FINANCIAL STATEMENT ANALYSIS EXERCISE

FINANCIAL MANAGEMENT
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Rainbow Paint Cos comparative financial statements for the year- ended December 31, 2023 and
2022, are as follows. The market price of Rainbow Paints common stock was P25 on December 31,
2023, and P30 on December 31, 2022.

Rainbow Paint Company

2023 2022
Sales P 5,000,000 P 3,200,000
Cost of goods sold (3,400,000) (2,080,000)
Gross profit 1,600,000 1,120,000
Selling expenses (650,000) (464,000)
Administrative expenses (325,000) (224,000)
Total operating expenses (975,000) (688,0000
Operating income 625,000 432,000
Other revenue and expenses
Other revenue 25,000 19,200
Other expenses (interest) (105,0000 (64,000)
Income before income taxes 545,000 387,200
Income tax expense (300,000) (176,000)
Net income P 245,000 P 211,200

Rainbow Paint Company

2022 2023
Retained earnings, January 1 P 723,000 P 581,800
Net income 245,000 211,200
Dividends:
On preferred stock (40,000) (40,000)
On common stock (45,000) (30,000)
Retained earnings, December 31 P 883,000 P 723,000
FINANCIAL STATEMENT ANALYSIS EXERCISE
FINANCIAL MANAGEMENT
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Rainbow Paint Company

2022 2023
Assets
Current assets:
Cash P 175,000 P 125,000
Temporary investments 150,000 50,000
Accounts receivable, net 425,000 325,000
Inventories 720,000 480,000
Prepaid expenses 30,000 20,000
Total current assets P 1,500,000 P 1,000,000
Long term investment 250,000 225,000
Property, plant and equipment 2,093,000 1,948,000
Total assets P 3,843,000 P 3,173,000
Liabilities
Current liabilities P 750,000 P 650,000
Long term liabilities
Mortgage note payable, 10% due in five years P 410,000 0
Bonds payable, 8% due in fifteen years P 800,000 P 800,000
Total long term liabilities P 1,210,000 P 800,000
Total liabilities P 1,960,000 P 1,450,000

Stockholder’s Equity
Preferred 8% stock, P100 par P 500,000 P 500,000
Common stock, P10 par 500,000 500,000
Retained earnings 883,000 723,000
Total stockholder’s equity P 1883,000 P 1723,000
Total liabilities and stockholder’s equity P 3,843,000 P 3,173,000

Requirements: Determine the following measures for 2023. Round percentages and ratios other
than per- share amounts to one decimal place.
1. Working capital
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Days sales in receivables
6. Inventory turnover
7. Days sales in inventory
8. Ratio of fixed assets to long term liabilities
9. Ratio of liabilities to stockholder’s equity
10. Times interest earned
11. Asset turnover
12. Return on total assets
13. Return on stockholders’ equity
14. Return on common stockholder’s equity
15. Earnings per share on common stock
16. Price- earnings ratio
17. Dividends per share
FINANCIAL STATEMENT ANALYSIS EXERCISE
FINANCIAL MANAGEMENT
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18. Dividends yield