ACTIVITY 3 MFCapistrano

FINANCIAL STATEMENTS ANALYSIS

General Instructions:

a. Each student must submit their answers individually.

b. Solutions to these problems are to be written on a clean sheet of paper (must be hand
written).
c. Scan or take a picture of your solution and upload your file in PDF format in Schoology
under Activity 3 (Module 1).
d. Make sure to upload a clear and readable file.
e. Submit on or before the due date since no extension shall be allowed.

PROBLEM 1
The data of various companies in the same industry are as follows

COMPANY
A B C D E F
Sales (in millions) P10 P20 P8 P5 P12 P17
Total assets (in millions) 8 10 6 2.5 4 8
Net income (in millions) 0.7 2 0.8 0.5 1.5 1

Determine the total asset turnover, net profit margin, and earning power for each of the
companies.

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ACTIVITY 3 MFCapistrano

PROBLEM 2
Cordillera Carson Company has the following balance sheet and income statement for 20X2 (in
thousands

BALANCE SHEET INCOME STATEMENT

Cash P400 Net sales (all credit) P12,680

Accounts Receivable 1,300 Cost of goods sold 8,930
Inventories 2,100 Gross profit P3,750
Current assets P3,800 Selling general and
Net fixed assets 3,320 administration expenses 2,230
Total assets P7,120 Interest expense 460
Profit before taxes P1,060
Taxes 390
Accounts Payable P320 Profit after taxes P670
Accruals 260
Short-term loans 1,100
Current Liabilities P1,680
Long-term debt 2,000
Net worth 3,440
Total liabilities and net worth P7120

Notes (i) current period’s depreciation is 480; (ii) ending inventory for 20X1 was P1,800.
On the basis of this information, compute (a) the current ratio, (b) the acid-test ratio, (c) the
average collection period, (d) the inventory turnover ratio, (e) the debt-to-net-worth ratio,
(f) the long-term debt-to-total-capitalization ratio, (g) the gross profit margin (h) the net
profit margin, and (i) the return on equity.
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ACTIVITY 3 MFCapistrano

PROBLEM 3
Selected financial ratios for RMN, Incorporated, are as follows:
20X1 20X2 20X3
Current ratio 4.2 2.6 1.8
Acid-test ratio 2.1 1.0 0.6
Debt-to-total-asset 23% 33% 47%
Inventory turnover 8.7x 5.4x 3.5x
Average collection period 33 days 36 days 49 days
Total asset turnover 3.2x 2.6x 1.9x
Net profit margin 3.8% 2.5% 1.4%
Return on investment (ROI) 12.1% 6.5% 2.8%
Return on equity (ROE) 15.7% 9.7% 5.4%

a. Why did return on investment decline?

b. Was the increase in debt a result of greater current liabilities or of greater long term debt?
Explain.