Computing and

Interpreting Financial Ratios

What’s In
Recall in the previous lessons two of the methods used in analyzing financial statements- the
vertical and horizontal analysis. You have learned that vertical analysis uses only one financial
statement while horizontal analysis requires at least two consecutive statements. In both methods,
comparisons and analysis are made using similar statements. Income statement with another
income statement and balance sheet with another balance sheet.

In this module, you will learn the third method which is ratio analysis. In this method, you will
be computing proportions of one item in relation to another item in either the income statement or
the balance sheet. Unlike in the two earlier methods, ratio analysis might require you to obtain data
from two different statements.

What’s New
Activity: The Power of Ratios

Directions: Read the story below.

Alfred was instructed by his mother to buy rice. At the store, Alfred saw two quantities of
sinandomeng rice – a small pack and a bigger pack. These were the price tags:

Sinandomeng Rice Sinandomeng Rice

6 Kilograms 10 Kilograms

Php 288.00 Php 460.00

Alfred thought that neither money nor quantity is a factor in making decisions at this moment. He
looks at the tags once more to see which one he will buy.

Which offers a better deal?

It might be difficult to tell which is a better deal because the more expensive pack has also
more rice in it. However, if we divide the price of each pack with the quantity, we see that the smaller
pack costs 48 pesos per kilogram (Php 288.00 / 6 kg = Php 48.00 per kilogram), while the larger
pack costs 46 pesos per kilogram (Php 460.00 / 10 kg = Php 46.00 per kilogram). The larger pack
actually costs lesser per kilogram of content.

What have we done here? We actually determined the ratio of price over quantity. This
illustrates the power of ratios in helping us analyze set of data such as those we encounter in the
financial statements.

What Is It
Financial Ratio Analysis

Financial Ratio Analysis utilizes amounts in the financial statements to assess the financial health
of a business entity.

Financial ratios are grouped into four broad categories:

1. liquidity ratios
2. solvency or leverage ratios
3. activity ratios
4. profitability ratios
1. Liquidity Ratios

These ratios measure the ability of a business entity to meet its maturing financial obligations. The
focus is on short-term solvency as if the business entity is to be liquidated today. To undergo
liquidation means the business will cease operating and assets will be converted to cash to be
distributed to creditors and owners. There are two common measures of liquidity – current ratio and
quick ratio.

Who uses liquidity ratios? Creditors and suppliers are interested with these ratios to determine if
the business can pay what it owes them.

a) Current Ratio (CR)

Description: Provides an indication of an entity’s ability to pay its current

liabilities with current assets
Formula: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 (𝐶𝐴)
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 (𝐶𝐿)
Interpretations: • If CR > 1, the firm is liquid
• If CR < 1, the firm is not liquid

Let’s solve problem #1 to illustrate current ratio.

Problem #1: The financial information of Garnet Corporation is presented below. Solve for
the current ratio.

Current Assets Current Liabilities

Cash Php 104,000 Trade Payables Php 80,000

Receivables 60,000 Taxes Payable 22,000
Inventories 150,000 Short-term loans 150,000
Prepaid Assets 50,000 Other Payables 28,000
Total Current Assets Php 364,000 Total Current Liabilities Php 280,000

Solutions:

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 (𝐶𝐴)

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 (𝐶𝐿)

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝟏. 𝟑

Interpretation:
The business is liquid. It can pay its financial obligations. Current assets are sufficient
to pay current liabilities.
 Take Note:
A very high current ratio (>2) may not always be favorable. Although this means
that the business entity is very liquid, this might be an indication of inefficient use of
assets. It’s possible that the firm has too much receivables which may prove
uncollectible in the future. Or perhaps the firm has so much cash kept idle in the bank
or in the vaults.

b) Quick Ratio (QR) or Acid Test Ratio

Description: Similar to current ratio but with the use of quick assets
(current assets with the exception of inventories).
Inventories are deducted from the current assets when
solving for the QR since they are the least liquid and their
liquidation value is often uncertain.
Formula: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 (𝐶𝐴) − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 (𝐶𝐿)
Interpretations: • If, QR > 1, the firm is liquid
• If, QR < 1, the firm is not liquid

Let us use the same data in Problem #1 to solve for the quick ratio.

Solutions:

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 (𝐶𝐴) − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠

𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 (𝐶𝐿)

𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 =
𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 = 𝟎. 𝟕𝟔

Interpretation:
On the basis of quick assets, the business is not liquid. Quick assets are insufficient
to pay current liabilities.

2. Solvency Ratios

These ratios measure the relative amount of funds provided by creditors (debt financing) and
owners (equity financing). The focus is on long-term solvency. Here, you will learn debt ratio and
equity ratio.
.
a) Debt Ratio (DR) or Debt-to-Asset Ratio
 Description: Measures how much of a firm’s asset base is financed by
debts or borrowings
Formula: 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 (𝐷𝑅) =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Interpretations: • For every peso of asset, ______(DR) is financed by
creditors.
• If, DR < 0.3, this is the optimal level for most
industries
• If, DR > 0.3, the firm might face future solvency
problems

Let’s solve problem #2 to illustrate debt ratio.

Problem #2: The financial information of Ruby Corporation is presented below. Solve for the
debt ratio.

Total Assets Php 900,000

Total Liabilities 360,000
Owner’s Equity 540,000

Solutions:

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝟎. 𝟒

Interpretation:
For every peso of asset. P0.40 of it is financed by creditors.

Take Note:
There is no ‘ideal’ value for debt ratio. This must be interpreted together with cost of
borrowing (interests). A high debt ratio means the business relies mainly on borrowings.
This poses a problem on the firm’s future liquidity and solvency if interest is high.

b) Equity Ratio (ER) or Equity-to-Asset Ratio

Description: Measures how much of a firm’s asset base is financed by the

owners
 Formula: 𝑇𝑜𝑡𝑎𝑙 𝑂𝑤𝑛𝑒𝑟′𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 (𝐷𝑅) =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Interpretations: • For every peso of asset, ______(ER) is financed by
owners.
• If, ER > 0.7, this is the optimal level for most
industries
• If, ER < 0.7, the firm might face future solvency
problems

Using the same data in Problem #2, solve for the Equity Ratio.

Solutions:

𝑇𝑜𝑡𝑎𝑙 𝑂𝑤𝑛𝑒𝑟′𝑠𝐸𝑞𝑢𝑖𝑡𝑦
𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 =
𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝟎. 𝟔

Interpretation:
For every peso of asset. P0.60 of it is financed by the owners.

Note: The sum of DR and ER must be 1 because they have the same divisor.

3. Activity Ratios

These set of ratios are also called Turn-over Ratios or Asset Management Ratios. They measure
the efficiency of the business in utilizing assets such as inventories and fixed assets to maximize
revenues. In this module, you will learn Receivables Turn-over Ratio and Inventory Turn-over Ratio.
.
a) Receivables Turn-over Ratio

Description: Measures the efficiency of a business in collecting credit

sales extended to customers. The ratio indicates the
number of times a business engages in the cycle of
extending credit sales and collecting the same.
Formula: 𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 𝑇𝑢𝑟𝑛 − 𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒, 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 + 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒, 𝑒𝑛𝑑
=
 2

Interpretations: • A higher receivables turn-over ratio is preferred. This

is an indication that the business has more cash
sales or receivables are collected on time.
• A lower receivables turn-over ratio suggests
problems in collection policies.

Let’s solve problem #3 to illustrate accounts receivable turn-over ratio.

Problem #3: Turquoise Trading has the following information from its financial statements
for the year 2019. Solve for the receivables turn-over ratio.

Net Credit Sales P 675,000

Receivables, beginning 50,000
Receivables, ending 40,000

Solutions:

Solving for Average Receivables:

𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒, 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 + 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒, 𝑒𝑛𝑑

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 =
2

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 = 45,000

Solving for Receivables Turn-over Ratio:

𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠

𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 𝑇𝑢𝑟𝑛 − 𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 𝑇𝑢𝑟𝑛 − 𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =

𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 𝑇𝑢𝑟𝑛 − 𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝟏𝟓

Interpretation:
 The business has extended and collected credit sales at a rate of 15 times in a year.
When compared to past ratios, a higher ratio means the company is becoming more efficient
in collecting credit sales.

b) Inventory Turn-over Ratio

Description: Measures the efficiency of a business in selling and

replenishing inventories. This indicates the number of times
in a year that the business purchased and sold inventories.
Formula: 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛 − 𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦, 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 + 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦, 𝑒𝑛𝑑
=
2
Interpretations: • A higher inventory turn-over ratio is preferred. This is an
indication that the business inventories are being sold
and replenished efficiently at a faster rate.
• A lower inventory turn-over ratio suggests problems in
selling goods. Inventories are ‘slow-moving.’

Let’s solve problem #4 to illustrate inventory turn-over ratio.

Problem #4: Aquamarine Merchandising Company has the following information from its
financial statements for the year 2019. Solve for the inventory turn-over ratio

Cost of Goods Sold P 925,000

Inventory, beginning 30,000
Inventory, end 400,000

Solutions:

Solving for Average Inventory:

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦, 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 + 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦, 𝑒𝑛𝑑
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 =
2

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 215,000

Solving for Inventory Turn-over Ratio:

 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛 − 𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛 − 𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛 − 𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝟒. 𝟑𝟎

Interpretation:
The business has purchased and sold goods at a rate of 4.30 times in a year. When
compared to past inventory turn-over ratios, a higher ratio means improvement in the
company’s efficiency in managing its inventories.

Take Note:
In order to have a meaningful interpretation of turn-overs ratios, they can be compared
with the normal operating cycle of a business, to past ratios or to ratios of similar companies
within the industry.

4. Profitability Ratios

These are metrics used to evaluate the firm’s ability to generate profit relative to costs, assets and
equity. The goal of these ratios is to assess whether the business is over or underspending and if
investments are generating the desired profits. Gross Profit Ratio and Net Profit Ratio are the two
ratios that you will be learning in this module.

a) Gross Profit Ratio (GPR)

Description: This shows the proportion of gross profit to net sales.

This is also known as Contribution Margin Ratio. This
shows the sufficiency of contribution margin or mark-up
on sales to cover operating expenses.
Formula: 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
𝐺𝑃𝑅 =
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
Interpretations: • A higher GPR is preferred. This is an indication
of the firm’s ability to generate profit from sales.
• A lower GPR suggests problems with mark-up or
contribution margin.

Let’s solve problem #5 to illustrate GPR.

Problem #5: Sodalite Corporation has the following information from its financial statements
for the year 2019. Solve for the GPR.

Net Sales P 325,000

Cost of Goods Sold 100,000
 Gross Profit 225,000
Total Expenses 124,250
Net Income 100,750

Solutions:
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
𝐺𝑃𝑅 =
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝐺𝑃𝑅 =
𝐺𝑃𝑅 = 𝟎. 𝟔𝟗

Interpretation:
For every peso of net sales, the business was able to generate Php 0.69 in gross
profit.

b) Net Profit Ratio (NPR)

Description: Shows the proportion of net profit or net income to net

sales. It shows how much net income is generated for
every peso of net sales.
In the case of service businesses, this ratio shows how
much net income is generated for every peso of service
revenue.
Formula: 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑟 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑁𝑃𝑅 =
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
Interpretations: • A higher NPR is preferred. This is an indication of
higher net income from sales.
• A lower NPR is an indication of low profitability.

We use the same data in problem #5 to solve for the NPR.

Solution:

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑁𝑃𝑅 =
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝑁𝑃𝑅 =
𝑁𝑃𝑅 = 0.31

Interpretation:
 For every peso of net sales, the business was able to generate Php 0.31 in net profit
or net income.

Take Note:
In order to have a meaningful interpretation of profitability ratios, they can be compared
with the normal profits, to past profit ratios or to ratios of similar companies within the
industry.

Let us now apply what you have learned by doing the What’s More section of this module.

What’s More
Activity 1: Finding the missing pieces.

Directions: Complete the equations of current ratio for the four different companies. Pick the values
from the treasure box. The first equation has been done for you.

Solving for #1:

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
180,000
1.25 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 𝟏𝟒𝟒, 𝟎𝟎𝟎

Equation
Company
Current
Assets ÷ Current
Liabilities 180,000 ÷ (1) 144,000 = 1.25 = Current
Ratio

Alpha

250,000 ÷ 225,000 = (2)

Beta

(3) ÷ 350,000 = 1.60

Charlie
 405,000 ÷ 450,000 = (4)
Delta

TREASURE BOX

1.11 0.90
405,000 560,000
144,000
Activity 2: Charts to contrast!

Directions: The composition of Net Sales (Cost of Sales and Gross Profit) of companies A and B
are presented below. Solve for the Gross Profit Ratio (GPR) for each company. Show your solutions
on a separate sheet of paper. Use the GPR formula below:

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
𝐺𝑃𝑅 =
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

Company A Company B
Net Sales = 450,000 Net Sales = 680,000

Cost of
Sales, Gross Cost of
Gross Profit, Sales,
150,000
Profit, 350,000 330,000
300,000

1. GPR of A Company
2. GPR of B Company

What I Have Learned

Activity: Learning T-Chart
Directions: Place the different types of ratios to the left or right side of the T-chart based on how
you understood and mastered them. The left side is for the ratios that you can demonstrate mastery
of. Meanwhile, the right side is for the ratios in which you demonstrated a low level of mastery.

1. Current Ratio
2. Quick Ratio
3. Debt-to-Asset Ratio
4. Equity-to-Asset Ratio
5. Inventory Turn-over Ratio
6. Receivables Turn-over Ratio
7. Gross Profit Ratio
8. Net Profit Ratio

#YES #HELP
I can solve and interpret these ratios I have problems with these ratios

If you have placed a ratio on the right side of the T-chart, you might want to go back and
review the concepts in the What’s In section of this module.

What I Can Do
Activity 1: Kapamilya or Kapuso?

Directions: Read the article below. As a viewer of either of the two networks, you might be
interested to know how much profit they generate as it may affect your decision to continue watching
their shows. Highlight the important financial information you would be needing in computing for the
net profit ratio or net income ratio of both networks. Answer the questions that follow.

Stocks to Watch: ABS-CBN, GMA earnings

AUGUST19,20191:30AMPHT
 RALFRIVAS

Are you a Kapamilya or a Kapuso? We look into their financials to check which company has
earned and grown more over the years.

MANILA, Philippines – Which network is better and watched by more Filipinos, ABS-CBN or
GMA?

The two networks have been fighting it out for decades to nab the No. 1 spot, offering a
hodgepodge of drama, action, and comedy.

Financials
It's a tight race for the two networks in the 1st half of 2019. ABS-CBN earned
P1.47 billion, a massive 98% jump from the P741 million a year ago. Meanwhile, GMA saw a
10% increase in its net income to P1.34 billion from P1.2 billion.

Historically, the Kapamilya network earns more than the Kapuso network, except in 2018
where GMA earned P2.27 billion while ABS-CBN had P1.91 billion.

In terms of size, ABS-CBN is much bigger than GMA.

In the 1st half of 2019, total revenues of ABS-CBN stood at P20.8 billion, while GMA had P7.9
billion.

(Article published in www.rappler.com)

Answer these questions on a separate sheet of paper:

1. What is the net income ratio of ABS-CBN for the first half of 2019? (round off answer to
second decimal place)
2. What is the net income ratio of GMA for the first half of 2019? (round off answer to second
decimal place)
3. Which network is more profitable in terms of amount of net income?
4. Which network is more profitable in terms of net income ratio?

Activity 2: I have an Idea!

Directions: Your neighborhood bakery has low inventory turn-over ratio. This means that the
products of the business are slow-moving. This resulted to having stale and throw-away goods
which are translated to financial losses for the business. The owner approached you for some advice
knowing that you are an ABM student who can help him.

Suggest and explain one way to increase inventory turn-over ratio. Write on a separate sheet of
paper and explain in no more than three sentences. You will be graded based on this rubric:

5 points – Suggestion is feasible and well-explained

4 points – Suggestion is feasible but with minor lacking details
3 points – Suggestion is good but may not be applicable to the given situation