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Analysis
Statement
Financial
3rd
Business Administration Department
2nd
Semester
Morning & Evening
Dlovan Wrya
Chapter One

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‫تعاريف‬
{
Glossary
Acid-Test (Quick) Ratio:-
A measure of a company’s immediate short-term liquidity computed by dividing
the sum of cash short-term investments and net receivables by current liabilities.
Asset Turnover:-
A measure of how efficiently a company uses its assets to generate sales computed
by dividing net sales by average assets.
Current Ratio:-
A measure used to evaluate a company’s liquidity and short-term debt-paying
ability computed by dividing current assets by current liabilities.
Debt to Total Assets Ratio:-
Measures the percentage of total assets provided by creditors computed by dividing
total debt by total assets.
Earnings per Share (EPS) Ratio:-
The net income earned on each share of common stock; computed by dividing net
income minus preferred dividends (if any) by the number of weighted average
common shares outstanding.
Horizontal analysis:-
A technique for evaluating a series of financial statement data over a period of time
to determine the increase (decrease) that has taken place expressed as either an
amount or a percentage. Facbook / omed accounting
Inventory Turnover Ratio:-

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A measure of the liquidity of inventory computed by dividing cost of goods sold
by average inventory.
Liquidity ratios:-
Measures of the short-term ability of the enterprise to pay its maturing obligations
and to meet unexpected needs for cash.
Payout Ratio:-
Measures the percentage of earnings distributed in the form of cash dividends;
computed by dividing cash dividends by net income.
Price-Earnings (P-E) Ratio:-
Measures the ratio of the market price of each share of common stock to the
earnings per share; computed by dividing the market price of the stock by earnings
per share.
Profit Margin Ratio:-
Measures the percentage of each dollar of sales that results in net income;
computed by dividing net income by net sales.
Profitability Ratios:-
Measures of the income or operating success of an enterprise for a given period of
time.
Ratio:-
An expression of the mathematical relationship between one quantity and another.
The relationship may be expressed either as a percentage, a rate, or a simple
proportion.
Ratio analysis:-
A technique for evaluating financial statements that express the relationship
between selected financial statement data.

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Receivables turnover ratio:-
A measure of the liquidity of receivables; computed by dividing net credit sales by
average net receivables.
Return on assets ratio:-
An overall measure of profitability; computed by dividing net income by average
assets.
Return on common stockholders’ equity ratio:-
Measures the dollars of net income earned for each dollar invested by the owners;
computed by dividing net income minus preferred dividends (if any) by average
common stockholders’ equity.
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A. Liquidity Ratios:-
{Ratio Analysis}
1)
Current Ratio =
total Current Assets
:1
Total Current Liabilities
2)
Acid-test Ratio {Quick Ratio} =
Current Assets – Inventory
Current Liabilities
3) Net Sales
Receivables turnover Ratio =
Average Net Receivables
4) 365
Average Collection Period =
Receivable turnover rate
5) Cost of goods sold
Inventory turnover Ratio =
:1
Times
Days
Times

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%
Average Inventory
6) 365
Day in inventory =
Inventory turnover
7) Net Working Capital = Current Assets – Current Liabilities.
B. Profitability Ratios:-
1) Net Income
Profit Margin Ratio = * 100%
Net Sales
2) Net Sales
Asset turnover Ratio =
Average Assets
3)
Return on Assets =
4)
Net Income
Average Assets
* 100%
Net Income
Return on Common Stockholder’s Equity Ratio =
Average Common Stockholder’s Equity
5)
Earnings per Share (EPS) Ratio =
Net Income
Average Common Shares Outstanding
6) Market Price per Share of Stock
Price Earnings (PE) Ratio =
7)
Payout Ratio =
Cash Dividends
Earnings per Share
* 100% Net Sales
Cash Dividends
Net Income Return Earnings
C. Solvency Ratios:-
1)
Debt to total Assets Ratio =
Total Debt
%
%
%
%
times
Per Shares
time
Days

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%
Total Assets
2) Income before Tax & Interest Expenses
Times Interest Earned Ratio =
Interest Expenses
❖ Total Assets = Fixed Assets + Current Assets
❖ Current Assets = Total Assets * Percent%
❖ Return Earnings = Ending Bal. – Beginning Bal.
❖ Change in Amount = Current Year Amount – Base Year Amount.
Beginning Bal. + Ending Bal.
❖ Average =
2
+ Increase Suitable %, times, :1 , per Share Note:-
– Decrease Unsuitable
{Sometimes Except}, Days
+ Increase Unsuitable
– Decrease Suitable
{Horizontal Analysis}
(2015) – (2014) = (Amount)
Current Year Amount – Base Year Amount Change in Amount
Change since = =
Base Period Base Year Amount Base Year Amount
(2014)
{Vertical Analysis}
* 100%
Item
Percent of Item =
Total Assets
* 100%
%
Balance Sheet
time

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Percent of Item =
Item
Net Sales
* 100%
Current Assets Current Liabilities Stock holders’ Equity
Total Assets Total Assets Total Assets
Question 1:-
Scully Corporation’s comparative Balance Sheets are presented below.
SCULLY CORPORATION
Balance Sheets
December, 31
2010 2009
Cash 4,300 3,700
Accounts Receivable 21,200 23,400
Inventory 10,000 7,000
Land 20,000 26,000
Building 70,000 70,000
Accumulated Depreciation (15,000) (10,000)
Total $ 110,500 $ 120,100
Accounts Payable 12,370 31,100
Common Stock 75,000 69,000
Retained Earnings 23,130 20,000
Total $ 110,500 $ 120,100
Scully’s 2010 income statement included net sales of $100,000, cost of goods sold
of $60,000, and net income of $15,000.
Instructions:-
Compute the following ratios for 2010.
a) Current ratio.
b) Acid-test ratio.
c) Receivables turnover.
d) Inventory turnover.
%
Just For 1 Year
Income Statement

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Solution:-
Balance Sheets
Assets 2010 2009
Non-Current Assets
Land 20,000 26,000
Building 70,000 70,000
Accumulated Depreciation (15,000) (10,000)
Total Non-Current Assets 75,000 86,000
Current Assets
Cash 4,300 3,700
Accounts Receivable 21,200 23,400
Inventory 10,000 7,000
Total Current Assets 35,500 34,100
Total Assets 110,500 120,100
Current Liability
Accounts Payable
Equity
12,370 31,100
Common Stock 75,000 69,000
Retained Earnings 23,130 20,000
Total Liability & Equity 110,500 120,100

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Income statement
Net Sales 100,000
Cost of Goods Sold (60,000)
Gross Profit 40,000
Others (25,000)
Net Income 15,000
1)
Current Ratio =
Current Assets
Current Liabilities
35,500
= = 2.87 :1
12,370
2) Current Assets – Inventory
Acid-test Ratio {Quick Ratio} =
Current Liabilities
35,500 – 10,000 25,500
= = = 2.1 :1
12,370 12,370
3) Net Sales
Receivables turnover Ratio =
Average Net Receivables
100,000 100,000
= = = 4.48 times
23,400 + 21,200
2
4) 365
Average Collection Period =
22,300
Receivable turnover rate
365
= = 81 days

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4.48
5) Cost of goods sold
Inventory turnover Ratio =
Average Inventory
60,000 60,000
= = = 7.0 times
7,000 + 10,000 8,500
6) 365 2
Day in inventory =
Inventory turnover
365
= = 52 days
7.0
7) Net Working Capital = Current Assets – Current Liabilities
= 35,500 – 12,370
= 23,130
Question 2:-
Scully Corporation’s comparative Balance Sheets are presented below.
SCULLY CORPORATION
Balance Sheets
December, 31
2010 2009
Cash 4,300 3,700
Accounts Receivable 21,200 23,400
Inventory 10,000 7,000
Land 20,000 26,000
Building 70,000 70,000
Accumulated Depreciation (15,000) (10,000)
Total $ 110,500 $ 120,100
Accounts Payable 12,370 31,100

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Common Stock 75,000 69,000
Retained Earnings 23,130 20,000
Total $ 110,500 $ 120,100
Scully’s 2010 income statement included net sales of $100,000, cost of goods sold
of $60,000, and net income of $15,000.
Instructions:-
Compute the following ratios for 2010 & 2009.
a) Current ratio.
b) Acid-test ratio.
c) Receivables turnover.
d) Inventory turnover.
Solution:-
Balance Sheets
Assets
Non-Current Assets
2010 2009
Land 20,000 26,000
Building 70,000 70,000
Accumulated Depreciation (15,000) (10,000)
Total Non-Current Assets 75,000 86,000
Current Assets
Cash 4,300 3,700
Accounts Receivable 21,200 23,400
Inventory 10,000 7,000
Total Current Assets 35,500 34,100
Total Assets 110,500 120,100
Current Liability
Just For 2 Year

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Accounts Payable
Equity
12,370 31,100
Common Stock 75,000 69,000
Retained Earnings 23,130 20,000
Total Liability & Equity 110,500 120,100
Income statement
Net Sales 100,000
Cost of Goods Sold (60,000)
Gross Profit 40,000
Others (25,000)
Net Income 15,000
1)
Current Ratio =
Current Assets
Current Liabilities
35,500
= = 2.87 :1
12,370
34,100
= = 1.1 :1
31,100
Change in Amount = Current Year Amount – Base Year Amount
= 2.87 – 1.1 = 1.77 (Suitable) inccrice +
2) Current Assets – Inventory
Acid-test Ratio {Quick Ratio} =
Current Liabilities
35,500 – 10,000 25,500
= = = 2.1 :1
2010
2009
2010

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12,370 12,370
34,100 – 7,000 27,100
= = = 0.9 :1
31,100 31,100
Change in Amount = Current Year Amount – Base Year Amount
= 2.1 – 0.9 = 1.2 (Suitable)
3) Net Sales
Receivables turnover Ratio =
Average Net Receivables
100,000 100,000
= = = 4.48 times
23,400 + 21,200
2
22,300
100,000 100,000
= = = 8.55 times
23,400
2
11,700
Change in Amount = Current Year Amount – Base Year Amount
= 4.48 – 8.55 = (- 4.07) (Unsuitable)
4) 365
Average Collection Period =
Receivable turnover rate
365
= = 81 days
4.48
365
= = 42 days
8.55
Change in Amount = Current Year Amount – Base Year Amount
= 81 – 42 = 39 (Unsuitable)
2009
2010
2009
2010
2009

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5) Cost of goods sold
Inventory turnover Ratio =
Average Inventory
60,000 60,000
= = = 7.1 times
7,000 + 10,000
2
8,500
60,000 60,000
= = = 17.1 times
7,000
2
3,500
Change in Amount = Current Year Amount – Base Year Amount
= 7.1 – 17.1 = (- 10) (Unsuitable)
6) 365
Day in inventory =
Inventory turnover
365
= = 51 days
7.1
365
= = 21 days
17.1
Change in Amount = Current Year Amount – Base Year Amount
= 51 – 21 = 30 (Unsuitable)
2009
2010
2009
2010

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7) Net Working Capital = Current Assets – Current Liabilities
= 35,500 – 12,370
= 23,130
= 34,100 – 31,100
= 3,000
E (18-11):-
Scully Corporation’s comparative Balance Sheets are presented below.
SCULLY CORPORATION
Balance Sheets
December, 31
2010 2009
Cash 4,300 3,700
Accounts Receivable 21,200 23,400
Inventory 10,000 7,000
Land 20,000 26,000
Building 70,000 70,000
Accumulated Depreciation (15,000) (10,000)
Total $ 110,500 $ 120,100
Accounts Payable 12,370 31,100
Common Stock 75,000 69,000
Retained Earnings 23,130 20,000
Total $ 110,500 $ 120,100
Scully’s 2010 income statement included net sales of $100,000, cost of goods sold
of $60,000, and net income of $15,000.
Instructions:-
Compute the following ratios for 2010.
1) Current ratio.
2) Acid-test ratio.
3) Receivables turnover.
4) Inventory turnover.
5) Profit margin.
Just For 1 Year
2009
2010

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6) Asset turnover.
7) Return on assets.
8) Return on common stockholders’ equity.
9) Debt to total assets ratio.
Solution:-
Balance Sheets
Assets
Non-Current Assets
2010 2009
Land 20,000 26,000
Building 70,000 70,000
Accumulated Depreciation (15,000) (10,000)
Total Non-Current Assets 75,000 86,000
Current Assets
Cash 4,300 3,700
Accounts Receivable 21,200 23,400
Inventory 10,000 7,000
Total Current Assets 35,500 34,100
Total Assets 110,500 120,100
Current Liability
Accounts Payable
Equity
12,370 31,100
Common Stock 75,000 69,000
Retained Earnings 23,130 20,000
Total Liability & Equity 110,500 120,100
Income statement
Net Sales 100,000

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Cost of Goods Sold (60,000)
Gross Profit 40,000
Others (25,000)
Net Income 15,000
1)
Current Ratio =
Current Assets
Current Liabilities
35,500
= = 2.87 :1
12,370
2) Current Assets – Inventory
Acid-test Ratio {Quick Ratio} =
Current Liabilities
35,500 – 10,000 25,500
= = = 2.1 :1
12,370 12,370
3) Net Sales
Receivables turnover Ratio =
Average Net Receivables
100,000 100,000
= = = 4.48 times
23,400 + 21,200
2
22,300
Average Collection Period =
365
Receivable turnover rate
365
= = 81 days
4.49

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4) Cost of goods sold
Inventory turnover Ratio =
Average Inventory
60,000 60,000
= = = 7.0 times
7,000 + 10,000 8,500
Day in inventory =
365 2
Inventory turnover
365
= = 52 days
7.0
5) Net Income
Profit Margin Ratio = * 100%
Net Sales
15,000
= * 100 = 15 %
100,000
6) Net Sales
Asset turnover Ratio =
Average Assets
100,000 100,000
= = = 87 times
120,100 + 110,500
2
7) Net Income
Return on Assets = * 100%
Average Assets
115,300
15,000 15,000
= * 100 = = 13%
120,100 + 110,500
2
115,300

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8) Net Income
Return on Common Stockholder’s Equity Ratio =
Average Common Stockholder’s Equity
15,000 15,000
= = = 20%
69,000 + 75,000
2
9) Total Debt
Debt to total Assets Ratio =
72,000
Total Assets
12,370
= * 100 = 11.2%
110,500
P (18-3):-
Condensed Balance Sheet and Income Statement data for Kersenbrock Corporation
appear below.
KERSENBROCK CORPORATION
Balance Sheets
December, 31
2011 2010 2009
Cash 25,000 20,000 18,000
Receivables (Net) 50,000 45,000 48,000
Other Current Assets 90,000 95,000 64,000
Investments 75,000 70,000 45,000
Plant and Equipment (Net) 400,000 370,000 358,000

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Total $ 640,000 $ 600,000 $ 533,000
Current Liabilities 75,000 80,000 70,000
Long-Term Debt 80,000 85,000 50,000
Common Stock, $10 par 340,000 310,000 300,000
Retained Earnings 145,000 125,000 113,000
Total $ 640,000 $ 600,000 $ 533,000
KERSENBROCK CORPORATION
Income Statement
For the Year Ended December, 31
2011 2010
Sales 740,000 700,000
Less: Sales returns and allowances 40,000 50,000
Net Sales 700,000 650,000
Cost of goods sold 420,000 400,000
Gross Profit 280,000 250,000
Operating Expenses (including income taxes) 235,000 220,000
Net Income $ 45,000 $ 30,000
Additional information:-
1) The Market Price of Kersenbrock’s Common Stock was $ 4.00, $ 5.00, and
$ 8.00 for 2009, 2010, and 2011, respectively.
2) All dividends were paid in Cash.
Instructions:-
1) Compute the following ratios for 2010 and 2011.
a) Profit margin.
b) Asset turnover.
c) Earnings per share. (Weighted average common shares in 2011 were 32,000
and in 2010 were 31,000.)
d) Price-earnings.
e) Payout.
f) Debt to total assets.

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2) Based on the ratios calculated, discuss briefly the improvement or lack thereof
in financial position and operating results from 2010 to 2011 of Kersenbrock
Corporation.
Solution:-
1) Net Income
Profit Margin Ratio = * 100%
Net Sales
45,000
= * 100 = 6.1%
740,000
30,000
= * 100 = 4.3%
700,000
Change in Amount = Current Year Amount – Base Year Amount
Change = 6.1 – 4.3 = 1.8 (Suitable)
2) Net Sales
Asset turnover Ratio =
Average Assets
740,000 740,000
= = =1.2 Times
600,000 + 640,000
2
620,000
700,000 700,000
= = =1.2 Times
533,000 + 600,000
2
566,500
Change in Amount = Current Year Amount – Base Year Amount
Change = 1.2 – 1.2 = 0 (Suitable)
2010
2011
2010
2011

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3) Net Income
Earnings per Share (EPS) Ratio =
Average Common Shares Outstanding
45,000
= = 1.4 per Share
32,000
30,000
= = 0.10 per Share
31,000
Change in Amount = Current Year Amount – Base Year Amount
Change = 1.4 – 0.10 = 1.3 (Suitable)
4) Market Price per Share of Stock
Price Earnings (PE) Ratio =
Earnings per Share
8.0
= = 5.7 times
1.4
5.0
= = 3.6 times
1.4
4.0
= = 3.6 times
0.10
2009
2010
2011
2010
2011

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5) Cash Dividends
Payout Ratio = * 100%
Net Income
25,000
= * 100 = 55%
45,000
18,000
= * 100 = 60%
30,000
Change in Amount = Current Year Amount – Base Year Amount
Change = 55 – 60 = (-5) (Unsuitable)
Cash Dividends = 18,000
Net Sales +
Return Earnings = 12,000
Return Earnings = Ending Bal. – Beginning Bal.
= 125,000 – 113,000 = 12,000
Cash Dividends = 25,000
Net Sales +
Return Earnings = 20,000
Return Earnings = Ending Bal. – Beginning Bal.
= 145,000 – 125,000 = 20,000
2010
2011

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6) Total Debt (Liabilities)
Debt to total Assets Ratio =
Total Assets
155,000
= * 100 = 24.2%
640,000
165,000
= * 100 = 27.5%
600,000
Change in Amount = Current Year Amount – Base Year Amount
Change = 24.2 – 27.5 = (- 3.3) (Unsuitable)
P (18-7):-
Presented below is an Incomplete Income Statement and an Incomplete
comparative Balance Sheet of Cotte Corporation.
COTTE CORPORATION
Income Statement
For the Year Ended December, 31, 2011
Sales $ 11,000,000
Cost of goods sold ? .
Gross Profit ?
Operating Expenses 1,665,000
Income from Operations ?
Other Expenses and Losses
Interest Expense ? .

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Income before Income Taxes ?
Income Tax Expense 560,000
Net income $ ? .
COTTE CORPORATION
Balance Sheets
December, 31
Assets
Current assets
2011 2010
Cash 450,000 375,000
Accounts Receivable (Net) ? 950,000
Inventory ? 1,720,000
Total Current Assets ? 3,045,000
Plant Assets (Net) 4,620,000 3,955,000
Total Assets $ ? $ 7,000,000
Liabilities and Stockholders’ Equity
Current Liabilities $ ? $ 825,000
Long-Term Notes Payable ? 2,800,000
Total Liabilities ? 3,625,000
Common Stock, $1 par 3,000,000 3,000,000
Retained Earnings 400,000 375,000
Total Stockholders’ Equity 3,400,000 3,375,000
Total Liabilities and Stockholders’ Equity $ ? $ 7,000,000
Additional information:-
1) The Receivables Turnover for 2011 is 10 times.
2) All sales are on Account.
3) The Profit Margin for 2011 is 14.5%.
4) Return on assets is 22% for 2011.

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5) The Current ratio on December 31, 2011, is 3.0.
6) The Inventory turnover for 2011 is 4.8 times.
Instructions:-
Compute the missing information given the ratios above. Show computations.
(Note: Start with one ratio and derive as much information as possible from it
before trying another ratio. List all missing amounts under the ratio used to find the
information.)
Solution:-
1) Net Sales
Receivables turnover Ratio =
10 =
Average Net Receivables
11,000,000
X
11,000,000
X = =11,000,000
10
AVR = 11,000,000 =
X + 950,000
2
X + 950,000 = 22,000,000
X = 22,000,000 – 950,000 = 21,050,000
Account Receivable = 21,050,000
2) Net Income
Profit Margin Ratio = * 100%
Net Sales
X
14.5 =
11,000,000
X = 14.5 * 11,000,000 = 159,500,000
Net income =159,500,000

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159,500,000
= * 100 = 14.5%
11,000,000
3) Net Income
Return on Assets = * 100%
Average Assets
159,500,000
22% = * 100
X
159,500,000
X = * 100 = 725,000,000
22%
AVR = 725,000,000 =
X + 7,000,000
2
X + 7,000,000 = 1,450,000,000
X = 1,450,000,000 – 7,000,000 = 1,443,000,000
Total Assets = 1,443,000,000
4) Current Assets
Current Ratio =
Current Liabilities
Total Assets = Fixed Assets + Current Assets
1,443,000,000 = 4,620,000 + X
X = 1,443,000,000 - 4,620,000 =1,438,380,000
Current Assets =1,438,380,000

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3.0 =
1,438,380,000
X
1,438,380,000
X = = 479,460,000
3.0
Current Liabilities = 479,460,000
5) Cost of goods sold
Inventory turnover Ratio =
4.8 =
Average Inventory
X
1,450,000
X = 4.8 * 1,450,000 = 6,960,000
Cost of Goods Sold = 6,960,000
Income before tax = Tax + Net income
X = 560,000 + 159,500,000
= 160,060,000
Gross Profit = Sale – Cost of Goods Sold
X = 11,000,000 – 6,960,000
= 4,040,000
COTTE CORPORATION
Income Statement
For the Year Ended December, 31, 2011
Sales $ 11,000,000
Cost of goods sold $ 6,960,000
Gross Profit $ 4,040,000

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Note:- This Numbers is not correct you
correct it & if there any WRONG ok
Operating Expenses $ 1,665,000
Income from Operations $ 2,375,000
Other Expenses and Losses $ 2,200,000
Income before Income Taxes $ 160,060,000
Income Tax Expense $ 560,000
L
COTTE CORPORATION
Balance Sheets
December, 31
Assets
Current assets
2011 2010
Cash 450,000 375,000
Accounts Receivable (Net) 21,050,000 950,000
Inventory 1,416,880,000 1,720,000
Total Current Assets 1,438,380,000 3,045,000
Plant Assets (Net) 4,620,000 3,955,000
Total Assets $ 144,300,000 $ 7,000,000
Liabilities and Stockholders’ Equity
Current Liabilities $ 479,460,000 $ 825,000
Long-Term Notes Payable 3,140,000 2,800,000
Total Liabilities 482,600,000 3,625,000
Common Stock, $1 par 3,000,000 3,000,000
Retained Earnings 400,000 375,000
Total Stockholders’ Equity 3,400,000 3,375,000
Total Liabilities and Stockholders’ Equity $ 486,000,000 $ 7,000,000

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2007 – 2006 = Amount
Amount
* 100%
2006
{Horizontal Analysis Rule}
Solution:-
Assets
Balance Sheets
2007 2006 Amount Percent
Current Assets 1,020,000 945,000 75,000 7.9%
Plant Assets (Net) 800,000 632,500 167,500 26.5%
Intangible Assets 15,000 17,500 (2,500) 14.3%
Total Assets 1,835,000 1,595,000 240,000 15.0%
Liabilities
Current Liabilities 344,500 303,000 41,500 13.7%
Long Term Liabilities 487,500 497,000 (9,500) (1.9%)
Total Liabilities 832,000 800,000 32,000 4.0%
Stock Holders’ Equity
Common Stock $1 Par 275,400 270,000 5,400 2.0%
Retained Earnings 727,600 525,000 202,600 38.6%
Total Stock holders’ Equity 1,003,000 795,000 208,000 26.2%
Total Liabilities &
Stock Holders’ Equity 1,835,000 1,595,000 240,000 15.0%

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Solution:-
Balance Sheets
Assets 2005 Percent
Current Assets 1,020,000 55.6%
Plant Assets (Net) 800,000 43.6%
Intangible Assets 15,000 0.8%
Total Assets 1,835,000 100%
Liabilities
Current Liabilities 344,500 18.8%
Long Term Liabilities 487,500 26.6%
Total Liabilities 832,000 45.4%
Stock Holders’ Equity
Common Stock $1 Par 275,400 15%
Retained Earnings 727,600 39.6%
Total Stock holders’ Equity 1,003,000 54.6%
Total Liabilities &
Stock Holders’ Equity 1,835,000 100%
Item
* 100%
Total Assets
{Vertical Analysis Rule}

32. ~ 32 ~ Dlovan Wrya
Solution:-
Sale
Sale return & Allowance
Net Sale
Income Statement
-
Cost of Goods Sold -
(1,281,000)
(61.1%)
Gross Profit 816,000 38.9%
Selling Expenses 253,000 12.0%
Administrative Expenses
- 104,400 5.0%
Total Operating Expenses 357,000 17.0%
Income from operations 459,000 21.9%
Other Revenue & Gains
Interest & dividends
+
9,000 0.4%
Other Expenses & Losses -
Interest Expenses
Income before income taxes
(36,000) 1.7%
432,000 20.6%
Income tax expenses -
(168,200)
8.0%
Net income 263,800 12.6%
Item
* 100%
Net Sales
{Vertical Analysis Rule}
Amount Percent
2,195,000 104.7%
(98,000) (4.7%)
2,097,000 100%

33. ~ 33 ~ Dlovan Wrya
Example:-
Asset turn over =1.5
Total liability = 540 000
Debt to total asset = 45%
Net receivable = 150 000
Required:- AVR collection period
Solution :-
AVR collection period = 365
𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑡𝑢𝑟𝑛 𝑜𝑣𝑒𝑟
=
365
12
= 30 days
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒
𝑎𝑣𝑟 𝑟𝑒𝑐𝑖𝑣𝑎𝑏𝑙𝑒
=
1800 000
150 000
= 12 times
Asset turn over = 𝑛𝑒𝑡 𝑠𝑎𝑙𝑒
𝑎𝑣𝑟 𝑎𝑠𝑠𝑒𝑡
1.5 = ?
1200 000
= 1200 000 * 1.5 * 1800 000
Debt to total asset = 𝑡𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 * 100
𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡
45% =
540 000
?
=
540 000
45%
= 1200 000
Receivable turn over =

34. ~ 34 ~ Dlovan Wrya
𝑚𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒
𝑒𝑎𝑟𝑛𝑖𝑛𝑔 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
= 20 = 6.67
?
𝑛𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑎𝑣𝑟 .𝑐𝑜𝑚𝑚.𝑠ℎ𝑎𝑟𝑒𝑠
? =
240 000
= 3
80 000
Return on assets = 𝑛𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑎𝑣𝑟 𝑎𝑠𝑠𝑒𝑡𝑠
20% = ?
1200 000
= 1200 000 * 20% = 240 000
Current Assets = Total Assets * Percent%
480 = ? * 40%
= 480 000 = 1200 000
40%
(Q.18-12 ) Solution:-
Percent of each item =
𝑖𝑡𝑒𝑚
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒
* 100
2010 Percent 2009 Percent
Cost of goods sold 970 25.5% 890 25.7%
Selling expenses 2,400 63% 2,330 67%
Interest expenses 10 0.26% 20 0.58%
Example:-
We have following information
Return on asset 20%
Market price 20
Current asset 480,000
AVR Common share 80 000 share
Percent of current assets 40% total asset
Earnings per share =
Price earnings ratio =

35. ~ 35 ~ Dlovan Wrya
Required:- find the price earnings ratio
Solution :
Income before tax 2155 000
Income tax 560 000
Net income 1595 000
Balance sheet
Asset
Current asset
2011
Cash 450,000
Account receivable (net) 1,250,000
Inventory 1,180,000
Total current asset 2,880,000
Plant asset 4,620,000
Total asset 750,000
Liability and stock holders’ equity
Current liability 960,000
Long term notes payable 3,140,000
Total liability 4,100,000
Common stock 3,000,000
Retained earnings 400,000
Total stock holder’s equity 3,400,000
Total liability and stock holder’s equity 750,000

36. ~ 36 ~ Dlovan Wrya