You are a financial consultant.

You are hired by a manufacturing company to assess its performance

based on financial ratios. Your task is to come up with the following: ( 1) financial analysis using
financial ratios on liquidity, solvency or stability, and profitability; (2) trend analysis, both vertical and
horizontal; and (3) comparative financial statements. The analysis should be benchmarked with
competitors.

Prepare a report indicating your comments on the financial health and performance of the company (as
benchmarked with competitors) using the following liquidity ratios: (1) current ratio (2) receivable
turnover, (3) inventory turnover, and (4) quick ratio.

Give your insights into the relative solvency or stability of the company (as benchmarked with
competitors) using the following ratios: (1) debt ratio, (2) times interest earned ratio, and (3) debt –
equity ratio.

Also, assess the relative profitability of the company ( as benchmarked with competitors) using the
following ratios: (1) gross profit margin, (2) net profit margin, (3) return on assets, and (4) return on
equity.

Compare the resulting ratios of P and P Manufacturing Company for 2018 (per your computation) with
its competitors in the table given below.

Financial Ratios for 2018 P & P MFG. Co Competitor B Competitor C

Current Ratio 9.31:1 6:1 4.5:1
Quick Ratio 6.9:1 4.25:1 3.625:1
Receivable Turnover 18.9 times 20 times 7 times
Inventory Turnover 7.8 times 8.6 times 5.3 times
Debt Ratio 0.15:1 0.2:1 0.075:1
Debt-Equity Ratio 0.17:1 1.75:1 0.825:1
Times Interest earned Ratio 3.4 times 4.5 times 2.6 times
Gross Profit Margin Ratio 49.4 % 51.2% 38.5 %
Net Profit Margin Ratio 17.6 % 22.5% 14.5%
Return on Assets 26.9% 24% 16%
Return on Equity 31.5% 22% 12%
Conduct a trend analysis (horizontal) for the company over the current and last two years based on
comparative SFP and SCI

Aside from horizontal analysis, conduct also a vertical analysis (common –size financial statements).
Comment on the components of the financial statements by year and its trend for the last three years.
Compare the results for the company with its competitors.

The financial data of the P and P Manufacturing Company are given below.

P and P Manufacturing Company

Comparative Statements of Financial Position
As of 31 December 2018, 2017, and 2016

Account 2018 2017 2016

Cash P581,970.00 P290,000.00 P215,000.00
Accounts Receivable 686,725.00 340,000.00 130,000.00
Inventories 450,470.00 270,000.00 .00
Land 225,000.00 225,000.00 350,000.00
Buildings, Net 845,000.00 895,000.00 945,000.00
Equipment, Net 854,500.00 825,000.00 290,000.00
Total Assets P 3,643,665.00 P 2,845,000.00 P1,930,000.00
Accounts Payable P 184,620.00 P165,000.00 P200,000.00
Long-Term Debt 350,000.00 550,000.00 750,000.00
Capital Stock 3,109, 045.00 2,130,000.00 980,000.00
Total liabilities and 3,643,665.00 2,845,000.00 1,930,000.00
shareholders’ equity
 P and P Manufacturing Company
Comparative Statements of Comprehensive Income
As of 31 December 2018, 2017, and 2016
Account 2018 2017 2016
Sales P 5,562,500.00 P4,450,000.00 P3,337,500.00
Cost of sales (2,811,800.00) (2,325,000.00) (1,802,500.00)
Gross Profit 2,750,700.00 2,125,000.00 1,535,000.00
Selling and (1,368,375.00) (1,115,000.00) (867,750.00)
administrative
Expenses
Net profit before 1,382,325.00 1,010,000.00 667,250.00
interest
Interest expense (403,280.00) (385,0000 (211,000.00)
Net Profit P979,045.00 P625,000.00 P456,250.00

Your work will be graded using the following rubric.

ASSESSMENT RUBRIC

CRITERIA 4 3 2 1 SCORE
Accuracy of Output is Output is Output is Output is
Financial Ratios 97-100% 93-96% 85-92% Less than 85%
and Vertical and accurate accurate accurate accurate
Horizontal
Analysis
comprehensibility Introduction Introduction Introduction Introduction
of the of the of the of the
company, its company its company its company, its
profile, profile, profile, profile,
description of description of description of description of
financial financial financial financial
position, and position, and position, and position, and
performance performance performance performance
(profitability) (profitability) (Profitability) (profitability)
effectively are generally have some are not
explain the well crafted significant appropriate
current status but there are deficiencies. and the
of the some slight description is
company. deficiencies. seriously
Explanation is deficient.
easy to
understand.
Depth of Financial Financial Financial Financial
Financial Analysis Analysis is analysis is analysis has analysis is
very fairly some clear limited;
significant, significant. points. hence, it
highlighting needs further
the strengths clarification.
and
weaknesses of
the company.
It shows the
areas to
improve on.
1. Mr. Dy owned and operated Mr. Teen Clothing Line. He provided you with the comparative
condensed SCI for your analysis. He wants you to enlighten him why his net profit declined.
ACCOUNT 2017 2018
Sales P680,000.00 P570,000.00
Cost of sales 170,000.00 200,000.00
Gross Margin P510,000.00 P370,000.00
Operating Expenses 210,000.00 100,000.00
Net profit P300,000.00 P270,000.00

1. Using horizontal analysis, calculate the peso change and the percentage change.
2. Using vertical analysis, prepare the comparative common size SCI
3. Evaluate the results of your analysis and explain to the owner why the net profit declined.

1. Mr. Dy owned and operated Mr. Teen Clothing Line. He provided you with the comparative
condensed SCI for your analysis. He wants you to enlighten him why his net profit declined.
ACCOUNT 2017 2018
Sales P680,000.00 P570,000.00
Cost of sales 170,000.00 200,000.00
Gross Margin P510,000.00 P370,000.00
Operating Expenses 210,000.00 100,000.00
Net profit P300,000.00 P270,000.00

1. using horizontal analysis, calculate the peso change and the percentage change.

2. Using vertical analysis, prepare the comparative common size SCI

3. Evaluate the results of your analysis and explain to the owner why the net profit declined.

1. Mr. Dy owned and operated Mr. Teen Clothing Line. He provided you with the comparative
condensed SCI for your analysis. He wants you to enlighten him why his net profit declined.
ACCOUNT 2017 2018
Sales P680,000.00 P570,000.00
Cost of sales 170,000.00 200,000.00
Gross Margin P510,000.00 P370,000.00
Operating Expenses 210,000.00 100,000.00
Net profit P300,000.00 P270,000.00

2. Using horizontal analysis, calculate the peso change and the percentage change.
3. Using vertical analysis, prepare the comparative common size SCI
4. Evaluate the results of your analysis and explain to the owner why the net profit declined.
The Comparative Financial data of two companies are shown below.

Account Lyn Trading Miel Trading

Cash P90,000.00 P181,440.00
Notes Receivable 54,000.00 108,000.00
Accounts Receivable (Net) 288,000.00 540,000.00
Inventories 600,000.00 1,423,560.00
Prepaid Expenses 12,000.00 15,000.00
Furniture and Equipment (net) 80,000.00 200,000.00
Accounts payable 252,000.00 720,000.00
Accrued Expenses 20,000.00 104,000.00
Unearned Income 16,000.00 40,000.00
Long-term Notes Payable 150,000.00 -
Based on the information above, determine which of the two companies more short-term solvent is by
finding the following financial ratios measurements:
1. Net working capital
2. Current ratio
3. Quick ratio

The Comparative Financial data of two companies are shown below.

Account Lyn Trading Miel Trading

Cash P90,000.00 P181,440.00
Notes Receivable 54,000.00 108,000.00
Accounts Receivable (Net) 288,000.00 540,000.00
Inventories 600,000.00 1,423,560.00
Prepaid Expenses 12,000.00 15,000.00
Furniture and Equipment (net) 80,000.00 200,000.00
Accounts payable 252,000.00 720,000.00
Accrued Expenses 20,000.00 104,000.00
Unearned Income 16,000.00 40,000.00
Long-term Notes Payable 150,000.00 -
Based on the information above, determine which of the two companies more short-term solvent is by
finding the following financial ratios measurements:
1. Net working capital
2. Current ratio
3. Quick ratio

The Comparative Financial data of two companies are shown below.

Account Lyn Trading Miel Trading

Cash P90,000.00 P181,440.00
Notes Receivable 54,000.00 108,000.00
Accounts Receivable (Net) 288,000.00 540,000.00
Inventories 600,000.00 1,423,560.00
Prepaid Expenses 12,000.00 15,000.00
Furniture and Equipment (net) 80,000.00 200,000.00
Accounts payable 252,000.00 720,000.00
Accrued Expenses 20,000.00 104,000.00
Unearned Income 16,000.00 40,000.00
Long-term Notes Payable 150,000.00 -
Based on the information above, determine which of the two companies more short-term solvent is by
finding the following financial ratios measurements:
1. Net working capital
2. Current ratio
3. Quick ratio