FINANCIAL STATEMENTS ANALYSIS

Marikin's Foot wear Products, Inc

Balance Sheet (inPHP)
As of 12-31-2020

I ASSETS LIABILITIES AND STOCKHOLDER'S EQUITY

Current Assets Current Liabilities
Cash and Cash Equivalents 1,502,231.00 Accounts Payable 2,450,000.00
Accounts Receivables 502,450.00 Notes Payable 1,000,000.00
Inventories 5,982,002.00 Accrued Expenses 45,002.00 3,495,002.00
Prepaid Expenses 15,005.00 Long Term Liabilities 2,500,000.00
Marketable Securities 2,835,000.00 10,836,688.00 Total Liabilities 5,995,002.00
Long Term Investments 2,000,000.00
Fixed Assets Stockholders' Equity
Common Stock 2,000,000 @ P6.00 per share
Land 1,500,000.00 subscribed and oustanding (Authorized
Building (Net of Dep'n) 8,500,000.00 3,000,000 shares) 12,000,000.00
Equipment (Net of Dep'n) 2,450,000.00 12,450,000.00
Other Assets 1,500,000.00 Retained Earnings 7,291,686.00 19,291,686.00
TOTAL ASSETS 25,286,688.00 TOTAL LIABILITIES & STOCKHOLDER'S EQUITY 25,286,688.00

II Income Statement (in Php) Cash Flow Statement

For the Period Ending 12-31-2020 III For the Period Ending 12-31-2020

Revenue from Sales 102,345,002.00 Cash Beginning 1,782,487.85

Cost of goods sold 78,234,800.00 Add: Cash Receipts
Gross Income 24,110,202.00 Cash Sales 88,435,202.00
Less: Operating Expenses Interest Income 473,213.00
Salaries and Wages 11,845,826.50 Cash Collection from Acct/Rec 14,234,550.00 103,142,965.00
Light, Water & Communication 1,200,005 Total Cash Available 104,925,452.85
 Depreciation 438,000 Less:
Interest Expense 548,023 Cash Disbursements
Seminar & Travel 1,645,000 Operating Exp (net of dep'n & accruals 18,484,088.50
Administrative Expenses 2,645,002 Taxes 1,684,897.35
Repairs & Maintenance 645,234 Cash Purchases 41,435,891.00
Miscellaneous 121,234 18,967,090.50 Cash Payments to Supplier 41,818,345.00 103,423,221.85
Net Income from Operation 5,143,111.50 Cash Balance Ending 1,502,231.00
Add: Interest Income 473,213
Total Net Income 5,616,324.50 Sched. 1 COGS
Less: Taxes 1,684,897.35 beg inventory 7,982,235.00
Net Income after taxes 3,931,427.15 purchases 76,234,567.00
TGAS 84,216,802.00
Less: Inventory end 5,982,002.00
Ratios and Analysis COGS 78,234,800.00

1. Profitability Analysis - measures the earning potential of the firm since most earning is the basic reason why firm exists.
a Return on Sale (ROS) = Net Income after tax ÷ Sales Sched 2 - Depreciation
= 3,931,427.15/102,345,002 Accumulated
= 4% Building 345,000.00
Equipment 77,000.00
b Return on Assets (ROA) = Net Income after tax ÷ Total Assets
= 3,931,427.15/25,286,688 Building Cost 9,200,000.00
= 16% Less Accu Depn 700,000.00
Net of Dep'n 8,500,000.00
c Return on Equity (ROE) = Net Income after tax ÷ Total Equity
= 3,931,427.15 ÷ 19,291,686
= 20% Equipment Cost 2,290,000.00
Less Accu Dep'n 160,000.00
d Earnings per share (EPS) = earnings after tax ÷ Number of shares outstanding Net of Dep'n 2,450,000.00
= 3,931,427.15/2,000,000
= 1.97 per share
2. Liquidity Analysis- measures the ability of the company to convert its resources into cash in order to pay current obligations
a Current Ratio = Current Assets ÷ Current Liabilities
= 10,836,688/3,495,002
= 3.10 - Current Assets is 3.10 times of Liabilities

b Acid Test Ratio (Quick Ratio) = (Current Assets - Inventories) ÷ Current Liabilities
= (10,836,688 - 5,982,002)/3,495,002
= 1.39 - Quick Assets is 1.39 times of Current Liabilities

c Operating Cash Cycle or Cash Conversion Cycle - the sale period by which a product is converted into cash
aa Inventory days = (Ave. Inventory ÷ Cost of Sales ) x 365 days
=(5,982,002/78,234,800) x 365 days
= 27.91 days it takes for the inventory to be sold

bb Receivable Days = (Average Receivables ÷ Sales on Account) x 365 days

=(502,450 /13,909,800)x365 days
= 13.18 days it takes for the receivables to convert into cash

cc Payable days = (Average Payables ÷ purchases on account) x 365 days

=(2,450,000/34,798,676) x 365 days
= 25.70 days it takes for the payables to be paid

= Cash Conversion Cycle = Inventory days + Receivable days - payable days

= 27.91 + 13.18 -25.7
= 29.36 days it takes for the product to be converted into cash
Activity Analysis – measures the efficiency by which the company uses its asset resources to attain its objectives.
3
a Asset Turn-over = Sales ÷ Total Assets
= 102,345,002/25,286,688
= 4.05 - Total Assets is 4.05 times of Sales

b Accounts Receivable turn-over = Sales ÷ Accounts Receivable

= 102,345,002/502,450
= 203.69 - Acct Receivable is 203.7 times of Sales
c. Inventory turn-over = Cost of goods sold ÷ Inventories
= 78,234,800/5,982,002
= 13.08 - inventories is 13 times of COGS

d Capital Intensity Ratio = Sales ÷ Fixed Assets

= 102,345,002/12,450,000
= 8.22 - Fixed Assets is 8.22 times of Sales

4 Leverage or Solvency Analysis - provides evidence of effective managing of assets and debts of the company
a. Debt/Equity Ratio = Total Liabilities ÷ Stockholder's Equity
= 5,995,002/19,291,686
= 31% - Liabilities is 31% of Stockholder's Equity or Capital
This measures the proportion of barrowed capital to invested capital

b. Equity/Debt Ratio = Stockholder's Equity ÷ Total Liabilities

= 19,291,686/5,995,002
= 3.22
This indicates the margin of safety to creditors

c. Propriety or Equity Ratio = Stockholder's Equity ÷ Total Assets

= 19,291,686/25,286,688
= 76%
This indicates what portion of assets is provided by owners or stockholders

d. Debt Ratio = Total Liabilities ÷ Total Assets (or Liabilities and Owner's Equity)
= 5,995,002/25,26,688
= 24%
This indicates what portion of total assets is provided by creditors or the extent of trading on equity

e. Fixed Assets to Owner's Equity Ratio = Total Fixed Assets ÷ Total stockholder's or owner's equity
= 12,450,000/19,291,686
= 65%
 This indicates the portion of stockholder's equity invested in Fixed Assets

f. Total Long Term Liabilities Coverage = Fixed Assets ÷ Long Term Liabilities
= 12,450,000/2,000,000
= 6.23
This indicates the cover provided by book value of fixed assets to long term liabilities

g. Plant Turn-over = Net sales/Average Net Fixed Assets

= 102,345,002/12,450,000
= 8.22
This indicates the efficiency in the use of property

h. Book Value per share = Common Stock Equity/Number of Shares Oustanding

=19,291,686/2,000,000
= 9.65
This indicates the book value of net assets for every share of stock

i. Number of Times Earned = earnings before Interest and Taxes/Annual Interest Charges
= (5,616,324.5-548,023)/548,023
= 9.25
this indicates the company's ability to pay fixed interest

Others Tools and Techniques

1. The Altman and Z-Score Model – is discriminant analysis which sums up 5 financial ratios into an index.
These ratios are: liquidity ratio, profitability over time, basic profitability, financial leverage, and turnover efficiency

A Z score of greater than 2.99 means that the entity being measured is safe from
bankruptcy. A score of less than 1.81 means that a business is at considerable risk
of going into bankruptcy, while scores in between should be considered a red
flag for possible problems. The model has proven to be reasonably accurate in
 predicting the future bankruptcy of entities under analysis.

Z = 1.2A+ 1.4B + 3.3C+ 0.6D + 0.99E

A = Working capital / Total assets [ Measures the relative amount of liquid assets] 43%
B = Retained earnings / Total assets [Determines cumulative profitability] 29%
C = Earnings before interest and taxes / Total assets [measures earnings away from the effects of taxes and leverage] 20%
D = Market value of equity / Book value of total liabilities [incorporates the effects of a decline in market value of a company's shares] 0.8649
E = Sales / Total assets [measures asset turnover] 4.05

=(1.2*.43)+ (1.4*.29) + (3.3*.20)+ (0.6*.865) + (0.99*4.05)

= 6.1105

2. Du Pont Model
In Du Pont System of analysis, 3 major areas of operation and management are examined and analysed:

ROA = (EAT/S x S/TA) x (TA/SE) = ROE

Where: ROA = Return of Assets 16%
EAT = Earnings after Tax 3,931,427.15
S = Sales 102,345,002.00
TA = Total Assets 25,286,688.00
SE = Stockholder’s Equity 19,291,686.00
ROE = Return on Equity 20%

=(3,931427.15/102,345,002) x (102,345,002/25,286,688) x(25,286,688/19,291,686)

= 20%
It indicates that a company is using more equity and less debt to finance the purchase of assets.
Companies with a low equity multiplier are generally considered to be less risky investments because they have a lower debt burden.

SIMPLE PROFORMA FINANCIAL STATEMENTS USING PERCENTAGE OF SALES

Peachy Foods Inc. presented the following financial statements for the year 2020

Income Statement (in Php) Balance Sheet

Sales 100,000 Current Asset 20,000
Cost of Sales 40,000 Fixed Asset 20,000
Gross Margin 60,000 Total Assets 40,000
Less: Variables 15,000
Fixed 25,000 40,000 Liabilities 15,000
Net Margin 20,000 Owners' Equity 25,000
Total Liabilities and Owners' Equity 40,000
Note: Cost of Sales is considered variable costs since it varies with Sales.

The Management planned to increase sales by 20% at the end of 2021 by availing of purchases on account in accordance with the targeted sales,
thus formulated the following proforma:

Income Statement (in Php) Balance Sheet

Sales (100,000 x1.2) 120,000 Current Asset 32,000
Cost of Sales (40,000x1.2) 48,000 Fixed Asset 20,000
Gross Margin 72,000 Total Assets
Less: Variables (15,000x1.2) 18,000
Fixed 25,000 43,000 Liabilities (15,000x1.2) 18,000
Net Margin 29,000 Owners' Equity (25,000+9,000) 34,000
Total Liabilities and Owners' Equity
 34,798,676.00

Current Total
355,000.00 700,000.00
83,000.00 160,000.00
438,000.00
52,000

52,000