New Era University

College of Accountancy

FINANCIAL MANAGEMENT
FINANCIAL STATEMENT ANALYSIS

The Financial Statements of Gian Company are given below:

GIAN COMPANY
BALANCE SHEETS
As of December 31

ASSETS
2019 2018

Current Assets
Cash P 45,000 P 50,000
Accounts Receivable 212,500 207,500
Inventory 155,000 140,000
Total Current Assets 412,500 397,500

Plant and Equipment 1,885,000 1,662,500

Accumulated Depreciation ( 480,000) ( 375,000)
Net 1,405,000 1,287,500

TOTAL ASSETS P 1,817,500 P 1,685,000

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LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts Payable P 55,000 P 47,500
Accrued Expenses 112,500 110,000
Total Current Liabilities 167,500 157,500
Long-Term Debt 250,000 237,500

Total Liabilities 417,500 395,000

Stockholders’ Equity
Common Stock, no par value 1,000,000 1,000,000
Retained Earnings 400,000 290,000
Total Stockholders’ Equity 1,400,000 1,290,000

TOTAL LIABILITIES AND

STOCKHOLDERS’ EQUITY P 1,817,500 P 1,685,000
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 GIAN COMPANY
INCOME STATEMENT
For the year ended December 31, 2019

Sales P 2,162,500
Cost of Goods Sold 1,206,250

Gross Profit 956,250

Depreciation P 105,000
Other Operating Expenses 533,750 638,750
Income before interest and taxes 317,500
Interest Expense 17,500
Income before Taxes 300,000
Income taxes at 35% rate 105,000

Net Income P 195,000

==========

During 2019 the firm declared and paid cash dividends of P85,000. There were 50,000
shares of common stock outstanding throughout the year. The market price of the stock at
year end was P16.25. All sales and purchases are on credit.

Required:
1. Compute the following ratios as of the end of 2019 or for the year ended
December 31, 2019, whichever is appropriate:
a. Current Ratio 2.46
b. Quick Ratio 1.54
c. Accounts Receivable Turnover 10.18
d. Days’ credit sales in accounts receivable 35.44
e. Inventory turnover 8.18
f. Days’ sales in inventory 46.90
g. Days’ purchases in accounts payable 16.64
h. Gross profit Ratio 44.22%
i. Return on Sales 14.68%
j. Return on assets (ROA) 10.73%
k. Return on Equity (ROE) 13.93%
l. Earnings per share (EPS) 3.9
m. Price-earnings ratio (PE) 4.17
n. Dividend Yield 10.46%
o. Payout ratio 43.59%
p. Debt ratio 22.97%
q. Times Interest Earned 18.14%
 2. Prepare Common size statements for Gian Company for 2019 and 2018.

ASSETS
2019 2018

Current Assets
Cash P 45,000 2% P 50,000 3%
Accounts Receivable 212,500 12% 207,500 12%
Inventory 155,000 9% 140,000 8%
Total Current Assets 412,500 23% 397,500 23%

Plant and Equipment 1,885,000 103% 1,662,500 99%

Accumulated Depreciation ( 480,000) (26%) ( 375,000) (22%)
Net 1,405,000 77% 1,287,500 77%

TOTAL ASSETS P 1,817,500 100% P1,685,000 100%

=============== ===============

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts Payable P 55,000 3% P 47,500 3%
Accrued Expenses 112,500 6% 110,000 7%
Total Current Liabilities 167,500 9% 157,500 10%
Long-Term Debt 250,000 14% 237,500 14%

Total Liabilities 417,500 23% 395,000 24%

Stockholders’ Equity
Common Stock, no par value 1,000,000 55% 1,000,000 59%
Retained Earnings 400,000 22% 290,000 17%
Total Stockholders’ Equity 1,400,000 77% 1,290,000 76%

TOTAL LIABILITIES AND

STOCKHOLDERS’ EQUITY P 1,817,500 100% P 1,685,000 100%
========== ==== ========== ====
Sales P 2,162,500 100%
Cost of Goods Sold 1,206,250 56%

Gross Profit 956,250 44%

Depreciation P 105,000 5%
Other Operating Expenses 533,750 24% 638,750 29%
Income before interest and taxes 317,500 15%
Interest Expense 17,500 1%
Income before Taxes 300,000 14%
Income taxes at 35% rate 105,000 5%
Net Income P 195,000 9%

3. Perform a horizontal analysis on the statements of Gian Company by

determining the changes, both in pesos and percentages, between the 2019 and
2018 figures.

2019 2018 Amount %

Current Assets
Cash P 45,000 P 50,000 (5000) (10 %)
Accounts Receivable 212,500 207,500 5000 2%
Inventory 155,000 140,000 15000 11%
Total Current Assets 412,500 397,500 15000 4%

Plant and Equipment 1,885,000 1,662,500 222500 13 %

Accumulated Depreciation ( 480,000) ( 375,000) 105000 28 %
Net 1,405,000 1,287,500 117500 9%

TOTAL ASSETS P 1,817,500 P 1,685,000 132500 8%

========== =========== ====== ===

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts Payable P 55,000 P 47,500 7500 16 %
Accrued Expenses 112,500 110,000 2500 2%
Total Current Liabilities 167,500 157,500 10000 6%
Long-Term Debt 250,000 237,500 12500 5%
Total Liabilities 417,500 395,000 22500 6%

Stockholders’ Equity
Common Stock, no par value 1,000,000 1,000,000 - -
Retained Earnings 400,000 290,000 110000 38 %
Total Stockholders’ Equity 1,400,000 1,290,000 110000 9%

TOTAL LIABILITIES AND

STOCKHOLDERS’ EQUITY P 1,817,500 P 1,685,000 132500 8%
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