NATIONAL COLLEGE OF SCIENCE AND TECHNOLOGY
Amafel Bldg. Aguinaldo Highway, Dasmarinas, Cavite
Bachelor of Science in Business Administration Major in Marketing Management
8. Financial Ratios and Analysis
a. Current Ratio
Current Ratio
19,61
17,21
14,66
11,57
7,96
YEAR 1
Current Asset
Current Liability
Current Ratio
YEAR 2
Year 1
5,751,915.05
722,394.52
7.96
YEAR 3
YEAR 4
Year 2
9,359,220.59
808,891.20
11.57
YEAR 5
Year 3
13,447,072.63
917,197.61
14.66
Year 4
17,901,716.53
1,011,032.80
17.71
Year 5
23,220,373.85
1,184,355.27
19.61
Current Ratio measures a company’s ability to pay short-term obligations. The high
current ratio of Bamboo Sweet Manufacturing Company is good for business because it
indicates that it will be able to meet its short term obligations when they are due. It can be
seen in the graph above the increasing trend of the current ratio from year 1 to year 5.
b. Total Asset Turnover
Total Asset Turnover
9,26
6,25
4,84
3,98
3,36
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
1
NATIONAL COLLEGE OF SCIENCE AND TECHNOLOGY
Amafel Bldg. Aguinaldo Highway, Dasmarinas, Cavite
Bachelor of Science in Business Administration Major in Marketing Management
Year 1
27,203,672.30
2,938,130.76
9.26
Net Sales
Average Total Asset
Asset Turnover
Year 2
29,563,578.81
4,728,559.77
6.25
Year 3
32,686,812.88
6,759,262.03
4.84
Year 4
35,747,620.64
8,978,991.95
3.98
Year 5
39,035,525.65
11,624,917.67
3.36
The high asset turnover of the business designates that the company is
maximizing the usage of its assets in order to generate sales. The asset turnover of
Bamboo Sweet Manufacturing Company is stated at a decreasing trend. The turnover in
the first year of operation is relatively high compared to the other years because there is
no beginning asset in year 1. The sales are increasing but the average total asset is also
increasing in a relatively higher rate.
c. Gross Profit Margin
Gross Profit Margin
42%
39%
39%
39%
38%
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Gross Profit
Net Sales
Gross Profit Margin
Year 1
10,595,813.75
27,203,672.30
39%
Year 2
11,331,680.06
29,563,578.81
38%
Year 3
12,731,493.66
32,686,812.88
39%
Year 4
13,923,676.42
35,747,620.64
39%
Year 5
16,205,224.32
39,035,525.65
42%
Bamboo Sweet Manufacturing Company has a gross profit margin ranging from
39-42%. Gross Profit Margin is used to assess a company’s financial health and business
model by revealing the proportion of money left over from revenues after accounting for
the cost of goods sold. The 3% inflation rate causes the product cost to increase together
with the sales price.
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NATIONAL COLLEGE OF SCIENCE AND TECHNOLOGY
Amafel Bldg. Aguinaldo Highway, Dasmarinas, Cavite
Bachelor of Science in Business Administration Major in Marketing Management
d. Return on Equity
Return on Equity
122%
81%
63%
51%
46%
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Net Income
Equity
Return on Equity
Year 1
6,307,734.02
5,153,867.01
122%
Year 2
6,988,722.66
8,648,228.34
81%
Year 3
7,906,196.22
12,601,326.45
63%
Year 4
8,691,249.29
16,946,951.10
51%
Year 5
10,237,057.93
22,065,480.06
46%
Bamboo Sweet Manufacturing Company has a return on equity ranging from 46%122%% which can be considered high and within the industry norm. Return on equity is a
measure of profitability that calculates the amount of profit a company generates with each
peso of partner’s equity. Company’s return on equity is high on the first year and is
following an increasing trend in the second to fifth year. The trend is seems to be like that
because the equity in the first year is only composed of the initial investment of the partner
and the first year net income on the otherhand the ROE for year 2 to year 5 is lower
because the equity increases due to the accumulated net incomes.
3
NATIONAL COLLEGE OF SCIENCE AND TECHNOLOGY
Amafel Bldg. Aguinaldo Highway, Dasmarinas, Cavite
Bachelor of Science in Business Administration Major in Marketing Management
e. Return on Investment
Return on Investment
512%
315%
349%
395%
435%
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Net Income
Investment
Return on Investment
Year 1
6,307,734.02
2,000,000.00
315%
Year 2
6,988,722.66
2,000,000.00
349%
Year 3
7,906,196.22
2,000,000.00
395%
Year 4
8,691,249.29
2,000,000.00
435%
Year 5
10,237,057.93
2,000,000.00
512%
Return on Investment of the business starts at 3.5 times the initial investment in the
first year which gradually decreases in the second year and continuously increased in its
third to fifth year of operation.
f. Payback Period
Payback Period is the length of time required for an investment to recover its initial
outlay in terms of profits. The total capital invested by the partners amounting to Php2,000,
000.00 can be recovered after nearly 5 months. The payback period of the company is
quite short because there are no other investments made in the subsequent years. For any
business enterprise, the shorter the payback period the better.
Cashflows
Payback Period
Year 0
2,000,000
Year 1
4,976,393.97
4.82
Year 2
6,216,951.54
Year 3
7,072,513.68
Year 4
7,857,769.31
Year 5
8,257,046.98
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NATIONAL COLLEGE OF SCIENCE AND TECHNOLOGY
Amafel Bldg. Aguinaldo Highway, Dasmarinas, Cavite
Bachelor of Science in Business Administration Major in Marketing Management
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