EXERCISES ON FINANCIAL STATEMENT ANALYSIS

HORIZONTAL AND VERTICAL ANALYSIS

1. The financial position of NOAH Company at the end of 2010 and 2011 are as follows:
In thousands In thousands
Assets 2011 2010 Liabilities 2011 2010
Cash P 3,000 P 5,000 Current liabilities P 30,000 P 47,000
Accounts receivable 40,000 25,000 Long-term liabilities 88,000 74,000
Inventory 27,000 30,000 Total liabilities P P
118,000 121,000
Land, building and 100,000 75,000 Stockholders’ equity
equipment
Long-term investment 15,000 0 8% Preferred stock P 10,000 P 9,000
Intangible assets 10,000 10,000 Common stock 54,000 42,000
Other assets 5,000 20,000 Additional paid in 5,000 5,000
capital
Total assets P P Retained earnings 13,000 (12,000)
200,000 165,000
Total stockholders’ P 82,000 P 44,000
equity
Total liabilities and SHE P P
200,000 165,000
Sales and cost of goods sold insignificantly change in 2011 in relation with 2010. Required: (1) prepare a
comparative balance sheet showing peso and percentage changes for 2011as compared with 2010. (2) prepare a
common size balance sheet as of December 31, 2010 and 2011.

1. Comparative balance sheet:

Increase (decrease)
Peso Percent
Cash (3,000-5,000)/5,000*100 (2,000) (40%)
Accounts receivable (40,000-25,000)/25,000*100 15,000 60%
Inventory (27,000-30,000)/30,000*100 (3,000) (10%)
Land building and (100,000-75,000)/75,000*100 25,000 33.3%
equipment
Long-term investment (15,000-0)/0*100 15,000 0%
Intangible assets (10,000-10,000)/0*100 0 0%
Other assets (5,000-20,000)/20,000*100 30,000 150%
Total assets (200,000-165,000)/165,000*100 35,000 21.2%
Current liabilities (30,000-47,000)/47,000*100 (17,000) (36.2%)
Long-term liabilities (88,000-74,000)/74,000*100 14,000 18.9%
Total liabilities (188,000-121,000)/121,000*100 67,000 55.4%
8% preferred stock (10,000-9,000)/9,000*100 1,000 11.1%
 Common stock (54,000-42,000)/42,000*100 12,000 28.6%
Additional paid in capital (5,000-5,000)/5,000*100 0 0%
Retained earnings (13,000-(12,000)/(12,000)*100 1,000 8.3%
Total stockholders’ equity (82,000-44,000)/44,000*100 38,000 86.4%

2. Common size balance sheet

2011 2010
Cash P3,000 1.5% P5,000 3%
Accounts receivable 40,000 20% 25,000 15.2%
Inventory 27,000 13.5% 30,000 18.2%
Land building and equipment 100,000 50% 75,000 45.5%
Long-term investment 15,000 7.5% 0 0%
Intangible assets 10,000 5% 10,000 6.1%
Other assets 5,000 2.5% 20,000 12.1%
Total assets P200,000 100% P165,000 100%
Current liabilities P30,000 15% P47,000 28.5%
Long-term liabilities 88,000 44% 74,000 44.8%
Total liabilities P118,000 59% P121,000 73.3%
8% preferred stock P10,000 5% P9,000 5.5%
Common stock 54,000 27% 42,000 25.5%
Additional paid in capital 5,000 2.5% 5,000 3%
Retained earnings 13,000 6.5% (12,000) (7.3%)
Stockholders’ equity P82,000 41% P44,000 26.7%
TOTAL LIABILITIES & P200,000 100% P165,000 100%
EQUITY

1. ROSALKA Corporation’s sales, current assets and current liabilities have been reported as follows over the
last five years (amounts in thousands):
2006 2005 2004 2003 2002
Sales P 10,880 P 9,600 P 9,200 P 8,640 P 8,000
Current assets 2,626 2,181 2,220 2,267 2,225
Current 475 450 350 325 250
liabilities
Required: express all the sales, current assets and current liabilities on trend index. Round your decimals up to 2
places:
 a. Use 2002 as the base year
2006 2005 2004
Sales 36% 20% 15%
SOLUTION (10,880-8,000)8,000*100 (9,600-8,000*100 (9,200-8,000)/8,000*100
:
Current assets 18.02% (19.78%) (0.22%)
SOLUTION (2,626-2,225)/2,225*100 (2,181-2,225)/2,225*100 (2,220-2,225)/2,225*100
:
Current 90% 80% 40%
liabilities
SOLUTION (475-250)/250*100 (450-250)/250*100 (350-250)/250*100
:

2003 2002
8% 0%
(8,640-8,000)8,000*100 (8,000-8,000*100
1.89% 0%
(2,267-2,225)/2,225*100 (2,225-2,225)/2,225*100
30% 0%
(325-250)/250*100 (250-250)/250*100

b. Use 2006 as the base year

2006 2005 2004

Sales 0% (11.76%) (15.44%)
SOLUTION (10,880-10,880)/10,880*100 (9,600- (9,200-
: 10,880)/10,880*100 10,880)/10,880*100
Current assets 0% (16.95%) (15.46%)
SOLUTION (2,626-2,626)/2,626*100 (2,181- (2,220-2,626)/2,626*100
 : 2,626)/2,626*100
Current 0% (5.26%) (26.32%)
liabilities
SOLUTION (475-475)/475*100 (450-475)/475*100 (350-475)/475*100
:

2003 2002
(20.59%) (26.47%)
(8,640-10,880)/10,880*100 (8,000-10,880)/10,880*100
(13.67%) (15.27%)
(2,267-2,626)/2,626*100 (2,225-2,626)/2,626*100
(31.58%) (47.37%)
(325-475)/475*100 (250-475)/475*100

2. The following information presents the operating results of AGUA BENDITA Company for the year ended
December 31, 2011 and 2010:
In thousands
2010 2011
Sales P 453,200 P 504,000
Sales returns (13,200) (24,000)
Net sales P 440,000 P 480,000
Cost of goods sold (242,000) (360,000)
Gross profit P 198,000 P 120,000
Selling and general expenses (118,800) (96,000)
Operating income P 79,200 P 24,000
Other expenses (30,800) (33,600)
Income (loss) before tax P 48,400 P (9,600)
Income tax (refund) (14,520) 2,880
Net income (loss) P 33,880 P (6,720)
Required: (1) Prepare a comparative income statement showing peso changes and percentage changes for 2011
as compared with 2010; (2) Prepare a comparative income statement showing a percentage analysis of
component revenue and expense items of net sales for each year

Peso Percentage
Sales (504,000-453,200)/453,200*100 P50,800 11.2%
Sales returns 24,000-13,200/13,200*100 10,800 81.8%
Net sales 480,000-440,000/440,000*100 40,000 9.1%
Cost of goods sold 360,000-242,000/(242,000)*100 118,000 48.8%
Gross profit 120,000-198,000/198,000*100 (78,000) (39.4%)
Selling and general 96,000-118,800/118,800*100 (22,800) (19.2%)
expenses
Operating income 24,000-79,200/79,200*100 (55,200) (69.7%)
Other expenses 33,600-30,800/30,800*100 2,800 9.1%
Income (loss) before tax 9,600-48,400/48,400*100 (38,800) (80.2%)
Income tax (refund) 2,880-14,520/14,520*100 (11,640) (80.2%)
Net income (loss) 6,720-33,880/33,880*100 (27,160) (80.2%)

2.common size
2010 Percentage
Sales P453,200 103% P504,000 105%
Sales returns (13,200) (3%) (24,000) (5%)
Net sales P440,000 100% P480,000 100%
Cost of goods sold (242,000) (55%) (360,00) (75%)
Gross profit P198,000 45% P120,000 25%
Selling and general (P118,800) (27%) (96,000) (20%)
expenses
Operating income P79,200 18% P24,000 5%
Other expenses (30,800) (7%) (33,600) (7%)
Income (loss) before tax P48,400 11% (P9,600) (2%)
Income tax (refund) (14,520) (3.3%) 2,880 0.6%
Net income (loss) P33,880 7.1% (P6,720) (1.4%)

3. The comparative income statement is given below for MAGKARIBAL Company:

Magkaribal Company
Comparative Income Statement
For the years ended June 30, 2010 and 2009

2010 2009
Sales P 5,000,000 P 4,000,000
Less: cost of goods 3,160,000 2,400,000
sold
Gross margin P 1,840,000 P 1,600,000
Less: total expenses
Selling expenses P 900,000 P 700,000
Administrative 680,000 584,000
expenses
Total expenses P 1,580,000 P 1,284,000
Net operating income P 260,000 P 316,000
Less: Interest expense 700,000 40,000
Net income before P 190,000 P 276,000
taxes
The president is concerned that net income is down in 2010 even though sales have increased during the year.
The president is also concerned that administrative expenses have increased, since the company made a
concerted effort during 2010 to pare “fat” out of the organization. Required: Express each year’s income
statement in common size percentages. Carry computations to one decimal place.
2010 2009
Sales P 5,000,000 100% P4,000,000 100%
Cost of goods sold (3,160,000) (63.2%) (2,400,000) (60%)
Gross margin P1,840,000 36.8% P1,600,000 40%
Selling expense P900,000 18% 700,000 17.5%
Administrative expense 680,000 13.6% 584,000 14.6%
Total expense (P1,580,000) (31.6%) (1,284,000) (32.1%)
Net expense P260,000 5.2% P316,000 7.9%
Interest expense (700,000) (14%) (40,000) (1%)
Net income before tax (440,000) (8.8%) P276,000 6.9%