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D.

Financial Analysis
Working Capital
It measures both the company’s efficiency and its short-term financial health.
Table Working Capital
2019 2020 2021 2022 2023 202

Current Assets 248,073.83 132,585.33 151,607.95 150,289.42 374,695.64 692,055.9

Current Liabilities 40,827.13 58,457.15 101,589.24 129,126.46 179,733.37 235,657.4

TOTAL 207,246.70 74,128.18 50,018.71 21,162.96 194,962.27 456,398.5

The highest working capital resulted from the 6-year projected information is on
the year 2024, Php456,398.50; and the higher the working capital is, the more current assets
are available for operations.

LIQUIDITY RATIOS:
Current Ratio
It indicated the extent to which the current liabilities are covered by those assets
expected to be converted to cash in the future.
Table Current Ratio
2019 2020 2021 2022 2023 2024

Current Assets 248,073.83 132,585.33 151,607.95 150,289.42 374,695.64 692,055.95


Current
Liabilities 40,827.13 58,457.15 101,589.24 129,126.46 179,733.37 235,657.45

TOTAL 6.08 2.27 1.49 1.16 2.08 2.94

The highest current ratio resulted from the 6-year projected information is 6.08 on
the year 2019. For 5 years, as can be noticed on the table above, there are enough current
assets available to cover the current obligations of the business.
Quick Ratio
It measures the firm’s liquidity by using the more liquid types of current assets to pay-off
short term obligations.
Table Quick Ratio
2019 2020 2021 2022 2023 202

Quick Assets 236,026.08 120,537.58 139,560.20 138,241.67 362,647.89 680,008.20

Current Liabilities 40827.13 58,457.15 101,589.24 129,126.46 179,733.37 235,657.45

TOTAL 5.78 2.06 1.37 1.07 2.02 2.89

The highest quick ratio from the 5-year projected information provided is 5.78 on the year
2019. The liquidity position of the business is highly liquid as the years pass, that
the business can meet its maturing obligations.

ASSET MANAGEMENT RATIOS:


Total Asset Turnover
It measures the turnover of all the firm’s assets.
Table Total Asset Turnover
2019 2020 2021 2022 2023 2024

Sales 940,795.21 2,009,538.59 2,146,187.21 2,292,127.94 2,447,992.64 2,614,456.14

Total Assets 3,218,142.95 2,906,934.69 2,730,237.55 2,641,199.26 2,669,885.72 2,820,413.87


TOTAL 0.29 0.69 0.79 0.87 0.92 0.93

The highest total asset turnover for 2024 is .93 times, and is continually increasing
starting from year 2019. The business utilized its assets well through its increased
profit every year.

Fixed Asset Turnover


It measures how effectively the firm uses its plant and equipment.
Table Fixed Asset Turnover
2019 2020 2021 2022 2023 2

Sales 940,795.21 2,009,538.59 2,146,187.21 2,292,127.94 2,447,992.64 2,614,456


Net Fixed
Assets 2,970,069.12 2,774,349.36 2,578,629.60 2,490,909.84 2,295,190.08 2,128,357
TOTAL 0.32 0.72 0.83 0.92 1.07 1

The fixed asset turnover for 2019 is .32 times, and is continually increasing for the
next 5 years. The highest fixed asset turnover is on the year 2024, 1.23 times and is
one of the indications that the business utilizes the fixed assets well through its
increasing sales.

DEBT MANAGEMENT RATIO:


Debt Ratio
It measures the extent of a business’ or consumer’s leverage.
Table Debt Ratio
2019 2020 2021 2022 2023 2024

Total Debt 40,827.13 45,102.13 87,139.01 129,126.46 179,733.37 235,657.45


Total
Assets 3,218,142.95 2,906,934.69 2,730,237.55 2,641,199.26 2,669,885.72 2,820,413.87
TOTAL 0.01 0.02 0.03 0.05 0.07 0.08

The first year of the business resulted to the lowest debt ratio, .01 which is the most
favorable among the debt ratios shown within the 6-year projected results. The
second, third fourth, fifth and sixth year ratio are still favorable; which denotes that
the business only have those computed percentages of debt as part of its total assets.

PROFITABILITY RATIOS:
Gross Profit Ratio ?????
It shows the relationship between gross profit and total net sales and is a popular
tool to evaluate the operational performance of the business.
Table Gross Profit Ratio
For the years 2019-2024, it shows that the gross profit ratio of the business is
increasing. The trend of the business’ earnings suggest a positive investment quality
inspite of the increasing percentage for the first five years of the business.

Net Profit Margin


It measures the net income per peso of sales and calculated by dividing the net income by
sales.
Table Net Profit Margin
2019 2020 2021 2022 2023 2024
Net
Income (92,684.18) 44,516.74 141,265.98 228,974.26 338,079.55 454,604.07

Sales 940,795.21 2,009,538.59 2,146,187.21 2,292,127.94 2,447,992.64 2,614,456.14

TOTAL -0.10 0.02 0.07 0.10 0.14 0.17

For the year 2019-2024, the net profit margin ratio is slowly increasing from -10%
to 17%.

Operating Expense Margin


Table Operating Expense Margin
2019 2020 2021 2022 2023 2024

OPEX 1,033,479.39 1,965,021.85 1,965,021.85 1,965,021.85 1,965,021.85 1,965,021.75

Sales 940,795.21 2,009,538.59 2,146,187.21 2,292,127.94 2,447,992.64 2,614,456.14


TOTAL 1.10 0.98 0.92 0.86 0.80 0.75

The operating expense margin for the year 2019 to 2024 is slowly decreasing from
110% to 75% which is a good indicator that the business is being managed
efficiently and that less of the business’ income is covering operational costs.
Return on Total Asset
It measures how well the management utilizes its assets to generate profit. The
higher the return, the more efficient the management employs its assets.
Table Return on Total Asset
2019 2020 2021 2022 2023

Net Income (92,684.18) 31,161.72 126,815.75 228,974.26 338,079.55 454,604


Ave. Total
Assets 3,218,142.95 3,062,538.82 2,818,586.12 2,685,718.41 2,655,542.49 2,745,1
TOTAL -0.03 0.01 0.04 0.09 0.13

The highest return on asset is on the year 2024, 17% which is from the return of
negative 3% in the year 2019.

Return on Equity
It determines how much profit a firm generates for every amount in capital. The higher the
ratio percentage, the more effective the management is in utilizing its equity base
that will lead to a better return for its investors.
Table Return on Equity
2019 2020 2021 2022 2023 2024

Net Income (92,684.18) 31,161.72 126,815.75 228,974.26 338,079.55 454,604.07

Ave. Equity 3,177,315.82 3,019,574.19 2,752,465.55 2,577,585.67 2,501,112.58 2,537,454.39


TOTAL -0.03 0.01 0.05 0.09 0.14 0.18

The highest return on equity is on the year 2024, 18% which is from the return of negative
3% in the year 2019.

CAPITAL BUDGETING TECHNIQUE


1. Payback Period
a. Traditional Payback Period
It is the length of time required to recover the cost of an investment.
Payback Period = Initial Investment / Net Annual Cash Inflow
Table Traditional Payback Period

Net Cash Inflows


Initial
Year Investment Each Year Cumulative
2019 (3,450,000) 126,639.25 (3,323,360.75)
2020 199,994.70 (3,123,366.05)
2021 237,756.58 (2,885,609.47)
2022 237,707.15 (2,647,902.32)
2023 246,326.61 (2,401,575.71)
2024 251,643.75 (2,149,931.96)

Payback Period = 1 + (? / ?????) = 3.71 years


After 6 years (estimated), the business is still recovering its initial investment of
Php3,450,000.

b. Discounted Payback Period


It refers to the number of years required to recover the investment from discounted cash
flows.
Table Discounted Payback Period
Annual Cash Discount Discounted Cash
Year Flows Rate Factor Rate Flows Cumulative
0 (3,450,000.00)
1 126,639.25 0.1011 (1.05055)^2 1.1037 114,740.65 (3,335,259.35)
2 199,994.70 0.1011 (1.1011)^2 1.2124 164,957.69 (3,170,301.67)
3 237,756.58 0.1011 (1.1011)^3 1.3350 178,094.81 (2,992,206.85)
4 237,707.15 0.1011 (1.1011)^4 1.4600 162,813.12 (2,829,393.74)
5 246,326.61 0.1011 (1.1011)^5 1.6186 152,184.98 (2,677,208.76)
6 251,643.75 0.1011 (1.1011)^6 1.7822 141,198.38 (2,536,010.38)
1,300,068.04 913,989.62

Discounted Payback Period = 1 + (?????? / ???????) = 3.31 years

2. Weighted Average Cost of Capital = 12.55%???


(from the WACC Calculator at www.waccexpert.com)

Tax Rate 30% Risk-free Rate 2.52%


Cost of Debt 4.52% Unlevered Beta 0.88
Country Risk Premium 2.00% Market Premium 6.63%

3. Net Present Value


Discounted Cash Flow Method
This method is the process that uses the discounted cash flows of a project to determine
whether the rate of return on that project is equal to, higher than, or lower than the
desired rate of return.
Table Net Present Value

Discounting Each Year's Cashflow


PV of P1 Discounted at 10.11% Year 1 Year 2 Year 3 Year 4
Cash Flows in Each Year

1 0.9061 126,639.25

2 0.8248 199,994.70

3 0.7491 237,756.58

4 0.6803 237,707.15

5 0.6178 246

6 0.5611
Total PV of Future Annual Cash
Inflows

Initial Outflows

Net Present Value – Negative

4. Internal Rate of Return


Internal Rate of Return is a method of ranking investment proposals using the rate of return
on asset investment, calculated by finding the discount rate that equates the present
value of future cash inflows to the investment costs. Thus, if the IRR is greater than
the minimum desired rate, the project should be accepted, otherwise, it should be
rejected.
Internal Rate of Return = -21.22%

5. Profitability Index
It is the ratio that compares the present value of net cash flows to the project’s investment.
It gauges the firm’s use of capital; the higher the index the more efficient is the
capital investment.

Profitability Index = ????????? / ??????? = 4.31

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