2019 2020 INDUSTRY

= Net credit sales / Ave. trade receivable 5 4.5 6
= 10,000,000/2,500,000 72 80 60
=4
= 90 days

Inventory Ratio 2019 2020 INDUSTRY

= Cost of sales / Ave. inventories 1 0.9 1.1

= 6,000,000/3,000,000 360 400 327

= 1.71
= 210 days
QUESTION 2. Evaluate the position of the company from the above
table. Cite specific ratio level and trends as evidence.

Debt to Equity Ratio

Debt to Equity Ratio A ratio above 1.0 indicates more debt than equity.
(Total Liabilities/Total Equity)
=9,000,000÷8,000,000
=1.13

Gross Profit Ratio This means that for every peso generated, P0.60 would go into
the cost of goods sold, while the remaining P0.40 could be used
= (Total Revenue– COGS) / Total Revenue
to pay back expenses, taxes, etc.
= (10,000,000 – 6,000,000)/ 10,000,000
=(4,000,0000)/10,000,000
= 0.4 0r 40 %
Indicates which ratios would be of most interest to you and what you’re decision would
be in each of the following situation:

A) Skul Bukol Corporation wants to buy 500,000 worth of raw materials

from you with payment to be done in 90 days.

B) Skul Bukol Corporation wants you to pay off its notes at the bank and
assume it on a ten year inventory basis at the current interest rate of 14%.