A.
Trend Percentages
Spooky Company’s sales, current assets and current liabilities (all in thousands
of pesos) have been reported as follows over the last 5 years (Year 5 is the most
recent year)
Year 5 Year 4 Year 3 Year 2 Year 1
Sales 5,625 5,400 4,950 4,725 4,500
Current Assets:
Cash 64 72 84 88 80
Accounts
Receivables 560 496 432 416 400
Inventory 896 880 816 864 800
Total current assets 1,520 1,448 1,332 1,368 1,280
Current Liabilities 390 318 324 330 300
Required:
Express all of the asset, liability and sales data in trend percentages.
Year 5 Year 4 Year 3 Year 2 Year 1
Sales 125% 120% 110% 105% 100%
Current Assets:
Cash 80% 90% 105% 110% 100%
Accounts
Receivables 140% 124% 108% 104% 100%
Inventory 112% 110% 102% 108% 100%
Total current assets 119% 113% 104% 107% 100%
Current Liabilities 130% 106% 108% 110% 100%
B. Common-Size Income Statement
A comparative income statement is given below for Rainbow Company:
Rainbow Company
Comparative Income Statement
For the Years Ended June 30, 2019, and 2018
Sales 5,000,000 4,000,000
Less cost of goods sold 3,160,000 2,400,000
Gross margin 1,840,000 1,600,000
Selling expenses 900,000 700,000
Administrative expenses 680,000 584,000
Total expenses 1,580,000 1,284,000
Net operating income 260,000 316,000
Interest expense 70,000 40,000
Net income before taxes 190,000 276,000
Required:
Express each year’s income statement in common-size percentages. Carry
computations to one decimal place.
Sales 100% 100%
Less cost of goods sold 63.2% 60.0%
Gross margin 36.8% 40.0%
Selling expenses 18.0% 17.5%
Administrative
13.6% 14.6%
expenses
Total expenses 31.6% 32.1%
Net operating income 5.2% 7.9%
Interest Expense 1.4% 1.0%
Net income before
3.8% 6.9%
taxes
C. Financial Ratios
Recent financial statements for Marina Company are given below:
Marina Company Statement of
Financial Position
June 30, 2018
Assets
Currents assets:
Cash 21,000
Accounts receivable, net 160,000
Merchandise inventory 300,000
Prepaid expenses 9,000
Total current assets 490,000
Property, plant and equipment, net 810,000
Total assets 1,300,000
Liabilities and Equity
Liabilities:
Current liabilities 200,000
Bonds Payable, 10% 300,000
Total liabilities 500,000
Equity:
Ordinary shares, P5 par value 100,000
Retained earnings 700,000
Total equity 800,000
Total liabilities and equity 1,300,000
Marina Company
Income Statement
For the Year Ended June 30, 2018
Sales 2,100,000
Less cost of goods sold 1,260,000
Gross margin 840,000
Less operating expenses 660,000
Net operating income 180,000
Less interest expenses 30,000
Net income before taxes 150,000
Less income taxes 45,000
Net income 105,000
Account balances at the beginning of the company’s fiscal year were:accounts
receivables, P140,000; and inventory, P260,000. All sales were onaccount.
Required:
Compute the following financial ratios
a) Gross margin percentage
b) Current Ratio
c) Acid-test (quick) ratio
d) Accounts receivable turnover in days
e) Debt to equity ratio
f) Times interest earned
g) Book Value per share
a. Gross Margin Percentage = NET SALES-COGS
x 100
NET SALES
= 2,100,000 - 1,260,000
x 100
2,100,000
= 840,000
x 100
2,100,000
= 0.4 x 100
Gross Margin Percentage = 40%
b. Current Ratio= Current Assets
Current Liabilities
= 490,000
200,000
Current Ratio= 2.45 :1
c. Acid Test (quick) Ratio = Current Assets-( Merch inv.+ Prepaid Expenses)
Current Liabilities
= 490,000 - (300,000 + 9,000)
200,000
= 181,000
200,000
Acid Test (quick) Ratio = 0.905 : 1
d. Average Receivables = Beg Accounts Receivable + End Accounts Receivable
2
= 140,000 + 160,000
2
Average Receivables = 150,000
Receivable Turn over = Credit Revenue
Average Receivable
= 2, 100,000
150,000
Receivable Turn over = 14 times
Days Collection = 365
Receivable Turn over
= 365
14
Days Collection = 26.07 days
e. Debt to Equity Ratio = Total Liabilities
Total Equity
= 500,000
800,000
Debt to Equity Ratio = 63%
f. Time interest Earned = EBIT
Interest Expense
= 180,000
30,000
Time interest Earned = 6 times
g. Book Value Per Share = Total Shareholder's Equity
Total outstanding ordinary shares
= 800,000
20,000
Book Value Per Share = Php 40.00
