Guagua, Pampanga

Master in Business Administration

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JERJER HOLDINGS AND MANAGEMENT INC. DOING BUSINESS UNDER
THE NAME AND STYLE OF JBM RETRO BAR AND RESTAURANT
Profitability Ratio Analysis As at December 31, 2018

Gross Profit Margin

Gross profit margin = Sales - Cost of Goods Sold or Cost of Service / Sales
= (5,227,815 – 3,818,624)/5,227,815
= 0.27

Gross profit, the first level of profitability, tells analysts how good a company is at creating a product or
providing a service compared to its competitors. Gross profit margin, calculated as gross profit divided
by revenues, allows analysts to compare business models with a quantifiable metric.

Net Profit Margin

Net profit margin = Net Profit / Sales

= 565,190 / 5,227,815
= 0.11

Net profit margin is one of the most important indicators of a company's financial health. By tracking
increases and decreases in its net profit margin, a company can assess whether current practices are
working and forecast profits based on revenues. Because companies express net profit margin as a
percentage rather than a dollar amount, it is possible to compare the profitability of two or more
businesses regardless of size.

Return on Assets

Return on assets = Net Income / Total Assets

= 565,190 / 4,552,454

= 0.12

The ROA figure gives investors an idea of how effective the company is in converting the money it
invests into net income. The higher the ROA number, the better, because the company is earning more
money on less investment.
Return on Equity

Return on equity = Net Income / Total Stockholders' Equity

= 565,190 / 4,023,627

= 0.14

ROE is considered a measure of how effectively management is using a company’s assets to create
profits. ROE is expressed as a percentage and can be calculated for any company if net income and
equity are both positive numbers. Net income is calculated before dividends paid to common
shareholders and after dividends to preferred shareholders and interest to lenders.

Relatively high or low ROE ratios will vary significantly from one industry group or sector to another.
When used to evaluate one company to another similar company the comparison will be more
meaningful.

Price/Earnings Ratio

Price/earnings ratio = Price Per Share / Earnings Per Common Share

= 100 /18.08

= 5.53

The price-to-earnings ratio or P/E is one of the most widely-used stock analysis tools used by investors
and analysts for determining stock valuation. In addition to showing whether a company's stock price is
overvalued or undervalued, the P/E can reveal how a stock's valuation compares to its industry group.

The P/E ratio helps investors determine the market value of a stock as compared to the company's
earnings. In short, the P/E ratio shows what the market is willing to pay today for a stock based on its
past or future earnings. A high P/E could mean that a stock's price is high relative to earnings and
possibly overvalued. Conversely, a low P/E might indicate that the current stock price is low relative to
earnings.
JERJER HOLDINGS AND MANAGEMENT INC. DOING BUSINESS UNDER
THE NAME AND STYLE OF JBM RETRO BAR AND RESTAURANT
Liquidity Ratio Analysis As at December 31, 2018

Current Ratio or Working Capital Ratio

= Current Assets / Current Liabilities

= 3,282,245 / 501,946

= 6.54

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or
those due within one year. It tells investors and analysts how a company can maximize the current
assets on its balance sheet to satisfy its current debt and other payables. A higher current ratio indicates
strong solvency position and is therefore considered better.

Quick Ratio

= (Current Assets - Inventory - Prepayments) / Current Liabilities

= (3,282,245 – 176,889 – 118,355) / 501,946

= 5.95

The quick ratio is an indicator of a company’s short-term liquidity position and measures a company’s
ability to meet its short-term obligations with its most liquid assets. Since it indicates the company’s
ability to instantly use its near-cash assets (that is, assets that can be converted quickly to cash) to pay
down its current liabilities, it is also called as the acid test ratio. An acid test is a quick test designed to
produce instant results—hence, the name. A result of 1 is considered to be the normal quick ratio, as it
indicates that the company is fully equipped with exactly enough assets to be instantly liquidated to pay
off its current liabilities.

Solvency Ratio

= Total Assets / Total Liabilities

= 4,552,454 / 528,827

= 8.61

The solvency ratio is a comprehensive measure of solvency, as it measures a firm's actual cash flow—
rather than net income—by adding back depreciation and other non-cash expenses to assess the
company’s capacity to stay afloat. It measures this cash flow capacity in relation to all liabilities, rather
than only short-term debt. This way, the solvency ratio assesses a company's longterm health by
evaluating its repayment ability for its long-term debt and the interest on that debt.
JERJER HOLDINGS AND MANAGEMENT INC. DOING BUSINESS UNDER
THE NAME AND STYLE OF JBM RETRO BAR AND RESTAURANT
Operating Efficiency/Performance Ratio Analysis As at December 31, 2018

Total Asset Turnover

Total asset turnover = Net Sales/ Average Total Net Assets

=5,227,915 / (4,552,454 + 3,860,887)/2
= 1.24
The asset turnover ratio measures the value of a company's sales or revenues relative to the value of its
assets. The asset turnover ratio can be used as an indicator of the efficiency with which a company is
using its assets to generate revenue.

The higher the asset turnover ratio, the more efficient a company. Conversely, if a company has a low
asset turnover ratio, it indicates it is not efficiently using its assets to generate sales.

Fixed-Asset Turnover

Fixed-asset turnover ratio = Revenue/ Average PP&E

=5,227,915 / (1,262,145 + 1,429,805)/2
= 5,227,915 / 1,345,975,
= 3.88
This ratio compares revenues to net fixed assets. A high ratio indicates that a business is generating a
large amount of sales from a relatively small fixed asset base. The ratio can yield false results if a
business is using very old assets to generate sales; at some point, those asset must be replace.

Equity Turnover

Equity turnover = Net Sales/ Average Equity

=5,227,915 / (4,023,627 + 3,458,438)/2
= 1.67

Equity turnover is a ratio that measures the proportion of a company's sales to its stockholders' equity.
The intent of the measurement is to determine the efficiency with which management is using equity to
generate revenue.
Operating Cycle

Operating Cycle (Days) = DIO + DSO - DPO

DIO = Days Inventory Outstanding

DSO = Day Sales Outstanding
DPO = Days Payable Outstanding

DIO = (((Inventory, Beg. + Inventory, End)/2) / (COS/365))

= ((160,293 + 176,889)/2) / (3,818,624 / 365)
= 16.11 days

DSO = (((Accts Rec., Beg. + Accts Rec., End)/2) / (Net Sales/365))

= (((253,,221 + 310,000)/2) / (5,227,915/365))
= 19.66 days

DPO = (((Accounts Payable, Beg. + Accounts Payable, End)/2) / (COS/365))

= ((180,000 + 143,651)/2) / (3,818,624 / 365)
= 15.47 days

Operating Cycle (Days) = DIO + DSO - DPO

= 16.11 + 19.66 - 15.47
= 51.24 Days
This is the average period of time required for a business to make an initial outlay of cash to produce
goods, sell the goods, and receive cash from customers in exchange for the goods. A company with an
extremely short operating cycle requires less cash to maintain its operations and so can still grow while
selling at relatively small margins. Conversely, a business may have fat margins and yet still require
additional financing to grow at even a modest pace, if its operating cycle is unusually long.

Sales Per Employee

= Net Sales/Full Time Equivalents

= 5,227,915/32
= 163,372

This ratio compares revenues to the number of employees. A high ratio indicates that a business is
creating a large volume of sales with very few employees. The formula is net sales divided by the
number of full time equivalents. The ratio can yield false results if a business is outsourcing a large
amount of work or using a large number of contractors.
JERJER HOLDINGS AND MANAGEMENT INC. DOING BUSINESS UNDER
THE NAME AND STYLE OF JBM RETRO BAR AND RESTAURANT
Financial Leverage Ratio Analysis As at December 31, 2018

Debt Ratio
Debt ratio = Total Debt/Total Assets
= 528,827 / 4,552,454
= 0.12
The higher the debt ratio, the more leveraged a company is, implying greater financial risk. At the same
time, leverage is an important tool that companies use to grow, and many businesses find sustainable
uses for debt. A debt ratio greater than 1.0 (100%) tells you that a company has more debt than assets.
Meanwhile, a debt ratio less than 100% indicates that a company has more assets than debt

Debt-to-Equity Ratio

Debt-to-equity ratio = Total Debt/Total Stockholders' Equity

= 528,827 / 4,023,627
= 0.13
Given that the debt-to-equity ratio measures a company’s debt relative to the value of its net assets, it is
most often used to gauge the extent to which a company is taking on debt as a means of leveraging its
assets. A high debt/equity ratio is often associated with high risk; it means that a company has been
aggressive in financing its growth with debt.

Interest Coverage

Interest Coverage = Earnings Before Interest and Taxes (EBIT) / Interest Charges
= -0- /-0-
= -0-
The interest coverage ratio is used to determine how easily a company can pay their interest expenses
on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes
(EBIT) by the company's interest expenses for the same period. The lower the ratio, the more the
company is burdened by debt expense.

Asset to Equity Ratio

Asset to equity ratio = Total Assets / Total Stockholders' Equity

= 4,552,454 / 4,023,627
= 1.13
A low ratio indicates that a business has been financed in a conservative manner, with a large
proportion of investor funding and a small amount of debt. A low ratio should be targeted when cash
flows are highly variable, since it is quite difficult to pay off debt in this situation. A higher ratio is
tolerable when a business has a long history of consistent cash flows, and those cash flows are expected
to continue into the future.