FINANCIAL STATEMENT

ANALYSIS
 Liquidity Ratios

•Current Ratio

•Quick, or Acid Test, Ratio

 Asset Management Ratios
• Inventory Turnover Ratio

• Days Sales Outstanding

• Fixed Assets Turnover Ratio

• Total Assets Turnover Ratio

 Debt Management Ratios

•Total Debt to Total Assets

•Times-Interest-Earned Ratio
 Profitability Ratios
• Operating Margin
• Profit Margin
• Return on Total Assets
• Basic Earning Power (BEP) Ratio
• Return on Common Equity
 Market Value Ratios

•Price/Earnings Ratio

•Market/Book Ratio
Charles Corporation’s balance sheet at December 31,20X7, shows the
following:
Current assets
Cash P 4,000
Marketable securities 8,000
Accounts receivable 100,000 Determine the
Inventories 120,000
following:
Prepaid expenses 1,000
Total current assets P233,000
(a) net working capital;
(b) current ratio;
Current liabilities (c) quick ratio.
Notes payable P 5,000
Accounts payable 150,OOO
Accrued expenses 20,000
Income taxes payable 1,000
Total current liabilities P176,000
Accounts receivable P200,000
Accounts payable 80,000
Bonds payable, due in 10 years 500,000
Cash 100,000
Interest payable, due in three months 25,000
Inventory 440,000
Land 800,000
Notes payable, due in six months 250,000
What will happen to the ratios below if Ratio Company uses cash to pay 50
percent of its accounts payable?
A. B. C. D.
Current ratio Increase Decrease Increase Decrease
Acid-test ratio Increase Decrease Decrease Increase
Utica Company’s net accounts receivable were
P250,000 as of December 31,20X8, and
P300,000 as of December 31, 20x9.

Net cash sales for 20x9 were P1OO,OOO. The

accounts receivable turnover for 20x9 was 5.0.
What were Utica’s total net sales for 20X9?
Industry A has three companies whose income statements and
balance sheets are summarized below.

Company X Company Y Company Z

Sales P500,000 (d) (g)
Net income P25,000 P30,000 (h)
Total assets P100,000 (e) P250,000
Total asset turnover (a) (f) 0.4
Profit margin (b) 0.4% 5%
Return on total assets (c) 2% (i)
The Board of Directors is dissatisfied with last
year's ROE of 15%. If the profit margin and asset
turnover remain unchanged at 8% and 1.25
respectively, by how much must the total debt
ratio increase to achieve 20% ROE? Answer is in
percentage form.
The following ratios have been computed for Los Alamitos
Company and are compared with the industry averages:

Los AIamitos Industry

Return on total assets (ROA) 6.2% 6.0%
Return on common equity (ROE) 16.5% 8.5%

Comment on the comparison of the company to the

industry.