FAR EASTERN UNIVERSITY

Institute of Accounts, Business and Finance

ACT1124 - Financial Management
Financial Statements and Ratio Analysis

True or False

1.) Common-size statements are financial statements of companies of similar size.

2.) One limitation of vertical analysis is that it cannot be used to compare two companies that are
significantly different in size.
3.) If the company's acid-test ratio increases, its current ratio will also increase
4.) Short-term borrowing is not a source of working capital
5.) Profitability ratios are frequently used as a basis for evaluating management's operating
effectiveness.

MC

1.) Which of the following below is generally most useful in analyzing companies of different sizes?
a.) comparative financial statements
b.) common-sized financial statements
c.) audit report
d.) trend analysis

2.) A balance sheet that displays only component percentages is called:

a.) trend balance sheet
b.) comparative balance sheet
c.) condensed balance sheet
d.) common-size balance sheet

3.) In horizontal analysis each item is expressed as percentage of the:

a.) base year figure
b.) retained earnings figure
c.) total assets figure
d.) net income figure
e.) all of the above

4.) The acceleration in the collection of receivables will tend to cause the accounts receivable turnover
to:
a.) decrease
b.) remain the same
c.) either increase or decrease
d.) increase
5.) A company has P60,000 in current assets and P40,000 in current liabilities. It pays a P1,000 current
liability. As a result of this transaction, the current ratio and working capital will:
a.) both decrease
b.) both increase
c.) increase and remain the same respectively
d.) remain the same and decrease respectively

6.) Roselyn Corp has a 2 to 1 current ratio. This ratio would increase if:
a.) The Company wrote off an uncollectible receivable
b.) The Company purchased inventory on account
c.) The Company sold merchandise with a mark up
d.) A previously declared stock dividends was distributed

7.) Kevin Inc. has a current ratio of 0.65 to 1. A cash dividend declared last month is paid this month.
What is the effect of this dividend payment on the current ratio and working capital respectively?
a.) rise and decline
b.) rise and no effect
c.) decline and no effect
d.) no effect on both ratios

8.) A high receivable turnover ratio indicates:

a.) Many customers are not paying the compan's receivable
b.) Customers are making payment quickly
c.) The company's sales have increased
d.) A large portion of the company's sales are on credit

9.) Erica Trading Corp had net income of P2,000,000 in 2015. Using the 2015 financial statements
element as base data, net income decreased by 70% in 2016 and increased by 175% in 2017. The
respective net income reported by the company for 2016 and 2017 are:

a.) P600,000 and P3,500,000 c.) P1,400,000 and P3,500,000

b.) P600,000 and P5,500,000 d.)P1,400,000 and P5,500,000

10.) The following financial data have been taken from the records for Salido Company:

Accounts receivable P200,000

Accounts payable 80,000
Bonds payable, due in 10 years 500,000
Cash 100,000
Interest payable, due in 3 months 25,000
Inventory 440,000
Land 800,000
Notes payable, due in 6 months 250,000
a.) The currrent ratio is: ______________________
b.) The quick ratio is: ________________________

If the inventory amounting to P50,000 was sold with 40% markup on cost, compute for:

a.) Current ratio ______________________________

b.) Quick ratio ______________________________

11.) ABC Company had the following data in its balance sheet on December 31, 2017:

Accounts payable P145,000

Accounts receivable 110,000
Accrued liabilities 4,000
Cash 80,000
Income tax payable 10,000
Inventory 140,000
Marketable securities 250,000
Notes payable, due in 3 months 85,000
Prepaid expenses 15,000

The amount of working capital for the company is:

a.) P211,000 c.) P351,000

b.) P336,000 d.) P361,000

The amount of quick assets is: __________________

12.) During 2017, Salas company purchased P960,000 of inventory. The cost of goods sold for 2017
was P900,000, and t he ending inventory at December 31, 2017 was P180,000. What was the
inventory turnover for 2017?

a.) 5 times c.) 6 times

b.) 5.3 times d.) 6.4 times

Days in inventory was __________________

The data presented below shows actual figures for selected accounts of ABC Company for the year
ended December 31, 2024. ABC Company's controller is in the process of reviewing the 2024 results.
ABC Company moniors yield or return using the average financial position of the Company. (Not:
Round all calculations to three decimal places if necessary).

December 31, 2024 December 31, 2023

Accounts payable P44,000 P35,200
Accounts Receivable 1,700,000 1,360,000
Cash 2,140,000 1,712,000
Notes payable, due in 6 months 600,000 480,000
Bonds payable, due in 5 years 1,000,000 800,000
Inventories 370,000 296,000
Ordinary share capital (P5 par) 1,600,000 1,280,000
Preference share capital, P200 par 6% 300,000 240,000
Prepayments 44,000 35,200
Fixed assets 330,000 264,000
Retained Earnings 1,040,000 832,000

Results of 2024 operations

Sales* P1,360,000
Cost of Goods Sold 560,000
Interest Expense 13,000
Income taxes (40% rate) 48,000
Administrative expense (net of depre. and amort.) 267,000
Depreciation and amortization 57,000

*All sales are credit sales

Total Assets / Total Debts
0.36 = (1,644 / 4,586)
13.) What is the debt to assets ratio? _______________
Total Debt
14.) What is the debt to capital ratio? ______________
0.36
Total Debt / Total Equity
15.) What is the debt to equity ratio? ______________
0.56 = (1,644 / 2,940)
Total Long-term Debt / Total Equity
1,000,000 / 2,940
16.) What is the long-term debt to equity ratio? ______________
Ave. Total Assets / Ave. SHE
1.56 = 4,125,600 (3,667,200+4,584,000) / 2,646,000
17.) What is the financial leverage ratio/ Equity multiplier? ______________
EBIT / Interest Expense
36.62 times = 476 (1,360-560-800-324) / 13
18.) What is times interest earned or interest coverage ratio? _____________
EBIT + Fixed Charge / Interest + Fixed Charge
19.) If the company is annually paying P60,000 for notes and bonds payable, how much is the fixed
7.34 times = (476 + 60 / 13 + 60)
charge coverage ratio? _______________
 For Internal Users
(profitability) Gross Profit / Net Sales
58.82% = 800 (1,360-560) / 1,360
20.) What is the Gross Profit Margin of the Company for 2024? __________________
EBIT / Net Sales
35% = 476 (1,360-560-324) / 1,360
21.) What is the Operating Profit Margin for 2024? _________________
Net Profit Margin (After Tax&Intesrest) / Net Sales
30.51% = 415 (1,360-560-324-13-48) / 1,360
22.) What is the Company's Net Profit Margin for 2024? __________________
EBIT + DA / Net Sales
39.19% = 533 (476 + 57) / 1,360
23.) What is the Company's EBITDA Margin 2024? __________________
NICS = Net Income after Tax - Preference Dividends
Net Income Attributable to Common Shares (NICS) / Average Total Assets
0.096 = 415 - 18 / 4,125,600
24.) What is the Return on Assets (ROA ) for 2024?___________________
NICS / Average Equity
0.15 = 397 (415 - 18) / 3646
25.) What is the Return on Equity (ROE) for 2024?___________________
NICS / Net Sales
0.29 = 397 (415 - 18) / 1360
26.) What is the Return on Sales (ROS) for 2024? ___________________

27.) What is the Return on Total Capital for 2024? ___________________

NICS / Average Common Equity
0.27 = 397 / 1440
28.) What is the Return on Common Equity for 2024? ___________________

(market or valuation)
Net Income / Weighted Average # of Ordinary Shares Outstanding (BEG + END / 2)
29.) What is the Company's earnings per share (EPS) on 2024? _____________________1.38 = 397 / 288

30.) What is the Company's dividends per share (DPS) assuming the Company declared P345,000
dividends to common shares during the year? _________________________

31.) What is the Company's dividend payout ratio for 2024? _________________

32.) What is the Company's price to earnings ratio, assuming the market value of share is P6 per
share? ________________

33.) What is the Company's book value per share for 2024? _______________

34.) What is the Company's price to book ratio for 2024 if the market price is P6? ____________

35.) What is the Company's dividend yield ratio for 2024 if the market price is P6? __________

36.) What is the Company's earnings yield ratio for 2024? __________________

37.) What is the Company's EBITDA per share for 2024?_____________

38.) What is the Company's price to EBITDA per share, assumin the market value of share is P6?
____________