02 Quiz 1 MA

BM1915
Name: PULIDO, Mark Andrei, ATENDIDO, Lex, LAMOSTE, Eldren DATE: 9/6/24 SCORE: _________
QUIZ
I. PROBLEM SOLVING
Answer the following items using the financial statements below. Encircle the letter of the correct
answer. Show your computations. (8 items x 5 points)
ABC Corporation
Comparative Statement of Financial Position
For the Years Ended 201B and 201A (in pesos)
201B 201A
Cash and Cash Equivalents 2,450 2,094
Receivables 1,813 1,611
Inventories 1,324 1,060
Prepaid Expenses 1,709 2,120
Total Current Assets 7,296 6885
Noncurrent Assets 18,500 15,737
Total Assets 25,796 22,622
Current Liabilities 7,230 8,467

Long-Term Liabilities 4,798 3,792
Common Stock 6,568 4,363
Retained Earnings 7,200 6,000
Total Liabilities and Equity 25,796 22,622
ABC Corporation
Income Statement
For the Year Ended 201B (in pesos)
201B
Sales 20,941
Less: Cost of Goods Sold 7,055
Gross Profit 13,886
Less: Operating expenses 7,065
Income from operations 6,821
Less: Interest expense 210
Income before taxes 6,611
Less: Income tax 2,563
Net Income 4,048
1. Which statement best describes ABC’s acid-test ratio for 201B?

a. Greater than 1 c. Less than 1
b. Equal to 1 d. None of the above
2. Inventory turnover (amount rounded)?
a. Six (6) times c. Eight (8) times
b. Seven (7) times d. Cannot be determined
3. Days’ sales in receivables (amounts rounded)?
a. 28 days c. 32 days
b. 30 days d. 34 days
4. Times-interest-earned ratio?
a. 54.7% c. 32 times
b. 19 times d. 34 times
02 Quiz 1 *Property of STI

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BM1915
5. The company has 2,500 shares of common stocks outstanding. What is the earnings-per-share?
a. 1.62 2.63
b. 1.75 d. 2.73
6. Current ratio?
a. 0.99 c. 1.05
b. 1.01 d. 1.09
7. Profit margin?
a. 19.33% c. 59.34%
b. 31.57% d. 66.31%
8. Debt ratio?
a. 46.62% c. 87.36%
b. 53.38% d. Cannot be determined
c.
Computation:
1.) Acid Test = CA – Inv – Prepayments/CL

7296 – 1324 – 1709 / 7230 = 4263 / 7230 = 0.59 / C
2.) Inventory Turnover = COGS/Avg. Inv

7055 / 1324 + 1060 / 2 = 7055 / 1192 = 5.92 or 6 times rounded / A
3.) Days sales in receivable = 365 days/Accounts receivable turnover

20941 / 1712 = 12.23 ART = 365 / 12.23 = 29.84 or 30 days rounded / B
4.) Times-interest-earned ratio = EBIT/Interest Expense

2094 – 7055 – 7065 / 210 = 6821 / 210 = 32.48 / C
5.) Earnings-per-share = NI avail to common stock/Weighted avg of number of stocks

4048/2500 = 1.62 / A
6.) Current Ratio = CA/CL

7296/7230 = 1.01 / B
7.) Profit Margin = NI/NS

4048/20941 = 0.1933 x 100 = 19.33% / A
8.) Debt Ratio = TL/TA

12028/25796 = 0.466 x 100 = 46.62% / A

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BM1915
II. ESSAY (2 items x 5 points)

Read and analyze the items. Write your answer on the space provided.
1. One of the limitations of financial statement analysis is that financial statements are based on
historical costs. What is the danger in focusing solely on the data found in the historical financial
statements?
By relying on solely the historical financial statements, it can provide a distorted view of a
company’s financial health. With the effects of inflation, obsolescence and the opportunity costs can lead
to an overstated profit margin and underestimated asset base.
Additionally, having historical costs may not accurately predict the future performance due to ever
changing market conditions, economic downturns or unexpected events.
To mitigate these risks, the analyst in the company often uses techniques like adjusted present value or
market-based valuations to supplement historical cost data and provide a more accurate assessment of
a company’s financial performance and position.
2. Describe a business that operates where you live and explain how knowing the working capital of
that company would be useful to the management of that company and to outside investors.
For the retail store near our house in Pasig City, sufficient working capital ensures a smooth day
to day operations, effective inventory management and timely debt repayment. A lack of working capital
can lead to cash flow shortages, stockouts and financial distress.
For outside investors, knowing the store’s working capital provides insights into its financial flexibility and
investment opportunities. A strong working capital position indicates the store’s ability to expand,
upgrade its operations, and withstand economic challenges. The investors can use working capital
analysis to assess the store’s risk profile and make informed decisions on investing.

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BM1915

Current Liabilities 7,230 8,467

1. Which statement best describes ABC’s acid-test ratio for 201B?

02 Quiz 1 *Property of STI

1.) Acid Test = CA – Inv – Prepayments/CL

2.) Inventory Turnover = COGS/Avg. Inv

3.) Days sales in receivable = 365 days/Accounts receivable turnover

4.) Times-interest-earned ratio = EBIT/Interest Expense

5.) Earnings-per-share = NI avail to common stock/Weighted avg of number of stocks

6.) Current Ratio = CA/CL

7.) Profit Margin = NI/NS

8.) Debt Ratio = TL/TA

02 Quiz 1 *Property of STI

II. ESSAY (2 items x 5 points)

02 Quiz 1 *Property of STI

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