Common Size and Comparative Statements.

The operating activities of FM Company for the year ended December

31, 2019 and 2018 are summarized below:
In thousands
2018 2019
Sales 440,000 480,000
Cost of good sold (242,000) (360,000)
Selling and general expenses (118,800) (96,000)
Interest Expense (30,800) (33,600)
Profit (Loss) before tax 48,400 (9,600)
Income Tax (refund) 19,360 (3,840)
Profit (Loss) 29,040 (3,760)

Required:
Prepare a Comparative Statement of Profit or Loss for 2019n and 2018.
Prepare a Common-size Statement of Profit or Loss in 2019 and 2018.

Trend ANALYSIS. MAR Corporation’s sales, current assets and current liabilities have been reported as follows over
the last five years (amounts in thousands)
2018 2017 2016 2015 2014
Sales 10,800 9600 9,200 8,640 8,000
Current Assets 2,626 2,1811 2,220 2,267 2,225
Current liabilities 475 450 350 325 250

Required:
Express all the sales, current assets, and current liabilities on trend index. Round your decimals up to 2 places.
Use 2014 as the base year.
Use 2018 as the base year.

Profitability Ratios. The following data were taken from the records of F Company and T Company (amounts in
thousands and balance sheet data are on average):

F Co. T Co.
Sales 80,000 10,000
Profit (loss) 3,050 640
Interest Expense 50 40
Total assets 12,000 2,000
Ordinary Shareholder’s Equity 6,000 500
Preference dividends Cumulative 200 200
No. OS outstanding 600 50
Tax Rate 40% 40%

Determine the following:

a. Return on Sales P/NS
b. Return on Investment (P+I net of tax)/Ave. TA
c. Return on Ordinary Equity (P-PD)/Ave. OSE
d. EPS (P-PD)/Ave. OSO

Growth Ratios. A. Consider the following data for the year ended December 31, 2018:

R Co. J Co. T Co.

EPS 50 200 100
Market Price per OS 150 500 300
Dividend per OS 40 120 60
Dividend per PS 10 20 40
Total SHE 10M 60M 470M
OS outstanding 1M 4M 5M
PS Outstanding 500,000 2M, cumulative 2M, cumulative
Preference Liquidation Value 1.3 per share 1.3 per share 4.10 per share
Dividends in arrears none. None. 2 yrs.

Calculate the ratios for R Co. and J Co.

a. Price-earnings ratio MPPS/EPS
b. Dividend Payout DPS/EPS
c. Dividend yield ratio DPS/MPPS
d. Book Value per PS PSE/PSO
e. Book Value per OS OSE/OSO
f. Market to book value per share MPPS/BVPS

B. Find the missing data.

A b c
P/O rate ? 40% 75%
P/E rate 8% ? 40%
Yield rate 12% 80% ?
Retention rate ? 60% 25%

Liquidity Ratios. You are asked by the Chief Financial Officer of Dan Corp. to analyze its liquidity position in 2018. You
have gathered the following data from the records of the company and industry published reports (in thousands).

Dan Corp. Industry Average

Ave. Cash 3,500 2,000
Ave. trade receivable 8,000 10,000
Ave. Inventory 6,500 7,000
Ave. trade payables 14,000 12,000
Net Credit Sales 200,000 150,000
Net Sales 250,000 210,000
Cost of Sales 130,000 112,000
Net Credit Purchases 140,000 96,000
Net Purchases 180,000 120,000
Daily cash operating expenses 30,000 42,000

The company uses a 360-day a year base. The credit terms offered to customers are 2/10, n/40. Suppliers give credit
terms of 3/20, n/40.

Required :
For Dan Corp and the industry, compute the following (days are rounded):

Formulas Dan Corp Industry Ave.

Rec. Turnover NCS/AR
Collection Period 360/RT
Inventory Turnover CGS/Ave. Inventory
Inventory days 360/IT
Payables Turnover NCP/ave. AP
Payment Period 360/PT
Operating Cycle CP+ID
Net Cash Cycle OC-PP
Net Working Capital CA-CL
Working Capital Turnover NS/ave. WC
Current Ratio CA/CL
Quick-asset ratio QA/CL
Defensive interval ratio QA/ Ave. Daily cash expenses
EFFECTS OF LEVERAGE ON ROE. You are in the process of organizing a new company to produce and sell a lady beauty
products. You feel that P5M would be enough to finance the new company’s operations. You are considering following
financing mix in raising the needed money for investment.

a. Straight Ordinary Equity:
b. Shareholders’ equity Mix:
c. Leverage and equity mix:
ALL THE P5M would be raised by issuance of Ordinary Shares.
P3.5M would be raised from issuance of ordinary shares and P1.5 M from the
The sale Of 100 par, 10%, Preference shares.
P3.0M would be raised from issuance of ordinary shares and P2.0M from
issuance of a 12% bonds payable.

You estimated that the operation would generate an earning of P2.0M each year before interest and taxes. The tax
rate is 40%. Determine the best financing mix that would maximize return on ordinary equity.

A b c
EBIT 2M 2M 2M
Interest
Profit before tax
Income taxes
Profit
Preferred Dividends
PAOS