# Chixchops Case Study

MAJOR ASSUMPTIONS

1. The initial capital of ChixChops is five hundred thousand pesos (P 500,000).

2. Salaries expense of the employees is expected to increase 2 % per annum. This is based on the inflation rate given by Bangko Sentral ng Pilipinas for the year 2016 – 2020.

3. Clothing expenses of employees are expected to increase every 2 years by 2%.

4. Utilities expense is expected to increase by 2% annually.

5. Advertising expense is expected to increase 2% annually.

6. Rent expense is expected not to increase for the first five years.

7. The first year of operation 2016, will be completed using a 10-month period following the time table presented in page 4.

8. All expenses are paid in cash basis.

9. Retainer's fee

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5 times a year that ChixChops is projected to sell and replenish its inventory.

MEASURING INSOLVENCY

EQUITY RATIO

Formula: Partners Equity / Total Assets

Computation:

Average Equity Ratio

This ratio refers to the relative proportion of equity applied to finance the assets of the company. A 100% of its total assets is provided by the partners of ChixChops.

MEASURES OF PROFITABILITY

RETURN ON ASSETS

Formula: Return on Assets= Net Profit After Tax / Total Assets

Computation:

0.32

Average Return on Assets

This ratio indicates how profitable a company is relative to its total assets. This ratio illustrates how well management is employing a company’s total assets to make a profit. For ChixChops the 32% of its net income is provided by total assets. RETURN ON INVESTMENT (ROI)

Formula: Return on Investment = Net Profit After Tax / Total Investment

Computation:

Average Return on Asset

This ratio refers to the relationships of profits to capital invested. ChixChops gets an average of P1.29 for every peso investment in five (5)

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It is an indication that the company is efficient in generating income on new investment.

GROSS PROFIT MARGIN

Formula: Gross Profit Margin = Gross Profit / Gross Sales X 100

Computation

Average Gross Profit Margin

This ratio shows how efficiently that ChixChops using its materials and labor in the production process and gives an indication of the pricing, cost structure and production efficiency. For every pesos of ChixChops earns in every sale, it has P 0.57 at the end.

GROSS MARGIN RATIO

Formula: Gross Margin Ratio= Cost of Sales / Gross Profit

Computation:

Average Gross Margin Ratio

This ratio shows the percent of total sales revenue that the firm retains after incurring cost 1.32 % is retained in the total sales revenue of ChixChops.

RETURN ON SALES

Formula: Return on Sales = Net Profit Before Tax / Net Sales

Computation

Average Return on