TREND ANALYSIS
Highlight Company
Statement of Profit or loss
for Year Ending December 31, 2019-2021 Trend percentage ( %)
2021 2020 2019 2021 2020 2019
Sales 205.00 175.82 100
7,035,600.00 6,034,000.00 3,432,000.00
Cost of goods sold 205.17 193.02 100
5,875,992.00 5,528,000.00 2,864,000.00
Gross profit 204.16 89.08 100
1,159,608.00 506,000.00 568,000.00
Total operating 176.64 168.70 100
expenses 666,960.00 636,948.00 377,572.00
EBIT 258.71 -68.77 100
492,648.00 (130,948.00) 190,428.00
Interest expense 159.73 310.33 100
70,008.00 136,012.00 43,828.00
EBT 288.29 -182.10 100
422,640.00 (266,960.00) 146,600.00
Taxes (40%) 288.29 -182.10 100
169,056.00 (106,784.00) 58,640.00
Net income 288.29 -182.10 100
253,584.00 (160,176.00) 87,960.00
Highlight Company
Statement of Positions
December 31, 2019-2021
2021 2020 2019
Cash 148.67 12.64 100
85,632.00 7,282.00 57,600.00
Accounts receivable 250.00 180.00 100
878,000.00 632,160.00 351,200.00
Inventories 240.00 180.00 100
1,716,480.00 1,287,360.00 715,200.00
Total current assets 238.44 171.42 100
2,680,112.00 1,926,802.00 1,124,000.00
Gross fixed assets 243.82 245.00 100
1,197,160.00 1,202,950.00 491,000.00
Less accumulated 260.00 180.00 100
depreciation 380,120.00 263,160.00 146,200.00
Net fixed assets 236.96 272.56 100
817,040.00 939,790.00 344,800.00
Total assets 238.10 195.17 100
3,497,152.00 2,866,592.00 1,468,800.00
LIABILITIES AND
EQUITY
Accounts payable 300.00 360.00 100
436,800.00 524,160.00 145,600.00
Notes payable 150.00 318.40 100
300,000.00 636,808.00 200,000.00
Accruals 300.00 360.00 100
408,000.00 489,600.00 136,000.00
Total current 237.71 342.73 100
liabilities 1,144,800.00 1,650,568.00 481,600.00
Long-term debt 123.67 223.67 100
400,000.00 723,432.00 323,432.00
191.89 294.90 100
1,544,800.00 2,374,000.00 805,032.00
Common stock 374.17 100.00 100
1,721,176.00 460,000.00 460,000.00
Retained earnings 113.45 15.99 100
231,176.00 32,592.00 203,768.00
Total equity 294.13 74.21 100
1,952,352.00 492,592.00 663,768.00
Total liabilities and 238.10 195.17 100
equity 3,497,152.00 2,866,592.00 1,468,800.00
Trend analysis evaluates an organizations financial information a
period of time.
Trend percentage =current year X100
Base year
Required: calculate ratio analysis with detailed
interpretation
A. Liquidity ratio
B. Activity ratio
C. Debt management ratio
D. Profitability ratio
FINANCIAL RATIO ANALYSIS
Ratio analysis compares line-item data from a company's financial
statements to reveal insights regarding profitability, liquidity,
operational efficiency, and solvency.
Ratio analysis can mark how a company is performing over time, while
comparing a company to another within the same industry or sector.
Ratio analysis may also be required by external parties that set
benchmarks often tied to risk.
While ratios offer useful insight into a company, they should be paired
with other metrics, to obtain a broader picture of a company's
financial health.
Examples of ratio analysis include current ratio, gross profit margin
ratio, inventory turnover ratio.
Financial Ratio Analysis Involves Methods Of Calculating and
Interpreting Financial Ratios, to analyses and Monitoring the firms
Performance.
Comparing Ratio Are Is More Objective And Relevant That Simply
Compering Different figures Form The Financial Statement.
WHAT DOES RATIO ANALYSIS
Investors and analysts employ ratio analysis to evaluate the financial health
of companies by scrutinizing past and current financial statements.
Comparative data can demonstrate how a company is performing over time
and can be used to estimate likely future performance. This data can also
compare a company's financial standing with industry averages while
measuring how a company stacks up against others within the same sector.
Investors can use ratio analysis easily, and every figure needed to calculate
the ratios is found on a company's financial statements.
Ratios are comparison points for companies. They evaluate stocks within an
industry. Likewise, they measure a company today against its historical
numbers. In most cases, it is also important to understand the variables
driving ratios as management has the flexibility to, at times, alter its
strategy to make it's stock and company ratios more attractive. Generally,
ratios are typically not used in isolation but rather in combination with other
ratios. Having a good idea of the ratios in each of the four previously
mentioned categories will give you a comprehensive view of the company
from different angles and help you spot potential red flags.
A ratio is the relation between two amounts showing the number of times
one value contains or is contained within the other.
Ratio Analysis Types and Formulas
Users of Key Ratio Analysis: Various individuals use
financial statements including bankers, bonding company underwriters,
commercial real estate lenders, equipment lessors, and CPAs. For purposes
of this seminar, we will focus on the following:
Creditor: Bank loan officers and bond rating analysts analyze ratios to
ascertain a company’s ability to pay its debts.
Investor: Stock analysts assess the company’s efficiency, risk, and growth
prospects through ratio analysis.
Manager: Business owners and managers use ratios to analyze, control,
and improve their firm’s operations.
Guarantor: Business owners are usually required to guarantee their
various business obligations and use “related” ratio analysis to determine
their personal position. 4 Key Ratio Analysis – What is it?
Credit/Investment/Management Decisions Based on Financial Analysis:
Creditors/investors/managers in particular can quickly assess a company’s
financial condition by identifying and calculating key ratios that reveal a
company’s financial health. Obviously, numbers taken from the “four
financial statements” can make numerous calculations; however, some are
not as important as others. In particular, financial professionals have found
leading indicators of a company’s operating performance in “five” vital
business areas. The areas of emphasis are:
•Liquidity
•Activity
•Leverage
•Operating Performance
•Cash Flow Section
We calculate the formula for Ratio Analysis by using the following steps:
1. Liquidity Ratios
Indicates the number of time that the Current Liabilities Could be paid With
the Available Current Asset. Also Known as working Capital ratio or Bankers
ratio
These ratios indicate the company’s cash level, liquidity position, and
capacity to meet its short-term liabilities. The formula of some of the major
liquidity ratios are:
Current Ratio = Current Assets / Current Liabilities
Quick Ratio = (Cash & Cash Equivalents + Accounts Receivables) /
Current Liabilities
Cash Ratio = Cash & Cash Equivalents / Current Liabilities
Current ratio= 26801112+1926802+1124000
11448004+1650,568+481600
= 5730914
3276968
=1.74:1 for every one peso Current Liability of the entry it has one
Pesos and 74
Quick current=85632+7282+57600+878000+632160+351200
11448004+1650568+481600
=2011874
3276968
= 0.61:1
Cash ratio=85632+7282+57600
11448004+1650568+481600
= 150514
3276968
= 0.04:1
2. Activity/Efficiency Ratios
how efficiency firms is in using its resources to generate Sales.
Receivable Turnover:-reflects the efficiency of the entity’s Credit
Collection Police.
-Measures the number of times, on average
receivables are
collected during the period.
Accounts payable turnover = Credit Purchase
Account Payable
Number of accounts payment a company pays during a year
Average Payment Period= Account Payable x365
Credit Purchase
Average Number of days a Company takes to make payment to the
Suppliers.
Leader and Credit Suppliers are more interested in these ratios.
It may affect the Suppliers Decision of giving how much Credit sales
and how Credit terms to the Company.
Activity / Efficiency/Asset Management Ratio :-Higher Accounts
receivable turnover ratio or shorter average collection period may
imply .
These ratios indicate how efficiently a company can utilize its available
assets or convert its inventories to cash. The formula of some of the major
efficiency ratios are:
Receivables Turnover Ratio = Sales / Accounts Receivable
Inventory Turnover Ratio = COGS / Inventories
Payable Turnover Ratio = COGS / Accounts Payable
Asset Turnover Ratio = Sales / Total Assets
Net Fixed Asset Turnover Ratio = Sales / Net Fixed Assets
Equity Turnover Ratio = Sales / Total Equity
Inventory turnover ratio= Cost of good sold
Average Inventory
=5875992+5528000+2864000
1716480+1287360+715200
=14267952
3719040
=3.84:1
Account Receivable turnover ratio=Net credit income
Average Accounts Receivable
=7035600+60034000+3432000
878000+632160+351200
= 16501600
1071160
=3:1
Working capital turnover = Net revenue
Average working capital
=7035600+6034200+343200
817982
= 13413000
817982
=16.39:1
3. Debt management Ratios
indicate firms Capacity to meet short &long Term Obligation.
These ratios indicate whether the company can meet its long-term
obligations by comparing its debt level with its assets, equity, etc. The
formula of some of the major solvency ratios are:
Debt to Equity Ratio = Total Debt / Total Equity
Debt Ratio = Total Debt / Total Assets
Interest Coverage Ratio = EBITDA / Interest Expense
Debt Ratio = Total debt
Total Asset
= 1544800+2374000+805032
3497152+2880592+14688200
= 4723832
7832544
=0.60:1
Debt to equity ratio= 1544800+2374000+805032
1952352+492592+663768
= 0.60:1
Interest coverage ratio = 492648-130948+190428
700080+136012+43828
=552128
879920
= 0.63:1
4. Profitability Ratios
the firms ability to generate profits on sales, stock holders
investments .
These ratios demonstrate a company’s efficiency in using its assets to
generate profits. The formula of some of the major profitability ratios are:
Gross Margin = (Sales – COGS) / Sales
Operating Profit Margin = EBIT / Sales
Net Margin = Net Income / Sales
Return on Total Asset (ROA) = EBIT / Total Assets
Return on Total Equity (ROE) = Net Income / Total Equity
Net Margin = Net Income
Revenue
= 253584-160176+87960
7035600+6034000+343200
= 181368
16501600
= 0.01:1
Gross margin = 7035600+6034000+343200-5875992+5528000+2864000
7035600+6034000+343200
= 13412800-14267992
13412800
= 855192
13412800
= 0.063:1
Operating profit margin = 492648-130948+190428
13412800
=552128
13412800
= 0.04:1
Return on total Asset = 492648-130948+190428
3497152+2866592+1468800
= 552128
7832544
= 0.07:1
Return on total equity = 253584-160176+87960 = 181368
1952352+492592+663768 3108712
= 0.6:1
Industry Average for three
years
i. Current Ratio 2.74
ii. Acid-Test (Quick) 1.00
iii. Debt-to-Equity 1.33
iv. Debt-to-Total-Assets 0.50
v. Total Capitalization 0.35
vi. Interest Coverage 4.25
vii. Receivable Turnover 9.00
viii. Average Collection Period 40.55
ix. Inventory Turnover 6.10
x. Total Asset Turnover 2.60
xi. Gross Profit Margin 0.17
xii. Net Profit Margin 0.03
xiii. Return on assets 9.10
xiv. Return on Equity 0.18
