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University of the Assumption

City of San Fernando, Pampanga

Preliminary Major Output

FINANCIAL STATEMENT
ANALYSIS
(RR Punzalan Funeral Homes)

Submitted by:

Melina Ann P. Galang

Jerome D. Puno
Arlo S. Yambao
Camille Anne S. Gomez
Irnah S. Jaime
Claire Y. Mallari
Mary Jo Lariz M. Ocliaso
Janine R. Tayag

To:

Mr. Jaypee Lagman, CPA


Professor

RR PUNZALAN FUNERAL HOMES


City of San Fernando, Pampanga

EXECUTIVE SUMMARY
The accompanying financial statements of Rodemic Roque Punzalan were
provided for educational purposes only. The provided financial statements are of
a funeral service single proprietorship which provides its financial statements for
legal compliance.
Organization of the financial statements assists management with providing
information to the various readers as follow:

The Auditors Report, Consolidated Financial Statements and Notes to


Financial Statements provide the required information for a complete
financial presentation in accordance with GAAP.

The financial statements of Rodemic Roque Punzalan is provided by the


proprietor himself.

COMPANY OVERVIEW
RR Punzalan Homes is a single proprietor business engaged in funeral services
established in 1954 by Pedro Punzalan. Its registered address is A. Adona
Plazang Luma, Arayat, Pampanga. It is currently being run by his grandson
Rodemic R. Punzalan.
It has three branches, two in Pampanga Arayat, San Fernando, and one in
Calumpit, Bulacan. It used to have two other branches in Floridablanca and
Mabalacat, but unfortunately ceased operations because the lessor sold the
property being leased by the business.
It offers various packages and the prices depend on the type of coffin. For
instance, one certain package includes a coffin, embalming, chairs & tables,
dispensers and flowers.

FINANCIAL STATEMENT ANALYSIS


Horizontal Analysis

Analysis:
Significant decrease in cash may be attributable to the following:

Decrease in Trade and Other Payables by 12% which could


mean some liabilities are paid.

Decrease in Revenue Services by 10%. And

Annual withdrawal of 80,000.

Property, plant, and equipments decrease of 25% is due to its annual


depreciation charge of 6,200.

Analysis:
Revenue Services decreased by 10% while Net Profit increased by 173%.
These were decreases in all of their expenses:

off

Decrease of 20% in Salaries and Wages could mean that they lay
some employees, maybe mainly due to the forecasted decrease in
services to be rendered.

Taxes and Licenses decreased by 67% compared to last years


because they were not able to pay for the municipal license during
the current year. (See Notes to Financial Statements)

Other items of income statement (expenses) are also traceable to


their Service Revenues decrease of 10%.

Analysis:
Net decrease of 3% is mainly due to the significant decrease of 67,550 in
the 2015 beginning capital balance which is primarily caused by the withdrawal
in 2014 that is greater than that years net income. However, the decrease in the
beginning capital balance was backed by the increase in the net profit of 2015,
but was insufficient because the withdrawal is greater than that of the net profit
again.

Analysis:
As mentioned above, considerable decrease in cash could be attributable
to the following:

Decrease in Trade and Other Payables by 12% which could mean


some liabilities are paid.

Decrease in Revenue Services by 10%. And

Annual withdrawal of 80,000.

Trend Analysis

LIQUIDITY AND SOLVENCY


The trend analysis matrix shows the declining net working capital status of RR
Punzalan Funeral Homes. The current assets decrease more rapidly than the
current liabilities. The downward trend of the current assets and current liabilities
supports this. The considered decrease of the cash is supported by the
downward trend of revenue.

STABILITY AND LONG-TERM FINANCIAL POSITION


For long-term financial position, the analysis focus on total liabilities as well as
shareholders equity. The property, plant and equipment displays a downward
trend due to its depreciation. Also it is noticeable that the liabilities exhibit a
downward trend same with equity.

OPERATION EFFICIENCY AND PROFITABILITY


In analysing profitability, the trend matrix disclosed an unfavourable downward
trend in revenue. However, it is compensated by the downward trend of the
selling and administrative expenses. Deeper analysis shows that the rate of
decrease in expenses is more rapid than the decrease in revenue. This indicates
the efficient cost control systems of the business.

Ratio Analysis

Liquidity Ratio

Liquidity pertains to the firms ability to pay any immediate and incoming cash
disbursements (payment of payables, and operating costs and expenses).
In determining the liquidity of Punzalan, it is to be noted that the total current
assets of Punzalan is composed only of cash and cash equivalents.
2014 The current ratio of .48:1 could be interpreted to mean that for every P1.0
of current liability, the company has P.48 to pay it. The decrease in the current
ratio of 2014 is evidenced by the decrease in cash due to the decrease in
revenue and a withdrawal by Punzalan.
2015 The current ratio of .30:1 could be interpreted to mean that for every P1.0
liability, the firm has P.30 current assets to pay it. The decrease in the current
ratio of 2015 is evidenced by the decrease in the cash as well as the liabilities.

Profitability Ratio
1. Profit Margin = Net Profit / Net Revenue
2015

2014

34,043.6/116,900 = 0.29

12,450/129,800 = 0.10

Analysis:
In every one peso of net revenue, there is a realized net profit of 0.42 in
2014 and 0.29 in 2015. The increase in the profit margin is caused by the
decrease in selling and administrative expense which increases the net profit.
Based on our horizontal analysis, a total of 18.61% reduction in expenses has
occurred in 2015. The trend in the reduction of expenses has also occurred in
2014.

2. Return on Assets = Net Profit / Average Total Assets


2015
34,043.6/[(2,038,339.8+2,134,326.2)/2] = 0.02

2014
12,450/[(2,134,326.2+2,202,210.70)/2] = 0.01

Analysis:
In every one peso of assets, there is a realized net profit of 0.01 in 2014
and 0.02 in 2015. The increase in the return on assets is caused by the 4%
decrease in the total assets in the period 2015 to 2014, and the 168.51%
increase in the net profit with 2013 as the base year. Despite the large increase
in the net profit, the increase reflected in the ratio is only minimal because the
business has high amount of total assets.

3. Return on Equity = Net Profit / Average Total Equity


2015
34,043.6/[(1,688,084.8+1,734,041.2)/2] = 0.02

2014
12,450/[(1,734,041.2+1,801,591.20)/2] = 0.01

Analysis:
In every one peso of equity, there is a realized net profit of 0.01 in 2014 and
0.02 in 2015. The increase in the return on equity is caused by the 3% decrease
in the total equity in the period 2015 to 2014 and the 168.51% increase in the net
profit with 2013 as the base year. Despite the large increase in the net profit, the
increase reflected in the ratio is only minimal because the business has high
amount of total equity. This is because of the business' debt to equity ratio of
23% and 19% in 2014 and 2015, respectively.

4. Cash Flow Margin = Cash Flow from Operating Activities / Net Revenue
2015
(9,786.4)/116,900 = (0.08)

2014
18,315.5/129,800 = 0.14

Analysis:
In every one peso of revenue, there is a net cash flow from operating
activities of -0.08. Since the business' revenue recognition is cash basis, only the
expenses affect the cash flows from operations. The negative cash flow margin
is because of payments on trade and other payables in 2015, which has a
decrease of 50,030.

5. Rate of Return on Current Assets = Net income / Average Current Assets


2015
34,043.6/[(104,269.8+194,056.2)/2] = 0.23

2014
12,450/[(194,056.2+255,740.7)/2] = 0.06

Analysis:
In every one peso of current assets, there is a net income of 0.23 and
0.06 in 2015 and 2014, respectively. The increase in rate of return on current
assets is caused by the decrease in current assets by 46% in the period 2015
and the 168.51% increase in the net profit with 2013 as the base year.

ASSET MANAGEMENT EFFICIENCY AND LIQUIDITY

1. Asset Turnover = Net Sales / Average Total Assets


*2015:

116,900 / (2,038,339.80 + 2,134,326.20 2) = .056:1 or 5.60

*2014:

129,800 / (2,134,326.20 + 2,202,210.70 2) = .059:1 or 5.90

Analysis:
Asset turnover indicates the company's efficiency in using their assets to
generate revenue. In 2015 every 1 peso asset of the company .056 of sales
revenue is generated while in 2014 for every 1 peso asset of the company .059
of sales is generate. The net decrease of .003 is caused by having decrease in
cash and property, plant and equipment in 2015 even though there is an increase
in revenue in 2015.

2. Property plant and equipment Turnover = Net sales / Average PPE


*2015:

116,900 / (18,600 + 24,800 2) = 5.38:1

*2014:

129,800 / (24,800 + 31,000 2) = 4.65:1

Analysis:
PPE turnover indicates the firm's ability to efficiently manage their PPE's to
generate revenue. The computed ratio of 5.38:1 in 2015 and 4.65:1 in 2014 is
favourable for there is an increase of .73. From this data we can infer that the
business is more efficient in 2015 in managing their PPE than in 2014.

FIRM'S UTILIZATION OF DEBT AND COMPANY STABILITY

1. Debt to Equity Ratio = Total Liabilities / Owners Equity


* 2015:

350,255 / 1,688,084.80 = .19 or 19 percent

* 2014:

400,285 / 1,714,041.20 = .23 or 23 percent

Analysis:
Debt to equity ratio measures the relationship or proportion of capital
provided by creditors to the capital provided by owners. The business debt/equity
ratio in 2015 is 19 percent while 23 percent in 2014. A decrease of .04 is
considered to be favourable for the business.

2. Proprietary or Equity Ratio = Owner's Equity / Total Assets


* 2015:
* 2014:

1,688,084.80 / 2,038,339.80 = .83 or 83 percent


1,714,041.20 / 2,134,324.20 = .80 or 80 percent

Analysis:
Proprietary or Equity Ratio measures the proportion of the firm's assets
coming from its owners. The increase in computed ratio of 83 percent in 2015

from 80 percent in 2014 is due to increase in net profit in 2015. From this data it
can be infer that the business assets is mostly financed from its owners.

3. Debt Ratio = Total Liabilities / Total Assets


* 2015:

350,255 / 2,038,339.80 = .17 or 17 percent

* 2014:

400,285 / 2,134,326.20 = .19 or 19 percent

Analysis:
Debt ratio measures the proportion of the firms assets coming from its
creditor. For every 1 peso of asset .17 was provided by the creditors in 2015, on
the other hand in 2014 for every 1 peso of asset .19 was borrowed from the
creditors. A net decrease of .02 is favourable it indicates that there is little portion
of assets that is finance by the creditors.

4. Fixed Assets to Total Equity Ratio = Fixed Assets / Owners Equity


* 2015:

1,434,070 / 1,688,084.80= .85 or 85 percent

* 2014:

1,440,270 / 1,734,041.20 = .83 or 83 percent

Analysis:
Fixed assets to total equity measures the portion of owners equity used to
acquire fixed assets. The computed ratio is 85 percent in 2015 and 83 percent in
2014. Same as the equity ratio most of the fixed assets is finance by the owner.

5. Fixed Assets to Total Assets


* 2015:

1,434,070 / 2,308,339.80 = .70 or 70 percent

* 2014:

1,440,270 / 2,134,324.20 = .67 or 67 percent

Analysis:
Fixed assets to total assets signifies whether the firm over or under invested in
PPE. There is a net increase .03 in from 2014 to 2015.

RECOMMENDATION
The following implications may be culled based on the analysis, interpretations
and conclusions:

As evidenced by the analysis, efficient working capital management


should be an essential concern of the entity, as this would assure fortified
solvency position.

The firm would be able to improve financial yields by adopting innovative


and efficient marketing policies and strategies to increase revenue.
Instilling stringent cost control or cost-cutting measures would consistently
decelerate operating expenses. A mixture of these two would maximize or
bring about consistently increasing entity's profits.