| | HERB - O - LARIO | | | | | Pharmacists |
| | HERB-O-LARIO is a retailer of cheap, but quality medicine. It started some 5 years earlier when a |
| | group of pharmacists realized the need for a retailer of quality medicine at affordable prices. On |
| | this basis, their operation was made similar to cooperatives, instead of a profit oriented operation. |
| | They ensured that all medicines for all, if not most, common ailments were available, and they opened |
| | up small stores near hospitals to supply immediate and cheap medical requirement of patients and |
| | hospitals. Hence, while their profit margin is small, the popularity of their low price made their medical |
| | stores much sought after, and their volume of sales just kept on increasing at a tremendous rate. So much |
| | so that their very rapid growth and minimal profit margin could not keep pace with the inventory require- |
| | ment of their sales. The company needs a loan for at least ₱6,000,000.00 to support its inventory |
| | requirement and maintain operations for 2018 and onwards. |
| | The company submitted its latest financial statements to the bank to support its loan request. As the |
| | bank's loan analyst, it was your responsibility to evaluate the firm's loan request. |
| | HERB-O-LARIO Pharmacists |
| | Balance Sheets |
| | As of December 31 |
| | | | | | 2016 | | | 2017 |
| | Assets |
| | Cash | | | | 800,000.00 | | | 850,000.00 |
| | Marketable securities | | | | 350,000.00 | | | 360,000.00 |
| | Accounts receivable | | | | 2,100,000.00 | | | 3,415,400.00 |
| | Inventory | | | | 8,500,000.00 | | | 8,964,470.00 |
| | Prepaid rent | | | | 60,000.00 | | | 55,000.00 |
| | Total Current Assets | | | | 11,810,000.00 | | | 13,644,870.00 |
| | Net fixed assets | | | | 5,300,000.00 | | | 5,061,500.00 |
| | Total Assets | | | | 17,110,000.00 | | | 18,706,370.00 |
| | Liabilities and Owners' Equity |
| | Accounts payable | | | | 2.400,000.00 | | | 3,930,240.00 |
| | Notes payable | | | | 800,000.00 | | | 650,000.00 |
| | Acruals | | | | 300,000.00 | | | 250,000.00 |
| | Total Current Liabilities | | | | 3,500,000.00 | | | 4,830,240.00 |
| | Long-term debt | | | | 5,000,000.00 | | | 3,500,000.00 |
| | Total Liabilities | | | | 8,500,000.00 | | | 8,330,240.00 |
| | Owners' Equity |
| | Partners' Contribution (8 partners) | | | | 8,000,000.00 | | | 8,000,000.00 |
| | Surplus Funds | | | | 610,000.00 | | | 2,376,130.00 |
| | Total Partners' Equity | | | | 8,610,000.00 | | | 10,376,130.00 |
| | Total Liabilities and Partners' Equity | | | | 17,110,000.00 | | | 18,706,370.00 |
| | HERB-O-LARIO Pharmacists |
| | Income Statements |
| | For the year ending December 31, 2017 |
| | Sales (65% credit; credit term 30 days) | | | | | | | 85,000,000.00 |
| | Less: cost of sales | | | | | | | 74,800,000.00 |
| | Gross profit | | | | | | | 10,200,000.00 |
| | Less: operating and interest expenses |
| | Selling and administrative | | | | 4,400,000.00 |
| | Interest | | | | 367,000.00 |
| | Depreciation | | | | 238,500.00 |
| | Total | | | | | | | 5,005,500.00 |
| | Profit before taxes | | | | | | | 5,194,500.00 |
| | Less: taxes | | | | | | | 1,662,240.00 |
| | Net income available to partners | | | | | | | 3,532,260.00 |
| | Less: cash distribution to partners | | | | | | | 1,766,130.00 |
| | Net income to surplus funds | | | | | | | 1,766,130.00 |
| | Industry Norms for 2017 |
| | current ratio | | | 1.80 | | return on total assets | | | 6.00% | | | | | | | | | | | | | | | | | agency issue |
| | acid-test ratio | | | 0.90 | | gross profit margin | | | 25.00% |
| | debt ratio | | | 0.50 | | operating income ROI | | | 16.80% |
| | times interest earned | | | 10 times | | operating profit margin | | | 14.00% |
| | average collection period | | | 20 days | | total asset turnover | | | 1.20 times |
| | number of days in a year | | | 360 days | | fixed asset turnover | | | 1.80 times |
| | inventory turnover | | | 7 times | | return on equity | | | 12.00% |
| 1 | Calculate the company's financial ratios corresponding to the industry norms provided for 2017. |
| 2 | How would you compare the company's financial ratios with the industry norm? |
| 3 | What measures would you like to see Herb-O-Lario undertake (if any) to improve its financial performance |
Daliday
CaseStudyonFinancialratios.xlsx
