Quality Sounds Inc. is a manufacturer of radio systems and various electronic equipment. Comparative financial statements of one of its subsidiaries were submitted to you for analysis and interpretation of its financial performance.

AUTO SOUNDS-DAVAO

COMPARATIVE FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31

(THOUSANDS omitted)

STATEMENT OF FINANCIAL POSITION	2020		2019	2018
ASSETS
Cash	P 150		P 120	P 100
Marketable Securities	120		90	80
Accounts Receivables	3,000		2,500	2,795
Inventories	5,000		4,845	3,000
Prepaid Expenses	75		60	50
Long Term Investments	450		500	600
Land	2,000		2,000	2,000
Buildings and Equipment, less depreciation		21,000	19,000	15,000
TOTAL ASSETS	P31,795		P29,115	P23,625
LIABILITIES & SHAREHOLDERS EQUITY
Accounts Payable	P1,500		P 1,400	P 1,200
Accrued Expenses	60		800	700
Notes Payable short term	1,780		1,900	2,000
8% Bonds Payable-Long Term due 2012	8,000		9,500	10,000
TOTAL LIABILITIES	11,340		13,600	13,900
Share Capital, Par Value P100	7,500		7,000	5,500
Share Premium	1,000		900	460
Retained Earnings	11,955		7,615	3,765
TOTAL LIABILITIES & SHAREHOLDERSEQUITY	P31,795		P29,115	P23,625
INCOME STATEMENT
Sales	P 27,700		P25,550	P28,450
Cost of Sales	18,000		17,000	18,500
GROSS PROFIT	9,700		8,550	9,950
Operating Expenses	2,700		2,200	3,500
OPERATING INCOME	7,000		6,350	6,450
Interest Expense	800		850	1,000
NET PROFIT BEFORE TAX	6,200		5,500	5,450
NET PROFIT AFTER 30% TAX	P 4,340		P 3,850	P 3,815

DO IT !!! Compute for probitability using ROS, ROA, ATO, ROE, EPS for 2019 and 2020 EPSEEPSROA,

Answer the following questions:

1. In what year is the firm more profitable as far as a) operation is concerned, b) use of total assets and c) fair return on shareholders equity?
2. Are the assets highly productive?

Answers must be supported by computations for two years 2019-2020. Prepare a a table in comparative format. Use average for assets and total shareholders equity (SHE). Example:

For 2019 (2018 SHE + 2019 SHE then divide by 2). For (2019 SHE + 2020 SHE divided by 2)

DO IT !!! Compute for liquidity for 2019 and 2020

Answer the following questions:

1. When is the firm more liquid-2019 or 2020?
2. When is collection more efficient considering a policy of 60 days to collect?
3. When are the inventories disposed off faster- 2019 or 2020?

DO IT !!! Compute for solvency for 2019 and 2020

Answer the following questions:

1. Is the company highly financed by borrowed debts(this is called financial leverage?
2. Is the profit adequate to meet interest payments?
3. Compare ROE against the Interest rate, is borrowing a risky proposition for the company?