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 the 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. Conduct a trend analysis (horizontal) for the company over the current and last two years based on Comparative SFP. Aside from the 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 the 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. Conduct a trend analysis (horizontal) for the company over the current and last two years based on Comparative SFP. Aside from the 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.

PERFORMANCE TASK
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 the
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.
P& P Mfg. Co.
9.31:1
6.9:1
18.9 times
7.8 times
0.15:1
0.17:1
3.4 times
Competitor C
4.5:1
3.625:1
7 times
5.3 times
0.075:1
0.825:1
2.6 times
38.5%
14.5%
Competitor B
6:1
Financial Ratios for 2018
Current Ratio
Quick ratio
Receivable Turnover
Inventory Turnover
Debt Ratio
Debt-equity Ratio
Times Interest Earned Ratio
Gross Profit Margin Ratio
Net Profit Margin Ratio
4.25:1
20 times
8.6 times
0.2:1
1.75:1
4.5 times
51.2%
22.5%
24%
22%
49.4%
17.6%
26.9%
31.5%
16%
12%
Return on Assets
Return on Equity
Conduct a trend analysis (horizontal) for the company over the current and last two years based on
Comparative SFP.
Aside from the 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.
P and P Manufacturing Company
Comparative Statements of Financial Position
As of 31 December 2018, 2017, and 2016
In Peso
2017
P290,000.00
340,000.00
270,000.00
225,000.00
895,000.00
825,000.00
P2,845,000.00
P165,000.00
550,000.00
2,130,000.00
P2,845,000.00
2016
P215,000.00
130,000.00
0.00
350,000.00
945,000.00
290,000.00
P1,930,000.00
P200,000.00
750,000.00
980,000.00
P1,930,000.00
Account
Cash
Accounts Receivable
Inventories
Land
Buildings, Net
Equipment, Net
Total Assets
Accounts Payable
Long-term Debt
Capital Stock
Liabilities
2018
P581, 970.00
686,725.00
450,470.00
225,000.00
845,000.00
854,500.00
P3,643,665.00
P184,620.00
350,000.00
3,109,045.00
P3,643,665.00
Total
Shareholders' Equity
and
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND MANAGEMENT 2
ni Dago 1 of 75

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