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Financial Ratios

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by

Patching Baloloy

on 2 March 2014

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Transcript of Financial Ratios

Owned by:

Consumers
Farmers
Workers
Business/Organizations
Municipalities
Php 20.00
Monday, March 3, 2014
Vol XCIII, No. 311
INTRODUCTION
BACKGROUND OF THE BARANGKA CREDIT COOPERATIVE
Functions:
A Comparative Financial Analysis of Barangka Credit Cooperative and Marikina City Vendors Development Cooperative
CONCLUSION
COOPERATIVES
Exists to satisfy the needs of the members
Focuses more on service than on investment
FINANCIAL RATIOS
MULTIPURPOSE COOPERATIVES
Makes arrangement for credit

Arranges for short-term credit and irrigation facilities to achieve higher agricultural yields

Helps members to market the goods and set up other subsidiary cottages and small scale industries

Carries out a large number of functions and these depend on the interest and objective of the members
Helps increase the standard of living by providing:
Health Programs
Education
Economic Facilities
Social Education
Other Functions: (For Members)
Purchasing materials and supplying them with reasonable amount

Solving disputes through arbitration and adjudication
1972,
the employees of the U/Tex Weaving Development established
C&K Saving Association
, an informal organization
December 16th of 1985,
with the resources of thirty seven cooperators, the association was turned into an organization, and it was named
C&K Barangka Community Credit Cooperative, Inc.
September 15th of 1995,
due to many financial problems and troubles from mismanagement, the organization changed its name to
Barangka Credit Cooperative (BCC)
Barangka Credit Cooperative's main business is to provide credit facilities to its members such as:
Fund Transfer

Insurance

Savings

Loans

pensioners loan
housing loan
car loan
education loan
emergency loan
health maintenance

They give loans including:
discounting
microfinance
starting capital for business
mortgage
Barangka Credit Cooperative is primarily a multi-purpose cooperative situated at the of Barangay Barangka, Marikina City
Barangka Credit Cooperative's Vision
"to be their stakeholders' partner for all life events"
Barangka Credit Cooperative's Mission
"to establish lifetime quality relationships with our stakeholders by providing valuable products and services towards development and empowerment"
BACKGROUND OF THE MARIKINA CITY VENDORS DEVELOPMENT COOPERATIVE
Marikina Public Market Vendors Credit Cooperative
Marikina Vendors Development Cooperative Inc.
Marikina City Vendors Development Cooperative
March 1975
Formulation
Bureau of Cooperatives
250 members
December 10,1975
Acquisition of License
Initial Capital
of Php 17,000.00
1981
-Owned land

The management of the cooperative proposed to offer other services that will cater the needs of their members
Additional Services:
Appliance Loan
Educational Plan
Tricycle Loan
Heaven's Gate
Other Benefits:
An assistance fund for the family of their deceased members.
Confirmation as a development cooperative under Cooperative Development Authority
Free Medical Check-ups
Free Dental Services
"Damayan Fund"
Current Ratio=
Current Assets
Current Liabilities
BARANGKA CREDIT COOPERATIVE
2011
2012
312,032,315.35

362,829,189.95
=0.85
For every Php 0.85 of Barangka Credit Cooperative's assets, there is Php 1.00 of liability.
363,519,763.17

427,466,130.51
=0.85
For every Php 0.85 of Barangka Credit Cooperative's assets, there is Php 1.00 of liability.
1. Assets are not that liquid.

2. Since their current ratio is below 1, it will be difficult to pay off their obligations.


Quick Ratio=
Current Assets - Inventories
Current Liabilities
2011
312,032,315.35 - 1,220,929.04

362,829,189.95
=0.8566
For every Php 0.86 of Barangka Credit Cooperative's assets, there is Php 1.00 of liability.
1. Since their quick ratio is less than the current ratio, the current assets are reliant on the inventories.

2. Since the cooperative's liabilities are higher than the assets, they rely on their inventories in order to pay off their obligations.
Average Collection Period
Accounts Receivable
Daily Credit Sales
2011
2012
204,408,608.02

73,995.74
=2,762.44
Barangka Credit Cooperative can collect their accounts receivable every 2,762.44 days.
249,394,223.16

85,130.09
=2,929.57
Barangka Credit Cooperative can collect their accounts receivable every 2,929.57 days.
1. It takes Barangka an average of 8 years to collect their accounts receivable which is too long.

2012
363,519,763.17 - 1,117,513.97

427,466,130.51
=0.847
For every Php 0.85 of Barangka Credit Cooperative's assets, there is Php 1.00 of liability.
=
Accounts Receivable Turnover
Accounts Receivable
Credit Sales
2011
2012
26,638,466.62

204,408,608.02
=0.13
Barangka Credit Cooperative collects their accounts receivable 0.13 times within a year.
30,646,830.84

249,394,223.16
=0.12
Barangka Credit Cooperative collects their accounts receivable 0.12 times within a year.
1. Barangka does not collect any of their receivables within the year.

2. Since the ratio is low, it could mean that their collection is inefficient.

=
Operating Income Return On Investment
Operating Income
Total Assets
2011
2012
7,492,452.78

494,129,343.99
=0.0151
For every Php 1.00 of asset, Barangka Credit Cooperative generates Php 0.02 of operating income.
9,983,126.31
569,589,430.50
=0.175
For every Php 1.00 of asset, Barangka Credit Cooperative generates Php 0.02 of operating income.
1. The result is relatively low.

2. They have not used their large amount of asset in projects that could give them a high return. They chose to have their assets on stagnant and wait for their members to borrow it for their personal endeavors.

3. They use their money on operations related to their business rather than use it for investments.
=
Operating Profit Margin
Operating Income
Sales

2011
2012
7,492,452.78

44,397,444.37
=0.1688
For every Php 1.00 of sales, Barangka Credit Cooperative generates Php 0.17 of operating income.
9,983,126.31
51,078,051.4
=0.1954
For every Php 1.00 of sales, Barangka Credit Cooperative generates Php 0.20 of operating income.
1. The operating profit margin is relatively low for Barangka Credit Cooperative.

2. A reason behind this is that they are not focused on revenue like businesses and corporations; their aim is to help their members through loans and other activities. The merchandise and other items that they sell have low profits attached to them so the generation of income is at a slower pace.

3. Loans offered have low interest rates so their profit is not as big as that of a bank's.
=
Total Asset Turnover
Sales
2011
2012
44,397,444.37

494,129,343.99
=0.0898
For every Php 1.00 of asset, Barangka Credit Cooperative generates Php 0.09 of sales.
51,078,051.4
569,589,430.50
=0.0897
For every Php 1.00 of asset, Barangka Credit Cooperative generates Php 0.09 of sales.
1. Based on the results, we can say that Barangka Credit Cooperative has not maximized the potential of its assets in generating revenue.
=
Total Assets
Debt Ratio
Total Debt
2011
2012
381,037,137.03

494,129,343.99
=0.7711
Every Php 1.00 of asset is backed up by Php 0.77 of liability.
448,594,354.43
569,589,430.50
=0.7876
Every Php 1.00 of asset is backed up by Php 0.79 of liability.
1. As the data shows, Barangka Credit Cooperative has a relatively low debt ratio.

2. It shows that they have an allowance o borrow in the future since they do not have much debt.

3. This is good because they can focus on helping out their members rather than paying debts.
=
Total Assets
“A cooperative is an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.”

Inventory
Turnover
Cost of Goods Sold
2011
2012
19,743,518

1,220,929.04
=16.17
They replace their inventories 16.17 times over a year.
28,696,149.03
1,117,513.97
=25.68
1. Barangka sells their inventory and replaces it with new ones approximately 2-3 times a month. This means that they will not have to worry about their products deteriorating.
=
Inventory
They replace their inventories 25.68 times over a year.
Current Ratio=
Current Assets
Current Liabilities
MARIKINA CITY VENDORS DEVELOPMENT COOPERATIVE
2011
2012
99,950,695.64

87,621,009.50
=1.14
For every Php 1.14 of the cooperative's assets there is Php 1.00 of liability.
99,237,587.64

44,859,138.43
=2.21
For every Php 2.21 of the cooperative's asset, there is Php 1.00 of liability.
1. Marikina City Vendors Development Cooperative had a relatively low current ratio during 2011 compared to the industry standard 2:1. In 2012, the current ratio grew to 2.21.

2. The results show that MCVDC has improved in their efficiency in their operating cycle. As well as, being able to pay short-term liabilities with their short-term assets.
Quick Ratio=
Current Assets - Inventories
Current Liabilities
2011
99,950,695.64 - 1,977,750

87,61,009.50
=1.12
For every Php 1.12 of the cooperative's assets, there is Php 1.00 of liability.
1. Compared to the industry standard of 1:1 MCVDC's quick ratio is high which means that the business can meet its current financial obligations with the available quick funds on hand.
Average Collection Period
Accounts Receivable
Daily Credit Sales
2011
2012
61,111,243.67

17,837.36
=3,463.03
MCVDC can collect their accounts receivable every 3,463.03 days.
69,286,850.60

17,785.99
=3,925.94
1. It takes MCVDC an average of 10 years to collect its accounts receivable.

2. It could be because MCVDC is a credit cooperative for the lower class who cannot immediately pay their credit and that MCVDC focuses on helping their members rather than earning revenue.

2012
99,237,587.64 - 1,848,250.00

44,859,138.42
=2.17
For every Php 2.17 of the cooperative's assets, there is Php 1.00 of liability.
=
Accounts Receivable Turnover
Accounts Receivable
Credit Sales
2011
2012
6,421,448.67

61,111,23.67
=0.11
MCVDC collects their accounts receivable 0.11 times within a year.
6,402,959.36

69,826,850.60
=0.09
MCVDC collects their accounts receivable 0.09 times within a year.
1. The turnover ratio is relatively low which means that the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm.

2. This is low because the cooperative is focused on helping their members rathe than earning high revenue.
=
Operating Income Return On Investment
Operating Income
Total Assets
2011
2012
2,083,047.79

132,747,763.05
=0.02
For every Php 1.00 of asset, MCVDC generates Php 0.02 of operating income.
2,117,863.51
144,096,726.06
=0.015
For every Php 1.00 of asset, MCVDC generates Php 0.02 of operating income.
1. The result is relatively low.

2. They have not used their large amount of asset in projects that could give them a high return. They chose to have their assets on stagnant and wait for their members to borrow it for their personal endeavors.

3. They use their money on operations related to their business rather than use it for investments.
=
Operating Profit Margin
Operating Income
Sales

2011
2012
2,083,047.79

14,045,149.41
=0.15
For every Php 1.00 of sale, MCVDC generates Php 0.15 of operating income.
2,117,863.51
14,191,925.20
=0.15
For every Php 1.00 of sale, MCVDC generates Php 0.15 of operating income.
=
Total Asset Turnover
Sales
2011
2012
1,045,149.41

132,747,763.05
=0.12
For every Php 1.00 of asset, MCVDC generates Php 0.12 of sales.
14,191,925.20
144,096,726.06
=0.098
For every Php 1.00 of asset, MCVDC generates Php 0.10 of sales.
1. Based on the results, we can say that MCVDC has not maximized the potential of its assets in generating revenue.
=
Total Assets
Debt Ratio
Total Debt
2011
2012
108,758,248

132,747,763.05
=0.81
Every Php 1.00 of asset is backed up by Php 0.81 of liability.
95,635,306.07
144,096,726.06
=0.66
Every Php 1.00 of asset is backed up by Php 0.66 of liability.
1. As the data shows, MCVDC has a relatively low debt ratio.

2. This is because they do not use their assets to generate that much income.

3. Another reason for this could be MCVDC focuses on helping their members without depending on the loans they make.
=
Total Assets
NOTE: The credit sales was estimated at 60%
NOTE: The credit sales was estimated at 60%
MCVDC can collect their accounts receivable every 3,925.94 days.
1. MCVDC's operating profit margin is below average, with this we can say that MCVDC does not maximize their potential in earning profit, mainly because MCVDC is not geared towards maximizing profit.
RECOMMENDATION
MCVDC has more liquid assets for both years

Both cooperatives take a long time to collect their accounts receivable for both years

BCC has a higher profitability ratio for both years

For asset management:
2011 Barangka Credit Cooperative
2012 Marikina City Vendors Development Cooperative

Barangka Credit Cooperative
continue helping their members

increase loanable funds

re-assess their credit policies

more efficient collection of accounts receivable
Full transcript