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lectures, study notes, study guides on financial statement analysis, Study notes of Financial Management

University of Northern Philippines (UNP)Financial Management

financial management accounting

Typology: Study notes

2020/2021

Uploaded on 10/01/2022

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Chapter 3: Financial Statement Analysis
Purpose of the Chapter:
How analysts use historical financial statements in financial statement analysis.
Calculate and interpret operating, credit, and investment ratios.
Prepare a trend analysis of a company’s financial ratios.
How analysts use financial statement analysis to help prepare a valuation forecast.
The cautions analysts must consider when using financial statement analysis.
Financial statement analysis are used to weigh and evaluate the operating performance of a firm. It
access the profitability of the business firm, the firm’s ability to meet its obligations, safety of the
investment in the business and effectiveness of management in running the firm.
Tools and techniques in analysing financial statement.
1. Horizontal Analysis – involves comparing figures in two or more consecutive period. The
difference between the figures of the two periods is calculated and the percentage of
change from one period to the next, with the earliest period as the base.
Example: 2017 2018 %change
Sales 10,000 15,000 50%
Increases are usually reflected with a positive % of change and decreases are usually
reflected with a negative () % of change.
a. Trend Analysis – a more advance form of Horizontal Analysis. Trend Analysis needs at
least 5 – 10 years of experience in order to determine the trend for a particular account,
unusual changes are not reflected in the trend. The firm will then compare the financial
statement for a given year, based on the trend with that of the actual financial
statement of the firm.
Analysis: Net Income Decreases by 42.29% as a result of decrease in sales of 5%, though
Cost of Goods Sold decreases by 1.49% it didn’t equal the decrease of 5% in sales (possible
scenarios are: The volume of sale decreases and cost to produce one unit increases or
Selling Price decreases as a result of decreasing the cost of goods sold) and Total operating
expenses decreases by 3.49%.
2. Vertical Analysis – involves comparing figures in financial statements of a single period. The
base for income statement is the revenue/sales and the base for balance sheet is the total
assets/ total liabilities and equity. Vertical Analysis are effective when comparing two or
more companies.
Example: A firm’s salaries expense is 60% of revenue while another firm’s salaries expense
is 70% of revenue.
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Chapter 3: Financial Statement Analysis

Purpose of the Chapter:  How analysts use historical financial statements in financial statement analysis.  Calculate and interpret operating, credit, and investment ratios.  Prepare a trend analysis of a company’s financial ratios.  How analysts use financial statement analysis to help prepare a valuation forecast.  The cautions analysts must consider when using financial statement analysis. Financial statement analysis are used to weigh and evaluate the operating performance of a firm. It access the profitability of the business firm, the firm’s ability to meet its obligations, safety of the investment in the business and effectiveness of management in running the firm.

Tools and techniques in analysing financial statement.

  1. Horizontal Analysis – involves comparing figures in two or more consecutive period. The difference between the figures of the two periods is calculated and the percentage of change from one period to the next, with the earliest period as the base. Example: 2017 2018 %change Sales 10,000 15,000 50% Increases are usually reflected with a positive % of change and decreases are usually reflected with a negative () % of change. a. Trend Analysis – a more advance form of Horizontal Analysis. Trend Analysis needs at least 5 – 10 years of experience in order to determine the trend for a particular account, unusual changes are not reflected in the trend. The firm will then compare the financial statement for a given year, based on the trend with that of the actual financial statement of the firm. Analysis: Net Income Decreases by 42.29% as a result of decrease in sales of 5%, though Cost of Goods Sold decreases by 1.49% it didn’t equal the decrease of 5% in sales (possible scenarios are: The volume of sale decreases and cost to produce one unit increases or Selling Price decreases as a result of decreasing the cost of goods sold) and Total operating expenses decreases by 3.49%.
  2. Vertical Analysis – involves comparing figures in financial statements of a single period. The base for income statement is the revenue/sales and the base for balance sheet is the total assets/ total liabilities and equity. Vertical Analysis are effective when comparing two or more companies. Example: A firm’s salaries expense is 60% of revenue while another firm’s salaries expense is 70% of revenue.

At the bottom of the analysis, note that net income, as a percentage of sales, declined by 2.62 percentage points (6.67 percent to 4.05 percent). As a dollar amount, net income declined by 14,096 (33,333 to 19,237). Management should consider both the percentage change and the dollar amount change.

  1. Ratio Analysis – different ratios are computed to access the performance of the firm.

Financial statement ratios are categorized into four (3).

a. Liquidity ratios – allows the firm to measure its ability to pay its current obligations. b. Solvency ratios – allows the firm to measure its ability to pay long-term obligations. It access the firm’s ability to exist in the long run (going concern). c. Profitability ratios – allows the firm to measure its ability to earn an adequate return on sales, total assets and invested capital. It allows the firm to access if its capital is earning effectively through operations. Usually the firm’s rate of return is compared to a highest risk-free rate of return of an investment that is available in the market

Liquidity Ratios:

  1. Current ratio – also called the working capital ratio, measures the number of times that the current liabilities can be paid with the available current liabilities. Working Capital = Current Assets – Current Liabilities Formula is: Current Ratio = Current Assets Current Liabilities Example: If Current Assets is 1,000,000 and Current Liabilities is 200,000. Then: Current Ratio = 1,000,000= 5 200, Which means that the current liabilities can be paid 5 times until the current assets are exhausted. Current Ratio roughly defines the short term debt-paying ability of the firm
  2. Acid test ratio – also called the quick asset ratio, because not all asset can pay current liabilities, like prepaid expenses, quick asset considers only the part of current liabilities that are nearly converted into cash. The quick assets are: Cash and cash equivalent, trading securities and receivables. Formula is: Acid test ratio = Cash & Cash Equivalent + Trading Securities + Receivables Current Liabilities Example: If Cash is 150,000, Short term Investment is 200,000 and Accounts Receivable is 400,000 and Current Liabilities is 200,000. Then: Acid test ratio = 150,000 + 200,000 + 400,000 = 3. 200, Acid test ratio is stricter than current ratio. Acid test ratio does not include inventory and prepaid expense, because inventory needs to be sold then collected first before it can be used to pay debts and prepaid expenses will never be converted to cash while short term investments can be immediately sold through active market and accounts receivable can be used to finance short term debt through pledging and factoring.

Average Trade Payables = Beginning Payables + Ending Payables 2 Example: If Net Credit Purchase is 500,000 and Average Trade Payables is 200,000. Then: Accounts Payable Turnover = 500,000 = 2.5 times 200, f. Average Age of Trade Payables = at an average how many days will it take for payables to be paid. Formula is: Average age of Inventory = 365 days Inventory Turnover In the Previous Example, Average age of Inventory = 365 = 146 days

At an average it takes 146 days for accounts payable to be paid. Cash Conversion Cycle – The length of time for cash used to purchase inventory to be converted back to cash. Cash Conversion Cycle = Ave. Age of Receivable + Ave. Age of Inventory – Ave Age of Payable The acceptable liquidity ratios depends on the accepted standard of the entity but in no case should it be lower than one (1). A liquidity ratio of less than one indicates that the entity is no longer liquid. A very high liquidity ratio may indicate that the entity might not be utilizing its assets efficiently, To avoid underutilization of asset, the entity can either choose to expand their business, establish a new project or purchase long-term assets.

Solvency Ratios:

  1. Times Interest Earned – Determines the company’s ability to cover its interest expense Formula is: Times Interest Earned = Income before interest and tax Interest Expense Example: Income before interest and taxes is 500,000 while interest expense is 250,000. Then: Times Interest Earned = 500,000 = 2 times 200, Times Interest Earned shows if your earnings are beings used up to pay interest. If a company has less than one (1) times interest earned, then the entities earnings are actually not enough to cover the interest of loans. If a company has low times interest earned (depends on the standard of the company) most operating income are used to pay interest. High times interest earnings is desired.
  2. Debt-equity ratio – Ratio of Debt to Equity Formula is: Debt-equity ratio = Total Liabilities Total Equity Example: If Total Liabilities is 300,000 and Total Equity is 100,000. Then: Debt-Equity Ratio = 300,000 = 3 100, Debt-equity ratio compares the ownership of creditors to the total asset, a very high debt- equity ratio shows that if the entity is liquidated, most of assets are actually used to pay liabilities, while a minimal amount goes to the owner.
  3. Debt Ratio – Indicates the percentage of total assets provided by creditors. Formula is: Debt ratio = Total Liabilities Total Assets

Example: If Total Liabilities is 300,000 and Total Assets is 400,000. Then: Debt Ratio = 300,000 = 75% 400, Debt Ratio shows the percentage of ownership of creditors to the total asset, in the example in shows that 75% of the total asset belongs to the creditors

  1. Equity Ratio – Indicates the percentage of total assets provided by the owners or stockholders. Formula is: Equity ratio = Total Equity Total Assets Example: If Total Equity is 100,000 and Total Assets is 400,000. Then: Equity Ratio = 100,000 = 75% 400, Equity Ratio shows the percentage of ownership of shareholders to the total asset, in the example in shows that 25% of the total asset belongs to the shareholders. Equity Ratio + Debt Ratio = 100% Profitability Ratio:
  2. Rate of Return – also known as return on investment Formula is: Rate of Return = Net Income Investment
  3. Return on Sales – measures the percentage of each peso revenue that results in net income Formula is: Return on Sales = Net Income Net Sales
  4. Return on Asset – it measures how assets were efficiently used to produce the sales or revenue Formula is: Return on Asset = Net Income Average Total Asset
  5. Return on Owners’ Equity – measures the percentage of net income to capital Formula is: Return on Equity = Net Income Average Equity
  6. Return on Common Equity – measures the percentage of return to common equity after deducting the dividends for preference stock. Formula is: Rate on Common Equity = Net Income – Preferred Dividends Average Common Stockholders’ Equity
  7. Basic Earnings Power Ratio - ratio is a measure that calculates the earning power of a business before the effect of the business' income taxes and its financial leverage. Formula is: Basic Earnings Power Ratio = Net Income Before Interest and Taxes Average Common Stockholders’ Equity
  8. Earnings per share Formula is: Earnings per share = Net Income – Preferred Dividends Weighted Average Number of Common Shares

financial statements but also to use that information to forecast the future.

  1. Operating ratios measure a firm’s ability to repay its obligations.
  2. One of the common credit ratios is the return on capital ratio.
  3. The revenue growth rate is a ratio that measures the expansion or contraction of the business.
  4. A ratio is most meaningful when the numerator and denominator are related to each other.
  5. When an interest coverage ratio is computed, the lower the result, the better the firm’s ability to make interest payments.
  6. The MB ratio is a popular metric used to determine the relationship between the market price of a stock and its earnings power as measured by earnings per share.
  7. The only ratio that measures return on investment is the return on common equity.
  8. The benchmark used in cross-sectional analysis is the prior performance of the firm currently undergoing analysis.
  9. A firm “cannibalizes” its revenue when it adds additional store locations into an area in which the firm already has existing stores.
  10. The benchmark used in trend analysis is a given firm’s performance over a period of time.
  11. When analyzing revenue growth in trend analysis, often the analyst will not only look at overall revenue growth rates but also at revenue growth by business segment.
  12. Cause-of-action analysis is a special kind of evaluation in which the reasons for a change in a specific item over some period are identified.
  13. In cross-sectional analysis, we compare two or more companies using financial ratios, and we may also compare the companies’ ratios to an industry average.
  14. In doing ratio analysis, we must recognize that different firms provide different levels of disclosure. Exercise 2: Multiple Choice
  15. In financial analysis, ratios are used to help us learn about the firm’s: a. profitability b. growth and potential for growth c. resource needs d. All of the above answers are correct.
  16. A ratio that is used to evaluate a firm’s operating margin percentage is classified as: a. a specialty ratio b. an investment ratio c. a credit ratio d. an operating ratio
  17. A ratio that measures income taxes to revenues is: a. relatively meaningless since it tells us little about the income tax rate or the profitability of the firm b. an excellent metric since it compares the effective rate of income tax to the profitability of the firm c. classified as a common investment ratio d. complimentary to the return on common equity ratio
  18. The only operating ratio that uses the cost of sales in its numerator is the: a. market-to-book ratio b. quick ratio c. inventory turnover ratio d. days payables outstanding ratio
  19. An operating ratio, such as the inventory turnover ratio, varies greatly by industry. An example of a business with a high inventory turnover ratio is a: a. watch repair shop b. grocery store c. jewelry retailer

d. CPA firm

  1. To help determine whether a business should extend credit to various other businesses, an analyst will look at credit ratios. The ratio that measures the speed with which the firm can pay its obligations with cash, cash equivalents, and short-term investments is known as the: a. days payables outstanding ratio b. debt to capital ratio c. current ratio d. quick ratio
  2. The denominator in the debt to capital ratio consists of: a. debt, minority interest, and equity b. the total obligations of the firm c. the total equity of the firm d. net income, common and preferred stock, and retained earnings
  3. Investors and managers use the price-to-earnings and market-to-book ratios to: a. primarily measure business performance b. primarily screen potential investments c. measure business performance and screen potential investments d. track the efficiency of leverage in capital spending in both foreign and domestic markets
  4. The __________ ratio uses net income in its numerator while the __________ ratio uses diluted earnings per share in its denominator. a. return on common equity; market-to-book b. return on common equity; price-to earnings c. return on capital; market-to-book d. return on capital; price-to-earnings
  5. A ratio has little meaning until it is compared to a benchmark. Financial analysts use several common benchmarks to help them better understand and interpret financial ratios. The benchmark in which ratios from several different companies or an industry segment are analyzed is known as a: a. cross-sectional analysis b. trend analysis c. cause-of-change analysis d. cause-of-action analysis
  6. A thorough financial analysis includes any adjustments to the financial statements that are necessary to develop useful forecasts. Such forecasts are used in the analyst’s valuation work. An example of an adjustment made to understand a business more completely for purposes of valuation is to: a. change financial statement items even though such adjustment may not be per GAAP b. change financial statement items that may incorporate accounting policies different than that of the firm c. exclude a financial statement item such as joint venture income d. All of the answers above are correct.
  1. A firm has the following operating income rates for the last four years: 2000, 9.0%; 2001, 8.9%; 2002, 9.1%; 2003, 8.8%. From a standpoint of trend analysis, what conclusion might an analyst reach regarding the firm’s revenue growth? a. The trend analysis indicates the firm’s operating income has been flat over time. b. The trend analysis indicates the firm’s operating income has materially declined over time and is cause for investor concern. c. The trend analysis indicates the firm’s operating income has been increasing at a fiscally healthy rate over time. d. The conclusion is indeterminable from the information given.
  2. There are two key ratios that measure operating profitability. The numerator for the __________ ratio uses income while the __________ ratio uses revenues less cost of goods sold in its computation. a. gross margin percentage; operating margin percentage b. operating margin percentage; gross margin percentage c. quick; operating margin percentage d. current; gross margin percentage
  3. The analyst must exercise caution when using ratios as part of the analysis of a firm. The fact that ratios often vary across industries is an example of what is called: a. an accounting method discrepancy b. an industry and business difference c. a business environment change d. an ambiguous ratio definition
  4. Select the answer that best fits this statement, “Analysts define ratios differently.” a. What some analysts call trend analysis others call cross-sectional analysis. b. What some analysts call the current ratio is called the quick ratio by others. c. The numerator used in the return on capital ratio may vary. d. The income statement is restated in non-GAAP terms.
  5. Ratios often aid analysts to project the future. Such projections require the adjustment of certain items found on the financial statements. One such item that should be adjusted in such a projection is: a. removing an extraordinary item from the income statement b. removing revenue from the income statement c. the earnings-per-share calculation when there are no dilutive or anti-dilutive items d. the reconciliation of cash on the balance sheet

Problems

  1. Following are data about Blite Company Average total assets P150, Average owner’s equity 60, Net income after interest but before tax 10, Bonds payable, 8% 50, Income tax rate 35% Calculate the following ratios.
  2. Times interest earned
  3. Return on equity
  4. Return on assets
  5. Basic earnings power ratio
  6. Below are data about Loi Merchandising Company: Sales P500, Cost of goods sold 200, Average inventory 20, Average receivable 30, Compute the following: a. Inventory turnover b. Receivable turnover c. Collection period of accounts receivable d. Average age of inventory e. Operating cycle
  7. Estrada Inc. is concerned about the level of its advertising and office salaries expense. Selected statement of comprehensive income data from 2016 – 2018 appear below: 2018 2017 2016 Sales P140,000 P60,000 P37, Gross Profit 89,600 37,200 22, Advertising Expense 7,000 3,300 2, Office Salaries 22,400 9,000 4, Profit 30,800 13,800 9,
  8. The following information was taken from the statement of financial position of Blanche Corporation: Cash P13, Accounts Receivable (net) 33, Merchandise Inventory 40, Prepaid Expenses 9, Accounts Payable 25, Accrued Payables 1, Notes Payable (due in 6 months) 10, Calculate the working capital, current ratio and quick ratio
  9. The following data are available from Gumban’s annual report: Beginning Merchandise Inventory P 245, Ending Merchandise Inventory 375, Beginning Accounts Receivable 250, Ending Accounts Receivable 297, Cost of Goods Sold 2,480, Cash Sales 1,000, Total Sales 5,100, Gumban’s Credit Terms Net 30 days Required:
    1. Calculate inventory turnover and accounts receivable turnover
    2. In your opinion, is Gumban doing a good job in receivables? Explain.
  1. Milward Corporation’s books disclosed the following information for the year ended December 31, 2017: Net credit sales P1,500, Net cash sales 240, Accounts receivable at beginning of year 200, Accounts receivable at end of year 400, Milward’s accounts receivable turnover is A. 3.75 times C. 5.00 times B. 4.35 times D. 5.80 times Days receivable
  2. Batik Clothing Store had a balance in the Accounts Receivable account of P390,000 at the beginning of the year and a balance of P410,000 at the end of the year. The net credit sales during the year amounted to P4,000,000. Using 360-day year, what is the average collection period of the receivables? A. 30 days C. 73 days B. 65 days D. 36 days Cash collection
  3. Deity Company had sales of P30,000, increase in accounts payable of P5,000, decrease in accounts receivable of P1,000, increase in inventories of P4,000, and depreciation expense of P4,000. What was the cash collected from customers? A. P31,000 C. P34, B. P35,000 D. P25, Inventory turnover
  4. During 2017, Tarlac Company purchased P960,000 of inventory. The cost of goods sold for 2017 was P900,000, and the ending inventory at December 31, 2017 was P180,000. What was the inventory turnover for 2017? A. 6.4 C. 5. B. 6.0 D. 5.
  5. Selected information from the accounting records of Petals Company is as follows: Net sales for 2017 P900, Cost of goods sold for 2017 600, Inventory at December 31, 2016 180, Inventory at December 31, 2017 156, Petals’ inventory turnover for 2017 is A. 5.77 times C. 3.67 times B. 3.85 times D. 3.57 times
  6. The Moss Company presents the following data for 2017. Net Sales, 2017 P3,007, Net Sales, 2016 P 930, Cost of Goods Sold, 2017 P2,000, Cost of Goods Sold, 2017 P1,000, Inventory, beginning of 2017 P 341, Inventory, end of 2017 P 376, The merchandise inventory turnover for 2017 is: A. 5.6 C. 7. B. 15.6 D. 7.
  7. Based on the following data for the current year, what is the inventory turnover? Net sales on account during year P 500, Cost of merchandise sold during year 330, Accounts receivable, beginning of year 45, Accounts receivable, end of year 35, / Inventory, end of year 110, A. 3.3 C. 3. B. 8.3 D. 3.

Days inventory

  1. Selected information from the accounting records of Eternity Manufacturing Company follows: Net sales P3,600, Cost of goods sold 2,400, Inventories at January 1 672, Inventories at December 31 576, What is the number of days’ sales in average inventories for the year? A. 102.2 C. 87. B. 94.9 D. 68. Turnover ratios Asset turnover Asset
  2. Net sales are P6,000,000, beginning total assets are P2,800,000, and the asset turnover is 3.0. What is the ending total asset balance? A. P2,000,000. C. P2,800,000. B. P1,200,000. D. P1,600,000. Solvency ratios Debt ratio
  3. Jordan Manufacturing reports the following capital structure: Current liabilities P100, Long-term debt 400, Deferred income taxes 10, Preferred stock 80, Common stock 100, Premium on common stock 180, Retained earnings 170, What is the debt ratio? A. 0.48 C. 0. B. 0.49 D. 0. Times interest earned
  4. House of Fashion Company had the following financial statistics for 2016: Long-term debt (average rate of interest is 8%) P400, Interest expense 35, Net income 48, Income tax 46, Operating income 107, What is the times interest earned for 2016? A. 11.4 times C. 3.1 times B. 3.3 times D. 3.7 times
  5. Brava Company reported the following on its income statement: Income before taxes P400, Income tax expense 100, Net income P300, An analysis of the income statement revealed that interest expense was P100,000. Brava Company’s times interest earned (TIE) was A. 5 times C. 3.5 times B. 4 times D. 3 times
  6. The balance sheet and income statement data for Candle Factory indicate the following: Bonds payable, 10% (issued 1998 due 2022) P1,000, Preferred 5% stock, P100 par (no change during year) 300, Common stock, P50 par (no change during year) 2,000, Income before income tax for year 350, Income tax for year 80, Common dividends paid 50, Preferred dividends paid 15,

 Common stock, P2 par value; 100,000 shares authorized, issued, and outstanding.  10% noncumulative, nonconvertible preferred stock, P100 par value; 1,000 shares authorized, issued, and outstanding. Orchard’s common stock, which is listed on a major stock exchange, was quoted at P4 per share on December 31. Orchard’s net income for the year ended December 31 was P50,000. The yearly preferred dividend was declared. No capital stock transactions occurred. What was the price earnings ratio on Orchard’s common stock at December 31? A. 6 to 1 C. 10 to 1 B. 8 to 1 D. 16 to 1

  1. On December 31, 2016 and 2017, Renegade Corporation had 100,000 shares of common stock and 50,000 shares of noncumulative and nonconvertible preferred stock issued and outstanding. Additional information: Stockholders’ equity at 12/31/07 P4,500, Net income year ended 12/31/07 1,200, Dividends on preferred stock year ended 12/31/07 300, Market price per share of common stock at 12/31/07 144 The price-earnings ratio on common stock at December 31, 2017, was A. 10 to 1 C. 14 to 1 B. 12 to 1 D. 16 to 1 Payout ratio
  2. Selected financial data of Alexander Corporation for the year ended December 31, 2017, is presented below: Operating income P900, Interest expense (100,000) Income before income taxes 800, Income tax (320,000) Net income 480, Preferred stock dividend (200,000) Net income available to common stockholders 280, Common stock dividends were P120,000. The payout ratio is: A. 42.9 percent C. 25.0 percent B. 66.7 percent D. 71.4 percent P/E ratio & Payout ratio Use the following information for question Nos. 33 and 34: Terry Corporation had net income of P200,000 and paid dividends to common stockholders of P40,000 in
  3. The weighted-average number of shares outstanding in 2017 was 50,000 shares. Terry Corporation’s common stock is selling for P60 per share in the local stock exchange.
  4. Terry Corporation’s price-earnings ratio is A. 3.8 times C. 18.8 times B. 15 times D. 6 times
  5. Terry Corporation’s payout ratio for 2017 is A. P4 per share C. 20.0 percent B. 12.5 percent D. 25.0 percent Integrated ratios Liquidity & activity ratios Inventory
  6. The current assets of Mayon Enterprise consists of cash, accounts receivable, and inventory. The following information is available: Credit sales 75% of total sales Inventory turnover 5 times Working capital P1,120, Current ratio 2.00 to 1 Quick ratio 1.25 to 1 Average Collection period 42 days Working days 360

The estimated inventory amount is: A. 840,000 C. 720, B. 600,000 D. 550,

  1. The following data were obtained from the records of Salacot Company: Current ratio (at year end) 1.5 to 1 Inventory turnover based on sales and ending inventory 15 times Inventory turnover based on cost of goods sold and ending inventory10.5 times Gross margin for 2017 P360, What was Salacot Company’s December 31, 2017 balance in the Inventory account? A. P120,000 C. P 80, B. P 54,000 D. P 95, Net sales
  2. Selected data from Mildred Company’s year-end financial statements are presented below. The difference between average and ending inventory is immaterial. Current ratio 2. Quick ratio 1. Current liabilities P120, Inventory turnover (based on cost of sales) 8 times Gross profit margin 40% Mildred’s net sales for the year were A. P 800,000 C. P 480, B. P 672,000 D. P1,200, Gross margin 39. Selected information from the accounting records of the Blackwood Co. is as follows: Net A/R at December 31, 2016 P 900, Net A/R at December 31, 2017 P1,000, Accounts receivable turnover 5 to 1 Inventories at December 31, 2016 P1,100, Inventories at December 31, 2017 P1,200, Inventory turnover 4 to 1 What was the gross margin for 2017? A. P150,000 C. P300, B. P200,000 D. P400, Market Test Ratio Dividend yield
  3. Recto Co. has a price earnings ratio of 10, earnings per share of P2.20, and a pay out ratio of 75%. The dividend yield is A. 25.0% C. 7.5% B. 22.0% D. 10.0%
  4. The following were reflected from the records of Salvacion Company: Earnings before interest and taxes P1,250, Interest expense 250, Preferred dividends 200, Payout ratio 40 percent Shares outstanding throughout 2016 Preferred 20, Common 25, Income tax rate 40 percent Price earnings ratio 5 times The dividend yield ratio is A. 0.50 C. 0. B. 0.12 D. 0. Comprehensive
  5. The balance sheets of Magdangal Company at the end of each of the first two years of operations indicate the following: