FINAL REQUIREMENT

(Financial Statements)

1) Balance Sheet (Horizontal Analysis)

2) Income Statement ( Horizontal Analysis)
3) Balance Sheet (Vertical Analysis)
4) Income Statement (Vertical Analysis)
5) Ratio Analysis

Submitted By:
Maxine Lois Pagaragan
1BSA3
 Quality Office
Horizontal Analysis of Comparative Balance Sheets
For years ended December 31, 2019 and 2020

Increase or Decrease
2020 2019 Amount Percent
ASSETS
Cash $ 33,000 $ 28,000 $ 5,000 17.86%
Marketable securities 20,000 22,000 (2,000) (9.09%)
Notes receivable 5,000 3,000 2,000 66.67%
Accounts receivable 50,000 56,000 (6,000) (10.71%)
Merchandise inventory 70,000 43,000 27,000 62.79%
Prepaid expenses 6,000 4,000 2,000 50.00%
Total current assets 184,000 156,000 28,000 17.95%
Property, plant, equipment 340,000 310,000 30,000 9.68%
Total assets $ 524,000 $ 466,000 $ 58,000 12.45%

LIABILITIES
Accounts payable $ 41,000 $ 38,000 $ 3,000 7.32%
Salaries payable 2,000 3,500 (1,500) (75.00%)
Taxes payable 4,000 2,000 2,000 50.00%
Total current liabilities 47,000 43,500 3,500 7.45%
Bonds payable, 5% 100,000 100,000 - 0.00%
Total liabilities 147,000 143,500 3,500 2.38%

STOCKHOLDER’S EQUITY
Preferred stock 6% 40,000 40,000 - 0.00%
Common stock 175,000 145,500 29,500 16.86%
Retained earnings 162,000 137,000 25,000 15.43%

Total stockholder’s equity 377,000 322,500 54,500 14.46%

Total liabilities and stockholder’s equity $ 524,000 $ 466,000 $ 58,000 11.07%

 Quality Office
Horizontal Analysis Income Statement
For years ended December 31, 2019, and 2020

Increase or Decrease
2020 2019
Amount Amount Amount Percent
Revenue
Sales $ 225,000 $ 195,000 $ 30,000 15.38%
Less: Sales returns and allowances 3,480 2,750 1,090 36.64%
Net sales $ 221,160 $ 192,250 28,910 15.04%
Cost of goods sold
Merchandise inventory, January 1 $ 66,000 $ 72,000 (6,000) (8.33%)
Purchases less returns and allowances 98,000 80,000 18,000 22.50%
Total cost of merchandise available for sale $ 164,000 $ 152,000 12,000 7.89%
Less: Merchandise inventory, March 31 60,225 61,000 (775) (1.27%)
Cost of goods sold $ 103,775 $ 91,000 12,775 14.04%
Gross profit $ 117,385 $ 101,250 16,135 15.94%
Operating expenses
Delivery expense $ 467 $ 200 267 133.50%
Depreciation expense-equipment 3,600 3,600 - 0.00%
Payroll taxes expense 388 295 93 31.53%
Salary expense 10,739 10,500 239 2.28%
Supplies expense 204 300 (96) (32.00%)
Telephone expense 1751 210 (35) (16.67%)
Utilities expense 1,907 1,500 407 27.13%
Total operating expenses $ 17,480 $ 16,605 875 5.27%
Operating Income $ 99,905 $ 84,645 15,260 18.03%
Interest Expense $ 13,000 $ 12,800 200 1.56%
Income before Taxes $ 86,905 $ 71,845 15,060 20.96%
Income tax expense 20% $ 15,700 $ 13,500 2,200 16.30%
Net income $ 71,205 $ 58,345 12,860 22.04%
 Quality Office
Vertical Analysis of Comparative Balance Sheets
For years ended December 31, 2019 and 2020

2020 2019
Amount Percent Amount Percent
ASSETS
Cash 33,000 6.3% 28,000 6.0%
Marketable securities 20,000 3.8% 22,000 4.7%
Notes receivable 5,000 1.0% 3,000 0.6%
Accounts receivable 50,000 9.5% 56,000 12.0%
Merchandise inventory 70,000 13.4% 43,000 9.2%
Prepaid expenses 6,000 1.1% 4,000 0.9%
Total current assets 184,000 35.1% 156,000 33.5%
Property, plant, and equipment 340,000 64.9% 310,000 66.5%
Total assets 524,000 100.00% 466,000 100.00%

LIABILITIES
Accounts payable 41,000 7.8% 38,000 8.2%
Salaries payable 2,000 0.4% 3,500 0.8%
Taxes payable 4,000 0.8% 2,000 0.4%
Total current liabilities 47,000 9.0% 43,500 9.3%
Bonds payable, 5% 100,000 19.1% 100,000 21.5%
Total liabilities 147,000 28.15 143,500 30.8%

STOCKHOLDER’S EQUITY
Preferred stock 6% 40,000 7.6% 40,000 8.6%
Common stock 175,000 33.4% 145,500 31.2%
Retained earnings 162,00 30.9% 137,000 29.4%

Total stockholder’s equity 377,000 71.9% 322,500 69.2%

Total liabilities and stockholder’s 524,000 100.00% 466,000 100.00%

equity
 Quality Office
Vertical Analysis Income Statement
For years ended December 31, 2019 and 2020

2020 2019
Amount % of Net Amount % of Net
Sales Sales
Revenue
Sales 101.74% 195,000 101.43%
225,000
Less: Sales returns and allowances 1.74% 2,750 1.43%
3,480
Net sales 100.00% 192,250 100.00%
221,160
Cost of goods sold
Merchandise inventory, January 1 66,000 29.84% 72,000 37.45%
Purchases less returns and allowances 98,000 44.31% 80,000 41.61%
Total cost of merchandise available for 74.15% 152,000 79.06%
sale 164,000
Less: Merchandise inventory, March 31 60,225 27.23% 61,000 31.73%
Cost of goods sold 46.92% 91,000
103,775
Gross profit 53.08% 101,250
117,385
Operating expenses
Delivery expense 0.21% 200 0.10%
467
Depreciation expense-equipment 1.63% 3,600 1.87%
3,600
Payroll taxes expense 0.18% 295 0.15%
388
Salary expense 10,739 4.86% 10,500 5.46%
Supplies expense 0.09% 300 0.16%
204
Telephone expense 0.08% 210 0.11%
175
Utilities expense 0.86% 1,500 0.78%
1,907
Total operating expenses 17,480 7.90% 16,605 8.64%
Operating Income 99,905 45.17% 84,645 44.03%
Interest expense 13,500 6.10% 12,800 6.65%
Income before tax 86,905 39.29% 71,845 37.37%
Income tax expense 20% 15,700 7.09% 13,500 7.02%
Net income 71,205 32.19% 58,345 30.34%
 Ratio Analysis
LIQUIDITY RATIO

Current Ratio Quick or Acid Test Ratio

Current Ratio – Quick or Acid Test Ratio –

Current Asset / Current Liabilities Quick Asset / Current Liabilities

2020 – ( 184,000 / 47,000) = 3.91:1 2020 – (103,000 / 47,000) = 2.19:1

2019 – ( 156,000 / 43,500) = 3.60:1 2019 – (106,000 / 43,500) = 2.44:1

Receivable Turnover Inventory Turnover

Net credit sale / Average trade receivable Cost of goods sold / Average Inventory
Average trade receivable = Average inventory =
(Receivables beg + Receivables end) / 2 (Inventory beg. + Inventory end) / 2

225,000 / (50,000 + 56,000) / 2 103,775 / (70,000 + 43,500) / 2

= 4.24 times = 1.84

Average sales period

360 days / Inventory turnover

360 days / 4.24

= 84.71 times
 Ratio Analysis
LEVERAGE RATIO

Debt Ratio

Total Liabilities / Total Assets

Equity ratio

2020- (147,000 / 524,000) =

28.05% or .2805:1 Total Equity / Total assets

2019- (143,500 / 466,000) =

30.79 % or .3079:1
2020- (377,000 / 524,000) =
71.94% or .7194:1

2019- (322,500 / 466,000) =

69.20% or .6920:1
Debt to Equity ratio

Total Liabilities / Total Equity Time Interest Earned

2020- ( 147,000 / 377,000) = Earnings before Interest and Taxes / Interest Expense

38.99% or .3899:1
2020 = 99,905 / 13,000 = 7.6 times
2019- (143,500 / 322,500) =
2019 = 84,645 / 12,800 = 6.6 times
44.49% or .4449:1
 Ratio Analysis
PROFITABILITY RATIO

Gross Profit / Net Sales

Gross Profit Margin 2020= ( 117,385 / 225,000 )

= 52.17%

2019= ( 101,250 / 195,000 )

= 51.92%

Net Profit Margin Net Income / Investment

Return on Investment Net income + (interest ( 1 – tax rate) / investment

2020 = 71,205 + (13,500 ( 1-.20) 377,500 = 21.75%

2019 = 58,345 + (12,800 ( 1-.20) 322,500 = 21.26%

Net Income / Average total asset

Return on Asset
Net income + (interest ( 1 – tax rate) / Ave. Total Asset

71,205 = ( 13,500 ( 1 - .20 ) / 990,000

( 524,000 + 466,000 )

= 08.28%

Return on Equity Net Income / Average total shareholders

Ave. Total SHE ( total SHE beg. + total SHE end )/2

71,205 / 699,500

(377,000 + 322,500) / 2

= 10.17%