D.

METHODS OF ANALYSIS:

1. The Valuation Method = it consists of a simple evaluation of the different

items appearing on the balance sheet without reference to proportions or relationships
except in the most casual manner.

• It is a means by which the asset items on the balance sheet are trimmed
down to figures that are regarded as reasonable and conservative and the credit
decision is based on the financial status of the subject revealed by the corrected
amounts*

Kinds of Valuation Method:

a) Vertical Analysis = this shows the percentage relationship of each item in

the statement.

b) Horizontal Analysis = it shows the percentage change or changes of the

same item and account in a comparative financial statement.

2. Ratio Analysis of Financial Statement = a method by which the true

financial position and operating efficiency of a business can be revealed.

Ratio = is the quotient showing the relationship existing between two pertinent and
relevant items on the financial statement.

Financial Ratio = is defined as a relationship between two quantities on a firm’s

financial statement which is derived by dividing one quantity by another.

CLASSES OF FINANCIAL RATIOS:

A) LIQUIDITY RATIOS:

1. Current Ratio = is the most direct relationship between the company’s

current resources and current obligations. This ratio measures the
margin of safety of the business against unforeseen events. They are
measures of the company’s capacity to meet its current obligations out
of its liquid assets. A high current ratio is an indication that the company
has enough current assets to pay its currently maturing obligations. A
low current ratio may indicate a lack of cash to pay off debt. Ideal
ratio is 2:1

Current Ratio = current assets

current liabilities

2. Acid Test or Quick Ratio = measures the firm’s capacity to cover its
short-term obligations using only its more liquid assets. Inventories are
excluded.
Ideal ratio is 1:1

Acid Test = Current Assets - Inventories

Current liabilities
 3. Inventory Turnover = this ratio is an indication of the velocity with
which merchandise moves through the business. Usually, the higher
the turnover, the better the performance of the company. An increase
in the size of inventory may indicate additional stocks required for an
expanding business or an accumulation of merchandise as a result of
falling sales. Ideal is 4-20 times.

Average Inventory = is one-half of the sum of the beginning and

ending inventories.

Inventory Turnover = Cost of Goods Sold

Average Inventory

Receivable Turnover = indicates the number of time average amount

of receivables is collected during the period & the efficiency in collection.

Receivable Turnover = Sales

A/R

4. Collection Period Ratio = this ratio relates to receivable to the sales

from which they arose. The collection period can be roughly compared
to the credit terms extended to members/consumers and are a rough
measure of the overall quality of the receivable and the effectiveness of
the credit policy. Ideal is 20-60 days.

Collection Period Ratio = 360 days

Sales/Accounts Receivable

5. Debt/Equity Ratio =this ratio indicates the debt capacity of a

company. It expresses the relationship between the capital contributed
by the creditors & that contributed by the owners. For every P 1.00
liability there is a corresponding P 1.00 equity to meet such obligation.
A low debt/equity ratio indicates that the company could borrow money
more easily. A high debt/equity ratio indicates that most of the risk in
the business is assumed by the creditors.

Debt/Equity Ratio = total liabilities

total equity

B) PROFITABILITY RATIOS:

1. Return on Investment = this measures how much net earnings before

taxes was derived from the owner’s investment in the company. If the
percentage of the net surplus is at least 10% of the members’ share
capital and liabilities, it means the business is doing well. It can recover
its investment within a shorter period. At least 10 %

Return on Investment = net surplus

Shareholders’ equity
 2. Return on Assets = this ratio measures the ability of the company’s
assets to generate income. A low rate of return on assets indicates poor
performance or poor use of the assets by management.

Return on Assets = net surplus

total assets

3. Operating Expenses to Sales =this ratio indicates the efficiency with

which human and non-human resources are being used in the
cooperative. The calculation of this ratio over time and among various
similar cooperatives will indicate the effect of volume upon the cost per
unit of merchandising products and services. Ideal 10-50%

Operating Expenses to Sales = operating expenses

------------------------- x 100
Sales

***
APPLICATION:

1. Apply the vertical analysis on the:

2. Apply the horizontal analysis using the comparative financial statement of the ABC
Coop Laboratory (for 2019 & 2020).

3. Determine the following ratios and interpret the result by using the financial statement
below:

***
FOR ASSIGNMENT

ABC COOPERATIVE LABORATORY

COMPARATIVE STATEMENT OF FINANCIAL OPERATION
For the Period Ended February 28, 2019 & 2020

2019 2020
Sales 1,542,077.30 1,085,272.00
Less: Cost of Sales
1,137,739.56 782,897.46
Mdse Inventory, Beg. 66,029.87 27,850.67
Add: Net Purchases 1,141,220.25 798,359.00
Total Goods Available for Sale 1,207,250.12 826,209.67
Less: Mdse. Inventory, End 69,510.56 43,312.21
Gross Savings from Sales 404,337.74 302,374.54
Add: Other Income 98,286.39 76,377.46
Total Operating Revenue 502,624.13 378,752.00
Less: Operating Expenses 294,285.34 203,571.71
NET SAVINGS FOR THE YEAR 208,338.79 175,180.29

ABC COOPERATIVE LABORATORY

COMPARATIVE STATEMENT OF FINANCIAL CONDITION
For the Period Ended February 28, 2019 & 2020

2019 2020
Cash in Bank 277,822.72 195,684.96
Petty Cash Fund 10,000.00 10,000.00
Accounts Receivable 95,011.72 83,320.55
Loans Receivable 31,080.00 27,080.00
Merchandise Inventory 69,510.56 38,795.78
Total Current Assets 483,425.00 354,881.29
Total Fixed Assets 243,004.09 242,550.29
TOTAL ASSETS 726,429.09 597,431.58
Total Current Liabilities 286,070.09 142,821.99
Share Capital 395,687.16 373,087.75
Total Reserves 44,671.84 81,521.84
TOTAL LIAB., ME. & RESERVES 726,429.09 597,431.58
Name: _________________________________ Score: _____________
Course & Year: __________________________ Date : _____________
************************************************************
ANSWER SHEET:

ABC COOPERATIVE LABORATORY

COMPARATIVE STATEMENT OF FINANCIAL OPERATION
For the Period Ended February 28, 2019 & 2020

[1] [2]
Vertical Analysis Horizontal Analysis
2019 2020 P Inc./Dec. % Inc./Dec.
Sales
Less: Cost of Sales
Mdse Inventory, Beg.
Add: Net Purchases
Total Goods Available for Sale
Less: Mdse. Inventory, End
Gross Savings from Sales
Add: Other Income
Total Operating Revenue
Less: Operating Expenses
NET SAVINGS FOR THE
YEAR

ABC COOPERATIVE LABORATORY

COMPARATIVE STATEMENT OF FINANCIAL CONDITION
For the Period Ended February 28, 2019 & 2020

[1] [2]
Vertical Analysis Horizontal Analysis
2019 2020 P Inc./Dec. %
Inc./Dec.
Cash in Bank
Petty Cash Fund
Accounts Receivable
Loans Receivable
Merchandise Inventory
Total Current Assets
Total Fixed Assets
TOTAL ASSETS
Total Current Liabilities
Share Capital
Total Reserves
TOTAL LIAB., ME. &
RESERVES
FOR ACTIVITY

ABC COOPERATIVE LABORATORY

COMPARATIVE STATEMENT OF FINANCIAL OPERATION
For the Period Ended February 28, 2020 & 2021

2020 2021
Sales 1,085,272.00 937,526.95
Less: Cost of Sales 782,897.46 732,643.19
Mdse Inventory, Beg. 27,850.67 33,075.85
Add: Net Purchases 798,359.00 731,948.44
Total Goods Available for Sale 826,209.67 765,024.29
Less: Mdse. Inventory, End 43,312.21 32,381.10
Gross Savings from Sales 302,374.54 204,883.76
Add: Other Income 76,377.46 111,450.63
Total Operating Revenue 378,752.00 316,334.39
Less: Operating Expenses 203,571.71 191,320.54
NET SAVINGS FOR THE 175,180.29 125,013.85
YEAR

ABC COOPERATIVE LABORATORY

COMPARATIVE STATEMENT OF FINANCIAL CONDITION
For the Period Ended February 28, 2020 & 2021

2020 2021
Cash in Bank 195,684.96 110,202.18
Petty Cash Fund 10,000.00 10,000.00
Accounts Receivable 83,320.55 112,148.89
Loans Receivable 27,080.00 89,680.00
Merchandise Inventory 38,795.78 32,381.10
Total Current Assets 354,881.29 354,412.17
Total Fixed Assets 242,550.29 320,523.08
TOTAL ASSETS 597,431.58 674,935.25
Total Current Liabilities 142,821.99 93,760.38
Share Capital 373,087.75 480,810.51
Total Reserves 81,521.84 100,364.36
TOTAL LIAB., ME. & RESERVES 597,431.58 674,935.25
Name: _________________________________ Score: ______________
Course & Year: __________________________ Date : ______________
***************************************************************
ANSWER SHEET:

ABC COOPERATIVE LABORATORY

COMPARATIVE STATEMENT OF FINANCIAL OPERATION
For the Period Ended February 28, 2019 & 2020

[1] [2]
Vertical Analysis Horizontal Analysis
2019 2020 P Inc./Dec. % Inc./Dec.
Sales
Less: Cost of Sales
Mdse Inventory, Beg.
Add: Net Purchases
Total Goods Available for Sale
Less: Mdse. Inventory, End
Gross Savings from Sales
Add: Other Income
Total Operating Revenue
Less: Operating Expenses
NET SAVINGS FOR THE
YEAR

ABC COOPERATIVE LABORATORY

COMPARATIVE STATEMENT OF FINANCIAL CONDITION
For the Period Ended February 28, 2019 & 2020

[1] [2]
Vertical Analysis Horizontal Analysis
2019 2020 P Inc./Dec. % Inc./Dec.
Cash in Bank
Petty Cash Fund
Accounts Receivable
Loans Receivable
Merchandise Inventory
Total Current Assets
Total Fixed Assets
TOTAL ASSETS
Total Current Liabilities
Share Capital
Total Reserves
TOTAL LIAB., ME. &
RESERVES