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Some Financial Ratios Used in BRR. Financial Condition of Owner (FCO) Answers the question: What is owners capacity to put in more money when needed by.

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Presentation on theme: "Some Financial Ratios Used in BRR. Financial Condition of Owner (FCO) Answers the question: What is owners capacity to put in more money when needed by."— Presentation transcript:

1 Some Financial Ratios Used in BRR

2 Financial Condition of Owner (FCO) Answers the question: What is owners capacity to put in more money when needed by the business? Personal networth will exclude: Investment in the borrwoing enterprise Investment in the borrwoing enterprise Personal assels mortgaged or used as Personal assels mortgaged or used as collateral for loan/s collateral for loan/s

3 FCO for Corporations With more than 1 major stockholder, get the total networth of all the major stockholders. With more than 1 major stockholder, get the total networth of all the major stockholders. The guidelines for single proprietorships shall thereafter apply. The guidelines for single proprietorships shall thereafter apply.

4 Exercises to Compute FCO For single proprietor Mr. Santos: Personal networth P4,000,000 Personal networth P4,000,000 2 vehicles mortgaged to SB P 850,000 2 vehicles mortgaged to SB P 850,000 Investment in enterprise P1,250,000 Investment in enterprise P1,250,000 Total Liabilites P 750,000 Total Liabilites P 750,000 Compute for the Financial Condiition of the Owner. Compute for the Financial Condiition of the Owner.

5 Exercise for FCO Computation. NameNetworth% Assets with Mortgage Inv. in Business Abner Mn 5%500,00050,000 Dario Mn 30%750,000300,000 Harold.500 Mn.500 Mn1%-10,000 Robert Mn 30%500,000300,000 Rowena 34%-340,000

6 Answers to the Exercise: P1,900,000 divided by P750,000 P1,900,000 divided by P750,000 = 2.53 or a BRR score of 4 points = 2.53 or a BRR score of 4 points Dario, Robert & Rowena: Dario, Robert & Rowena: Total Networth P6 Mn Total Networth P6 Mn Less: Assets Mortgaged P1.750 Mn Less: Assets Mortgaged P1.750 Mn Inv. in Enterprise P940,000 Inv. in Enterprise P940,000 = P3,310,000 / P750,000 = P3,310,000 / P750,000 = 4.41 or a BRR score of 5 points = 4.41 or a BRR score of 5 points

7 Ratios to Determine Financial Condition Expressions of relationships between items in the F/S. Expressions of relationships between items in the F/S. When properly interpreted, are useful indicators of financial condition and performance When properly interpreted, are useful indicators of financial condition and performance Could indicate the liquidity, solvency, stability or profitability of a business. Could indicate the liquidity, solvency, stability or profitability of a business.

8 Some Ratios used in BRR Current Ratio: Current Assets Current Liabilities Current Liabilities Excl. long overdue ARs and obsolete Inv. Excl. long overdue ARs and obsolete Inv. Debt-Equity Ratio: Debt Equity Equity Debt + Equity is always equal to 100%

9 Exercise: SB Enterprise Assets Cash 150,000 AR* 200,000 Inventory 100,000 Other Assets 5 50,000 Total 1,000,000 *P20,000 is long overdue Liabilities & Capital Accts. Pay. 75,000 Notes Payable 250,000 Capital 6 675,000 Total 1,000,000

10 Compute the ratios and the equivalent scores under BRR: Current Ratio Current Ratio Debt-Equity Ratio Debt-Equity Ratio Debt Servicing Capacity Debt Servicing Capacity Accounts Receivable Level Accounts Receivable Level Addl Info: Sales P2.5 Mn Interest P50,000 Interest P50,000 Depn. P50,000 Depn. P50,000 Business Location Baguio City; 1 child Business Location Baguio City; 1 child

11 Answers to the Exercise CR = 450,000 minus 20,000 divided by CR = 450,000 minus 20,000 divided by 325,000 equals 1.32 Score= 3 pts. 325,000 equals 1.32 Score= 3 pts. DE Ratio= 325,000 divided by 675,000 DE Ratio= 325,000 divided by 675,000 equals 32.5:67.5 Score=7.5 equals 32.5:67.5 Score=7.5 DSC = 450, ,000+50,000+50,000 DSC = 450, ,000+50,000+50, ,000+50, ,000+50,000 = 400,000/300,000 = 400,000/300,000 = 1.33 Score = 10 pts. = 1.33 Score = 10 pts.

12 AR level AR level 2.5Mn divided by 360 days = 6, Mn divided by 360 days = 6, ,000 divided by 6, = 29 days 200,000 divided by 6, = 29 days Score = 5 points Score = 5 points


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