FINANCIAL RATIO

ANALSYSIS
 A. Liquidity Ratios
• Liquidity ratios analyze the ability of a company to
pay off both its current liabilities as they become
dues as well as their long term liabilities as they
become current. In other words, these ratios shows
the cash levels of a company and the ability to turn
other assets into cash to pay off liabilities and other
current obligations.
The current ratio is a liquidity and efficiency ratio that
measures a first ability to pay of its short-term liabilities
with its current assets. The current ratio is an important
measure of liquidity because short term liabilities are due
within the next year.
Formula
Current Ratio = Current Assets/ Current Liabilities
 Current Ratio = Current Assets/ Current Liabilities
MAESTRO MERCHANDISING ENTERPRISES
COMPARATIVE STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2020
ASSETS LIABILITIES & OWNER’S EQUITY
CASH 235,000 ACCOUNTS PAYABLE 115,500
ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885
TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915
TOTAL LIABILITIES & OWNER’S 1,913,800
EQUITY
The quick ratio or acid test ratio is a liquidity ratio that
measures the ability of a company to pay its current current
liabilities when they come due with only quick assets. Quick
Assets are current assets that can be converted to cash
within 90 days or in the short-term. Cash, Cash equivalents,
short-term investments or marketable securities, and current
account receivable are considered quick assets.
Formula
Quick Ratio = Quick Assets / Current Liabilities
 Quick Ratio = Quick Assets / Current Liabilities
MAESTRO MERCHANDISING ENTERPRISES
COMPARATIVE STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2020
ASSETS LIABILITIES & OWNER’S EQUITY
CASH 235,000 ACCOUNTS PAYABLE 115,500
ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885
TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915
TOTAL LIABILITIES & OWNER’S 1,913,800
EQUITY
The working capital measures a firm ability to pay its current
liabilities with current assets. The working capital is important to
creditors because its shows the liquidity of the company.
Current Liabilities are best paid with current assets like cash, cash
equivalents, and marketable securities because these assets can be
converted into cash much quicker than fixed assets. The faster the
assets can be converted into cash, the more likely the company will
have the cash in time to pay its debts.
Formula
Working Capital Ratio = Current Assets – Current Liabilities
 Working Capital Ratio = Current Assets – Current Liabilities
MAESTRO MERCHANDISING ENTERPRISES
COMPARATIVE STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2020
ASSETS LIABILITIES & OWNER’S EQUITY
CASH 235,000 ACCOUNTS PAYABLE 115,500
ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885
TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915
TOTAL LIABILITIES & OWNER’S 1,913,800
EQUITY
 B. Solvency Ratio
Solvency ratios measure a company’s ability to sustain
operations indefinitely by comparing debt levels with equity
assets and earnings. They are also called leverage ratios. In other
words, solvency ratios identify on-going concern issues and a
firm’s ability to pay its bills in the long term. Many people
confuse solvency ratios with liquidity ratios. Although they both
measures the ability of a company to pay off its obligations,
solvency ratios focus more on long-term sustainability of a
company instead of the current liability payments
 The debt to equity ratio is a financial, liquidity ratio that
compares a company’s total debt to total equity. The debt to
equity ratio shows the percentage of company financing that
comes from creditors and investors.
A higher debt to equity ratio indicates that more creditor
financing(bank loans) is used than investor financing (
shareholders ).
Formula
Debt to Equity Ratio = Total Liabilities / Total Equity
 Debt to Equity Ratio = Total Liabilities / Total Equity
MAESTRO MERCHANDISING ENTERPRISES
COMPARATIVE STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2020
ASSETS LIABILITIES & OWNER’S EQUITY
CASH 235,000 ACCOUNTS PAYABLE 115,500
ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885
TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915
TOTAL LIABILITIES & OWNER’S 1,913,800
EQUITY
 The equity ratio is an investment leverage or solvency
ratio that measures the amount of assets that are
financed by owners’ investment by comparing the total
equity in the company to the total assets.

Formula
Equity Ratio = Total Equity / Total Assets
 Equity Ratio = Total Equity / Total Assets
MAESTRO MERCHANDISING ENTERPRISES
COMPARATIVE STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2020
ASSETS LIABILITIES & OWNER’S EQUITY
CASH 235,000 ACCOUNTS PAYABLE 115,500
ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885
TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915
TOTAL LIABILITIES & OWNER’S 1,913,800
EQUITY
 Debt ratio is a solvency ratio that measures a firm’s
total liabilities as a percentage of its total assets. In a
sense, the debt ratio shows a company’s ability to pay
off its liabilities with its assets. This shows how many
assets the company must sell in order to pay off all of
its liabilities.
Formula
Debt Ratio = Total Liabilities / Total Assets
 Debt Ratio = Total Liabilities / Total Assets

MAESTRO MERCHANDISING ENTERPRISES

COMPARATIVE STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2020
ASSETS LIABILITIES & OWNER’S EQUITY
CASH 235,000 ACCOUNTS PAYABLE 115,500
ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885
TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915
TOTAL LIABILITIES & OWNER’S 1,913,800
EQUITY
 C. Efficiency Ratio
Efficiency ratios also called activity ratios that measure how
well companies utilize their assets to generate income.
Efficiency ratios often look at the time it takes companies to
collect cash from customer or the time it takes companies to
convert inventory into cash-in other words, make sales. These
ratios are used by management to help improve the company
and also by outside investors and creditors looking at the
operations of profitability of the company.
 Accounts receivable turnover is an efficiency ratio or
activity ratio that measures how many times a business
can turn its accounts receivable into cash during a period.
In other words, the account receivable turnover ratio
measures how many times a business can collect its
average accounts receivable during the year.
Formula
ARTO= Net Credit Sales / Ave. Accounts Receivable
 ARTO= Net Credit Sales / Ave. Accounts Receivable

MAESTRO MERCHANDISING ENTERPRISES MAESTRO MERCHANDISING ENTERPRISES

COMPARATIVE INCOME STATEMENT COMPARATIVE STATEMENT OF FINANCIAL POSITION
FOR THE YEAR 2020 AS OF DECEMBER 31, 2020
2020 2019
ASSETS LIABILITIES & OWNER’S EQUITY
SALES 3,000,000 2,500,000
CASH 235,000 ACCOUNTS PAYABLE 115,500
COST OF GOOD SOLD (1,600,000) (1,400,0000 ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
GROSS MARGIN 1,400,000 1,100,000 INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
OPERATING EXPENSES TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
SALRIES WAGES EXPENSE ( 575,000) ( 450,000) FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885

OFFICE RENT EXPENSE (180,000) (150,000) TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915

SUPPLIES EXPENSE (50,000) (40,000) TOTAL LIABILITIES & 1,913,80

OWNER’S EQUITY 0
UTILIEXPENSETIES ( 130,000) (100,000)
OTHER EXPENSES (110,000) (90,000) Assume that the on 2019 accounts
NET PROFIT 355,000 270,000 receivable showed 300,000
 The asset turnover ratio is an efficiency ratio that
measures a company’s ability to generate sales from its
assets by comparing net sales with average total assets.
in other words, this ratio shows how efficiently a
company can use its assets to generate sales.
Formula
ATR= Net Sales / Average Total Assets
 Asset Turnover Ratio = Net Sales / Average Total Assets

MAESTRO MERCHANDISING ENTERPRISES MAESTRO MERCHANDISING ENTERPRISES

COMPARATIVE INCOME STATEMENT COMPARATIVE STATEMENT OF FINANCIAL POSITION
FOR THE YEAR 2020 AS OF DECEMBER 31, 2020
2020 2019
ASSETS LIABILITIES & OWNER’S EQUITY
SALES 3,000,000 2,500,000
CASH 235,000 ACCOUNTS PAYABLE 115,500
COST OF GOOD SOLD (1,600,000) (1,400,0000 ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
GROSS MARGIN 1,400,000 1,100,000 INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
OPERATING EXPENSES TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
SALRIES WAGES EXPENSE ( 575,000) ( 450,000) FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885

OFFICE RENT EXPENSE (180,000) (150,000) TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915

SUPPLIES EXPENSE (50,000) (40,000) TOTAL LIABILITIES & 1,913,80

OWNER’S EQUITY 0
UTILIEXPENSETIES ( 130,000) (100,000)
OTHER EXPENSES (110,000) (90,000) Assume that on 2019 the ending balance
NET PROFIT 355,000 270,000 of total assets showed 1,728,815
 The inventory turnover ratio is an efficiency ratio that
shows how effectively inventory is managed by comparing
cost of goods sold with average inventory for a period.
This measures how many times average inventory for a
period. This measures how many times average inventory
is “turned” or sold during a period.
Formula
ITR= Cost of Goods Sold / Average Inventory
 ITR= Cost of Goods Sold / Average Inventory

MAESTRO MERCHANDISING ENTERPRISES MAESTRO MERCHANDISING ENTERPRISES

COMPARATIVE INCOME STATEMENT COMPARATIVE STATEMENT OF FINANCIAL POSITION
FOR THE YEAR 2020 AS OF DECEMBER 31, 2020
2020 2019
ASSETS LIABILITIES & OWNER’S EQUITY
SALES 3,000,000 2,500,000
CASH 235,000 ACCOUNTS PAYABLE 115,500
COST OF GOOD SOLD (1,600,000) (1,400,0000 ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
GROSS MARGIN 1,400,000 1,100,000 INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
OPERATING EXPENSES TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
SALRIES WAGES EXPENSE ( 575,000) ( 450,000) FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885

OFFICE RENT EXPENSE (180,000) (150,000) TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915

SUPPLIES EXPENSE (50,000) (40,000) TOTAL LIABILITIES & 1,913,80

OWNER’S EQUITY 0
UTILIEXPENSETIES ( 130,000) (100,000)
OTHER EXPENSES (110,000) (90,000) Assume that on 2019 the ending balance
NET PROFIT 355,000 270,000 of inventory showed 348,815
 D. Profitability Ratio
Profitability ratios compare income statement
accounts and categories to show a company’s
ability to generate profits from its operation.
Profitability ratios focus on a company’s return on
investment in inventory and other assets. these
ratio basically show hpw well companies can
achieve profits from their operations.
 Gross Margin ratio is a profitability ratio that compares the
gross margin of a business to the net sales. This ratio
measures how profitable a company sells its inventory or
merchandise. In short, the gross profit ratio is essentially the
percentage markup on merchandise from its cost. This is the
pure profit from the sale of inventory that can go to paying
operating expenses.
Formula
Gross Margin Ratio = Gross Margin / Net Sales
 Gross Margin Ratio = Gross Margin / Net Sales

MAESTRO MERCHANDISING ENTERPRISES

COMPARATIVE INCOME STATEMENT
MAESTRO MERCHANDISING ENTERPRISES
FOR THE YEAR 2020
COMPARATIVE STATEMENT OF FINANCIAL POSITION
2020 2019 AS OF DECEMBER 31, 2020
SALES 3,000,000 2,500,000
ASSETS LIABILITIES & OWNER’S EQUITY
COST OF GOOD SOLD (1,600,000) (1,400,0000
CASH 235,000 ACCOUNTS PAYABLE 115,500
GROSS MARGIN 1,400,000 1,100,000 ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
OPERATING EXPENSES INVENTORY 476,350 TOTAL CURRENT 132,885
LIABILITIES
SALRIES WAGES EXPENSE ( 575,000) ( 450,000)
TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
OFFICE RENT EXPENSE (180,000) (150,000)
FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885
SUPPLIES EXPENSE (50,000) (40,000)
TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915
UTILIEXPENSETIES ( 130,000) (100,000)
OTHER EXPENSES (110,000) (90,000) TOTAL LIABILITIES & 1,913,800
OWNER’S EQUITY
NET PROFIT 355,000 270,000
The profit margin ratio is a profitability ratio that measures
the amount of income earned with each sale generated by
comparing the net income and net sales of a company. This
is also called the return on sales ratio or gross profit ratio.
This means that the profit margin ratio shows what
percentage of sales is left over after all expenses are paid
by the business.
Formula
Profit Margin Ratio = Net Income / Net Sales
 Profit Margin Ratio = Net Income / Net Sales

MAESTRO MERCHANDISING ENTERPRISES

COMPARATIVE INCOME STATEMENT
MAESTRO MERCHANDISING ENTERPRISES
FOR THE YEAR 2020
COMPARATIVE STATEMENT OF FINANCIAL POSITION
2020 2019 AS OF DECEMBER 31, 2020
SALES 3,000,000 2,500,000
ASSETS LIABILITIES & OWNER’S EQUITY
COST OF GOOD SOLD (1,600,000) (1,400,0000
CASH 235,000 ACCOUNTS PAYABLE 115,500
GROSS MARGIN 1,400,000 1,100,000 ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
OPERATING EXPENSES INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
SALRIES WAGES EXPENSE ( 575,000) ( 450,000) TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
OFFICE RENT EXPENSE (180,000) (150,000) FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885

SUPPLIES EXPENSE (50,000) (40,000) TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915

UTILIEXPENSETIES ( 130,000) (100,000) TOTAL LIABILITIES & 1,913,80

OWNER’S EQUITY 0
OTHER EXPENSES (110,000) (90,000)
NET PROFIT 355,000 270,000
The return on assets ratio, often called the return on total
assets, is a profitability ratio that measures the net Income
produced by total assets during a period by comparing net
income to the average total assets. In short, the return on
assets ratio or ROA measures how efficiently a company
can manage its assets to produce profits during a period.
Formula
ROA = Net Income / Average Total Assets
 ROA = Net Income / Average Total Assets

MAESTRO MERCHANDISING ENTERPRISES MAESTRO MERCHANDISING ENTERPRISES

COMPARATIVE INCOME STATEMENT COMPARATIVE STATEMENT OF FINANCIAL POSITION
FOR THE YEAR 2020 AS OF DECEMBER 31, 2020
2020 2019
ASSETS LIABILITIES & OWNER’S EQUITY
SALES 3,000,000 2,500,000
CASH 235,000 ACCOUNTS PAYABLE 115,500
COST OF GOOD SOLD (1,600,000) (1,400,0000 ACCOUNTS RECEIVABLE 355,000 ACCRUED LIABILITIES 17,385
GROSS MARGIN 1,400,000 1,100,000 INVENTORY 476,350 TOTAL CURRENT LIABILITIES 132,885
OPERATING EXPENSES TOTAL CURRENT ASSETS 1,066,350 NOTES PAYABLE 800,000
SALRIES WAGES EXPENSE ( 575,000) ( 450,000) FIXED ASSETS 847,450 TOTAL LIABILITIES 932,885

OFFICE RENT EXPENSE (180,000) (150,000) TOTAL ASSETS 1,913,800 OWNER’S CAPITAL 980,915

SUPPLIES EXPENSE (50,000) (40,000) TOTAL LIABILITIES & 1,913,80

OWNER’S EQUITY 0
UTILIEXPENSETIES ( 130,000) (100,000)
OTHER EXPENSES (110,000) (90,000) Assume that on 2019 the ending balance
NET PROFIT 355,000 270,000 of total assets showed 1,728,815