FINANCIAL MANAGEMENT 1 - CASE STUDY ON FINANCIAL STATEMENTS ANALYSIS

REQUIRED: Using the financial ratios, evaluate the company's financial position and operating
results for years 2014 and 2013.
1. Analysis of liquidity or short-term solvency: current ratio; quick or acid test ratio
2. Analysis of asset liquidity and asset management efficiency: accounts receivable
turnover; average collection period; inventory turnover;
3. Analysis of leverage: debt financing and coverage: debt ratio; debt to equity ratio;
4. Operating efficiency and profitability: gross profit margin; operating profit margin;
net profit margin; return on investments on assets; return on equity

The Statements of Financial Position as of December 31, 2014 and 2013, Income Statements and
Statements of Cash Flow of ABC Company, Inc. for years 2014, 2013 and 2012 are given as follows:

ABC Company, Inc.

Statements of Financial Position at December 31, 2014 and 2013
(In thousand pesos)
2014
A S S E T S
Current Assets
Cash 2,030.5
Marketable Securities 2,636.0
Accounts receivable 4,704.0
Allowance for Doubtful Accounts (224.0)
Inventories 23,520.5
Prepaid Expenses 256.0
Total current assets 32,923.0
Property, Plant and Equipment
Land 405.5
Buildings and leasehold improvements 9,136.5
Equipment 10,761.5
20,303.5
Less: Accumulated Depreciation and amortization (5,764.0)
Net property, plant and equipment 14,539.5
Other Assets 186.5
TOTAL ASSETS 47,649.0
L I A B I L I T I E S AND E Q U I T Y
Current Liabilities
Accounts payable 7,147.0
Notes payable 2,807.0
Current maturities of long-term debt 942.0
Accrued liabilities 2,834.5
Total current liabilities 13,730.5
Deferred income taxes 421.5
Long-term debt 10,529.5
Total Liabilities 24,681.5
Shareholders' Equity
Ordinary shares, par value P1.00, authorized shares;
issued, 2,297,000 shares in 2014 and 2,401,500 shares in 2013 2,401.5
Additional Paid-in Capital 478.5
Retained Earnings 20,087.5
Total shareholders' equity 22,967.5
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 47,649.0
rating

st ratio
eivable

uity ratio;
margin;

ents and
as follows:

2013

1,191.0
4,002.0
4,383.5
(208.5)
18,384.5
379.5
28,132.0

405.5
5,964.0
6,884.0
13,253.5
(3,765.0)
9,488.5
334.0
37,954.5

3,795.5
3,006.0
758.0
2,656.5
10,216.0
317.5
8,487.5
19,021.0

2,297.0
455.0
16,181.5
18,933.5
37,954.5
FINANCIAL MANAGEMENT 1 - CASE STUDY ON FINANCIAL STATEMENTS ANALYSIS (page 2 of 3)

ABC Company, Inc.

Income Statements and Retained Earnings
For the Years Ended December 31, 2014, 2013 and 2012
(In thousand pesos)
2014
Net Sales 107,800.0
Cost of goods sold 64,682.0
Gross profit 43,118.0
Selling and administrative expenses 16,332.0
Advertising 7,129.0
Lease payments 6,529.0
Depreciation and amortization 1,999.0
Repairs and maintenance 1,507.5
Total 33,496.5
Operating profit 9,621.5
Other Income/(expenses)
Interest income 211.0
Interest expense (1,292.5)
Earnings before income taxes 8,540.0
Income taxes 3,843.0
Net Income 4,697.0

Earnings per common share 2.00

Statement of Retained Earnings

Retained earnings at beginning of year 16,181.5

Net income 4,697.0

Cash dividends (2014 - P0.33 per share;

2013 - P0.41 per share) (791.0)

Retained Earnings at end of year 20,087.5

SIS (page 2 of 3)

2013 2012
76,500.0 70,350.0
45,939.5 40,803.0
30,560.5
## 29,547.0
13,191.0 12,749.0
5,396.0 4,770.5
3,555.5 3,633.5
1,492.0 1,250.5
1,023.0 1,515.5
24,657.5
## 23,919.0
5,903.0
## 5,628.0

419.0 369.0
(1,138.5) (637.0)
5,183.5
## 5,360.0
2,228.5 2,412.0
2,955.0
## 2,948.0

1.29 1.33

14,157.5 12,130.0
2,955.0 2,948.0

(931.0) (920.5)

16,181.5
## 14,157.5
FINANCIAL MANAGEMENT 1 - CASE STUDY ON FINANCIAL STATEMENTS ANALYSIS (page 3 of 3)

ABC Company, Inc.

Statements of Cash Flows for the Years Ended December 31, 2014 and 2013
(In thousand pesos)
2014
Cash Flow from operating Acdtivities - Direct Method
Cash received from customers 107,495.0
Interest received 211.0
Cash paid to suppliers for inventory (66,466.5)
Cash paid to employees (Selling and administrative expenses) (16,332.0)
Cash paid for other operating expenses (14,864.0)
Interest paid (1,292.5)
Taxes paid (3,739.0)
Net cash provided (used) by operating activities 5,012.0
Cash Flow from Investing Activities
Additions to property, plant and equipment (7,050.0)
Other investing activities 147.5
Net cash provided (used) by investing activities (6,902.5)
Cash Flow from Financing Activities
Sales of ordinary shares 128.0
Increase (decrease) in short-term borrowings
(includes current maturities of long-term debt) (15.0)
Additions to long-term borrowings 2,800.0
Reductions of long-term borrowings (758.0)
Dividends paid (791.0)
Net cash provided (used) by financing activities) 1,364.0
Increase (decrease) in cash & marketable securities (526.5)

Supplementary Schedule

Cash Flow from Operating Activities - Indirect Method

Net income 4,697.0
Noncash revenue and expense included in net income:
Depreciation 1,999.0
Deferred income taxes 104.0
Cash provided (used) by current assets and liabilities:
Accounts receivable (305.0)
Inventories (5,136.0)
Prepaid expenses 123.5
Accounts payable 3,351.5
Accrued liabilities 178.0
Net cash provided (used) by operations 5,012.0

Additional Information:

Market price per share 2014 P 30

2013 P 17
3 of 3)

2013

74,830.5
419.0
(49,968.0)
(13,191.0)
(10,675.0)
(1,138.5)
(2,160.5)
(1,883.5)

(2,386.5)
0.0
(2,386.5)

91.5

927.0
3,941.0
(796.5)
(931.0)
3,232.0
(1,038.0)

2,955.0

1,492.0
68.0

(1,669.5)
(3,503.0)
147.5
(525.5)
(848.0)
(1,883.5)