NARRATIVES

SOFP

1. COMPOSITION OF TOTAL ASSETS

Blue Skies’ total assets increases greatly as months pass by during the first semester. In
the earlier months of the semester, our PPE composed mostly of our total assets. During the
middle of the semester, our current assets improved and contained mostly in the total assets.

This is because in the earlier months, our company has the medical services only as its
primary business but during the middle of the semester, inventory sales started to rise and
affected both the financial position and financial performance of our company.

2. COMPOSITION OF TOTAL LIABS

Blue Skies’ total liabilities for the semester had a consistent long-term liability because
our company does not want to spend its cash for paying interests.

On the other hand, our current liabilities substantially changed over the semester. Again,
this is because of our company entering into sale of goods in addition to medical services. Our
company policy includes purchasing of raw materials on account and paying it on the month
subsequent to the date of purchase.

3. CAPITAL

Blue Skies’ owner’s equity or capital increased as months pass by during the first
semester. Withdrawals by the owner had been very consistent for the semester, wherein the
owner draws only one-hundred fifty thousand pesos every month.

Moreover, the net income of the company rises every month because of the introduction
to the sale of goods. This caused the owner’s equity to rise as well.

The net income and owner’s equity will be expected to rise over the next semester while
withdrawals of the owner will be expected to be consistent.

4. Gg
 G
(a) Ff
 Xd
 We can infer from these graphs that certain products are loved by our
customers and some are not.
 Our forecast for the next year will include closing of product with the
lowest quantity sold. Consequently, replacing it with a new one.
  Definitely, we will continue to produce products that the customers
love.
Our company decided to show the major suppliers and top grosser
customers to emphasize that we should take care of them. Favorably,
we can build camaraderie with these customers and suppliers to
maintain loyalty, and finish every transaction in a healthy manner

Our company’s primary business is medical services. Based on past experiences, medical
revenues increase by ten percent (10%) every month. This trend is expected to continue for the
succeeding semester.

No major increase in medical revenues because during the semester, employees such as nurses
and medical supplies are limited. The company’s plan to expand operations pertaining to
medical services will be finalized for the upcoming semester when cash available is sufficient.

The company has just started its operations in sale of goods this semester, particularly on the
month of February but due to the booming demand of customers we were able to earn huge
revenues from the sale of goods compared to revenues from medical services.

During the early months of the semester, revenue from sale of goods increases but last month,
June, the revenue from sales of goods decrease. The decrease resulted from the increasing
number of competitors.

The total expenses exclude the cost of goods sold and vary in many ways. The composition of
total expenses makes it difficult for the company to control the changes or variances from these
expenses.

Whether the total expenses increase or decrease from one month to another month, one thing is
for sure, as the operations of the company increases, expenses increases as well and vice versa.

With regards to cost of goods sold, there are outside factors affecting the variance or change in
COGS monthly. One good example, again, is the presence of competitors.
The company’s net income for the semester increased as months pass by. One reason is the
introduction of sale of goods to the revenue producing activities of the company. Another reason
is the increasing demand of customers to the products being sold by the company.

Of course, the increasing need of patients to medical services contributes as well to the
increasing net income. This trend will be expected to continue for the succeeding semester.

The company’s sales was focused on Central Luzon (Region III) because we are not yet
expanding our operations and the company just began.

The company’s sales of inventory was scattered all around the Region III. The province of
Aurora has the highest sales and the province of Pampanga has the lowest sales for the first
semester.

The reason is that, our customers varies per province so as their orders. Some customers order in
bulk and some are not. Also, this trend of sales per province is expected to continue for the next
semesters.

The company’s ledger for the sales commissions payable for the semester. Sales commission is
based on the sales for the particular month.

As we can see, the sales commissions of each salesperson are equal because of the active or
healthy competition between these salespersons.

One reason why our company’s sales boomed is because of the competitiveness and
competencies of these salespersons, that is why, in addition to the salaries they receive, our
company also gives commissions plus other incentives in recognition of their efforts.

The company’s records of customers for the first semester. These are the customers who
transacted with the company for the semester. This includes customers from the sale of goods as
well as from the performance of medical services.

Again, the company would like the emphasize that we have to treasure these customers, build
camaraderie and give them quality transactions so their loyalty will remain to our company.

Also, let us remind you that “customers are always right!”

The records of suppliers or vendors for the semester. These suppliers had been our foundation in
the production of goods. Our company do not conduct its purchases of materials to other
suppliers, only to these ten suppliers.

Again, our company wants to build and strengthen the camaraderie with these members of the
market including the customers. So, we can have healthy and beneficial transactions with them.
They will provide us with the best quality of their service.

The company’s records of inventory, raw materials and finished goods together with their
respective unit price levels.

As we can see, every finished good is composed of different number of raw materials. We are
producing six different finished goods being composed of twenty raw materials. The
specifications for each finished good is written down in the assembly list.

The company’s records of employees. Our company gives the utmost importance to our
employees, that is why all the incentives that they should receive are given, as return for all their
efforts in the company.

Say for example, salesperson receive, in addition to their salaries, commissions and bonuses, and
other benefits. In addition to the quantitative benefits, we also have qualitative benefits to our
employees, such as seminars and training, team building and most especially, the “human
treatment” to all the company’s employees.

The company’s ending cash balance at every month. As we can infer, the cash balance at the end
of every month greatly boomed. The sale of goods played a large role in the composition of
ending cash balance along with the strict credit collection policy. This means that the customers
paid all of their credits within the discount period.

The company’s plan is to invest the cash in plant expansion for the succeeding semester. Again,
this plan is subject to research and development, and further analysis. We have to secure that this
investment or cash outlay will provide sustainable returns to the company, thereby, regaining
back the cash invested.

The company’s month working capital and current ratio. As we can see, the working capital for
the first month is negative, as the current ratio for the first month is less than one. The reason is
that, the current liabilities of the company are greater than the current assets. This is because, the
company has just started during this month and the company is struggling as it is beginning.

During the subsequent months, working capital and current ratio increased. The reason is that the
company’s operations greatly improved, so, its liquidity ratios increased as well.

The company’s inventory turnover, both in raw materials and finished goods.

The raw materials inventory turnover every month fluctuates and differs every month. The
reason is that, not all of the raw materials are converted into finished goods every month, only a
certain percentage of the raw materials available for use.

On the other hand, the finished goods inventory turnover increases monthly. The reason is the
same with raw materials, wherein a certain percentage is sold to the customers but in this case,
the percentage is increasing trend.

The company’s return on total assets.

The company’s return on total assets increases monthly. The reason is the net income of the
company increases monthly while the total assets are stagnant. The company’s net income
increases as months pass by because the company generates income not only with the
performance of services but also with the sale of goods.

On the other hand, this is the company’s return on total equity. As we can see, the return on
equity is in a decreasing trend. The reason is that as the net income increases, the total equity
increases as well every month, simply because net income is a composition of the total equity.
The reason for the increase in net income is already stated above.

The times interest earned ratio of the company. As we can see, it is in an increasing trend. The
reason is the operating profit (EBIT) of the company increases as months pass by, while the
company’s interest expense is stagnant because the company did not borrow any more liabilities
after the others.

On the other hand, this is the company’s assets turnover. This simply states the percentage or
times the company earned with the utilization of its assets. It is in an increasing trend, again,
because the company utilized its assets very well during the semester and thereby, improved its
net sales drastically. Assets, of course, includes the PPE and inventory which are used in during
the operations of the company.

The company’s debt ratio. As we can see, it is in a decreasing trend. The reason is, as the debt
ratio decreases, the equity ratio increases. They are inversely proportional and if you add these
two, it should equate to one. The liabilities of the company became stagnant during the semester
while its equity increases due to the effect of net income. In effect, its debt ratio will decrease
and its equity ratio will increase monthly.

If we will analyze, the company’s equity ratio increases as months pass by because of the effect
of net income. Besides, the company wants to be conservative by financing the assets through
equity and not through liability.

On the other hand, if we will look at the debt-to-equity ratio, it is in a decreasing trend. Again,
this is because the company’s equity increases as months pass by, and the reason for the increase
in equity is the net income. The net income increased monthly because the company generates its
income through performance of medical services and sale of goods.