Newport Industry Financial Analysis

In Partial Fulfillment Of The Requirements for the Subject PRINCIPLES OF ACCOUNTING

Aguirre, Alexander Q. Bernardo, Rheyna Mae G.

Mr. Feliciano Almazora

March 2012

Industry Standard

1 2 3 4 5 6 7 8

Current Ratio Quick Asset Ratio ( Acid Test) Average Collection Period Average Sales period Debt-to-Equity Ratio Times Interest Earned Return On Total Assets Price-earnings Ratio

2.5 1.3 18 days 60 days 0.9 6 13% 12

I.

Ratio This Year 802,000 2.14 2.09 4.99 68 days 12.88 27 days 95 days 4% .06 .06 7.83 times .41 .59 .23 6% Last Year 660,000 2.53 2.44 4.51 58 days 11.38 23 days 81 days 3% .5 .4 6 times .42 .28 .21 5%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Amount of working capital Current ratio Quick ratio Inventory Turnover Average Age of Inventory Accounts Receivable Turnover Average age of Accounts Receivable Operating Cycle Return on Total Assets Return on Sales Return on Equity Times interest Earned Debt Ratio Equity Ratio Gross Margin Ratio Net Income Ratio

The amount of working capital is equal to the net of the current assets and current liabilities. The working capital of the company increases because the current assets and current liabilities of this year is greater than the current assets and current liabilities last year. The table above shows that the current ratio deceases this year that means that the money reserve to pay the liabilities decreased. The company doesnt have the capability to pay their liabilities with their assets. The Newport industry must learn how to use wisely their assets. They must focus their attention in strengthening their abilities in collecting and paying.

II.

Vertical Analysis A. Balance Sheet

Newport Industry Balance Sheet December 31, 2009 and 2010

This Year ASSETS Cash Marketable Securities Accounts Receivable(net) Inventory Prepaid Expenses Total Current Assets Non-Current Assets (net) TOTAL ASSETS LIABILITIES Accounts Payable Accrued Expenses Notes Payable (due in 5 months) Total Current Liabilities Bank Loan Payable (12%) TOTAL LIABILITIES OWNERS EQUITY Owner; Capital TOTAL LIABILITIES AND EQUITY 1,712,000 2,915,000 59% 100% 60,000 470,000 940,000 35,000 1,505,000 1,410,000 2,915,000 2% 0 16% 32% 1% 52% 48% 100%

Last Year 150,000 18,000 300,000 600,000 22,000 1,090,000 1,370,000 2,260,000 6% 1% 12% 24% 1% 44% 56% 100%

200,000 53,000 450,000 703,000 500,000 1,203,000

7% 2% 15% 24% 17% 41%

250,000 130,000 50,000 430,000 600,000 1,030,000

10% 5% 2% 17% 24% 42%

1,430,000 2,460,000

58% 100%

Assets This Year and Last Year

60%

56%

50%

48%

40% 32% 30% 24% 20% This Year Last Year

16% 12%

10% 2% 0%

6% 0% 1% Marketable Securities Accounts Recievable (net) Inventory 1% 1% Prepaid Expenses Non Current Assets

Cash

The graph shows the percentage of the parts that comprises the assets of this years and last year. The cash this year is 4% lower than the cash last year, Marketable securities is 1% higher last year, Accounts Receivable this year is 4% higher than last year, Inventory this year is also higher than it is last year it is 8% higher than it was last year, Prepaid expenses doesnt change and noncurrent assets this year is 8% lesser as it is last year. The reason why the Newport Industry is experiencing a severe cash shortage is that they have lower percentage of cash this year and the accounts receivable increases

Liabilities This Year and Last Year

70%

60%

59% 58%

50%

40% This Year 30% 24% 20% 15% 10% 10% 7% 2% 0% Accounts Payable Accrued Expenses Notes Payable(due in 5 months) Bank Loan Payable Owner, Capital 5% 2% 17% Last Year

This graph shows the percentage of that comprises the liabilities of the company. The accounts payable this year decreases by 3%, Accrued Expenses Decreases 3% this year, Notes Payable Increases 13% this year, Bank Loan payable is 7% lesser than it was last year, and Owner capital this year increases by 1%.The liabilities of the company increase because the notes payable highly increased.

B. Income Statement

Newport Industry Income Statement For the year ended December 31, 2010

This Year Net sales Cost Sales Gross Profit Operating Expenses Net Profit from Operation Interest Expense Net Income Before Tax Income Tax (at 30%) Net Income 4,960,000 3,839,000 1,121,00 651,000 470,000 60,000 410,000 123,000 287,000 100% 77% 23% 13% 9% 1% 8% 2% 6%

Last Year 4,380,000 3,470,000 910,000 550,000 360,000 60,000 300,000 90,000 210,000 100% 79% 21% 13% 8% 1% 7% 2% 5%

The vertical analysis of the income statement shows that the percentage of net sales, cost sales, gross profit, operating expenses, net profit from operation, interest expense, net income before tax, income tax, increased this year.

III.

Horizontal Analysis

Newport Industry Balance Sheet December 31, 2009 and 2010

This Year ASSETS Cash Marketable Securities Accounts Receivable(net) Inventory Prepaid Expenses Total Current Assets Non-Current Assets (net) TOTAL ASSETS LIABILITIES Accounts Payable Accrued Expenses Notes Payable (due in 5 months) Total Current Liabilities Bank Loan Payable (12%) TOTAL LIABILITIES OWNERS EQUITY Owner; Capital TOTAL LIABILITIES AND EQUITY 1,712,000 2,915,000 60,000 470,000 940,000 35,000 505,000 1,410,000 2,915,000

Last Year 150,000 18,000 300,000 600,000 22,000 1,090,000 1,370,000 2,260,000

Increase(Decrease) Amount Percent (90,000) (18,000) 170,000 340,000 13,000 415,000 40,000 455,000 -60% -100% 57% 57% 59% 38% 3% 18%

200,000 53,000 450,000 703,000 500,000 1,203,000

250,000 130,000 50,000 430,000 600,000 1,030,000

(50,000) (77,000) 400,000 273,000 (100,000) 173,000

-20% -59% 8% 63% -17% 17%

1,430,000 2,460,000

282,000 455,000

20% 18%

Like the results in the vertical analysis the cash this year decreases by 60%,, Marketable securities decreased 100%, Accounts Receivable increased by 57%, Inventory also increases 57%, Prepaid expenses increased 59%, and noncurrent assets increased 3% this year. The accounts payable decreases by 20%, Accrued Expenses Decreases 59%, Notes Payable Increases 8%, Bank Loan payable decrease by 17% and Owner capital increases by 20%.

Newport Industry Income Statement For the year ended December 31, 2010 Increase(Decrease) Amount Percent 580,000 13% 369,000 11% 211,000 101,000 110,000 0 110,000 33,000 77,000 23% 18% 31% 0% 37% 37% 37%

Net sales Cost Sales Gross Profit Operating Expenses Net Profit from Operation Interest Expense Net Income Before Tax Income Tax (at 30%) Net Income

This Year 4,960,000 3,839,000 1,121,00 651,000 470,000 60,000 410,000 123,000 287,000

Last Year 4,380,000 3,470,000 910,000 550,000 360,000 60,000 300,000 90,000 210,000

Net sales increased by 13%, cost sales increased by 11%, gross profit increased by 23%, operating expenses increase by 18%, net profit from operation increased by 31%, interest expense doesnt change because the interest expense this year and interest expense last year is the same, net income before tax increased by 37% , and income tax increased by 37%

IV.

Conclusion and Recommendation

The Newport Industry has a problem with cash shortage. We recommend that the Newport industry must learn how to use wisely their assets. They must focus their attention in strengthening their abilities in collecting and paying. In that way they dont need to take a loan to the banks. Loan is not recommended because their equipment is producing sample products as the 57% increase in invertory.