ANALYSIS OF FINANCIAL STATEMENTS

ABC Corporation

Table 1 Balance Sheets

2020E 2019 2018
Assets
Cash ₱ 85,632 ₱ 7,282 ₱ 57,600
Accounts receivable 878,000 632,160 351,200
Inventories 1,716,480 1,287,360 715,200
Total current assets ₱ 2,680,112 ₱ 1,926,802 ₱ 1,124,000
Gross fixed assets 1,197,160 1,202,950 491,000
Less: accumulated depreciation 380,120 263,160 146,200
Net fixed assets ₱ 817,040 ₱ 939,790 ₱ 344,800
Total assets ₱ 3,497,152 ₱ 2,866,592 ₱ 1,468,800

Liabilities and equity

Accounts payable ₱ 436,800 ₱ 524,160 ₱ 145,600
Accruals 408,000 489,600 136,000
Notes payable 300,000 636,808 200,000
Total current liabilities ₱ 1,144,800 ₱ 1,650,568 ₱ 481,600
Long-term bonds 400,000 723,432 323,432
Common stock (100,000 shares) 1,721,176 460,000 460,000
Retained earnings 231,176 32,592 203,768
Total common equity ₱ 1,952,352 ₱ 492,592 ₱ 663,768
Total liabilities and equity ₱ 3,497,152 ₱ 2,866,592 ₱ 1,468,800

Table 2 Income Statements 2020E 2019 2018

Sales ₱ 7,035,600 ₱ 6,034,000 ₱ 3,432,000

Cost of goods sold 5,875,992 5,528,000 2,864,000
Gross income 1,159,608 506,000 568,000
Operating expenses except depreciation and amortization 550,000 519,988 358,672
EBITDA ₱ 609,608 ₱ (13,988) ₱ 209,328
Depreciation and amortization 116,960 116,960 18,900
Earnings before interest and taxes (EBIT) ₱ 492,648 ₱ (130,948) ₱ 190,428
Interest expense 70,008 136,012 43,828
Earnings before taxes (EBT) ₱ 422,640 ₱ (266,960) ₱ 146,600
Taxes (40%) 169,056 (106,784) 58,640
Net Income ₱ 253,584 ₱ (160,176) ₱ 87,960

Total dividends paid ₱ 55,000 ₱ 11,000 ₱ 22,000

Stock price ₱ 12.17 ₱ 2.25 ₱ 8.50
Shares outstanding 250,000 100,000 100,000
Tax rate 40.00% 40.00% 40.00%

TABLE 3 Ratio Analysis Industry

2020E 2019 Average

Current ratio 1.17 2.70

Quick ratio 0.39 1.00
Cash ratio 0.00 0.40
Debt ratio 82.82% 60.00%
Equity ratio 17.18% 40.00%
Debt-to-equity (D/E) ratio 481.94% 150.00%
Equity multiplier 374.92% 200.00%
Times interest earned (TIE) ratio -0.96 6.20
Dividend payout ratio -0.07 8.65
Inventory turnover 5.52 6.10
Days sales in inventory 66.11 59.84
Accounts receivable turnover 12.27 11.41
Days sales outstanding 29.74 32.00
Accounts payable turnover 18.22 15.23
Days payable outstanding 20.04 23.97
Operating cycle 95.85 91.84
Cash conversion cycle 75.82 67.87
Fixed asset turnover 9.39 7.00
Total asset turnover 2.78 2.60
Gross margin 8.39% 17.00%
Operating margin -2.17% 7.30%
Profit margin -2.65% 3.50%
Return on assets (ROA) -7.39% 9.10%
Return on equity (ROE) -27.70% 18.20%
Basic earning power (BEP) -6.04% 19.10%
Basic earnings per share (EPS) -1.60 1.16
Price-to-earnings (P/E) ratio -1.40 14.20
Dividend yield 0.05 0.61
Market/book (M/B) 0.46 2.40
Book value per share (BVPS) 4.93 n.a.
 ANALYSIS OF FINANCIAL STATEMENTS

Given are the statements of financial position, income statements, and other pertinent data for ABC Corporation (see previous page).
The amounts are historical data for 2018 and 2019 and expected (E) amounts for 2020.

Requirements:

1. Compute the given ratios for 2020E. Fill in the blanks on the previous page. (30 points)

2. Using the table below, classify the 30 given ratios (names of the ratios, not the amounts) into (a) Liquidity ratios; (b) Solvency ratios;
(c) Asset utilization ratios; (d) Profitability ratios; and (e) Market performance ratios. (30 points)

Liquidity Solvency Asset Utilization Profitability Market Performance

Ratios Ratios Ratios Ratios Ratios

3. Compose a financial analysis based on your evaluation of the ratios. For EACH of the five (5) classifications of ratios, write a two-
paragraph analysis, which answers the following (one paragraph for 3A and one paragraph for 3B) (40 points in total):

3A. Comparison between 2020E and 2019 ratios - (1) What happened? Did each of the ratios increase, decrease, or not change?
(2) What had caused the movement or non-movement for each ratio? and (3) Is this a good thing or a bad thing for the company?

3B. Comparison between 2020E ratios and industry averages - (1) Are the 2020E ratios above, below, or equal to the industry
averages? (2) Is this a good thing or a bad thing for the company? and (3) What can be done to improve the weak ratios or to maintain
the strong ones?

I. LIQUIDITY
II. SOLVENCY

III. ASSET UTILIZATION

IV. PROFITABILITY

V. MARKET PERFORMANCE