Republic of the Philippines

MINDANAO STATE UNIVERSITY Senior High

School
Marawi City

ACCOUNTING, BUSINESS AND MANAGEMENT STRAND

MY PORTFOLIO

A partial requirement for

BUSINES FINANCE

Submitted to:

Prof. ANNA MITOS J. DIZON, MM Ms. DEISY R. LLANTO, LPT

Submitted by:

HAKIMA L. MARUHOM ABM 12-2

FEBRUARY 2021
A Portfolio for Submission as Partial Requirement of BUSINESS FINANCE

A. Highlights: Statement of Cash Flows

The statement of cash flows is one of the three major financial statements prepared by

organization. It explains how cash was generated and how it was used during a period.

The statement of cash flows is widely used as a tool for assessing the financial health of

organizations.

In general, sources of cash include net income, decreases in assets, increases in

liabilities, and increases in stockholders’ capital accounts. Uses of cash include increases

in assets, decreases in liabilities, decreases in stockholders’ capital accounts, and

dividends. A simplified form of the statement of cash flows can be easily constructed

using just these definitions and a comparative balance sheet.

For external reporting purposes, the statement of cash flows must be organized in

terms of operating, investing, and financing activities. While some exceptions exist,

changes in noncurrent assets are generally included in investing activities and changes in

noncurrent liabilities are generally included in financing activities. And, with a few

exceptions, operating activities include net income and changes to current assets and

current liabilities.

An analyst should pay particularly close attention to the net cash provided by operating

activities, since this provides a measure of how successful the company is in generating

cash on a continuing basis.

The Problem for Analysis

YURI Company’s comparative balance sheet for 2015 and the company’s income
statement for the year follow:

YURI COMPANY Comparative Balance Sheet December 31, 2015 and 2014 (In millions
of pesos)

Assets 2015 2014

Cash P 26 P 10
Accounts receivable 180 270
Inventory 205 160
Prepaid expenses 17 20
Plant and equipment 430 309
Less: Accumulated depreciation (218) (194)
Long-term investments 60 75
Total assets P 700 P 650

Liabilities and Stockholders’ Equity

Accounts payable P 230 P 310
Accrued liabilities 70 60
Bonds payable 135 40
Deferred income taxes 15 8
Common stock 140 140
Retained earnings 110 92
Total liabilities and stockholders’ equity P 700 P 650
 YURI COMPANY Income Statement For the Ye ar Ended December 31, 2015 (in
millions of pesos)

Sales P 1,000
Less: cost of goods sold 530
Gross margin 470
Less: operating expenses 352
Net operating income 118
Non-operating items:
Loss on sale of equipment (4)
Income before taxes 114
Less: income taxes 48
Net income P 66

Notes: Dividends of P 48 million were paid in 2015. The loss on sale of equipment of P4
million reflects a transaction in which equipment with an original cost of P 12 million
and accumulated depreciation of P 5 million was sold for P 3 million in cash.

YURI COM PANY

Statement of Cash F lows Worksheet
 For the Year Ended December 31, 2015
(in millions of pesos)

(1) (2) (3) (4) (5) (6)

Cash Adjusted
Change Source Flow Adjustments Effect Classification
or Use? Effect (3) + (4 )
Assets(Except cash and
cash equivalents)
Current Assets:
Accounts receivable -90 source +90 +90 Operating
Inventory +45 use -45 -45 Operating
Prepaid expenses -3 source +3 +3 Operating
Non-current Assets:
Property, buildings, +121 use -121 -12 -133 Investing
and equipment
Long-term investments -15 source +15 +15 Financing
Contra assets, liabilities
and stockholders’ equity
Contra assets:
Accumulated +24 Source +24 +5 +29 Operating
Depreciation
Current Liabilities:
Accounts payable -80 Use -80 -80 Operating
Accrued liabilities +10 Source +10 +10 Operating
Non-current liabilities:
Bonds payable +95 Source +95 +95 Operating
Deferred income taxes +7 Source +7 +7 Operating
Stockholders’ equity
Common stock 0 0 0
Retained earnings +18 Source
Net income +66 Source +66 +66 Operating
Dividends +48 Use -48 -48 Financing
Additional entries:
Proceeds from sale of +3 Source +3 +3 Investing
equipment
Loss on sale of equipment -4 Use +4 +4 Investing
Total (net cash flow) P +16 P0 P +16

YURI COMPANY
Statement of Cash Flows-Indirect Method
For the Year Ended December 31, 2015
(In millions of pesos)

Operating Activities:
Net Income P 66
Adjustments:
Accounts Receivable 90
Inventory -45
Prepaid Expense 3
Accumulated Depreciation 29
Accounts Payable -80
Accrued Liabilities 10
Bonds Payable 95
Deferred Income Taxes 7
Net used by Operating Activities: P175
Investing Activities:
Property, Buildings and Equipment P -133
Proceeds from sale of Equipment 3
Loss on sale of Equipment 4
Net Provided by Investing Activities: P -126
Financing activities:
Long-term Investments P 15
Dividends -48
Net used by Financing Activities: P -33
Cash and cash equivalents at end of year P 16
B. Highlights: Financial Statements of Analysis

The data contained in financial statements represent a quantitative summary of a

company’s operations and activities. Someone who is skillful at analyzing these

statements can learn much about a company’s strengths, weaknesses, emerging

problems, operating efficiency, profitability, and so forth.

Many techniques are available to analyze financial statements and to assess the

directions and importance of trends and changes. In this 2 modules, the following

topics are covered: peso and percentage changes in statements, common-size

statements, and ratio analysis

Summary of Ratios and Sources of Comparative Ratio Data for basis of your
interpretation.
Ratio Formula Significance
Gross margin percentage Gross margin ÷ Sale A broad measure of
= 470 ÷ 1,000 = 0.47 profitability.
Earnings per share (EPS) of Net income – Preferred Tends to have an effect on
common stock dividends) ÷ Average the market price per share
number of common as reflected in the price-
shares earnings ratio.
outstanding 66 –
0 ÷ 140 = 0.47
Price-earnings ratio Market price per share ÷ An index of whether a stock
Earnings per share is relatively cheap or
66 – 0 ÷ 140+ 140/2 relatively expensive in
= 66 ÷ 140 = 0.43 relation to current earnings.

Dividend payout ratio Dividends per share ÷ Earnings per share

Earnings per share An index showing whether
140 + 140/2 ÷ 66 – 0/ 140 + a company pays out most
140/2 of its earnings internally.
4140 ÷ 0.47 = 2.97
Dividend yield ratio Dividends per share ÷ Shows the return in terms
Market price per share 46 of cash dividends being
÷ 66 = 0.72 provided by a stock.
Return on total assets {Net income + [Interest Measure of how well assets
 expense x (1 – Tax rate)]} ÷ have been employed by
Average total assets management.
66 + 352 x (1-0.42) ÷ 675
= 66 + 352 x 0.58) ÷ 675

= 66 + 2.04 ÷ 675 = 0.1

Return on common (Net income - Preferred When compared to the

stockholders’ equity dividends) ÷ (Average return on total assets,
common stockholders’ measures the extent to
equity – Average preferred which financial leverage is
stock) working for or against
66 – 0 ÷ 241 - 0 common stockholders.
66 – 0 ÷ 241 = 0.27
Book value per share Common stockholders’ Measures the amount that
equity ÷ Number of would be distributed to
common shares common stockholders if all
outstanding assets were sold at their
2015: 250 ÷ 140 = 1.78 balance sheet carrying
2014: 232 ÷ 140 = 1.65 amounts and if all creditors
were paid off.
Working capital Current assets – Current Measures the company’s
liabilities ability to repay current
liabilities using only current
= 402 – 300 = 102 assets
Current ratio Current assets ÷ Current Test of short-term debt
liabilities paying ability
= 402 ÷ 300 = 1.34
Acid-test (quick) ratio (Cash + Marketable Test of short-term debt-
securities + Current paying ability without
receivables) ÷ Current having to rely on inventory
liabilities
= 206 ÷ 300 = 0.69
Accounts receivable Sales on account ÷ Average A rough measure of how
turnover accounts receivable many times a company’s
accounts receivable have
been turned into cash
= 1,000 ÷ 225 = 4.45 during the year
Average collection period 365 days ÷ Accounts Measure of the average
(or age of receivables) receivable turnover number of days taken to
collect an account
= 365 ÷ 4.45 = 82.02 receivable
Inventory turnover ratio Cost of goods sold ÷ Measure of how many
Average inventory times a company’s
inventory has been sold
= 530 ÷ 183 = 2.90 during the year
Average sale period ( or 365 days ÷ Inventory Measure of the average
turnover in days) turnover number of days taken to
= 365 ÷ 2.90 = 125.86 sell the inventory one time
Times interest earned Earnings before interest Measure of the company’s
expense and income ability to make interest
taxes ÷ Interest expense payments
= 114 ÷ 352 = 0.32

Debt-to-equity ratio Total liabilities ÷ Measure of the amount of

Stockholders’ equity assets being provided by
creditors for each peso of
assets being provided by
= 450 ÷ 250 = 1.8 the stockholders
The Problem for Analysis

Mark & Zekiel Drinks Company is a retailer of specialty drinks in the Philippines with
over 1,000 stores offering fresh drinks, bread and pastries and many more. Financial
data are presented below:
Mark & Zekiel Drinks Company Comparative Balance Sheet (In millions of pesos)

End of Beginning
Year of Year
Assets
Current assets
Cash P 113 P 71
Marketable securities 107 61
Accounts receivable 90 76
Inventories 221 202
Other current assets 63 48
Total current assets 594 458
Property and equipment, net 1,136 931
Other assets 121 103
Total assets P 1,851 P 1,492

Liabilities and Stockholders’ Equity

Current liabilities
Accounts payable P 128 P 74
Short-term bank loans 62 56
 Accrued payables 245 174
Other current liabilities 10 8
Total current liabilities 445 312
Long-term liabilities 30 32
Total liabilities 475 344
Stockholders’ equity
Preferred stock 0 0
Common stock and additional paid-in capital 792 751
Retained earnings 584 397
Total stockholder’ equity 1,376 1,148
Total liabilities and stockholders’ equity P 1,851 P 1,492

Mark & Zekiel Drinks Company Income Statement (In millions of pesos)

Current Year
Sales P 2,678
Cost of goods sold 1,113
Gross margin 1,565
Operating expenses
Store operating expenses 875
Other operating expenses 93
Depreciation and amortization 164
General and administrative expenses 151
Total operating expenses 1,283
Net operating income 282
Less Investment losses 3
Plus Interest income 11
Less Interest expense 0
Net income before taxes 290
Less income taxes (about 37%) 108
Net income P 18
Required:
A. For the current year calculate the following:
1. Return on total assets
Return on Total Assets = Net income before taxes ÷ total assets

Return on Total Assets = 290 ÷ 1, 851

= 0.16

= 290 ÷ 1,492

= 0.19

2. Return on common stockholders’ equity

Return on common stockholder’s equity = Net Income ÷ Average Total Equity

Average Total Equity = 1,376 + 1,148 ÷ 2

= 2,524 ÷ 2 = 1,262

Return on common stockholder’s equity = 182 ÷ 1,262

= 0.14

3. Is Mark & Zekiel Drinks Company’s leverage positive or negative? Explain. Mark

& Zekeil Company’s leverage is Positive because the loan constant is greater

than the cap rate of the company.

Debt to equity = Total debt ÷ Total equity

End of Year = 475 ÷ 1,376 = 0.35

Beginning of Year = 344 ÷ 1,148 = 0.30

Cap rate = net operating income ÷ sale

= 282 ÷ 2,678 = 0.11

4. Current ratio

Current ratio = Current assets ÷ Current liabilities

End of Year = 594 ÷ 445 = 1.33

 Beginning of Year = 458 ÷ 312 = 1.47

5. Acid-test (quick) ratio

Quick ratio = Cash + Marketable Securities + Accounts Receivable ÷ Current

Liabilities

End of Year = 113 + 107 + 90 ÷ 445

= 310 ÷ 445

= 0.70

Beginning of Year = 71 + 61 + 76 ÷ 312

= 208 ÷ 312

= 0.67

6. Inventory turnover

Inventory Turnover = Cost of Sales ÷ Average Inventories

Average Inventories = 221 + 202 ÷ 2

= 423 ÷ 2

= 212

Inventory Turnover = 1,113 ÷ 212

= 5.25

7. Average sale period

Average sale on period = Accounts receivable ÷ Net sales

End of Year = 90 ÷ 2,678

= 0.03

Beginning of Year = 76 ÷ 2,678

 = 0.03

8. Debt–to-equity ratio

Debt to equity = Total debt ÷ Total equity

End of Year = 475 ÷ 1,376

= 0.35

Beginning of Year = 344 ÷ 1,148

= 0.30
1. INTRODUCTION

Hakima L. Maruhom endeavored to characterize the enclosed report for Mark &

Zekiel Drinks Company based on the financial data compiled from the beginning of the

year up until the end of the year.

This information is useful in determining the efficiency of a business strategy

with regards to its specific industry and effectively pinpoints the firm’s strengths and

weaknesses. It also enables the benchmarking of a firm’s performance over time-

allowing for the progress of the business to be charted, for a more accurate analysis of

the business’ performance, and gives way to a more informed decision making to be

made. The analysis is inclusive of two-year comparison reports, five-year trend analysis

reports, industry and group comparison reports, definitions, of categories, and ratio

formulas. The detailed ratio analysis reports include charts depicting several key ratios

that are available to incorporate into your client reports or to customize to fit your

client's specific needs.

The analyst recommends that each report be reviewed carefully with the aim to

fully understand the information presented and the objective of the study. It is also

advisable to keep in mind that the information presented is based on historical figures.

It is not a prediction of the future, rather a useful tool for monitoring the progress of a

business over time. This information could factor into the decision-making, but it should

certainly not be the only factor in business decisions. Be sure to consult all appropriate

resources and professionals before making any decisions that may affect the financial

health of your company.

2. LIQUIDITY RATIO

Liquidity Ratios serve as a standard to measure a company’s capability to fulfill

its short-term obligations. Aside from this, it also tells of a firm’s ability to pay off its

debt commitments. For businesses with an unsteady cash flow, liquidity ratios must

show favorable results as this implies that the company will be able to convert its assets

without losing its value within the time needed.

2.1. WORKING CAPITAL

The Working Capital measures a firm’s ability to covert its assets as needed

concerning the difference generated by its operating current assets and operating

current liabilities. In identifying the working capital you just have to find the difference

between Current Assets to Current Liabilities. It also refers to the firm’s operational

efficiency and current financial health.

Beginning of Year:

P 458 – P 312 = P 146-

End of Year
149.5
P 594 – P 445 = P 149 149
148.5
148
147.5
147
146.5
146
145.5
145
144.5
Beginning of End Of Year
Year

 The working capital of Mark & Zekeil Drink’s Company has increased by

P3.00 at the End of the year. This signifies that the company’s liquid
 resources were more created than the company’s liquid resources were

used during the year.

2.2. CURRENT RATIO

The current Ratio or the working capital ratio measures a firm’s ability to fulfill its

short-term debts within a given time frame (a year). Concerning its application, it

describes how well a firm can efficiently maximize its assets to stave off its payables.

Beginning of Year

P 458 ÷ P 312 = P 1.47

End of Year

P 594 ÷ P 445 = P 1.33

1.5

1.45

1.4

1.35

1.3

1.25

Beginning End of Year

of Year

 This means that for every peso of current liabilities of Mark & Zekeil Drink’s

Company has P 1.47 at the beginning of the year while it has P 1.33 at the end

the of the year signifying that, at the beginning of the year, it has the higher

ratios to pay the short-term debt obligations than at the end of the year. The
 company should monitor the amount of cash that has been used for activities

during the year.

2.3. QUICK RATIO

Quick Ratio or the Acid Test Ratio describes the ability of the firm to pay its current

liabilities utilizing its current assets. It is essentially the efficiency with which firms utilize

their near-cash assets. Its computed by adding the cash, marketable securities, and

accounts receivable and dividing its total to the current liabilities.

Beginning of Year = 71 + 61 + 76 ÷ 312

= 208 ÷ 312

= 0.67

End of Year = 113 + 107 + 90 ÷ 445

= 310 ÷ 445

= 0.70

0.71
0.7
0.69
0.68
0.67
0.66
0.65
0.64
Beginning of End of Year
Year

 The quick ratio of the company at the end of the year is higher than at the

beginning of the year. Also, the quick ratios of both year are both less than 1.0, it
 means that the company is dependent on its inventory to pay its short-term

obligations

3. ASSETS MANAGEMENT RATIO

Assets Management Ratios or turnover ratios indicate how efficient and effective

a company is in managing its assets to generate sales. It analyzes how a company

maximizes its resources or current assets to be turned into a business and generate

income. Furthermore, it also compares its assets as they turn into sales.

3.1. INVENTORY TURNOVER

Inventory Turnover measures how much the inventory is used or replaced within

the course of a given time (commonly a year). It is an assets management ratio that

indicates the number of sold and replaced inventory of the company during the year.

The costs of sales divide into average inventories to identify the inventory turnover.

Average Inventories = 221 + 202 ÷ 2

= 423 ÷ 2
80
70
= 212 60
50
Inventory Turnover = 1,113 ÷ 212 40
30
= 5.25 20
10
Inventory Turnover in days = 365 ÷ 5.25 0
Inventory Inventory
Turnover Turnover in
= 69.52 days

 The company has a very low inventory turnover this means that the company is

not making a marketing effort to increase its sales. It is a bad sign for the
 company because they are overstocking their products. The company should

increase the demand for their inventory and they must review their pricing

strategy and analyze what will happen to their overall sales if they increased or

decreased their price.

3.2. TOTAL ASSETS TURNOVER

Assets turnover, better known as total assets turnover, measures how efficient a

firm is in converting its assets into sales. Moreover, it determines the value of a firm’s

revenue with relation to its assets. It is commonly utilized to compare a business with

its competitors to determine which is making the most out of its assets in the quest to

scope out weakness.

Mark & Zekeil Drink’s Company:

Total assets turnover = Net Sales ÷ Average Total Asset

Average Total Assets = 1, 8511 + 1,492 ÷ 2

= 3,343 ÷ 2

= 1,672 1.62
1.6
1.58
Total assets turnover = 2,678 ÷ 1,672 1.56
1.54
= 1.60 1.52
1.5
1.48
Yuri Company:
1.46
1.44
Average Total assets = 700 + 650 1.42
Mark & ZekeilYuri Company
= 1,350 ÷ 2 Drink's
Company

= 675

Total assets turnover = 1,000 ÷ 675

 = 1.48

 In this problem, the analyst utilized figures from the Yuri Company to compare

with Mark & Zekeil Drink’s Company. From the two turnover ratios, Company

Mark & Zekeil Drink’s Company is more efficient using its assets to convert

income or revenue than the Yuri Company.

4. LONG-TERM DEBT PAYING ABILITY RATIO

The long-term Paying Ability Ratio, also known as Solvency Ratios, measures how

much cash or asset is available to meet the long-term obligations of the company. It is

utilized to measure the financial health of the business- the total assets financed by its

long-term debts.

4.1. COVERAGE RATIO

Coverage Ratio a metric that is used by the company to measures and

determines the ability of the company to pay its interest expense on outstanding debt.

It is calculated by dividing the earnings before interest and taxes by the company’s

interest expense during the year.

Coverage Ratio = earnings before income taxes ÷ Interest expense

= 290 ÷ 0

= undefined

 This signifies that the company can pay its interest expense. Also, the company

has a zero balance of interest expense.

5. PROFITABILITY

One of the financial analysis ratios that measure the ability of the company to

convert and generate more profit for the company in terms of revenues and expenses is

called profitability. It is likely involved with the company’s sales and the investments of

the shareholders of the company.

5.1. GROSS PROFIT MARGIN

Following sales, less cost of goods sold, the money left is used to describe the

financial health of a company. The profitability ratio indicates the profitability of the

company as a percentage of net sales after the cost of sales by Gross Profit Margin. It is

affected by both changing prices and purchasing costs and is calculated by dividing the

gross profit by the net sales.

Gross Profit Margin = 1,565 ÷ 2,678

= 0.58

 The company has a 58%. Of gross profit margin. This indicates that the company

can make a reasonable profit on sales, as long as it keeps overhead costs in

control.

5.2. OPERATING PROFIT MARGIN

The operating profit margin, including the expenses such as the selling expenses

and general administrative expenses (like wages and raw materials), signifies the

profitability as a percentage of net sales after both cost of sales and operating expenses.

It is calculated by dividing the company’s Operating Income by the company’s Net Sales.

Operating Profit Margin = 282 ÷ 2,678

 = 0.11

 The company’s operating profit margin is 11%. This means that the company has a

very low operating profit margin. This signifies that the company is not earning

enough money from the company’s operation to pay for all of the associated

costs involved in maintaining the company.

5.3. NET PROFIT MARGIN

The profitability ratio that indicates and measures the total sales of the company

as a percentage of net revenue hence expenses is called the net profit margin. It is

generated as a percentage of income and is calculated by dividing the company’s net

income by the company’s net sales.

Net Profit Margin = 182 ÷ 2,678

= 0.07

 The company’s net profit margin is 7%. This means that the company is not using

an effective cost structure or good pricing strategies. Their pricing strategies or

cost structure for their products is not effective and very poor. Therefore, this

results from inefficient and ineffective management.

5.4. RETURN ON EQUITY

Return on Equity this profitability ratio measures the efficiency of the company. It is

also the total company performance by dividing net income by the shareholder’s equity.

This performance is based on the higher return of equity ratio and is calculated by

dividing the net income by the average total equity.

Average Total Equity = 1,376 + 1,148 ÷ 2

= 2,524 ÷ 2
 = 1,262

Return on equity = 182 ÷ 1,262

= 0.14

 The company’s return on equity is 14%. This indicates that the company has a low

return on equity. This means that the company has weak profitability across

company comparisons.

6. MARKET VALUATION

The ratio utilized by a firm to evaluate and maximizes its common shares is done

through market valuation. It analyzes the stock trends to determine the price of an asset

within a given market. However, it would seem rather unuseful private companies

whose trades do not trade publicly

6.1. EARNINGS PER COMMON SHARES

Earnings per common share refer to the method used to measure the company’s

net income earned by each common share after paying any preferred dividends. It is the

allocation to each outstanding share of common stock and is calculated by finding the

difference between the net income and preferred dividends and divides it to the

weighted average of common shares. Earnings per common share = 182 – 0 ÷ 772

= 0.24.

 The Earnings per common share of Mark and Zekeil Drink’s Company is 24%. It

means that the company has a very low-profit growth. It indicates that the

company has low value because the company is losing money.

7. CONCLUSIONS

In conclusion, concerning the financial statements analyzed, the company is

capable of gaining a profit of P 182 million by the end of the accounting period.

Additionally, it can be surmised that the company will be able to fullfil a total of P475

million liabilities from the company’s assets which is a total of P 1,851 million. The

company has a high percentage of operating cost and it implies the profitability ratios of

the company.

Nevertheless, the Mark and Zekeil Drinks Company should cut costs to have a

positive operating margin and to attain its sustainability. Should the working capital also

improve, it will prove more feasible in attaining the company’s liquidity.

Based on the operating expenses of the company, they will predictively gain

higher operating expenses at the end of the year, so they must reduce them for the next

accounting period to generate a higher net profit.