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Problem 1 – Comprehensive Ratio Analysis   You have just been hired as a loan officer at Luzon Bank. Your supervisor has given you a file containing a request from Helix Company, a manufacturer of auto components, for a P1,000,000 five-year loan. Financial statement data on the company for the last two years are given below: (picture below)   Meri Ramos, who just two years ago was appointed president of Helix Company, admits that the company has been "inconsistent" in its performance over the past several years. But Ramos argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 25% increase in sales over the last year. Ramos also argues that investors have recognized the improving situation at Helix Company, as shown by the jump in the price of its ordinary shares from P20 per share last year to P36 per share this year. Ramos believes that with strong leadership and with the modernized equipment that the P 1,000,000 loan will permit the company to buy, profits will be even stronger in the future.   Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in Helix's industry: Current ratio                                              2.3 to 1 Acid-test ratio                                           1.2 to 1 Average age of receivables                        31 days Inventory turnover                                       60 days Return on assets                                           9.5% Debt-to-equity ratio                                     0.65 to 1 Times interest earned                                       5.7 Price-earnings ratio                                          10   Required: You decide next to assess the well-being of the ordinary shareholders. For both this year and last year, compute: The earnings per share. The dividend yield ratio for ordinary. The dividend payout ratio for ordinary. The price-earnings ratio. How do investors regard Helix Company as compared to other firms in the industry? Explain. The book value per share of ordinary. Does the difference between market value per share and book value per share suggest that the stock at its current price is a bargain? Explain. The gross margin percentage. You decide, finally, to assess creditor ratios to determine both short-term and long-term debt paying ability. For both this year and last year, compute: Working capital. The current ratio. The acid-test ratio. The average age of receivables. (The accounts receivable at the beginning of last year totaled P520,000.) The inventory turnover. (The inventory at the beginning of last year totaled P640,000.) The debt-to-equity ratio. The number of times interest was earned. Evaluate the data computed in (1) to (3) above, and using any additional data provided in the problem, make a recommendation to your supervisor as to whether the loan should be approved.

Problem 1 – Comprehensive Ratio Analysis   You have just been hired as a loan officer at Luzon Bank. Your supervisor has given you a file containing a request from Helix Company, a manufacturer of auto components, for a P1,000,000 five-year loan. Financial statement data on the company for the last two years are given below: (picture below)   Meri Ramos, who just two years ago was appointed president of Helix Company, admits that the company has been "inconsistent" in its performance over the past several years. But Ramos argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 25% increase in sales over the last year. Ramos also argues that investors have recognized the improving situation at Helix Company, as shown by the jump in the price of its ordinary shares from P20 per share last year to P36 per share this year. Ramos believes that with strong leadership and with the modernized equipment that the P 1,000,000 loan will permit the company to buy, profits will be even stronger in the future.   Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in Helix's industry: Current ratio                                              2.3 to 1 Acid-test ratio                                           1.2 to 1 Average age of receivables                        31 days Inventory turnover                                       60 days Return on assets                                           9.5% Debt-to-equity ratio                                     0.65 to 1 Times interest earned                                       5.7 Price-earnings ratio                                          10   Required: You decide next to assess the well-being of the ordinary shareholders. For both this year and last year, compute: The earnings per share. The dividend yield ratio for ordinary. The dividend payout ratio for ordinary. The price-earnings ratio. How do investors regard Helix Company as compared to other firms in the industry? Explain. The book value per share of ordinary. Does the difference between market value per share and book value per share suggest that the stock at its current price is a bargain? Explain. The gross margin percentage. You decide, finally, to assess creditor ratios to determine both short-term and long-term debt paying ability. For both this year and last year, compute: Working capital. The current ratio. The acid-test ratio. The average age of receivables. (The accounts receivable at the beginning of last year totaled P520,000.) The inventory turnover. (The inventory at the beginning of last year totaled P640,000.) The debt-to-equity ratio. The number of times interest was earned. Evaluate the data computed in (1) to (3) above, and using any additional data provided in the problem, make a recommendation to your supervisor as to whether the loan should be approved.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter16: Financial Statement Analysis
Section: Chapter Questions
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Problem 1 – Comprehensive Ratio Analysis

 

You have just been hired as a loan officer at Luzon Bank. Your supervisor has given you a file containing a request from Helix Company, a manufacturer of auto components, for a P1,000,000 five-year loan. Financial statement data on the company for the last two years are given below: (picture below)

 

Meri Ramos, who just two years ago was appointed president of Helix Company, admits that the company has been "inconsistent" in its performance over the past several years. But Ramos argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 25% increase in sales over the last year. Ramos also argues that investors have recognized the improving situation at Helix Company, as shown by the jump in the price of its ordinary shares from P20 per share last year to P36 per share this year. Ramos believes

that with strong leadership and with the modernized equipment that the P 1,000,000 loan will permit the company to buy, profits will be even stronger in the future.

 

Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in Helix's industry:

Current ratio                                              2.3 to 1

Acid-test ratio                                           1.2 to 1

Average age of receivables                        31 days

Inventory turnover                                       60 days

Return on assets                                           9.5%

Debt-to-equity ratio                                     0.65 to 1

Times interest earned                                       5.7

Price-earnings ratio                                          10

 

Required:

  1. You decide next to assess the well-being of the ordinary shareholders. For both this year and last year, compute:
    1. The earnings per share.
    2. The dividend yield ratio for ordinary.
    3. The dividend payout ratio for ordinary.
    4. The price-earnings ratio. How do investors regard Helix Company as compared to other firms in the industry? Explain.
    5. The book value per share of ordinary. Does the difference between market value per share and book value per share suggest that the stock at its current price is a bargain? Explain.
    6. The gross margin percentage.
  2. You decide, finally, to assess creditor ratios to determine both short-term and long-term debt paying ability. For both this year and last year, compute:
    1. Working capital.
    2. The current ratio.
    3. The acid-test ratio.
    4. The average age of receivables. (The accounts receivable at the beginning of last year totaled P520,000.)
    5. The inventory turnover. (The inventory at the beginning of last year totaled P640,000.)
    6. The debt-to-equity ratio.
    7. The number of times interest was earned.
  3. Evaluate the data computed in (1) to (3) above, and using any additional data provided in the problem, make a recommendation to your supervisor as to whether the loan should be approved.

 

 

HELIX COMPANY Comparative Statement of Financial Position This Year Last Year Assets Current assets: P 320,000 P 420,000 100,000 600,000 800,000 60,000 1,980,000 _2,980,000 P4,960,000 Cash. . Marketable securities . Accounts receivable, net. Inventory Prepaid expenses . Total current assets 900,000 1,300,000 80,000 2,600,000 3,100,000 P5,700,000 ......... Plant and equipment, net. Total assets.. Liabilities and Equity Liabilities: Current liabilities... P1,300,000 1,200,000 2,500,000 P 920,000 1,000,000 1,920,000 Bonds payable, 10%.. Total liabilities.. Equity: Preference shares, 8%, P30 par value.. Ordinary shares, P40 par value Retained earnings. Total equity . Total liabilities and equity. 600,000 2,000,000 600.000 3,200,000 P5.700.000 600,000 2,000,000 440,000 _3,040,000 P4.960,000 .......
Transcribed Image Text:HELIX COMPANY Comparative Statement of Financial Position This Year Last Year Assets Current assets: P 320,000 P 420,000 100,000 600,000 800,000 60,000 1,980,000 _2,980,000 P4,960,000 Cash. . Marketable securities . Accounts receivable, net. Inventory Prepaid expenses . Total current assets 900,000 1,300,000 80,000 2,600,000 3,100,000 P5,700,000 ......... Plant and equipment, net. Total assets.. Liabilities and Equity Liabilities: Current liabilities... P1,300,000 1,200,000 2,500,000 P 920,000 1,000,000 1,920,000 Bonds payable, 10%.. Total liabilities.. Equity: Preference shares, 8%, P30 par value.. Ordinary shares, P40 par value Retained earnings. Total equity . Total liabilities and equity. 600,000 2,000,000 600.000 3,200,000 P5.700.000 600,000 2,000,000 440,000 _3,040,000 P4.960,000 .......
HELIX COMPANY Comparative Income Statement This Year P5,250,000 4,200,000 1,050,000 530,000 520,000 120,000 400,000 120,000 280,000 Last Year Sales (all on account).. Less cost of goods sold. Gross margin.. Less operating expenses Net operating income.. Less interest expense Net income before taxes Less income taxes (30%). P4,160,000 3,300,000 860,000 520,000 340,000 100,000 240,000 72,000 168,000 Net income.. Dividends paid: Preference shares... Ordinary shares . Total dividends paid . Net income retained. Retained earnings, beginning of year Retained earnings, end of year... 48,000 72,000 120,000 160,000 440,000 P 600,000 48,000 36.000 84,000 84,000 356,000 P 440,000
Transcribed Image Text:HELIX COMPANY Comparative Income Statement This Year P5,250,000 4,200,000 1,050,000 530,000 520,000 120,000 400,000 120,000 280,000 Last Year Sales (all on account).. Less cost of goods sold. Gross margin.. Less operating expenses Net operating income.. Less interest expense Net income before taxes Less income taxes (30%). P4,160,000 3,300,000 860,000 520,000 340,000 100,000 240,000 72,000 168,000 Net income.. Dividends paid: Preference shares... Ordinary shares . Total dividends paid . Net income retained. Retained earnings, beginning of year Retained earnings, end of year... 48,000 72,000 120,000 160,000 440,000 P 600,000 48,000 36.000 84,000 84,000 356,000 P 440,000
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