Financial Statement Analysis 1. Tulips Company has a DSO of 40 days, and its annual sales are P7,300,000. What is its accounts receivable balance? (Use 365 days) _____________________ 2. Jasmine Inc. has an equity multiplier of 2.4, and its assets are financed with some combination of long-term debt and common equity. What is its debt-to-assets ratio?____________________ 3. Alessandra Company has P10 billion in total assets. Its balance sheet shows P1 billion in current liabilities, P3 billion in long-term debt, and P6 billion in common equity. It has 800 million shares of common stock outstanding, and its stock price is P32 per share. What is Alessandra Company market/book ratio?______________________ 4. A company has an EPS of P2.00, a book value per share of P20, and a Market/book ratio of 1.2 times. What is its P/E ratio?____________________ 5. A firm has a profit margin of 2% and an equity multiplier of 2.0. Its sales are P100 million, and it has total assets of P50 million. What is its ROE?________________________ 6. Mindanao Mining has P6 million in sales; its ROE is 12%, and its total assets turnover is 3.2 times. The company is 50% equity financed, and it has no preferred stock outstanding. What is its net income?______________________ 7. Assume the following relationships for Woody Corp: Sales/Total assets is 1.5 times. Return on assets (ROA) is 3.0%, and Return on equity (ROE) is 5.0%. Assume the company uses debt and common equity, calculate Woody Corp. profit margin_________________ and debt-to-assets ratio______________ 8. Giselle Company has P12 Billion in assets, and its tax rate is 40%. Its basic earning power (BEP) ratio is 15%, and its return on assets (ROA) is 5%. What is its times- interest-earned (TIE) ratio?______________________ 9. Pomelo Company’s ROE last year was only 3%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 60%. Which will result in annual interest charges of P300,000. The firm has no plans to use preferred stock. Management projects as EBIT of P1,000,000 on sales of P10,000,000, and it expects to have a total assets turnover ratio of 2.0. Under these conditions, the tax rate will be 34%. If the changes are made, what will be the company’s return on equity?____________________ 10. The A Company has P1,312,500 in current assets and P525,000 in current liabilities. Its initial inventory level is P375,000 and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.0?____________________ 11. James Inc. currently has P750,000 in accounts receivable, and its day sales outstanding (DSO) is 55 days. It wants to reduce its DSO to 35 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the company’s average sales will fall by 15%. What will be the level of accounts receivable following the change? (Use 365 days)_______________________ 12. Esther Company can open a new store that will do an annual sales volume of P960,000. It will turnover its assets 2.4 times per year. The profit margin on sales will be 7 percent. What would be net income?___________ and return on assets?__________ 13. a). Alpha Industries had an asset turnover of 1.4 times per year. If the return on total assets was 8.4 percent, what was Alpha’s profit margin?______________ b.) The following year, on the same level of assets, Alpha’s asset turnover declined to 1.2 times and its profit margin was 7 percent. How did the return on total assets change from that of the previous year?___________________ 14. a.) King Company has a return on asset ratio of 12 percent. If the debt-to-total assets ratio is 40 percent, what is the return on equity?__________________ b.) If the firm had no debt, what would the return-on-equity ratio be?___________ 15. A firm has sales of P1.2 million, and 10 percent of the sales are for cash. The year-end accounts receivable balance is P80,000. What is the average collection period? Use 36 days)___________________________ 16. Charlie Corporation has accounts receivable turnover equal to 12 times. If accounts receivable are equal to P90,000, what is the value for average daily credit sales?______________________ 17. Jerry Company has P4,000,000 in yearly sales. The firm earns 3.5 percent on each peso of sales and turns over its assets 2.5 times per year. It has P100,000 in current liabilities and P300,000 in long-term liabilities. a. What is its return on stockholder’s equity?________________ b. If assets base remains the same as computed in (a) but total asset turnover goes up to 3, what will be the new return on stockholders’ equity? (Assume that the profit margin stays the same as do current and long-term liabilities)._____________ 18. The Global Corporation has three subsidiaries: Medical Supplies Heavy Machinery Electronics Sales P20,000,000 P5,000,000 P4,000,000 Net Income after taxes 1,200,000 190,000 320,000 Assets 8,000,000 8,000,000 3,000,000 a. Which division has the lowest return on sales?_________________ b. Which division has the highest return on assets?________________ c. Compute the return on assets for the entire corporation?______________ d. If the P8,000,000 investment in the heavy machinery division is sold off and redeployed in the medical supplies subsidiary at the same rate of return on assets currently achieved in the medical supplies division, what will be the new return on assets for the entire corporation?________________ 19. Construct the current assets section of the statement of financial position from the following data: Yearly sales (Credit) P420,000 Inventory turnover 7 times Current Liabilities P80,000 Current Ratio 2 Average collection period 36 days Compute the following: a. Cash _________________ b. Account receivable _________________ c. Inventory _________________ d. Total current asset _________________ 20. Complete the statement of financial position and sales information using the following financial data: Debt-to-assets ratio : 50% Current Ratio : 1.8 times Total assets turnover : 1.5 times Day sales outstanding : 36.5 days (calculation is based on a 365-day year) Gross profit margin on sales : 25% Inventory turnover ratio : 5 times Assets; Liabilities and Shareholder’s Equity Cash ?_____ Accounts Payable ?______ Accounts Receivable ?_____ Long-term Debt P60,000 Inventories ?______ Common stock ?______ Fixed assets ?______ Retained earnings P97,500 Total Assets P300,000 Total Liabilities &amp; shareholder’s? ______ =========== Sales ?____________ Equity ============ Cost of goods sold ?_______________ Answers: 1. 800,000 2. 0.58 3. 4.27 4. 12 5. 8% 6. 112,500 7. Profit Margin 2% ; D-A 40% 8. 2.25 9. 23.10% 10. 262,500 11. 405,682 12. NI 67,200 ; ROA 16.8% 13. a. 6% ; b. 8.4% 14. a. 20% ; b. 12% 15. 27 days 16. 3,000 17. a. 11.67% ; b. 14% 18. a. Heavy equipment 3.8% ; b. Medical Supplies 15% ; c. 9% ; d. 14.32% 19. a. 58,000 ; b. 42,000 ; c. 60,000 ; d. 160,000 20. Cash A/R Inventories Fixed Asset Total 49,500 45,000 67,500 138,000 300,000 Sales COGS 450,000 337,500 Accounts Payable Long term debt Common Stock Retained Earnings Total 90,000 60,000 52,500 97,500 300,000