SOLUTION

1. LIQUIDITY RATIOS

Ratios Robbie Ringo

 Inventory turnover P 20 million / P 2 million 10 times
P 45 million / p 2 million 22.5 times
 Receivable turnover P 60 million / P 4 million 15 times
P 120 million / p 4 million 30 times
 Collection period (use 360 360 days / 15 times 24 days
days) 12 days
 Payable turnover P 20 million / P 3.5 million

 Payment period (use 360 360 days / 15 times 64 days

days) 30 days
 Days sales to inventory (use 360 days / 10 times 36 days
360 days) 16 days
 Operating cycle 36 days + 24 days 60 days
28 days
 Net cash cycle 60 days – 64 days (4) days
(2) days

2. GROWTH RATIOS

A. Price-earnings ratio Market price per share P 125 / p 25 5:1

Earnings per share
B. Dividend yield ratio Dividend per share P 10 / 125 0.08
Market price per share
C. Payout ratio Dividend per share P 10 / 25 0.40
Earnings per share
D.

Book Shares outstanding Book value per

value share
Total stockholders’ equity P
4,200,000
(-) Preferred stockholders’ equity:
Liquidation value 200,000 shares x P
P90 1,800,000
Dividends in arrears 288,000
 Total preferred equity (2,088,000 20,000 shares P 104.40
)
Common stockholders equity P 80,000 shares P 26.40
2,112,000

FINANCIAL RATIOS

1. For each of the ratios listed below, indicate appropriate code letter, whether it is a liquidity ratio, profitability ratio
or solvency ratio.
Code Code
L Liquidity ratio S Solvency ratio
P Profitability ratio

P 1) Cash return on sales ratio L 6) Current cash debt coverage ratio

P 2) Return on assets ratio L 7) Acid-test ratio
L 3) Receivables turnover ratio S 8) Debt to total assets ratio
P 4) Earnings per share ratio S 9) Free cash flow
P 5) Payout ratio L 10) Inventory turnover ratio

2. Match the ratios with the appropriate ratio computation by entering the appropriate letter in the space provided:

A Current ratio F Times interest earned ratio

B Acid test ratio G Inventory turnover ratio
C Profit margin ratio H Average collection period
D Asset turnover ratio I Average days in inventory
E Price-earnings ratio J Payout ratio

G 1) Cost of goods sold H 6) 365 days

Average inventory Receivable turnover
C 2) Net income E 7) Market price per share
Net sales Earnings per share
J 3) Cash dividends I 8) 365 days
Net income Inventory turnover
D 4) Net sales F 9) Income before income taxes and interest
Average assets Interest expense
A 5) Current assets B 10) Cash+Short term
Current liabilities investments+Receivables(net)
Current liabilities

3. MALAY MO MADEVELOP

 Current ratio 217,000 / 75,000 2.9 to 1

 Acid test ratio 127,000 / 75,000 1.7 to 1
 Current cash debt coverage ratio 185,625 / [(75,000 + 90,000) / 2] 2.25 times
 Receivables turnover ratio 984,375 / [(97,500 + 90,000) / 2] 10.5 times
 Average collection period 365 days / 10.5 35 days
 Inventory turnover 676,500 / [(90,000 + 75,000) / 2] 8.2 times
 Average days in inventory 365 days / 8.2 44.5 days
 Debt to total assets ratio 225,000 / 517,500 0.43
 Times interest earned 168,000 / 12,000 14
 Cash debt coverage ratio 185,625 / [(225,000 + 240,000) / 2] 0.80