Volume factor:
Change in volume x Gross profit per unit last year
Price factor:
Change in unit selling price x current year’s sales volume
Cost factor:
Change in unit cost x current year’s sales volume
19B 19A
Sales volume (units) 5,000 4,000
Unit selling price P12 P16
Unit cost 9 8
Operating expenses:
Selling expenses 6,000 10,000
General and admin expenses 8,000 7,000
A Trading Co.
Income Statement
For the years 19B and 19A
19B 19A
Sales 60,000 64,000
Less: Cost of sales 45,000 32,000
Gross profit 15,000 32,000
Less: operating expenses
Selling 6,000 10,000
General and Administrative 8,000 7,000
14,000 17,000
Net Income 1,000 15,000
Volume factor
Increase in sales volume 1,000
Gross profit 16 - 8 8 8,000 favorable
Price factor
Decrease in unit selling price 4
Sales volume 5,000 20,000 unfavorable
Cost factor
Increase in unit cost 1
Sales volume 5,000 5,000 unfavorable
Decrease in gross profit 17,000
Analysis of variation in net income
Decrease in gross profit
Increase in volume 8,000 favorable
Decrease in unit selling price 20,000 unfavorable
Increase in unit cost 5,000 unfavorable
Decrease in gross profit 17,000
Decrease in selling expenses 4,000 favorable
Increase in general and admin expenses 1,000 unfavorable
Decrease in net income 14,000
Comparative Statements
19B 19A Increase/Decrease %
Sales 60,000 64,000 (4,000) (6.25%)
Less: Cost of sales 45,000 32,000 13,000 40.63%
Gross profit 15,000 32,000 (17,000) (53.13%)
Less: operating expenses
Selling 6,000 10,000 (4,000) (40%)
General and Admin 8,000 7,000 1,000 14.30%
14,000 17,000 (3,000) (17.65%)
Net Income 1,000 15,000 (14,000) (93.33%)
Common size statement
19A 19B
Sales 100% 100%
Less: Cost of sales 75 50
Gross profit 25 50
Less: operating expenses
Selling 10 16
General and Admin 13 11
23 27
Net Income 2 23
Trend analysis
19A 19B 19C 19D 19E
Sales P80,000 P96,000 P60,000 P50,000 P84,000
Cost of sales 40,000 50,000 36,000 24,000 44,000
Selling exp 10,000 12,000 9,000 8,000 15,000
Gen and adm exp 6,000 9,000 8,000 6,000 7,500
Net income 24,000 25,000 7,000 12,000 17,500
Financial ratios
Profitability
1. Rate of return on sales Net income Net income per peso of
Net Sales sales
10. Working capital COS + OE exc. Charges not Rate at which working
turnover requiring working capital capital is being used
Ave. Working capital
14. Earnings per share Net income less preferred Amount of returns on each
stock dividend share of common stock
Ave. No. of common and ability to pay
shares outstanding dividends
16. Capitalization rate or Earnings per share Rate at which the stock
earnings/price ratio Market price per share market is apparently
capitalizing the value of
current earnings
21. Market price to Book Market price per share Whether stock is
value per share Book value per share undervalued or not
Liquidity or short-term solvency
1. Current ratio Current Assets Indicates ability to pay
Current Liabilities current obligations
4. Ratio of each current Each current asset item Liquidity of the total
asset item to total current Total current assets current assets and the
assets distribution thereof
10.a. Cash and Marketable Cost of goods sold + Number of times amount
securities turnover Operating of cash and its equivalent
expenses(exclude charges is used during the period
not requiring cash)
Ave. cash and marketable
securities
9. Book value per share Common stock equity Book value of net assets
Number of common for every outstanding
shares outstanding share of common stock
10. Number of times Income before interest Company’s ability to pay
interest is earned and taxes fixed interest charges
Annual interest charges
11. No. of times preferred Net income after tax Ability to meet annual
dividend requirement is Preferred stock dividend preferred stock dividend
earned requirement requirement
12. No. of times fixed Income before taxes and Ability to meet annual
charges are earned fixed charges fixed charges
Fixed charges (rent
expense + interest
Trading Manufacturing
No. of days’ sales in inventory Xx
No. of days’ usage in raw materials inventory Xx
No. of days to process Xx
No. of days sales in finished goods inventory Xx
Average collection period(number of days dales in Xx
receivables)
No. of days in operating cycle xx
xx xx