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Financial Ratios
I. Warm-Up Exercise. Using the following accounts from the retail store, A-Mart Incorporated’s income
statement for the year ending in December 31, 2013, answer the questions below.

Cost of Goods Sold P 600,000

Lease Payments 30,000 I.a.) A-Mart’s gross profit is Php ___400,000______.

I.b.) A-Mart’s operating profit is Php__150,000__.
Advertising 20,000
I.c.) A-Mart’s net profit is Php ___115,000_____.
Taxes 35,000
Repairs and
Maintenance 40,000
Management Salaries 100,000

Net Sales 1,000,000

Depreciation 60,000

II. Using the following accounts from the A-Mart, Incorporated’s balance sheet for the year ending
December 31, 2013, answer the questions below. Use cash as a plug figure.

Current Portion of LT Debt Php 60,000

Leasehold Improvements 300,000 II.a.) A-Mart’s current assets are Php _410,000_.
Accrued Expenses 40,000 II.b.) A-Mart’s current liabilities are Php _210,000_.
Accumulated Depreciation 200,000 II.c.) A-Mart’s total assets are Php _1,410,000_.

Gross Fixed Assets 900,000 II.d.) A-Mart’s total liabilities are Php_810,000___.

Accounts Payable 90,000 II.e.) A-Mart’s total stockholder’s equity is

Inventories 190,000
Common Stock 400,000
Short-term Bank Loan 20,000
Net Accounts Receivable 100,000
LT Bank Loan 600,000
Retained Earnings 200,000
Cash ???
III. Current Ratio and Quick Ratio. Using the sample Company Balance Sheet as of December 31,
2014, compute for the Current and Quick Ratio. (Show Solutions)

III.a.) Current Ratio


III.b.) Quick Ratio


IV. Compute for the Current Ratio and Quick Ratio of the three companies below and compare which
company is performing well based on the computed Current and Quick Ratios.

TOTAL LIABILTIES 26,041 277,634 124,969

Current Ratio 1.26 1.08 0.77
Quick Ratio 0.80 0.54 0.67


V. Using the Balance Sheet provided, compute for the Return on Equity, Return on Assets, Gross
Profit Margin, Operating Profit Margin and Net Profit Margin.

V.a.) ROE 16.98%

V.b.) ROA 7.19%
V.c.) Gross Profit Margin 35%
V.d.) Operating Profit Margin 25.05%
V.e.) Net Profit Margin 17.61%

Using the same informations in Test V, assume that the beginning inventory is Php 247,000, solve for
the following:
V.f.) Accounts Receivable Turnover- 44.4x
V.g.) Average Collection Period- 8.2 days
V.h.) Inventory Turnover- 10x
V.i.) Accounts Payable Turnover- 18.57x
V.j.) Total Assets Turnover- 0.41x
Chloe’s Closet

Chloe Mendez owns a clothing company, Chloe’s Closet. She has a team of tailors who work for 8 hours
every day from Monday to Saturday. Demand for her business is strong but there seems to be something
preventing her from meeting the demands of her customers. Chloe sells to both big department stores
and small boutique stores under the brand Chloe’s Closet. Some brands also ask her to manufacture their
own designs. Business for Chloe has been good since it started last 2014. In fact, despite the tough
competition from cheaper manufacturers abroad, she still manages to grow her customer base.

On December 4, 2015 Chloe received a billing statement from a raw material supplier for an amount of
PHP400,000 which will be due in 5 days. She is also scheduled to pay her employees’ monthly salary of
PHP70,000 the following day. Upon checking her bank account, she only has a PHP67,000 balance. She
knew she had exceeded her sales target last October and November so she is wondering why she only
has this amount of cash in her bank account.

Was her money stolen? Being a CPA, she checked the bank statement and her financial records
and found no mistakes.

Here is the latest financial statement of Chloe’s Closet as of November 30, 2015:

What’s wrong with Chloe’s Closet?

Guide Questions for the Case:

1. What was AR turnover between 2014 and

2.What was the Inventory turnover between
2014 and 2015?
3. What was the payable turnover for
Chloe’s Closet? How did it affect the
4. What factors lead to the low cash balance
for Chloe’s Closet?