PCOA 07 – Financial Management

Module 3 – Part 2
ANALYSIS OF FINANCIAL STATEMENTS
ASSESSMENT
Exercise 3.2 (LO2)
Submit your answers to Google drive. Use the answer sheet template provided.

Problem 1
The financial statements of Albert Company appear below:
ALBERT COMPANY
Comparative Balance Sheet
December 31,
—————————————————————————————————————————
Assets 2020 2019
Cash ........................................................................................................... ₱ 25,000 ₱ 40,000
Short-term investments .............................................................................. 15,000 60,000
Accounts receivable (net) .......................................................................... 50,000 30,000
Inventory .................................................................................................... 50,000 70,000
Property, plant and equipment (net) ........................................................... 260,000 300,000
Total assets ......................................................................................... ₱400,000 ₱500,000
Liabilities and stockholders' equity
Accounts payable ....................................................................................... ₱ 20,000 ₱ 30,000
Short-term notes payable ........................................................................... 30,000 90,000
Bonds payable ............................................................................................ 90,000 160,000
Common stock ........................................................................................... 150,000 150,000
Retained earnings ....................................................................................... 110,000 70,000
Total liabilities and stockholders' equity.......................................... ₱400,000 ₱500,000

ALBERT COMPANY
Income Statement
For the Year Ended December 31, 2020

Net sales ..................................................................................................... ₱400,000

Cost of goods sold ...................................................................................... 240,000
Gross profit ................................................................................................ 160,000
Expenses
Interest expense ................................................................................... ₱18,000
Selling expenses .................................................................................. 28,000
Administrative expenses ...................................................................... 24,000
Total expenses ............................................................................... 70,000

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF REPRODUCTION,
DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE WRITTEN PERMISSION OF
THE UNIVERSITY IS STRICTLY PROHIBITED.
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 Income before income taxes ...................................................................... 90,000
Income tax expense .................................................................................... 27,000
Net income ................................................................................................. ₱63,000

Additional information:
a. Cash dividends of ₱23,000 were declared and paid in 2020.
b. Weighted-average number of shares of common stock outstanding during 2020 was 30,000 shares.
c. Market value of common stock on December 31, 2020, was ₱21 per share.
d. Net cash provided by operating activities for 2020 was ₱60,000.

Required:
A. Compute the following ratios for Albert Company for 2020. Show all computations.
1. Current ratio
2. Return on common stockholders' equity
3. Price-earnings ratio
4. Acid-test ratio
5. Receivables turnover
6. Times interest earned
7. Profit margin ratio
8. Average days in inventory
10. Return on assets

Problem 2
Harry Computer Company
Statement of Financial Position
As of December 31, 2020

Cash 77,500 Accounts payables 129,000

Receivables 336,000 Other current liabilities 117,000
Inventories 241,500 Notes payable to bank 84,000
Total Current Assets 655,000 Total current liabilities 330,000
Long term debt 256,500
Net fixed assets 292,500 Common equity 361,000
Total assets 947,500 Total liabilities and equity 947,500

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF REPRODUCTION,
DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE WRITTEN PERMISSION OF
THE UNIVERSITY IS STRICTLY PROHIBITED.
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 Harry Computer Company
Income Statement
For the Year Ended December 31, 2020

Sales 1,607,500
Cost of goods sold
Materials 717,000
Labor 453,000
Heat, light and power 68,000
Indirect Labor 113,000
Depreciation 41,500 1,392,500
Gross Profit 215,000
Selling Expenses 115,000
General and Administrative Expenses 30,000
Earning before interest and taxes (EBIT) 70,000
Interest Expenses 24,500
Earning before taxes (EBT) 45,500
Income Tax ( 40%) 18,200
Net Income 27,300

Industry
Ratio Harry Average
Current Ratio ? 2.0x
Quick Ratio ? 1.3x
Days sales outstanding ? 35 days
Inventory turnover ? 6.7x
Total assets turnover ? 3.0x
Profit margin ? 1.2%
ROA ? 3.6%
ROE ? 9.0%
ROIC ? 7.5%
TIE ? 3.0x
Debt/Total capital ? 47.0%
*Calculation is based on a 365-day year.

Required:
a. Calculate the indicated ratios for Harry.
b. Outline Harry’s strengths and weaknesses as revealed by your analysis.

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF REPRODUCTION,
DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE WRITTEN PERMISSION OF
THE UNIVERSITY IS STRICTLY PROHIBITED.
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