FINANCIAL STATEMENTS ANALYSIS AND INTERPRETATION

FINANCIAL RATIOS ANALYSIS

Type of Ratio Formula Type of Ratio Formula

Liquidity Leverage/Solvency
Cash and Equivalent Total Liab
Cash Ratio (CaR) CaR = Debt Ratio (%) (DR) DR =
Current Liabilities Total Asset

Current Asset Total Liab

Current Ratio (CuR) CuR = Debt to Equity Ratio (DER) DER =
Current Liabilties Total Equity

Current Asset − Inventory Interest Coverage Ratio Earnings before Int exp & Tax
Quick Ratio (QR) QR = ICR =
Current Liabilities (ICR) Int Exp

Working Capital (WC) WC = Cur Asset − Cur Liabilities

Profitability (%) Efficiency

Gross Profit Margin (GPM) Gross Profit Account Receivables Net Sales
GPM = ARTO =
*less COGS Net Sales Turnover Ratio (ARTO) Average AR

Operating Profit Margin (OPM) Operating Profit Average Collection Period 360 𝑑𝑎𝑦𝑠
OPM = ACP =
*less COGS and OpEx Net Sales (ACP) ARTO

Net Profit Margin (NPM) Net Profit after Tax Total Asset Turnover Ratio Net Sales
NPM = TATO =
*less COGS, OpEx and Tax Net Sales (TATO) Average Total Asset

Net Profit after Tax Fixed Asset Turnover Ratio Net Sales
Return on Asset (ROA) ROA = FATO =
Average Total Asset (FATO) Average Fixed Asset or PPE

Net Profit after Tax Inventory Turnover Ratio COGS

Return on Equity (ROE) ROE = ITO =
Average Total Equity (ITO) Average Inventory
NOTES: Average Age of Inventory 360 𝑑𝑎𝑦𝑠
AAI =
(AAI) ITO
Net Sales = Sales Rev - Sales Discounts and Sales Returns
Accounts Payable Turnover COGS
APTO =
Ratio (APTO) Average AP
Average Age of Payable 360
AAP =
(AAP) APTO

Operating Cycle (OC) OC = ACP + AAI

Cash Conversion Cycle

CCC = OC − AAP
(CCC)

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 EXAMPLE 1

Q1 Q2 Q3 Q4
Asset
Cash 1000 1500 2000 2500
A/R 1000 500 1000 500
Inventories 1000 1000 1000 1000
Liabilities
A/P 1000 900 800 700
N/P 5000 4500 4000 3500

Q1 Q2 Q3 Q4

Cash Ratio 1 1.67 2.5 3.57

Cash and Equivalent
CaR =
Current Liabilities

Current Ratio 3 3.33 5 5.71

Current Asset
CuR =
Current Liabilties

Quick Ratio 4 2.22 3.75 4.29

Current Asset − Inventory
QR =
Current Liabilities

Working Capital 2,000 3,100 3,200 3,300

WC = Cur Asset − Cur Liabilities

NOTES:

Current Asset includes: Cash, cash equivalents, A/R, Prepaid Expenses and Inventories
Non-current Asset includes: Land, PPE, fixed asset, intangible asset
Current Liability includes: A/P, short-term debt, N/P (If due within next 12 months)
Non-current Liability includes: N/P, long-term debt

QUARTER 2 ANALYSIS OF FINANCIAL RATIOS

Cash Ratio For every one peso of current liability, the company has 1.67
pesos of cash.

Current Ratio For every one peso of current liability, the company has 3.33
pesos of current assets.

Quick Ratio For every one peso of current liability, the company has 2.22
pesos of quick assets.

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 EXAMPLE 2

JFC Petron Globe JFC Petron Globe

ASSETS LIABILITIES
Current Assets Current Liabilities
Cash 7,619 90,602 16,757 Accounts Payable 2,455 29,496 12,458
Receivables 7,621 17,927 23,543 Income Tax Payable 182 73 1,587
Inventories 5,972 53,180 3,186 Short-term debt 1,865 133,388 0
Other current assets 2,810 57,320 3,256 Other current liabilities 14,589 39,630 46,305
24,022 219,029 46,742 19,091 202,587 60,350
Non-current Assets Non-current Liabilities
Property, plant and equipment 13,364 153,650 117,299 Long-term debt 4,428 66,269 59,146
Financial Investments 3,410 1,613 451 Other Liabilities 2,522 8,776 5,473
Other non-current assets 13,323 17,032 15,015 6,950 75,045 64,619
30,097 172,295 132,765 TOTAL LIABILITIES 26,041 277,632 124,969
TOTAL ASSETS 54,119 391,324 179,507
JFC Petron Globe
EQUITY
Capital Stock 1,064 9,485 8,429
Additional Paid-in Capital 4,452 19,653 36,049
Retained Earnings 22,646 40,815 10,852
Other Equity Accounts -84 43,739 -792
TOTAL EQUITY 28,078 113,692 54,538
TOTAL LIABILITIES AND EQUITY 54,119 391,324 179,507

JFC Petron Globe

Sales Revenue 90,671 482,535 103,235
Cost of Sales/Service -73,728 -463,100 -10,661
Gross Margin 16,943 19,435 92,574
Operating Expense -10,806 -11,830 -59,506
Operating Profit 6,137 7,605 33,068
Other Income 748 1,736 1,255
Other Expenses -126 -5,528 -14,940
Net Income before Tax 6,759 3,813 19,383
Income Tax -1,271 -804 -6,011
Net Income after Tax 5,488 3,009 13,372

JFC Petron Globe

TOTAL ASSETS 54,119 391,324 179,507
TOTAL LIABILITIES 26,041 277,632 124,969
TOTAL EQUITY 28,078 113,692 54,538

GPM, OPM AND NPM

JFC Petron Globe
GPM (%) 16,943 19,435 92,574
GPM = 𝑥 100% GPM = 𝑥 100% GPM = 𝑥 100%
Gross Profit 90,671 482,535 103,235
GPM =
Net Sales
GPM = 0.18686 ≈ 0.19 / 18.69% GPM = 0.04027 ≈ 0.4 / 4.03% GPM = 0.89673 ≈ 0.90 / 89.67%

OPM (%) 6,137 7,605 33,068

OPM = 𝑥 100% OPM = 𝑥 100% OPM = 𝑥 100%
Operating Profit 90,671 482,535 103,235
OPM =
Net Sales
OPM = 0.06768 ≈ 0.07 / 6.77% OPM = 0.01576 ≈ 0.02 / 1.58% OPM = 0.32031 ≈ 0.32 / 32.03%

NPM (%) 5,488 3,009 13,372

NPM = 𝑥 100% NPM = 𝑥 100% NPM = 𝑥 100%
Net Profit after Tax 90,671 482,535 103,235
NPM =
Net Sales
NPM = 0.06052 ≈ 0.06 / 6.05% NPM = 0.00623 ≈ 0.01 / 0.62% NPM = 0.12952 ≈ 0.13 / 12.95%

ANALYSIS OF JFC’s GPM, OPM AND NPM

GPM For every one peso of sales, JPC has 0.19 cents in gross profit.

OPM For every one peso of sales that the company generated, the company earns 0.07 cents after
deducting cost of sales/service and operating expenses.
NPM Out of 100% sales, 6.05% is the earnings of JFC.

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 ROA AND ROE
JFC Petron Globe
ROA (%) 5,488 3,009 13,372
ROA = 𝑥 100% ROA = 𝑥 100% ROA = 𝑥 100%
Net Profit after Tax 54,119 391,324 179,507
ROA =
Average Total Asset
ROA = 0.10140 = 10.14% ROA = 0.00768 = 0.77% ROA = 0.07449 = 7.45%

ROE (%) 5,488 3,009 13,372

ROE = 𝑥 100% ROE = 𝑥 100% ROE = 𝑥 100%
Net Profit after Tax 28,078 113,692 54,538
ROE =
Average Total Equity
ROE = 0.19545 = 19.55% ROE = 0.02646 = 2.65% ROE = 0.24518 = 24.52%

ANALYSIS OF JFC’s ROA AND ROE

ROA JFC generates 10 cents for every one peso of asset.

ROE JFC earns 19 cents for every one peso of equity.

DR, DER AND ICR

JFC Petron Globe
DR (%) 26,041 277,632 124,969
DR = 𝑥 100% DR = 𝑥 100% DR = 𝑥 100%
Total Liab 54,119 391,324 179,507
DR =
Total Asset
DR = 0.48118 = 48.12% DR = 0.70946 = 70.95% DR = 0.69617 = 69.62%
(good value) (bad value) (bad value)
DER 26,041 277,632 124,969
DER = DER = DER =
Total Liab 28,078 113,692 54,538
DER =
Total Equity
DER = 0.93 (good value) DER = 2.44 (bad value) DER = 2.29 (bad value)

ICR 6,137 + 748 7,065 + 1736 33,068 + 1,255

Earnings before Int exp & Tax ICR = ICR = ICR =
ICR = 126 5,528 14,940
Int Exp
ICR = 54.64x (good value) ICR = 1.69x (bad value) ICR = 2.30x (bad) value

ANALYSIS OF JFC’s DR, DER AND ICR

DR 48.12% of the assets of JFC is financed by debt.

DER For every one peso of equity, JFC has 93 cents of debt.
ICR JFC makes 54.64 times more earnings than their current interest payment.

ARTO AND ACP

JFC Petron Globe
ARTO 90,671 482,535 103,235
ARTO = ARTO = ARTO =
Net Sales 7,621 17,927 23,543
ARTO =
Average AR
ARTO = 11.90x ARTO = 26.92x ARTO = 4.38x

ACP 360 360 360

ACP = ACP = ACP =
360 𝑑𝑎𝑦𝑠 11.90 26.92 4.38
ACP =
ARTO
ACP = 30.25 days ACP = 13.37 days ACP = 82.19 days

ANALYSIS OF JFC’s ARTO AND ACP

ARTO JFC was able to convert its A/R 11.9 times on that particular year.

ACP It took 30.25 days for JFC to convert A/R into cash.
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 TATO AND FATO
JFC Petron Globe
TATO 90,671 482,535 103,235
TATO = TATO = TATO =
Net Sales 54,119 391,324 179,507
TATO =
Average Total Asset
TATO = 1.68 TATO = 1.23 TATO = 0.58

FATO 90,671 482,535 103,235

FATO = FATO = FATO =
Net Sales 13,364 153,650 117,299
FATO =
Ave Fixed Asset or PPE
FATO = 6.78 FATO = 3.14 FATO = 0.88

ANALYSIS OF JFC’s TATO AND FATO

TATO For every one peso of asset, JFC generates 1.68 pesos of sales

FATO For every one peso of fixed asset, JFC generates 6.78 pesos of sales

ITO AND AAI

JFC Petron Globe
ITO 73,728 463,100 10,661
ITO = ITO = ITO =
COGS 5,972 53,180 3,186
ITO =
Average Inventory
ITO = 12.35x ITO = 8.71x ITO = 3.35x

AAI 360 360 360

AAI = AAI = AAI =
360 𝑑𝑎𝑦𝑠 12.35 8.71 3.35
AAI =
ITO
AAI = 29.15 days AAI = 41.33 days AAI = 107.46 days

ANALYSIS OF JFC’s ITO AND AAI

ITO JFC was able to convert its inventory into cash 12.35 times on that particular year.

AAI It took 29.15 days for JFC to convert inventory into cash.

APTO AND AAP

JFC Petron Globe
APTO 73,728 463,100 10,661
APTO = APTO = APTO =
COGS 2,455 29,496 12,458
APTO =
Average AP
APTO = 30.03x APTO = 15.70x APTO = 0.86x

AAP 360 360 360

AAP = AAP = AAP =
360 𝑑𝑎𝑦𝑠 30.03 15.7 0.86
AAP =
APTO
AAP = 11.99 days AAP = 22.93 days AAP = 418.60 days

ANALYSIS OF JFC’s APTO AND AAP

APTO JFC was able to pay its AP 30.03 times.

AAP It took JFC almost 12 days to pay its AP.

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 OC AND CCC
JFC Petron Globe
OC OC = 30.25 + 29.15 OC = 13.37 + 41.33 OC = 82.19 + 107.46
OC = ACP + AAI OC = 59.4 days OC = 54.7 days OC = 189.65 days

CCC CCC = 59.4 – 11.99 CCC = 54.7 – 22.93 CCC = 189.65 – 418.60
CCC = OC − AAP CCC = 47.41 days CCC = 31.77 days CCC = -228.95 days

ANALYSIS OF JFC’s OC

OC In JFC, cash is tied up with AR and inventories for 59.4 days.

NOTES:

LIQUIDITY RATIOS – good value > 1; *The higher the value, the better.

PROFITABILITY RATIOS – good ratio = high value

LEVERAGE/SOLVENCY
o Higher liability = higher risk
o Higher liability = higher leverage ratio

Debt Ratio - value should be less than 50% to be able to meet long term obligations; good ratio is < 50%
Debt to Equity Ratio – good ratio = value is less than 1, low value
Interest Coverage Ratio – good ratio = higher value

EFFICIENCY RATIOS
AR Turnover Ratio – good value = low value
Inventory Turnover Ratio – good value = low value
AP Turnover Ratio – good value = high value
Operating Cycle – good value = low value
Cash Conversion Cycle – inversely related to OC; negative value = more efficient; good value = low value

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