ReSA ?k RerrierlScntil a{ /*rpm*14 . Sor'r?

po

MS-l2: FINANCIAL
STATEfiIENT
ANALYSIS
FS ANALYSIS involves the evaluation of the firm's past performance, present condition, and business
potentialsby way of careful6nalysisof its financialstatementspertainingto matters like:

:. [lliT?l'll""J,'5#:1ff:il'Jn,"",x-u*rr.o Y
Safetyof investmentin the business l
r of managementin runningthe firm
Effectiveness vl
I
FINANCIAL STATEMENTS(FS) A|IALYSIS TOOLSAND TECHNIQUES : r1,{".*1;'' n = 3w,ot'nl
1. Horizontalanalysis
2. Vertical anglysis {'l&i'r fua'i6t^t' f( Y
r 'l ,
3. Financialratios t,tt"n"[ FUt adt ,v x
4. G.ossprorit ,iariationanalysis rw"ay n
?^t
5. Cashflow analysis >(LI^ J
.,,/
y Lw'it ao(+' lJ-r<kIrl {r'uf
HORIZO?{TALANALYSIS -''- -f
Horizontalanalysis(trend or index analysis)involvescomparisonof figures shown in the FS of two or
more consecutive periods. The difference of the amount between two periods is calculated, and the
percentagechangefrom one periodto the next is computddusing the earlierperiodasthe baseperiod.

PercentageChange (Aolo) = K 7)Gect"1

0-.r1tel
' r'fD
Comparisonscan be made between an actual amount compared against a budgeted amount, with the
'budget'servingas the basisor pattern of performance.

LIMITATION:if a negative or a zero amount appears in th€ base year, percentagechange cannot be
computed. <-

vEr?tc^t Aia*r.Ysls
Vertical analysis is the processof comparing figures in the FS of a single period. It involves conversion
of amounts in the FS to a co,runon base. Th+s i9 acmw*Sishe{ by expressing aff figures in tfre FS c
percentagesof an important item such as total assets (th the balanCesheet) or net sales (in the income
statement). These converted statements are called cornmon-size statements or percentage composition
statements.
Percentagecompositionstatementsare used for comparing:
1. .Multipteyearg of data from the same firm
2. Companiesthat are different,insize
3. Companyto industryaverages '.i

FINATICIAL R.A?IOS
Financialratios lnvolve developmentof mathematicalrelationshipsarnong accountsfound in the FS.
Financialratios provide users and analysts with nelevantinformationabout the firm's liquidity, solvency,
stability, profitabilityand other aspectsof an entity's financialsituationand potential.

BASIC RULESIN COMPUTINGFINANCIALRATIOS

. When calculatinga ratio using balancesheet amounts only, the numeratorand denominatorshould
be based en amounts as of the balancesheet date. The same is true for ratios using only income
statementnumbers. Exception:calculationof growth ratios.
. If an income statement amount and a balance sheet amount are used to calculatea ratio, the
balancesheet arnount should be expiessedas an averagefor the time period repres€ntedby the
incomestatementamount.
. If the beginningbalanceof a balancesheet accountis not availableand cannot be computedfrorh
,the given data, the ending balance of the account is normally used to represent the average
balance.
r If sales and/or purchasesare given without inaking distinctionas to whether rhade in cash or on
credit, asSumptionsare made dependingon the ratio being calculated:

r As a rule, an operating year is assumedto have 360 days, unlessspecifiedotherwise.A'360-day

year is generallypreferredas this is consistentwith a l2-month year and a 30-day month;'
altematively,a year may be comprlsedof 365 calendardays, 300 working days or any appr.oprlate
nurnberof days.

Page 1 of 10 pages
 ReSA - ?/e Reoat Sc6o4la{ Accruu*'aa MS-12
FINANCIAL STATEMENT ANALYSIS

FINANCIAL RATIOS
. TESTSOF
Current Ratio
(Banker's Ratio)
(Working Capital Ratio)

current liabilitiescould be paid with the

Quick Ratio Qure"LAsse.-ls availablecash and near-cashassets(i.e.,
(Acid Test Ratio) Current Liabilities
cash, current receivablesand marketable

___Wg!gg9Elei lf !tg-'$ ltl9ien9yng!1,91) -*rt-d.*-u-

Acti'_!!v
Turnover [ ,"*-" r,"";;,;;;, I f. , - ase
Average - i r"ur:
-- r
o"ffi;-ffi"dinJ*i:n..o""t I rurnouei-'-

;*ffi;'
::: ::-:t--1---
I
I;q
-- .Ir,#n'fl..*i:;H
I i i

Age.orf":,:::1": rt indicates number d.f

r[e.,averase
lu.eraoe
(AverageCollectioneer17d). I __ 360davs ,.-- i during which the company
:j watt I
*eceivabtesTurnover j ,must I
I
- (Q4y,2'sates
il=89ss&Usil_+ _ __ ___ _ , -*l
l_opfote_t€geiyspleg-ar---qollqeleq,---
' i Cost of GoodsSold I It measuresthe number of times that the- i
Inventory
Turnover a"a-.=fr*"..n"iii#niJ;t";r durinstn" o"ri"a |
i;;;;;y is repraced
* I ". - I
AreAsaiseifliveffi;.1 tldrdtes
il,during theivEiagan';t't:.::T1:
(lnventory Conversion ____iunn*, the pompanv, must walt I
leri7d) i ,nventoryTurnovei- | .,which I
(Dpvs:.5e

,.;'f;'h:t;*,;l?11fi5i,f.H",",., I
Costqf_Gqedr
_[elulactured
Work in Process Turnover Average Work in Process Inventory

Cost qf Gs d-!_S-pjd
Finished'G6ods Turnover AverageFinrshed.Goods Inventory

Normal Operating Cycle Average Age of Inventory + Average Age 6l Receivables

t _C_real4_pg*p_urr
l,\_e t
Trade PayablesTurnover I Average Tradd payables
'- -T- - --
;D;, , - ht ; l
AverageAgeofrrade^n_ayaltes
(PayableDeferralP^"-l':!)^^,| __ 36o-d-ays_*-* ltt indrcatesthe tength of time during
I payabtesTurnover I *r,iin Jayabtesremainunpaid.
_(Ayp'_!gS!eSpsin P4yqbtg2Ll_.._ 1 ____ , -.:- ..
I ^ the moveme
** i tt measurestne movementand utilization
+
)ver
currentAssefs Turnover I1 c.os-t-ol?ale1
C.es!-el5a!e5]-9p.!_t*tis-Expqrse5l1
Averase '":'
lnerltfs_Elpqqses*-
Currenr Assets i :',':;;:;T
;i .;;"; assets ,"
to meer operatins
I i ;j*r:[ffilrrl].1.]
m;;aA;,.inting i"d f';ila te-ts;;t6;ase iriventoiyasi isitio iulrutiitnu- aveiageiitei'iperiioa.
** Theseexcludedepreciation,amortizationand other expensesrelatedto long-telm assets.

'. IFSIS OF SOLVENCY(Solvencyrefersto the ability of companyto pdy its debts)

These ratios involveleverageratios.'Leverage'refers to how much of company'sresourcesare financedby
de$_e!9/olsrife11ed ieujly, jd_etsltq4d qi-vlqg,udg.-
.,-, *"1
Pel!r-ell!e[e-qqs9{ry9-d_pq}ue!_t_S
rimes Earne.dl'I'
rnterest ;*#h;; I l'r-]!fJ[':fi":i:,j.:::1',r':,,'x:''n
I
Ratio
Debt-Equitv tffl:iffflif t'rrai n.ovroei
I
+- -- l ;f:*"""t"*pai"o-io
-- -1 --*--. --- '-'--'--' II I

Ratia t?:*i'f3*ts oftotarassets bv

nrovided
Debt I i :::n#:" I
I Totai Eourty I Prooortionof total assetsprovidedbV I
EqutvRatio roiilnrr"ti
i i o*n"rr. i
 -.;;-
ReSA -7/o ReoaeuSc/aal o{ 4c/Ati,6ta'4c4 ',-"€ M$-1'2
FINANCIAL STATEMENT ANAT.YSIS

. TESTOF PROFITABILITY

Return on Sales Income _*- Determinesthe portion of sales that

Net Sales went into company'searnings

-- -lneome Efficiencywith which assets ar€ used

Return on Assefs
AverageAssets to operatethe business.

What INCOMEfigure should be used?

r If the intention is to measure operationalperformance, income is expressedas before interest and tax;
afternatively, income before 'after-tax' interest may be used to exclude the effect of capital structure.
. If the intention is to evaluate total managerialeffort, income is expressedafter interest and tax
. The practiceof expressingincomeafter interest'butbeforetax is now being discouraged.
r Income should includedividendsand interestearned if the said investmentsare includedin asset base.
. If used in the DuPonttechnique) income must be after interesft taxes and preferred stock dividends.

Returnon Equity = Returnon Sale$x AssetsTurnoverx EquityMultiplier

Inesme Measuresthe amount earned on the

AverageEquity owners'or stockholders'investrnent.

N.dlnsarne-3'rcfeffc{Awidendl Measuresthe amount of net income

Wtd. Ave. CommonSharesOutstanding earned by each com'monshare

. NARKETTESTS

Price-Earnings( PE) Ratio Pneef€L5narc It indicates the number of pesos

EarningsPer Share requiredto buy P L of earnings
Measures the rate of return in the
DividendPer Share
Dfvidend Yie{d investor's comrnon stock
PricePer Share
investrnents.

Dividend Pay-Out Drvr-dendfsr5bd It indicates the proportion

EarningsPer Share earningsdistributedas dividendS

OTHER ilEA'IIIIGFI'L RATIOS

. RATIOSASED TO EVALIJATELO|rvr,-TER#FTNANCIAL POSITIONOR STA'|TLTrY

Measures the proportion of
owners' equity to fixed assets.
Fixed Assets to Total Equity F,ixedteeets Indicative of over or under
TotadEquiW
inv€stment by owners and
weaknessin tradino on the equiU*

Fixed Assetsto TotalAss€ts

rixEdASsgts.(Netj Indicates possible bver-expansion
Tdtal Ass€ts of plant and equipment
Tests roughly the efficiency of
Sales to Flxed lssets Net Sales _
(Plant Tumover) management in keeping plant
Fixed Assets (Net)
Measures recoverable amount by
Book Value Per Share - Common Sharqhqlders'Equity common stockholdersin the event
Common Stock CommonSharesOutstanding of liquidation if as3ets are realized
at their bookvalues
It indicates ability to provide
Times Preferred Dividend Earned M dividends to preferred
PreferredDividends
Measures e.fficiencyof the firm to
Capital Intensity Ratio IslalArs€ls generate sales through
Net Sales
of its resources.
Net.IncornqbeforetaxbS& fXed charges Measures ability to meet fixed
Times Fixed Charges Eareed (Fixedcharges+ sinkingftrndpayment)** charges,,
'Tradingon the equity' is another name for leverage:
Fixedchargesshall includerent, interestsand other relevantfixed expenses;sinkingfund payment
must be expressedbeforetax.
ReSA -7k Rariear'Scfio(ol 4c,cnomtudel MS.l2
FINANCIAL STATEMENT ANALYSIS

. sftot
If'srs aF OVER-ALL TERMSOLVENCYOR SHOR TERMFINANCIALPOSITION
Net Sales Indicates adequacy of working capital to
Working Capital Turnover
Average Working Capital support operati'on (sales)

Defensive Interval Ratio C-usentLlabiliUes Measurescoverageof current liabilities

Cash & Cash Equivalent

Net Purchases Measures efficiency of the company in

Payable Turnover
AverageAccountsPayable meeting the accountspayable
Reflects extent of the utilization of
Fixed Assets to Long-term Fixed Assets
resourcesfrom long-term debt. Indicative
LJabilities Long term Liabilities
of sourcesof additional funds.

. RATIOS INDICATIVE OF IIICO'{E POSITION

Rate of Return on Average lngome Measuresthe profitability of current assets
Currenf Asset AverageCurrentAssets invested"

Ooeriting Profit Measures profit generated after

Operating Profit Margi n Net Sales considerationof operatingcosts.
Operatino Cash Flow Fieasures the ability of the firln
CashFlow Margin Net Sales translate sales to cash '

GROSS PROFTTVARTA||CE
Th€ analysis o( variation in gross profit is an indispensabletool in evaluating operational performance;
the adequacy or inadequacyof gross profit determines the final results of operations (net income). Gross
profit must be addquateto cover operating and other expenses,along with a desired amount of profit.

Sales = SalesVqlumex Unit SellingPrice

- Cost of Goods Sold = SalesVolume x Unit Cost
Gross Profit = SalesVolurne x (Unit Selling Price - Unit Cost)

€Rffi.}TOFTT VARIATCE ANALYSIS

GP variance may be analyzedthough the fotlowing:
. GP (Actual)vs. GP (Budget)
,. GP (€urtent Period) vs. GP (Last Period)

Gross profit variance = GP (Actual) - GP (Budget)

FaVorable:If actual (current) GF is greater than budgeted (last year) GP.

Unfavo,rable:If actual (current) GP is less than budgeted (last year) GP.

Analysis:
Sales price (factor) variance = A Q x ASP
Cost price (factor) variance = A Q x A Unit Cost
Volume (factor) variance = AQ x Budgeted Unit GP
I
P Salesvolumevariance= AQ x BudgetedSP
L-+ Costvolumevariance= AQ x Budgeted Unit Csst
Leoend:
a - Quantityor volurne
SP- Sellingpriceper unit

Alternative analysis: A c_A P - c q I

Salesprice factor = current sales- current volume @ budgetedSP Aq s?
Salesvariancei L- =
Salesvolume fa,ctor current volume @ budgeted SP - budgeted sales
cost Pricefa*ol = current CGS - current volume @ budgeteOunit cost
cost variance t (- =
Lost volumeractor current volume @ budgeted unit cost - budgeted CGS
ReSA - 74e Retaer*Scloot o( Acautartccy tc MS-l2
FINANCIAL STATEMENT ANALYSIS

GROSSPROFIT VARIANCE ANALYSIS for MULTI-PRODUCT COMPANIES

Analysis:
Salesprice (factor) variance= A Q x A SP (individualproducts)
Cost price (factor) variance= A Q x A Unit Cost (individualproducts)
Volume (factor) variance= AQ x AverageBudgetedunit GP
Mix (factor) variance
Averageunit GP basedon actualvolume at budgetedprices Pxx
Less:Averagebudgetedunit GP lxx).
Increase(decrease)in averageunit GP Pxx
Multipliedby: Total actualquantity sold XX
. Increase(decrease)in grossprofit P,xx,
Where: Averageunit GP = Total GP (all products)+ Total quantity (all products)

@ro
1. VERTICAL AND HORIZONTAL ANALYSIS
Fo{lowiflgare the financialstatementsof Ana Company:
ANA COMPANY
CondensedStatementof FinancialPosition
December31, 2013 (In thousands)
455ff5 LIAEILITIES AND EOUIA
Cash P 750 CurrentLiabilities P 500
Non-CashCurrent 1,250 Long-termDebts 1,000
FixedAssets 3,000 CapitalStock 1,500
RetainedEarnings 2,000
TOTALASSETS P 5,000 TOTALLIAB. & SHE P'.5.089

For 2At2: Net sales,.P 1;600; CGS,.P1,000; OperatingExpenses,P 300; Interestsand tax charges,P 200.
For 2013: Net sales,P 2,000; CGS,P 1,300;OperatingExpenses, P 300; Interestsand tax charges,P 22A.
- REQ/JIRE&.. .. ': ,
1. Prepare2013 commdn-sizebalancesheet and &tcrmine:
A) Currentratio ,{"f ?,olu ?rtn
8) Debt ratio g'lc tf ,e't"
C) Equity ratio ?:lO t/- Tol . &eo
2. Prepard2013 comrnon-sizeincomestatementand determine: (ury)-
A) Gross profit margin tN ,e I,
?D
B) Operating profit margin ICO
c) Netprofit-margin
6f"
'-il,'"% "/
' %.lf-g|* (,?P
3. ."Tr,i:i.91*Ei:"iil orprepare
indsx-ana.lysis
forthefolrowirfr"
W alp
B ) € Br r t.\rtl q l . lf
) Net income bl. rit,.
2 . TIQUTDIW AtfAt-Ysls
Indicate the effects of 'each of the following transactions on the company's (A) current ratio and (B)
acid-testratio. There are thfee possibteansweis: (+) increase,(-) decrease,and (0) no effect.

NOTE:Beforeeach transactiontakes place,both ratios are greaterthan 1 to 1.

Transactions; (A)"CurrentRatio (B) Acid-testRatip

Example: Sell merchandise for cash .++
1. Buy inventoryon account
2. Payan accountpayable
j
3. Borrowcash on a short-term loan -*'T*-"
4. Issuelong-termbonds payable. t
-----iN-'*-
5. Collectan accountreceivable. **_=*_
6. Recordaccruedexpensespayable.-
7. Sell a plant isset for cash at a profit.
B. Sell a plant assetfor cash at a loss.
f--
_._-F-
*-*---r-***
t.
'----fi-
9. Buy marketablesecurities;for cash. IJ

10. Sell merchandise on credit. -- .;{:-- -t

(Adapted : Manaoerial Accountino bv Louderback)

 l

n rj'fr-eSA - ?4o Rertizrt,Sclaol al /fuca4ardnrq ,dl

ltts.l2
x\
ri!

FINANCIALSTATEMENT,
ANALYSIS

3. FINAHCIAL RATIOS
LYN has 1,000,000common shares outstanding,with each share priced at P & In 2013, the company
declareddividendsof P 0.10 per share. The balancesheet at the end of 2013 showed approximatelythe
same amounts as that at the end of 20L2. The flnancial statements for LYNMerchandisingare as follows:
LYNCompany, Income Statement for 2013 (ln thousands)
, Sales P 4,700
Cost of goods srild 2,30q
Gross profit P 2,400
Operating expenses;
Depreciation P 320
Other L.230 1.550
Income before interest and taxes P 85=0'
Interest expense '.. 150- -
Income before taxes P 700 * '
Income taxes ,280
Net income P:.{24
LYNCompany, BalanceSheet at December31, 2013 (in thouands)
Assets Liabilitles and SHE
Cash P 22W/ Accountspayable P 190
Accounts receivable 44O Accrued expenses 180
Inverttory 410 Total current liabilities P 370 {
Total current assets P l,O7O Long-term debt 1,960
Plant and equipment 5,600 Cornmonstock 1,810
Accumulateddepreciation (2.100f-. Retainedeamings 430
TotalAssets L4JZQ \. Total liabilitiesand SHE P=1-5Zg-'
REQUIRED:(round-off answers to two decimal places)
Ly' Currentratio (2.89:1) lvtes pAz) rnc",,Y= +
R--l
2./ ncia-wst: ratio ( 1.78 : 1) 12r/P/eratio.(19.05)
3.,z'Accountsreceivableturnover ( 10.68 times) l.3.7Dividend yield ( 1.25%)
41,. Inventory turnover (5.51 times) 14y'Payout ratio (23.8 1olo
)
f,7 .Grossprofit margin (51.060/o) I 5,7Debtratio (50.9806) /r--
6.r,/Operating profit margifl { 18.09%) 164;Oebt-equityratio ( 1.Oa: 1)
7.,/Return on sales'(RoS)(8.94olo) lT*Tirn€s interest ea;'ned(5.67 times) . , \
(18.60%) (t.* t ce)
8,) Ron - eperatiqlpl4erformance .X 1?. Pefensiveinterval ratio .(1.68:_1).'( Ct |
9.r,.RoA- totbl man{ement efrot}(9.L9o/o) l9/Cash flow to total debt (31.76016)
lOv{,eturn on equity (RoE)(18.75olo) 2\rCash flow margin (L$.74o/o)
(Adapted: Managerial Accounting by Louderback)
4. COHSTRUCTIOTI OF FINATCITL STATE}IEI{TS
The following information is available concerningYambs Company'sexpected results in 2013 (in thousands
of pesos). Turnoverc are based on year-end vafues.
REQUIRED: Fill in the blanks.
1) Return on sales 60/o
2) Gross profit percentage 4Oolo
3) Receivablesturnover 5 timesr'
4) Inventory turnover 4 times'
5) Current ratio ,, ._3_!J<"
6) Ratioof total debt to total assets i 4O9o,'
CondeqredIncomeStatement
Stu-
u2
Sales P 900
Cost of sales
Gross profit
-?e--
7bo
Operating expenses )oc"
Net income PT

BalanceSheet
fCash P 30, Currentliabilities
\Receivables t8P Long-term debt
lnventory *F Shareholders'equity 00q
Plantand equipment 670"
Tofal Piq{' Total P \olr-
(Adapted : ManageriaI Accounti ng by Louderback)
ReSA *7k Re//kr't,Sciaa( o( r4&a{/t4ta'4grl 't
t.,

11'
*
r
MS.f2
FINANCIALSTATEMENTANALYSIS

5. RELATIONSHIPS.Assumea,3QQ-dayyear for each of the follat(ng independentcases: \-

A. The current
.t
ratio.is 2.5 to 1; tne acid-testratid*is-0.9to 1; cash and receivables
d(e_P27O,OOO. The
current assetsare'-eofr'fposedof cash, receivables,and inventory. Compute:
1) Currentliabilities W a "! A-

2) Inventory YfO
T;I
B. The age of receivablesis 45,y'ays.Annualsalesof P 900,000 are spread evenly througjftoutthe year.
Inventoryturnoveris 4 timesYCompute: ta-L,
lzO I
1) Averageaccountsreceivable llz 50 o!€- ,aF
2) Operatingcycle lV5 da-yr Ann e{"
'C. Net sales.totalP 100,000.Net profit marginis l2o/o.Interest
chargesare earned6 times.
Ytl How much is the operatingincomebefofe interestsand taxes assumingthat tax rate is &9/n? Lqqn
.2) Supposethat the age of inventoryis 30 days and the averageamount of inventoryfor the year
is P 5,000, how much is the company'soperatingexpenses?tlcC$\.)
S4,^ l^ct^)
s
i). Giventherolowins: CE\ 'a$.iy /g;t tra,1
" nh.
rlvl' : v i,
, ' . Returnon salesis 5olo. ^ 4, -i t
t "9 . Re tur n onassetsis10%. /, \ ]'--- -2 = 1 1 7 ' )
A'- >5- ri;;;;; ;; i;2;;;.1 * , .. v -
sdtw -?&'
"q;;il
. rneie is no,preferreostocu{/t , . ,. \d'' i" ?Y\ 1Y rdnt-
t?t n'/.*t '
pont technique) (N 5 N1'- Qffi) Ir't
-aii';.jj.", (tJseDu
compute:
vE -7-A, ., t'
--;-.' b =.
' 'Qng t;cur)
turnover '
4ov.2) Equityratio ^ r.o\
*4
V o*"
lsb%3) Debt-equity ratio -^ 'e, Yo tn.6^ v l,- r <rl
4) Is the useof financialleverage p9l!ryor negative?
:'.,nrfAi#
E. A companydecidedto go public. The nurhberof commonsharesisiueOaad-eqt5tanding is J25,000.
Netincomeavallable to commonshareholders for the yearamountedto e300,000.'J
- 1) Assurn'e that.the pay-outratio is 600lo,how much of the total-Eifiddhds shalla shareholder
owning10,000commonsharesreceive? [,rlt/ x lpolD -* \ V q cil/f
2) Assumethat the pay-outratio is 6o0/oand th'epr,iceper shareis P 20, *hat is the dividend
yield? 7,2% ecvtlr< tLt +xt
7o* ,---- -,
3 ) Assume that the price-earnings ratio will be tt 12 times a@ 25rQO0,ilerr.sf|6res veillbe ir$^iltll
4 4 8n A) How much is the initial pubtlc offering per share of the .25]O0O
new shares? Eh(_- o< .,t
q1 Y
niv
t\'r/
.27. B) Holrym_uchis the net proceedsfrom issuanceif underwrit€rspreadis 2o/o? t Df
b88qn ii)

6. GROSS pROfIT A|YALYStr!5YVIT'{ A STNGLE PRODUCT (FULL !?{FORHATTOT)

SpainCompanypreparedthe followingbudgetaryinformationfor Januaryof 2013 for its toy gun;
Sales(12,000units) P 432,000 1tt l?S x lY qqldD
Cost.ofGoodsSold 288.000 2q 1ea60x2? ,t5t0N
GrossProfit P 144,.0OO 4ll\t\)
In January, actual operations resulted in the produ,ctionand sale of 13,000 units Whichwere sold for a
selling price Of P 34 per unit. The unit cost of goods sold increasedby P 3.
REQUIRED: ?. 4 'AP 'l 6C x (ftsffu)
z
-
1. . Overall GP variance 5?oo q A6i
" S P , J llUrDx (? . { -} k )
?. Sbles price variance z'tQ u
3. Salesvolume variance%qfrF 3 40rSP
6qrs?
4.' Cost prlce variance 39UUU u
5. Cost volume variance JqooO [l
AICPA)
t. cRoss pRoFrr ANALvrrs wlrH A srNGrEpRoDucr (rrcoHpLETE rNFoRirATrol;d"pted:
Rafa Companyhas requestedyou to determinethe causeof the differencebetweenits 2012 and 2013
gross profit basedon the followingdata: A
2012 2013
Sales ,C P 200,000 P 252,00W tEz Jco;tD JYcrJ;,
Cost of Goods Sold5 f*20-Aq0 180.000 I rJp
Gross profit P.BO"Q0'O p ZZ,0Q0 -{
No additionafdata was made availableexceptthat unit salesincreasedby 2}Vo;n)2ffi.
REQUIRED:
1, OverallGP variance S\tr)t4 D&ffuJ *. o, C.."t*,*
lv,. c*rffi C*1
t1
2. Pricefactor lZctq t 14n1',
'
3. Cost factor '&Cur; L{ s0 1{f"l c"8
4" Volume factor 1t ,\l} ?
lvtrlal^taalwJ
,oI'^.4T!
(Adapted: AICPA)

:-. Page7 of 10 pages

ReSA -?io Reuru Sclaol a{ lkrta'rta4t7 ts
MS.l2
FINANCIALSTATEMENTANALYSIS

8. GROSS PROFTTANALYSTS (HULTT-PnODUCT COllPAt{Y)

lrb fotlotvingdata are given for Vamos Company:
2013 2012
ProductA P:oducLE ProductA ProductE
SalesVolurne 6"000 4,000 3,000 5,00o
Unit sellingprice P 10 P6 P9 P5
Unit cost P6 P3 P4 P3
e
REQUIRED:
1. OverallGP variance ltoLf P -/ 7 f-
2. Price factor loce0{ .i.- C* lzcat'{J ? ? L5i'\-
i( ootit' p, ?ilftrF. F 6Lt\- rtl\
3' cost factor
4. Volume factor Au--r) j,fl'...]t, ar^\\
F
f
5. Mix factor
(Adapted: AICPA)
to item 8
SOLUTTONS
20t3 20t2
0OOxPlO 3.000x P 9
5.000x P

xP 3

GP VARIANCE:36,000 - 25,000 = (1) P 11,0OO F

The increasein grbss profit is due tB.;^.., , - I''
PRICE
- FACTOR: ,I G * 4! ' iljR.-l't.a:'
'iYr\'--
zor j *Gt a1[' v S? P 84,000
Less: 2013 sales volume at 2OL2 prices
ProductA: 5,000 x P 9 = P 54,000 (2) P tq,OOOF
ProductB;4,000x P 5 = -29,Q09 74,000*
COSTFACTOR: 4ttr:
rrq tt'
2013 cost of sales 'P
LeSs: 2013 sales volurne at 2012 prices 48,OOO.
ProdudA:6r@0 xP4 = P24,OO0 (3) p 14Om U
PrcductB:4,0OOxP3 = 12.000 3610oo*'t
VOLUMEFACTOR:
Increase in qudntity sold: P 2,000
?l ?$;
, X Averag€ GP/u ln 2012 (25,OOO/8,0O0) x 3.125 "
(4) P 6,250 F
MIX FACTOR: -:* 1
1 1(wr
Average GP/u (2A73 sales volume at 2012 prices) P 3.80***
AverageGP/uin 2Ol2 3.125'
Increase in average GP due to change in sales mix 0.675
Multipliedby 2013 sbles volume x 10,000
(5) P 6,79,0 F
***Product A: 6,OO0units (9-4) P 30,OOO Alternative comoutalign;
B: 4,000units(5-3)
Product (74,000*- 36,000**)/ 10,000= P 3.80
O,*ffi
Divided.by 2Ot3 sales volume + 1q,QO0
P 3.80
2012 as "Standard"Mix:

f;3:333
i]:l
[31
8,000 (100o/o)
PdtternedAfter Standard MLxVariance: (Actual Mix * Standard Mix) x Standard Prices
Produq! 2013 (based on 2012 mi.x) 2Ot2 GP/u. Mix Factor
A ' 6,000 31750 (9-4) P 11,250F
B 4,000 6.250 (s-3) P4,500u
10,000 10,000 P 6,750t

Page8 of 10 pages
ReSA S/4oa4a( 4ccaautazcq
- 7tc Re*eeru '-. 4-
MS.l2
FINANCIAL STATEMENT ANALYSIS

9. GROSSPROFIT ANALYSIS EXERCISES

. A) PereaCompanyhad the followingresultsin May:
Bud-s.e! Acluel
Sales P 160,000 P 162,500''
Costof goodssold(P5per unit) 100,00q!?ot
) 102,500At),ft
' Gross profit , P Fo,00Q
, P 60,000
Actualsaleswere 500 units higher than the budgetedsales.

Determinethe false statement.

. a. The salespricevarianceis P 1,500unfavorable.
b. The salesvolume varianceis P 4,000 favorable.
c. The cost price varianceis zero (0).
,il The cost volume varianceis P 2,500 favorable.

Items B to F are based.pn]lhgfollowinqinformation

The managelnentof R-18 Companyasked you to submit an dnalysisof the increasein the gross profit
in 2013 basedon'the past two-year comparativeincomestatements,which are shown below:
hn
2013. 2AL2
Net Saleg .? I,237,50A P 1,000,000. ( $> CS'r Y 1.l) E
gtc
Cost of Sales - 950-00Q -_-&0AO0A llo t-rU; !X }i.X A
GrossProfit P 287,500 P.2O0.000

priceincreased
Thesellins bv t' tJ;
W"ff,yyfr,Ef'jt * d^^,*t"**^ ; r,,^Lr.q/, tr2..r-/
B) The increasein gross profit due to increasein volume is (VOLUMEFACTOR)
A. P 20,000 c. P 50,000
.d. P 100,000
C) Grossprofit declinedue to increasein cost in the amount of (COSTFACTOR)
{ p lo,aoo ' c. P 88,000
b. P 80,000 d. P 97.500

D) The increasein saleSpricescausedan increasein gross profit by (PRICEFACTOR)

a.. P 100,000 c! P 137,500
b. P 110,000 d P 237,540 l -- / -^ a -
?

I 1J UU,
F) The percenta$echange in volume is
a. 15.l25o/o c. llo/o
b. 12.75o/o f loo/o

F) The percentagechange in co€t is

a. 10,8olo c. 8.6750/o
'b. l0o/o ,t- 7.95a/o

G) UncleCompariyhad the fpllowingresultsin June:

Budget Actual
Sales PTA,OOOI P68,900
Variablecosts -_* 40,000 38,500
, P-30*40_0
Contribution rnargin P 3g,QQ0
' Budgetedsal€swere 10,000 unity, actualsaleswere g,7OOunits. What is the salesprice variance?
a. P 1,100U c. P9O0U
P 1,000 F d. P400F
"E
H) Torli Companyhad the followingresultsin June:
qldaet Actual
Sales P70,000 P68,900
Variablecosts 40,000 38,500 l
Contributionmargin P 30-,00-Q P 3Q,40Q

Budgeted sales were 10,000 units, actual sales were 9,700 units. What is the sales volurne
variance?
a, P 1,100U ) ,/. P900U
b. P 1;000F d. P400F
J lt t
Page9 of 10 pages
ReSA -74e Repitt* Sc/4iol a( Acnoaataaq lils-l2
FINANCIAL STATEMENT ANALYSIS

(MULTIPLE-CHOICE)
EXERCISES
WRAP-UP
statement,what is normallythe baseamount (1000/6)?
1. In a single-periodcommon-size'igcome
y' fuetsates
' b. Grosssales
c. Net credit sales
d, Grosscash sales

2. In financial statgment analysis, expressing all financial statement items as a percentage of base-year
amountsis called
a. Ratioanalysis
b. Vertical analysis
c. Cash flow analysis
ff Horizontalanalysis
.a

3. Which one of the following would not be considereda liquidity ratio?

a. Quick ratio
b. Current ratio
ze/ Return on assets
d. Inventory turnover

4. How-aretrade receivablesused in the calculationsof (1) acid-test ratio, and (2) receivableturnover?
e. (1) Denominator(2) Denominato
.-i? (t) Nurnerator(2) Denominator
q. (1) Numerator(2) Numerator
d. (1) Not used (2) Numerator

D 5. Which ratio is rnost hetpful in appraisingprofitability?

" a, Debt ratio
b. Acid-test ratio
,{ Dividend payout
;P Return on assets

6. Which of the following ratios is most rebvant to evaluating solvency?

i. Debt ratio
b. Divldend yield
c. Return on assets
d. Daysl purchasein accounts payable

I? 7. A debt-eguity ratio is
Lower than the debt ratio
"g
gy' Htgher than the debt ratio
c. About the same as the debt ratio
d. Not correlated with the debt ratio

8. How is the dlvidend per sfrare being used in tfie calculation of th€ following ratios?
Divtdstd Pav-out Diyi&Od-vtela Price-Eaminos Ratio
a. Not used Numeratof Numerator
b. Nurnerator D6nominator Not used
c. Numeratof Not used Numerator
Nrimerator Numeraton/ Not used
-*.
9. Returnon saEsx ass€tsturnover=
' a. Returnon equity
y Returnon assets
c. Equitymultiplier
d. Equityratio

10. When a balancesheet amount is related to an income statement amount in computing a ratio (e.9.,'
turnover),
a. The ingome statement amount should be converted to an average for the year
.E The balancesheet amount should be converted to an average for the year
c. Comparisonswith industryratios are not meaningfuf
d. Both amounts should be converted to market value