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Tabunggao, Shane Josa Marie M.ACFINANCIAL RATIOS For each of the ratios listed below, indicate appropriate code letter, whether it is a liquidity ratio, profitability ratio or solvency ratio. Cod e Cod e L Liquidity ratio S Solvency ratio P Profitability ratioP 1) Cash return on sales ratio L 6) Cur...

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Tabunggao, Shane Josa Marie M. AC23 FINANCIAL RATIOS 1. For each of the ratios listed below, indicate appropriate code letter, whether it is a liquidity ratio, profitability ratio or solvency ratio. Cod Cod e e L Liquidity ratio S Solvency ratio P Profitability ratio

P

1) Cash return on sales ratio

L

6) Current cash debt coverage ratio

P

2) Return on assets ratio

L

7) Acid-test ratio

L

3) Receivables turnover ratio

S

8) Debt to total assets ratio

P

4) Earnings per share ratio

S

9) Free cash flow

P

5) Payout ratio

L

10) Inventory turnover ratio

2. Match the ratios with the appropriate ratio computation by entering the appropriate letter in the space provided: A

Current ratio

F

B

Acid test ratio

G

C

Profit margin ratio

H

D

Asset turnover ratio

I

E

Price-earnings ratio

J

Times interest earned ratio Inventory turnover ratio Average collection period Average days in inventory Payout ratio

G

1) Cost of goods sold Average inventory

H

6)

365 days Receivable turnover

C

2) Net income Net sales

E

7) Market price per share Earnings per share

J

3) Cash dividends Net income

I

8)

D

4) Net sales Average assets

F

9) Income before income taxes interest Interest expense

A

5) Current assets Current liabilities

B

10) Cash+Short investments+Receivables(net) Current liabilities

365 days Inventory turnover and

term

3. Selected information from the comparative financial statements of IMPOSTOR Company for the year ended December 31, appears below: 2010 2009 2010 2009 Accounts P P Cost of goods sold P P receivable 180,000 200,000 900,000 500,000 Inventory 140,000 160,000 Interest expense 50,000 25,000 Total assets 1,200,00 800,000 Income tax expense 60,000 29,000 0 140,000 110,000 Net income 150,000 85,000 Current liabilities Long-term 400,000 500,000 Net cash provided by operating 220,000 135,000 debt activities Net credit 1,330,00 700,000 sales 0 Answer the following questions relating to the year ended December 31, 2010 show computations: 1) Inventory 2002

turnover

ratio

for

2) Times interest earned ratio in

900,000/150,000* *(160,000+140,000)/2 260,000*/50,000

6 times 5.2 times

2002

*150,000+60,000+50,000

3) Debt to total assets ratio for 2002

540,000*/1,200,000 *140,000+400,000

4) Receivable turnover ratio for 2002

1,330,000/190,000 *(200,000+180,000)/2

5) Return on assets ratio for 2002

(150,000+50,000)/1,000,000* *(1,200,000+800,000)/2

6) Cash return on sales ratio for 2002

220,000/1,330,000

16.54%

7) Current cash ratio for 2002

220,000/125,000 *(140,000+110,000)/2

1.76 : 1

debt

coverage

0.45% 7 times 20%

4. The comparative balance sheet for MALAY MO MADEVELOP (M3) is given below: MALAY MO MADEVELOP Comparative balance sheet December 31 ASSET

2003

Cash Accounts receivable

P 30,000 97,500

Inventory

90,000

Plant assets (net)

2002

LIABILITIES AND SHE P Accounts payable 45,000 90,000 Mortgage payable 8% 75,000 Common stock P10 par 270,000 Retained earnings

2003

2002

P 75,000 150,000

P 90,000 150,000

210,000

180,000

300,00 82,500 60,000 0 P Total P P Total P 480,00 517,50 480,00 517,50 0 0 0 0 Additional information for 2003: 1) Income before interest and taxes was P 168,000 2) Sales on account were P990,000. Sales returns and allowances amounted to P5,625 3) Cost of goods sold was P 676,500 4) Net cash provided by operating activities was P 185,625 5) Interest expense totalled P 12,000 Compute the following ratio at December 31, 2003: ( use 365-days)  Current ratio

217,500/75,000

2.9 : 1

 Acid test ratio

(30,000+97,500)/75,000

1.7 : 1

 Current cash coverage ratio  Receivables ratio

debt

185,625/82,500 *(75,000+90,000)/2

2.25 : 1

(990,000-5,625)/93,750 (97,500+90,000)/2

10.5 times

 Average collection period

365/10.5

34.76 days

 Inventory turnover

676,500/82,500 *(75,000+90,000)/2

8.2 times

 Average days in inventory

365/8.2

44.51 days

turnover

 Debt to total assets ratio

(75,000+150,000)/517,500

 Times interest earned

168,000/12,000

 Cash debt coverage ratio

185,625/232,500 *(75,000+150,000)+(90,000 +150,000)/2

5. The financial statements of YOUR SONG Company appear below: YOUR SONG Company Comparative Balance Sheet

43.49% 14 times 0.80 : 1

December 31 2002

ASSETS Cash Short-term investments Accounts receivable (net) Inventory Property, plant and eqpt Total

2001

LIABILITIES AND SHE P 40,000 Accounts payable 60,000 Short-term notes payable 30,000 Bonds payable

P 25,000 15,000 50,000 50,000 260,000

70,000 300,000

P 400,000

P 500,000

2002

2001

P 20,000 30,000

P 30,000 90,000

90,000

160,000

150,000 110,000

150,000 70,000

P 400,000

P 500,000

Common stock Retained earnings Total

YOUR SONG Company Income statement For the year ended December 31, 2002 Net sales Cost of goods sold Expenses: Selling Administrative Interest Net income before tax Income tax Net income

P 400,000 (240,000)

P 160,000

P 28,000 24,000 18,000

(70,000) P 90,000 (27,000) P 63,000

Additional information: a) Cash dividends of P 23,000 were declared and paid in 2002 b) Weighted average number of shares of common stock outstanding during 2002 was 30,000 shares c) Market value of common stock on December 31, 2002 was P 21 per share d) Net cash provided by operating activities for 2002 was P 60,000 Using the financial statements and additional information, compute the following ratios for YOUR SONG Company:  Current ratio

140,000/50,000

 Return on common stockholders’ equity

63,000/150,000* *(150,000+150,000)/2

 Price-earnings ratio

21/2.1* *63,000/30,000

 Acid test ratio

(25,000+15,000+50,000)/ (20,000+30,000)

 Receivables turnover

400,000/40,000* *(50,000+30,000)/2

 Times interest earned

(90,000+18,000)/18,000

5 times

 Profit margin ratio

63,000/400,000

15.75%

 Average days in inventory (@ 365 days)

365/4* *240,000/ [(50,000+70,000)/2]

91.25 days

 Average days in inventory (@ 360 days)

360/4* *240,000/ [(50,000+70,000)/2]

90 days

 Payout ratio

23,000/63,000

36.51%

 Return on assets

(63,000+18,000)/450,000* *(400,000+500,000)/2

 Cash return on sales ratio

60,000/400,000

 Cash debt coverage ratio

60,000/210,000* *(140,000+280,000)/2

2.8 : 1 42% 10 times 1.8 : 1 10 times

18% 15% 0.29 : 1

6. Selected data from PANAHON KO TO Company are presented as follows: total assets $1,600,000; average assets $ 1,750,000; net income $ 245,000; net sales $ 1,225,000; average common stockholders’ equity $ 1,000,000; net cash provided by operating activities $ 294,000. Calculate the profitability ratios that can be computed from the information given:  Profit margin

1,225,000/1,750,000

0.70 times

 Asset turnover

245,000/1,750,000

0.14 times

 Return on assets

245,000/1,000,000

0.245

294,000/1,600,000

18%

1,225,000/1,750,000

0.70 times

 Return on stockholders’ equity  Cash return on sales

common

7. The balance sheet of TWIST AND SHOUT Corporation at the end of the current year indicates the following: Bonds payable, 8% $ 4,000,000; 6% Preferred stock $100 par $ 1,000,000; Common stock $10 par $ 2,000,000. Income before income taxes was $480,000 and income tax expense for the current year amounted to $ 144,000. Cash dividends paid on common stock were $ 300,000, and the common stock was selling for $22 per share at the end of the year. There was no ownership changes during the year. Determine the following:  Times interest earned

(480,000+320,000)/320,000* *4,000,000 x 8%

2.5 times

 Earnings per share

276,000*/200,000 *480,000-144,000-60,000

1.38 share

 Price-earnings ratio

22/1.38

15.94 times

per

8. Selected amounts from HABANG MAY BUHAY Company’s balance sheet from the beginning of the year follow: Cash $ 70,000 Marketable securities $ 12,000 Accounts receivable 350,000 Inventory 460,000 (net) Prepaid expenses 8,000 Plant and equipment 950,000 (net) Accounts payable 200,000 Accrued liabilities 60,000 Notes due within one 100,000 Bonds payable in five 140,000 year years During the year, the company completed the following transactions: x. purchased inventory on account, $ 50,000 1) declared a cash dividend, $ 100,000 2) paid accounts payable $100,000 3) collected cash on accounts receivable $ 80,000 4) purchased equipment for cash $ 75,000 5) paid a cash dividend previously declared $ 30,000 6) borrowed cash on a short-term note with the bank $ 60,000 7) sold inventory costing $70,000 for $100,000 on account 8) wrote off uncollectible accounts in the amount of $10,000. The company uses the allowance method of accounting for bad debts 9) sold marketable securities costing $12,000 for cash $9,000 10) issued additional shares of capital stock for cash $200,000 11) paid off all short-term notes due $160,000...