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    6 Business Applications

    Uploaded by

    Lianne Joy Esquierda
    The document provides an overview of business application lessons including solving partnership and tax problems, performing financial statement analysis through vertical analysis, horizontal analysis, and ratio analysis. It includes examples of computing partnership shares based on profit percentages, calculating net income after taxes, converting an income statement to percentages for vertical analysis, calculating return on investment and profit margin ratios, and computing current and debt ratios. Exercises are provided to solve for tax rates, partnership loss shares, net profit given return on investment, and current liabilities given the current ratio.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    6 Business Applications

    Uploaded by

    Lianne Joy Esquierda
    27 views12 pages
    The document provides an overview of business application lessons including solving partnership and tax problems, performing financial statement analysis through vertical analysis, horizontal analysis, and ratio analysis. It includes examples of computing partnership shares based on profit percentages, calculating net income after taxes, converting an income statement to percentages for vertical analysis, calculating return on investment and profit margin ratios, and computing current and debt ratios. Exercises are provided to solve for tax rates, partnership loss shares, net profit given return on investment, and current liabilities given the current ratio.

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    The document provides an overview of business application lessons including solving partnership and tax problems, performing financial statement analysis through vertical analysis, horizontal analysis, and ratio analysis. It includes examples of computing partnership shares based on profit percentages, calculating net income after taxes, converting an income statement to percentages for vertical analysis, calculating return on investment and profit margin ratios, and computing current and debt ratios. Exercises are provided to solve for tax rates, partnership loss shares, net profit given return on investment, and current liabilities given the current ratio.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    27 views12 pages

    6 Business Applications

    Uploaded by

    Lianne Joy Esquierda
    The document provides an overview of business application lessons including solving partnership and tax problems, performing financial statement analysis through vertical analysis, horizontal analysis, and ratio analysis. It includes examples of computing partnership shares based on profit percentages, calculating net income after taxes, converting an income statement to percentages for vertical analysis, calculating return on investment and profit margin ratios, and computing current and debt ratios. Exercises are provided to solve for tax rates, partnership loss shares, net profit given return on investment, and current liabilities given the current ratio.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 12

    BUSINESS APPLICATIONS

    Lesson Objectives

    At the end of this lesson, the students should be able to:


    1. solve partnership problems;
    2. solve tax problems;
    3. perform vertical analysis of financial statements;
    4. perform horizontal analysis of financial statements;
    and
    5. perform ratio analysis.
    Partnership Problems
    Partners A, B, and C share profits and losses: 20% to A,
    30% to B, and 50% to C. Compute the share of each if
    the partnership earned a net income of ₱15,000.
    Given: A = 20% B = 30% C = 50% Net = ₱15,000
    P = BR
    A = ₱15,000 × 20% = ₱3,000
    B = ₱15,000 × 30% = ₱4,500
    C = ₱15,000 × 50% = ₱7,500
    Tax Problems
    A corporation earned ₱36,800 in net income before
    tax. If the corporation’s income tax is 35%, compute
    for the net income after tax.

    Given: Net income before tax (NIBT) = ₱36,800


    Income tax rate (ITR) = 35%
    Net income after tax (NIAT) = NIBT – Income Tax
    Tax Problems

    NIAT = NIBT – Income Tax


    = NIBT – (NIBT × Income tax rate)
    = ₱36,800 – (₱36,800 × 35%)
    = ₱36,800 – ₱12,880
    = ₱23,920
    Vertical Analysis of Financial Statements

    1. Convert the following Income Statements to a


    common-size statement:
    Excelsior Enterprises
    Income Statement
    For the Month Ended June 30, 2010
    Net Sales ₱150 000.00
    Less: Cost of Sales ₱ 90 000.00
    Gross Profit ₱ 60 000.00
    Less: Operating Expenses ₱ 35 000.00
    Net Income ₱ 25 000.00
    Net Sales ₱150 000.00
    Less: Cost of Sales ₱ 90 000.00
    Gross Profit ₱ 60 000.00
    Less: Operating Expenses ₱ 35 000.00
    Net Income ₱ 25 000.00

    Net Sales 100%


    90,000
    Less: Cost of Sales = 60%
    150,000
    60,000
    Gross Profit = 40%
    150,000
    35,000
    Less: Operating Expenses = 23.33%
    150,000
    25,000
    Net Income = 16.67%
    150,000
    Ratio Analysis – Profitability Ratios

    1. Return on Owner’s Investment (ROI)


    If a company earns a net profit of ₱100,000 and the
    capital of the owner is ₱1,000,000, the ROI would be:
    𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
    ROI =
    𝑂𝑤𝑛𝑒𝑟 ′ 𝑠 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
    ₱100,000
    =
    ₱1,000,000
    = 10%
    Ratio Analysis – Profitability Ratios

    2. Profit Margin or Return of Sales (ROS)


    If a company earned a net profit of ₱100,000 from
    the generated sales of ₱900,000, the return on sales
    or profit margin would be:
    𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
    ROI =
    𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
    ₱100,000
    =
    ₱900,000
    = 11.11%
    Liquidity/Solvency Ratios
    1. Current Ratio
    If a company has ₱300,000 current assets and
    ₱100,000 current liabilities, its current ratio would be:
    𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
    Current ratio =
    𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
    ₱300,000 3
    = =
    ₱100,000 1
    = 3:1
    For every ₱1 of liability or debt, the company has ₱3 to pay it.
    Liquidity/Solvency Ratios
    2. Debt Ratio
    Assuming a firm with total liabilities of ₱450,000 and
    total assets of ₱900,000, the debt ratio would be:
    𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
    Debt ratio =
    𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
    ₱450,000 1
    = =
    ₱900,000 2
    = 1:2
    The firm has ₱1 liability for ₱2 total assets.
    Exercises:
    1. What is the tax rate of a product if Martin paid ₱2,354
    with included ₱87 as sales tax?
    2. Bea and Camille agreed to share profits and losses
    according to their capital ratio. Using Bea’s capital of
    ₱16,000 and Camille’s ₱25,000, find the share of each in a
    net loss of ₱5,500.
    3. If a company has a return of investment of 15% and a
    capital of ₱1,700,000, what is the company’s net profit?
    4. A company has a current ratio of 4:1. If the company has
    ₱100,000 current assets, what is their current liabilities?

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