Review-Financial-StatSADASDASDASDADASADement-Preparation-Analysis-and-Interpretation.pptx

ASDASDASAASDADASDAS

1. Review of Financial Statement Preparation, Analysis, and Interpretation

2. ACTIVITY 1: KINDLY ANSWER THE FOLLOWING QUESTIONS: 1.Do you have tried buying from sari-sari stores on credit?

3. 2. What are the implications if you or your household don’t pay your obligations to your neighbour's sari-sari store?

4. 3. If a business does not pay its obligations on time, will it also have the same experiences like the household not paying its obligations? What could possibly happen to the business? Short-run? Long-run?

5. The four main categories of financial ratios: • Liquidity • Profitability • Efficiency • Leverage

6. Liquidity Liquidity refers to the company’s ability to satisfy its short-term obligations as they come due. Refer back to the household example to emphasize the meaning of liquidity.

7. Liquidity Ratio

8. Profitability Profitability refers to the company’s ability to generate earnings. It is one of the most important goals of businesses.

9. Types of Profitability Return on equity Return on assets Gross profit margin Operating profit margin Net profit margin

10. Return on equity measures the amount of net income earned in relation to stockholders’ equity. ROE (return on equity) = Net income ÷ Stockholders’ equity

11. Return on assets measures the ability of a company to generate income out of its resources/assets. ROA (return on asset) = Operating income ÷ Total assets

12. Gross profit margin shows how many pesos of gross profit is earned for every peso of sale. It provides information regarding the ability of a company to cover its manufacturing cost from its sales. Remember that gross profit is just sales less cost of goods or cost of services. Gross profit margin = Gross profit ÷ Sales

13. Operating profit margin shows how many pesos of operating profit is earned for every peso of sale. It measures the amount of income generated from the core business of a company. Operating profit margin =Operating income ÷ Sales

14. Net profit margin measures how much net profit a company generates for every peso of sales or revenues that it generates. Net profit margin = Net income ÷ Sales

15. Activity 2

16. Compute for the current ratio and the quick ratio.

17. Activity 3 Current assets is PHP2,000, current liabilities is PHP3,500. What is current ratio? Inventory is PHP150. Accounts payable is PHP450. Cash and accounts receivable total PHP800. What is the current ratio? Quick ratio?