Business Finance

Traditional Approaches: F/S Analysis

Quiz
I. Analyze the following comparative data using the horizontal analysis.

ABM12-2M Corp.
Horizontal Analysis
Statement of Financial Position
December 32,2017 and 2018
2017 2018 Peso Change % Change
Cash and Cash Equivalents P125,000 P120,000 (1)______________ (2)_______________
Trading Securities 200,000 (3)__________ (4)______________ ( 15%)
Accounts Receivable (5)__________ (6)__________ 50,000 10%
Merchandise Inventory (7)__________ 180,000 (8)______________ (25%)
Prepaid Expenses (9)__________ 300,000 50,000 (10)______________
Short-term Investments 300,000 (11)__________ (75,000) (12)______________
Total Current Assets P___________ P____________ P________________ (15)______________

II. Fill in the missing data using vertical analysis then perform trend analysis once it is completed.

ABM12-7P Company
Financial Statement Analysis
December 31,2016,2017 and 2018
2016 2017 2018
Sales (1) (5) P2,200,000 P2,500,000
Less: Cost of Sales 65% (6) ___________ 1,000,000 1,100,000
Gross Profit (2) (7) 1,200,000 1,400,000
Less: Operating Expenses (3) (8)____________ 720,000 980,000
Operating Income 20% P480,000 P420,000
Less: Income Taxes (4)______ (9)____________ 144,000 126,000
Net Income 14% (10)____________ P336,000 P294,000

Trend Analysis
2016 2017 2018
Sales 100% (7)__________ (14)____________
Less: Cost of Sales (1)___________ (8)__________ (15)_____________
Gross Profit (2)___________ (9)__________(16)_____________
Less: Operating Expenses (3)___________ (10)_________ (17)_____________
Operating Income (4)___________ (11)_________ (18)_____________
Less: Income Taxes (5)___________ (12)_________ (19)_____________
Net Income (6)___________ (13)_________ (20)_____________
Bases on the following ratios and percentages, complete the following income statement and Balance Sheet of ABM
Corporation for the year ended Dec, 31,2014.
Income Statement
Sales (80% on Account) _________________________
Less: Cost of Sales
Gross Profit
Less: Operating Expenses __________________________
Operating Income
Less: Interest Expenses __________________________
Net Income before taxes
Less: Income tax
Net Income after tax __________________________
P480,000

Balance Sheet
Cash Current Liabilities
Accounts Receivable 8% Loans Payable _______________
Inventory Total Liabilities _______________
Prepaid Expenses __________________ Capital Stock
Total Current Assets Retained Earnings _______________
Property, Plant and Equipment __________________ Total Stockholders’ Equity _______________
Total Assets __________________ Total Liabilities and Equity ________________

Additional Information:
1) Receivable Turnover 10 times 7) No. of times interest earned P17 times
2) Inventory Turnover 8 times 8) Equity/Debt Ratio 3:1
3) Current Ratio 4:1 9) % of Capital Stock to Retained Earnings 200%
4) Quick Asset Ratio 2:1 10) Ratio of Current Liabilities to Total Liabilities 37.5%
5) Gross Profit Ratio 30% 11) Income tax rate 40%
6) Rate of Return on Sales 12) Asset turnover ( Net Sales)
(Net Profit Margin) 6% Average Assets
ABM Company is owned and managed by Mr. A. The company was established last December 31,2016 and engaged in a retail
business located at UBelt Area. All purchases and sales were on account The trial balance of ABM Company, provided the
following balances as of December 31,2018.

Statement of Financial Position

ASSETS LIABILITIES & OWNER’S EQUITY

Cash 120,000 Accounts Payable ??
Marketable Securities ?? Accrued Expenses 100,000
Accounts Receivable ?? Total Current Liabilities ??
Inventories ?? Bonds Payable 415,750
Prepaid Expenses 50,000 Total Liabilities ??
Total Current Assets A. Capital ??
Plant & Equipment ??

Land 900,000
Total Non-Current Assets 1,550,000
Total Assets ?? Total Liabilities & Equity 2,395,000

Income Statement
Net Sales 1,200,000
Cost of Goods Sold ??
Gross Profit ??
Administrative Expenses (??)
Selling Expenses (??)
Operating Income ??
Interest Expense (??)
Net Income ??
REQUIREMENTS:
Using the following information given in the table below. Reconstruct the Balance Sheet and Income Statement of
ABM Company. Assume that all purchases and sales are on account. Use 360 days.

Current Ratio 2.00:1

Age of Receivables 60 days
Age of Inventory 75 days
Debt Ratio 35%
Equity Ratio 65%
Gross Profit Margin 30%
Net Profit Margin 15%
Administrative Expenses 20% of Gross Profit
Selling Expenses 90% of Administrative Expenses

1. Cost of Goods Sold _______________________ 8. Accounts Payable ____________________

2. Selling Expenses _______________________ 9. Plant & Equipment ____________________
3. Operating Income _______________________ 10. Total Current Assets ____________________
4. Net Income _______________________ 11. Accounts Receivable ____________________
5. Total Assets _______________________ 12. Inventory ____________________
6. Total Liabilities ________________________ 13. Marketable Securities _____________________
7. Total Current Liabilities _________________________

Problem 1
Income Statement Balance Sheet
Sales(80% on account) ??? Cash ??? Current Liabilities ???
Cost of Goods Sold ??? Accounts Receivable ??? 8% Bonds Payable ???
Gross Profit P1,200,000 Inventory ??? Total Liabilities ???
Operating Expenses ??? Prepaid Expenses ???
Operating Income ??? Current Assets ??? Capital Stock ???
Interest Expense (???) PPE ??? Retained Earnings ???
Net Income Before Tax ??? Total Stockholders’ Equity ???
Income Tax (???)
Net Income after Tax ??? TOTAL ASSETS ??? Total Liabilities and Equity ???

Add’l Info
a. Receivable Turnover 10 times g. Times Interest earned 17 times
b. Inventory Turnover 8 times h. Equity/ Debt Ratio 3:1
c. Current Ratio 4:1 i. % of CS to RE 200%
d. Quick Asset Ratio 2:1 j. Debt Ratio 1:4
e. Gross Profit Rate 30% k. Income tax rate 40%
f. Net Profit Margin 6% l. Asset Turnover 2 times
m. Ratio of current liabilities
to total liabilities 37.5%

PROBLEM 2
Income Statement: Balance Sheet:
Net Sales(100% credit) Cash Accounts payable
COGS __________________ Accounts Receivable Salaries payable ________
Gross Profit 600,000 Supplies ___________ Current liabilities
Operating Expenses __________________ Current Assets Mortgage payable 20,000
Operating Income Building Total Liabilities
Interest Expense (30,000) Acc. Depreciation (28,000)
Net Income before tax TOTAL ASSETS Common Stock
Income tax _________________ Retained Earnings ________
Net Income after tax Total Equity _______

Total Liabilities and Equity

Ratios:
a. Times Interest earned 15 times
b. Debt Ratio 33.3333333%
c. Asset Turnover 4.1666666 times
d. Quick Assets 110,000
e. Quick ratio 1.833333:1
f. Receivable Turnover 33.33333 times
g. Gross Profit Rate 60%
h. Current Ratio 1.9666666:1
i. % of CS TO RE 166.66666%
j. % of Accts. Payable to Salaries Payable 140%
 k. Tax Rate 30%

Quiz: Financial System

3 4 5 6 7 8 9

ACROSS

1 A bank which caters services for most big businesses in the Philippines.
3 A bank organized for the welfare of a specific religion.
6 An entity for asset management for a specific person
12 Composed of several parts with interrelated function
13 Includes bonds and stocks
19 Institutions usually engaged in accumulation and pooling of funds
21 Institutions which main function is for safekeeping of funds
23 Pooling of funds of members who are borrowers at the same time
24 A market for listed companies
26 An instrument which gives rise to an obligation on the part of the debtor
28 Pooling of funds for end-of-employment term
30 A bank organized to promote the welfare of individual entrepreneurs
32 A bond which requires one-time payment
34 A system that shows the flow of money
35 A financial instrument that can be redeemed before maturity
36 The law governing the operations of the Central Bank of the Philippines
37 Funds for future contingencies
38 An instrument that can be redeemed before maturity
39 An instrument backed up with a non-current asset

DOWN

1 One example of an equity instrument

2 The most common example of financial institution
4 This is a place of exchange for existing stockholders
5 Entities offering a wide range of financial services
7 A bank catering to specific vicinity
8 Financial instrument used for paying large sums of money
9 This is created and regulated under RA.NO. 3799
10 The bank of all banks
11 Instruments representing ownership in a corporation
14 A place of exchange
17 The medium of exchange for most transactions
18 A market for trading securities
20 An investment where the funds are from people who are stranger to each other
22 Caters savings from small and medium enterprises
25 Market for long-term investments
27 An instrument that can be exchanged for another term of instrument
28 An equity instrument without voting rights
29 A bond that offers no security
31 Market for potential stockholders