Financial Accounting Analysis

ACFINA2 Stock Market Game Term 3, Academic Year 2014-2015

A Report Presented to the Accountancy Department De La Salle University

In partial fulfilment Of the course requirements In ACFINA2 Section K33

Submitted to: Professor Nancy O. Chua

Submitted by: Sta. Maria, Allen Ivan P. Verocel, Jessica Therese A. Viray, Jomel I.

Executive Summary

A. Total Portfolio ● Philippine Long Distance Telephone Company (PLDT or TEL) PLDT is the leading telecommunications service provider in the Philippines with approximately 2.4 billion wireless subscribers and 2 billion fixed line subscribers nationwide. They have three principal business segments such as Wireless, Fixed Line, and Others. Smart, with the other PLDT Group cellular service provider, DMPI, account for approximately 61% of total reported cellular subscribers nationwide as of December 31, 2014. PLDT had a market capitalization of P627.858 million as of December 31, 2014, representing one of the largest market capitals among Philippine-listed companies. Ayala-controlled Globe Telecom and BayanTel are the major competitors of PLDT in the telecommunications industry. As part of the company’s competitive and overall development strategy, they have taken investment opportunities by acquiring different companies such as Smart, PDSI, Chikka, CURE, and Wifun and investing in MePay Global and PHIG, etc. PLDT was incorporated under the old Corporation Law of the Philippines on 1928, following the merger of four telephone companies under common US ownership. Its established purpose was to institute and operate telephone services in the country and has become consistent with this commitment up to the present time. The top 10 stockholders are PCD Nominee Corporation, J.P. Morgan Hongkong Nominees Limited, Philippine Telecommunications Investment Corporation, NTT DoCoMo, Inc., Metro Pacific Resources, Inc., NTT Communications Corporation, Social Security System, Pan-Malayan Management and Inv Corp., Manuel V. Pangilinan, and Albert F. &/or Margaret Gretchen V. Del Rosario. PLDT has a total authorized capital stock of P12.2 Billion. Table 1.1 PLDT’s Financial Ratios For the year ended

Account/s

2012

2013

2014

2015 (Projected)

Return on Assets

Net Income Total Assets

8.80%

8.74%

8.16%

8.46%

Return on Equity

Net Income Common Equity

23.96%

24.84%

25.21%

24.85%

Net Profit Margin

Net Income Sales

21.69%

21.04%

19.94%

20.62%

Times Interest Earned

EBIT Interest Expense

8.91

9.92

9.30

9.41

Price-Earnings Ratio

Market Price per Share Earnings per Share

15.6

17.2

17.5

17.03

Market-to-Book Ratio

Market Price per Share Book Value per Share

3.7

4.2

4.5

4.25

Book Value per Common Share

P731.8 Common Shareholder s' Equity Common Shares Outstanding 8

P635.54

P619.53

P646.8

P163.67

P157.51

P160.63

Earnings Per Share

Net Income Number of shares

P163.8 6

The group used various financial ratios to analyze the company’s profitability for years 2012 to 2014. Also, these ratios will be used to forecast the expected ratio for the year 2015. In forecasting for year 2015, weighted average will be used with the following weights: 50% for 2014, 30% for 2013, and 20% for 2012. This forecasting technique is used in the basis of the logic that the company’s past performance has a huge influence to its present and future. Return on Assets (RoA) is a measure of net profit per peso of asset. For years 2012 to 2014, the company had a decreasing RoA but expected to increase for year 2015. Return on Equity (RoE) is a measure of the accounting return on the common stockholders’ investment. The RoA of PLDT has an increasing trend but likely to decrease in 2015. Net Profit Margin (NPM) measures how much income is generated from each peso of sales after adjusting for all expenses. The NPM of PLDT has a decreasing pattern but is expected to increase for the current year. The Times Interest Earned (TIE) Ratio measures the ability of the firm to service its debt or repay the interest on debt. The TIE of PLDT fluctuated and such fluctuations are projected to continue on year 2015. The Price-Earnings (PE) Ratio indicates how

much investors are currently willing to pay for every peso of reported earnings. Book Value per Share (BVPS) calculates the per share value of a company based on its equity available to common shareholders. For both PE and BVPS, the company has an increasing movement but is anticipated to decrease slightly for the current year. Lastly, Earnings per Share (EPS) calculated the income attributed per share for the year. The year-to-year margin of PLDT’s EPS is very slim but is probable to increase on 2015. With the ratio movements stated above, the company anticipated that the company will still be able to maximize stock price within the 10-week span of the Stock Market Game. The company has the goal to have an optimal capital structure that is consistent with their business objectives which include maintaining healthy capital structures, strong credit ratings, and maximizing shareholder value. Their approach to capital management focuses on balancing the allocation of cash and the incurrence of debt as they seek new investment opportunities for new businesses and growth areas. The net consolidated debt to equity ratio increased from 52% to 77% as of December 2014. This value includes P130 million long-term debt and P134 million equity attributable to equity holders of PLDT. In 2015, they expect that cash from operations should enable them to increase the level of their capital expenditures for the continued expansion and upgrade of their network infrastructure. Their goal is to make additional investments in their core facilities to leverage existing technologies and increase capacity to accommodate the continuously increasing demand in call and text volumes as a result of ongoing promotions. For years 2012 to 2014, the stock price increased from P2,530 to P2,666 to P2,906 with a rate of 5.38% and 9%. The group expects it to increase substantially for year 2015. The group decided to purchase it because of PLDT’s dominance in the telecommunications industry. Their maximization of their shareholders’ wealth was truly evident and as a proof, they strived to maintain in having the highest priced stock in the Philippine Stock Exchange. Also, one basis used by the group was the considerable investment made by PLDT to Rocket Internet AG, a German firm that is known locally for its online commerce sites Lazada and Zalora, as well as for the EasyTaxi taxi booking service. These industries are having a positive trend with

regards to consumers’ since the access to Internet services became more accessible to the public. Compared to the other stocks held by the group, the amount of PLDT is very substantial. The cash invested to this company until the end of the Stock Market Game is P553,044.17. In the initial stock purchase, the group bought 170 shares amounting to P505,050.62 and subsequent purchases were made. The company had a loss of 33,682.57 when it was ultimately disposed at the end of the game with a total proceeds of P519,361.60. It was the choice of the group to hold the stocks for the span of the Stock Market Game because the group knew that the price changes for this company is significant due to its relatively expensive price. At the end of the simulation, the expected gains were not realized. Thus, making the initial purchase a bad idea. Probably, the logic and the prediction of the group do make sense but the failure might be attributed to the timing of the purchase. In making the purchase of this stock, one group member researched and suggested but other members were consulted first to have a consensus first before PLDT stocks were actually bought. ● Jollibee Foods Corporation (JFC) JFC was incorporated on January 28, 1978 and its established business line is the development, operation and franchising of fast-food restaurants under the trade name “Jollibee”. It is popular for owning numerous quick-service restaurants here in the Philippines such as Greenwich, Mang Inasal, Red Ribbon, Burger King, etc. Aside from its local dominance, JFC also has international brands such as Yonghe King, Hong Zhuang Yuan, San Pin Wang and 12 Hotpot. The foundation of JFC started when Mr. Tony Tan in 1975, opened a Magnolia ice cream parlor at Cubao and eventually became the first Jollibee Outlet. At its third year, it had a revenue of P2 million and eventually incorporated as JFC, a 100% Filipino-owned company, with seven Jollibee restaurants within Metro Manila as initial network and the Yumburger as top product. In 1979, Spaghetti Special was introduced. In 1981, JFC entered the list of top 1000 customers with 10 stores nationwide.

By the end of 2013, there are 811 Jollibee stores nationwide, of which 408 are franchised and 403 are Company-owned. In international operations, Jollibee had 101 store count at the end of 2013 with 29 stores in the United States, 41 in Vietnam, 13 in Brunei, one in Hong Kong, one in Singapore, and 16 in the Middle East. The stores offer food products that are prepared on-site based on original Company recipes, using Company-specified ingredients and supplies, and in accordance with Company standards and procedures. These products are sold under various trademarks including but not limited to Champ, Chickenjoy and Yum. Locally, its major competitors are a mix of local and foreign-owned fast-food restaurants such as Mcdonald’s Corporation, Cafe de Coral Holdings Limited, Fairwood Holdings Limited. The top 10 stockholders are PCD Nominee Corp., Hyper Dynamic Corporation, Honeysea Corporation, PCD Nominee Corporation, Winall Holding Corporation, Honeyworth Corporation, Kingsworth Corporation, Centregold Corporation, Gemma Tanbuntiong, and Venice Corporation. JFC has a total equity of P28 Billion with a total capital stock of P1.06 Billion that is comprised of 3,173 shareholders. Table 1.2 Jollibee’s Financial Ratios 2015

For the year ended

Account/s

Return on Assets

Net Income Total Assets

9.22%

10.62%

10.35%

10.21%

Return on Equity

Net Income Common Equity

18.33%

21.38%

21.20%

20.68%

Net Profit Margin

Net Income Sales

5.25%

5.82%

5.81%

5.70%

Times Interest Earned

EBIT Interest Expense

23.3

40.2

38.76

36.1

Price-Earnings Ratio

Market Price per Share Earnings per Share

28.2

40.2

43.55

39.48

Market-to-Book Ratio

Market Price pe r Share Book Value per Share

5

8

8.44

7.62

2012

2013

2014

(Projected)

Book Value per Common Share Earnings Per Share

Common Shareholder s' Equity P21.41 Common Shares Outstanding Net ∈come Number of shares

P3.58

P21.86

P25.47

P23.58

P4.45

P4.99

P4.55

Same with the forecasting method above in PLDT, the weights used in forecasting for the financial ratios of JFC are: 50% for 2014, 30% for 2013, and 20% for 2012. All of the financial ratios that the group examined for JFC are expected to decrease for year 2015. The group does not exactly agree with this because they expect that even if the company will generate results with what was projected, the company will still be able to either increase or maintain their stock price in the stock market. The total long-term debt of the company for the year ended 2014 is P5.14 Billion with P715 Million as the current portion. On the other hand, the total common and preferred stock is P1.06B. With this, the company is financed almost 5 times with long-term debt than with capital stock. Through it, the company’s creditworthiness is being strengthened in the eyes of financial intermediaries, enabling its capacity as well as giving JFC power to expand its ordinary business operations. For the year 2015, the company wants to use this as an opportunity to increase this long-term debt to equity ratio as a means of increasing its profitability through establishing additional income-generating facilities while maintaining good relations with their lenders. They also desire to use it as a medium to acquire more companies that can expand their ventures as a parent company. At the end of 2012, the JFC stocks are priced at P107.20 and increased by 60.45% at P172 after two years. As of April 10, 2015, the JFC stocks are being traded at an average of P216.20. According to JFC, stock prices are expected to increase in 2015 as they continue to maintain their credibility to their stockholders. They mentioned that the crisis regarding the lack of supply due to the IT glitch that happened last 2014 would never happen again. The group did not only inspect the financial statements but also consulted the news and other related online articles. For example, in a Rappler article written by Marvin Germo, a personal finance consultant and an experienced stock market trader, he advised that for 2015, traders should buy consumer stocks because

company within this group are more likely to be consistent in their performance as to either maintain or maximize their stock prices. Also, the trend of JFC stocks is undeniably increasing despite of the anomalies that happened last 2014 as mentioned above. JFC was not part of the group’s initial stock purchase portfolio but was bought in the first half of the 10-week Stock Market Game. Stocks of JFC were in and out of the group’s portfolio. At first, stocks were purchased with a cost of P112,336 and sold it with proceeds of P114,080. Again, the company purchased JFC stocks with a cost of 150,185.71 and sold part of it at P138,014.98 and the others P64,698.24. JFC stocks were undeniably a good buy for the company for the reason that it yielded high profit margin. It was the group’s decision to hold the stocks until the end of the Stock Market Game because it was continuously increasing when it was bought in the earlier part of the game. Also, the group believed that JFC would be one of the stocks in the PSE that will eventually elevate their cash position by the short period of time allotted for the game. The purchase of JFC was not bad at all because of the profit/loss margin is very slim compare to the margin of the other stocks by the time they were disposed at the same time. Buying JFC was a collaborative effort by the group because they have an agreement to consult sources that are trustworthy before making any purchase or any disposal. Consensus among the group was not a difficulty because JFC’s performance is a common knowledge not only in the group but also outside the group. ● Metropolitan Bank and Trust Company (MBT) MBT is the leading financial conglomerate with diversified business portfolio including investment banking, thrift banking, leasing and financing, bancassurance, and credit cards. The Ty family owned majority of its shareholdings. It offers full range of banking services to large local and multinational corporations, middle market and SMEs, high net-worth individuals and retail segment. MBT was founded in September 5, 1962 and has since become the premier universal bank among the foremost financial institutions in the Philippines. It was

incorporated in Binondo, Manila by a group of Filipino businessmen to offer financial services to the Filipino-Chinese community. Metrobank rolled out its first international branch in Taipei in 1970 and a representative office in Hong Kong in 1973 and became the first bank to move into American territory by 1975. In 1981, MBT was listed in the Philippine Stock Exchange and acquired its universal banking license, gaining significant equity ownerships in local and international subsidiaries. In the 1990, MBT opened branches and offices in London, Taichung, Tokyo, and Seoul. Aside from being the first Filipino-owned bank in the United States, it is also the first in Korea and in Japan. Until now, MBT remains dedicated to fulfilling its vision to be the best bank for all stakeholders – from its customers to the community. Bangko Sentral ng Pilipinas’ statement last October 2014 proves MBT’s dominance in the banking industry as one of the country’s “too big to fail” or “DSIB” (Domestic Systematically Important Banks) corporations such that the government will come to their rescue if needed. With that, they have to increase their minimum Common Equity Tier ratio by 1.5 to 3.5 percentage points because this is one of the means of strengthening the local banking system and could further encourage more mergers and acquisitions, especially among the country’s biggest banks. Competitors of MBT that are part of the DSIBs are BDO Unibank, Inc. by Henry Sy and Bank of the Philippine Islands of the Ayala group. Other major competitors include Rizal Commercial Banking Corporation, Land Bank of the Philippines, and Philippine National Bank of Lucio Tan. The top 10 stockholders of MBT are PCD Nominee (Non-Filipino), GT Capital Holdings, Inc., PCD Nominee (Filipino), Philippine Securities Corp., Horizon Royale Holdings, Inc., Global Treasure Holdings, Inc., Federal Homes, Inc., Grand Titan Capital Holdings, Grand Estate Property Corporation, Ausan Resources Corporation, Glam Holdings Corporation, and Inter-Par Phils. Res. Corp. Total equity amounts to P150.526 Million that is composed of 2,744,801,066 issued shares as of September 30, 2014. MBT also offers hybrid capital securities and has a total amount of P6.4 Million. Table 1.3 Metrobank’s Financial Ratios

For the period ended September 2014

2015

For the year ended

Account/s

Return on Assets

Net Income Total Assets

1.5%

1.9%

1.25%

1.50%

Return on Equity

Net Income Common Equity

13.4%

17.6%

14.08%

15.00%

Net Profit Margin

Net Income Sales

32.9%

39.8%

25.74%

35.68%

Times Interest Earned

EBIT Interest Expense

-

-

-

-

Price-Earnings Ratio

Market Price per Share Earnings per Share

15

18.6

18.6

20.98

Market-to-Book Ratio

Market Price per Share Book Value per Share

2.1

2.6

2.7

2.55

Book Value per Common Share

Common Shareholder s' Equity P36.82 Common Shares Outstanding

P47.67

P50.76

P47.05

P7.78

P4.17

P6.17

Earnings Per Share

Net Income Number of shares

2012

P5.28

2013

(Projected)

The group forecasted selected financial ratios for 2015 that they are interested in. Since the annual report for year 2014 was not yet issued, the company used the data for the 9-months ended September 2014. To be consistent with the 5030-20 weights for 2014, 2013, and 2012, the ratio for 2014 is divided by 9 and multiplied by 12 to represent the ratio for year 2014. All financial ratios of MBT are estimated to increase this year except for the BVPS. The group has anticipated this consistency of MBT but was not satisfied with the outcome of trading these stocks. To have a reasonable comparison of the leverage, the debt-to-equity ratio for the nine months ended September 2013 and 2014 will be compared. For 2013, the debt-to-equity ratio is 802.32% and 953.82%. According to these ratios, it is very evident that MBT is very reliant on debt financing rather than stock financing. To support this, the resulting asset-to-equity ratio for 2013 and 2014 are 1059.45% and 908.06%, respectively. The ratios may be bad in the eyes of some investors who do

not take a peak of the company’s financial statements. This might be the reason why the company’s stock price fluctuates and is not being maximized because MBTs dependency is not on stockholders but on lenders. For years 2012 to 2014, the stock price of MBT fluctuates with a decrease of 3.62% with a price of P73.28 in 2013 and an increase of 9.87% with P80.51 in 2014. The group expected to be higher in the span of the 10-week Stock Market Game. The only reason why the group purchased MBT stocks is because they perceived MBT as a company that would not fail in any circumstance. To be able to do this, the company must aim to maximize the value of their shares but this was not the case for MBT. Probably, this is the difference when operating a business within the banking industry rather than in retail, fast-food, telecommunications, etc. MBT was part of the group’s initial stock purchase portfolio with 1610 shares for P150,582.90. Since the MBT has an inconsistent price, the group decided to dispose it when it was high with a proceeds of P151,247.26 and a gain of P664.36. For a short-term simulation like this Stock Market Game, MBT is a good buy because its prices increased immediately and would give the stockholder an opportunity to have an immediate gain when disposed immediately even for a minimal margin. MBT was the company from the banking industry that the company invested in for the reason of diversification. The company’s aim was to minimize the number of companies held in its portfolio but made sure that it should be from diverse business sectors or industries. In the acquisition of MBT, it was from a proposal of a group member from the reason mentioned above of having a few companies but dissimilar industries so that the probability of having favorable returns is higher.

● Manila Electric Company (MER) Manila Electric Company, commonly known as MERALCO, is the largest distribution utility (electric power) in the Philippines. It supplies electricity to all which includes residential, industrial, and commercial sectors and streetlights in the Philippines. This is the only electric power distributor in Metro Manila and has franchises for 34 cities and 77 municipalities. MERALCO powers 5,367,720 customers and they have celebrated their 111 th year in service in 2014. They aim to

be the total energy solutions provider of choice and to be a world-class company. Their mission is to provide their customers the best value in energy, product and services. MERALCO was established as Manila Electric Railroad and Light Company back in 1903 to provide light and power and an electric street railway system to Manila. The largest single investment of American private capital was the facilities that MERALCO had for the two services stated earlier. In 1961, Eugenio Lopez Sr. and a group of Filipino investors decided to buy MERALCO from its American owners. By earning the confidence of international credit institutions, they built the electric generating and distributing facilities. When the government decided to own all major generating facilities, MERALCO sold its plants and electric distribution became its core business. In the late 1980’s, private investment was once called because of the change in policy. Since MERALCO is an investor-owned electric utility serving roughly a quarter of the estimated 94 million population of the Philippines, competition is very slim. Being in an electric power industry, they are mostly a monopoly particularly natural monopoly where it is more efficient for production to be concentrated in a single firm. In the National Capital Region specifically in Metro Manila, there is no competition since they are the only electric distributor there. However, in some places especially those in the provinces they have competitors which are mostly cooperatives. The top competitors of MERALCO are Central Negros Electric Cooperative, Inc., Central Pangasinan Electric Cooperative, Visayan

Electric

Company, Inc., Vivant Corporation, Zamboanga City Electric Cooperative, Inc., Electricity Generating Public Company Limited, and Covanta Energy Corporation. The two major stockholder of MERALCO are Beacon Electric Asset Holdings, Inc. and JG Summit Holdings, Inc. holding the number of 506,724,042 shares and 305,689,397 shares, respectively. The strategic stockholders according to MERALCO are Metro Pacific Investments Corp. First Phil. Holdings Corp., and First Phil. Utilities Corp., holding a total of 100,830,624 shares. Beacon holds 44.96% of the total outstanding shares of MERALCO followed by JG Summit with 27.12%. Metro Pacific holds 5% and First Phil. Holds 3.94% of the total outstanding shares. The rest of the shares, 18.98%, are held by the private and public corporations, individuals and others.

Table 1.4 Meralco’s Financial Ratios 2015

For the year ended

Account/s

Return on Assets

Net Income Total Assets

8%

7%

7%

7.20%

Return on Equity

Net Income Common Equity

25%

23%

23%

23.40%

Net Profit Margin

Net Income Sales

6%

6%

7%

6.50%

Times Interest Earned

EBIT Interest Expense

13.73

16.66

18.86

17.17

Price-Earnings Ratio

Market Price per Share Earn ings per Share

17.16

16.44

15.98

16.35

Market-to-Book Ratio

Market Price per Share Book Value per Share

4.31

3.76

3.63

3.81

Book Value per Common Share

P60.4 Common Shareholder s' Equity Common Shares Outstanding 6

P66.84

P70.52

P67.4

P15.27

P16.02

P15.63

Earnings Per Share

2012

2013

2014

(Projected)

Net Income Number of shares

P15.1 9

Forecasting of this company is the same as mentioned above except for MBT. The projected values for the year 2015 may not accurately represent their expected values since we did not consider other factors that may affect it and only used weighted average for forecasting. Seeing the financial ratios of MERALCO, it seems that they are decreasing from 2012 to 2014. There are no substantial increases of net income, total assets, and shareholder’s equity. From 2013 to 2014 net income has increased only for 4.97%, total assets for 1.91%, and shareholder’s equity for 5.31%. This may not be good for the market price of their shares however, you could see that its time interest earned ratio since the net income has increased while its interest expenses has decreased for 2.70%. Even if they are not performing well in some of their ratios this does not mean that there are other factors that weigh more in order to gain back their market shares or even higher. Even though the company’s interest

expense has decreased, its long term debt has increased from P20,756 to P27,743 from year 2013 to 2014. That is a 33.66% which means that MERALCO has increased its financial leverage. MERALCO’s share has decreased for the past 2 years. Its share price was P260.66 back in 2012 and is now P256.00 during 2014 and that is a 1.79% decrease. Compared to other companies, they are not the ones that had a lowest decrease in their stock price. According to Perez, MERALCO hit a high of P315.20 on November 7, 2013 but plummeted down to P250 on December 13. The reason could the increase of P4.15 per kilowatt-hour which has been approved by the Energy Regulatory Commission. Their highest stock price was on May 10, 2013 at the price of P395.00 this may probably because of their purchase of a 70% stake in a Singapore power plant project (Gonzales, 2013). MERALCO was part of the group’s initial stock purchase portfolio with 540 shares for P149,920.42. It has been serving the Philippines with its services for more than a century now. Since it has been long standing in the market, the group decided to purchase this stock which is included in the group’s initial purchases and hold it until the end of the game. We are a bit defensive in this regard considering we are new in this activity knowing that no matter what happens they will most probably be able to pull through or pay their investors. The group’s decision basing on the results of the stock prices every closing, it is best that we have sold it during the game instead of holding it until the end. On Jan 23, 2015 which is the start of the game we have bought it for P276.80 and there were a lot of price increase during the span of January 23 to March 20, 2015. For the acquisition of MERALCO, one group member proposed a list of companies to invest in with different industries so that the group could have a favorable return with their investment. ● Concepcion Industrial Corporation (CIC) Concepcion

Industrial

Corporation,

formerly

known

as

Concepcion

AirConditioning Corporation, which is primarily a holding company that operates principally through its two subsidiaries. It supplies air conditioners, air conditioning solutions, and refrigerators. They are also exploring the potential expansion into other consumer appliance products. CIC has a wide range of solutions and after-

market services across multiple international and Philippine brands including Carrier, Toshiba, Condura and Kelvinator that serves wide array of customers. CIC is in the industrial industry and the subsector is electrical components and equipment. Some of the competitors of Concepcion Industries are Chigo Holding Ltd., Hitachi Home & Life Solutions (India) Ltd., Whirpool of India Ltd.,, Shanghai Mechanical & Electrical Industry Co. Ltd. B, and others. Concepcion Industries was established in 1962 by Jose Concepcion Sr. at the same year they obtained a license from Carrier International to offer Carrier brand air conditioners in the Philippines. In 1977, Kelvinator was obtained and in 1987, Condura brand was established and introduced. In 1992 and 1998, Concepcion Industries opened its air conditioning and commercial refrigeration factories. The major stockholders of CIC are PCD Nominee Corporation – Filipino and Non Filipino holding 168,795,016 shares and 20,818,292 shares respectively. The Filipino PCD owns 79.15% and the foreign one 20.85% of the total outstanding shares which equates to 100%. Other stockholders are individuals. John T. Lao has 1,300 shares, Angelo Mabunay and Hanson Go and has 1,170 shares Jesus Valencia and Joselito Herrera has 130 shares while the nine others have 2 shares. Table 1.5 CIC’s Financial Ratios 2015

Financial Ratios

Account/s

Return on Assets

Net Income Total Assets

9.36%

10.30%

17.1%

13.51%

Return on Equity

Net Income Com mon Equity

29.79%

28.52%

25.2%

27.11%

Net Profit Margin

Net Income Sales

6.14%

6.73%

17.1%

11.80%

Times Interest Earned

EBIT Interest Expense

700.14

123.32

70.16

212.1

Price-Earnings Ratio

Market Price per Share Earnings per Share

-

12.6

24.47

19.72

Market-to-Book Ratio

Market Price per Share Book Value per Share

-

3.65

5.67

4.86

2012

2013

2014

(Projected)

Book Value per Common Share Earnings Per Share

Common Shareholder s' Equity P4.95 Common Shares Outstanding Net Income Number of shares

P1.63

P6.73

P8.13

P7.07

P1.95

P1.88

P1.85

Forecasting of the projected financial ratios during 2015 is the same as the one mentioned in previous portfolios except for MBT. It is clearly seen that the 2012 Price-Earnings Ratio and Market-to-Book Ratio of CIC is not given since almost every site that the group researched there is no given market price nor at least one of each in order to re-compute one value. At edge PSE’s site, you could not see the past data of its stock prices beyond November 17, 2013. The earnings per share of CIC may be fluctuating which means it is affected by the economic expansion and contraction that may occur repeatedly thus, making people cautious of buying their stocks. However, the net income of CIC has been increasing from 2012 to 2013 at the value of P684,438 to P840,558 which represents a 22.81% increase and to P1,056,141 which represents a 25.65% increase from 2013 to 2014. That is best represented in the increasing Return on Assets, Net Profit Margin, and Return on Equity. The one worth noting is their interest coverage or times interest earned ratio. During 2012, they have 700.14 which means that they could pay their interest expenses 700.14 times using their net income. In 2012, they have the lowest earnings per share but have the highest times interest earned ratio. This means that CIC is not that highly leveraged since they have lower interest expense which represents lower debt thus, relying more in equity which earnings per share are representing. As stated earlier, the group wanted to invest in different industries and according to our research CIC is one of the companies that are in the thick of the Philippines consumption-driven economy. Also, even though there weren’t any data from November 27, 2013 of CIC, it is clearly seen that their stock prices has been going up since then. It may have went down on August 14 2014 at P43.50 from P53 at August 13, 2014 and this continued until November 24, 2014 but from then on it increased. Currently their highest market price was P62.10 on March 24, 2015. This made the group see that CIC has the potential of going up even if they have their downs.

CIC has been part of the group’s initial portfolio and they bought CIC shares totaling 2,200 shares for P101,282.94. The group decided to sell CIC immediately since they are not entirely sure if this would be the time that CIC’s prices will become so low. The decision of selling the stock immediately the week after is a pretty good decision since the group gained P11,110.66 compared to the other stocks bought that incurred losses. Since CIC is one of the first stock that the group had bought, one member had researched about this and they have agreed upon that CIC should be bought. ● Universal Robina Corporation (URC) Universal Robina Corporation or URC is one of the largest branded consumer food and beverage product companies in the Philippines. Some say it is a jack-of-allfoods. It is engaged in the manufacture and distribution of branded consumer foods as well as commodities such as sugar and flour milling. They are also engaged in other businesses such as production of hogs and day-old chicks, manufacturing of animal and fish feed, glucose and veterinary compound and refining. Since URC is a manufacturing corporation particularly in food manufacturing, there are a lot of competitors in the market. These are some of their top competitors: Big Heart Pet Brands, San Miguel Corporation, Del Monte Pacific Ltd., Berli Jucker PCL and Calbee Inc. It all started back in 1954 with John Gokongwei Jr. He was doing very well as a trader/importer but he saw that trading would remain a low-margin business thus he decided to construct a corn milling plant to produce glucose and cornstarch which was called Universal Corn Products (UCP). Since he was striving to be ahead in the game, in 1961, Consolidated Food Corporation was born. He wanted a local ‘MNC’ like Nestle and Procter & Gamble with their branded consumer goods. In 1963, Robina Farms started operations beginning with poultry products and in 1966 URC was established. The total outstanding shares of URC as of September 2014 is 2,227,014,820. The major stockholders are JG Summit Holdings, Inc. amd PCD Nominee Corporation (Non-Filipino and Filipino). Their percentages to total outstanding shares are 54.55%, 32.35% and 10.47%, respectively. All the remaining 2.63% belongs to individuals, public and private corporations, and others.

Table 1.6 URC’s Financial Ratios For the period ended September 2014

2015

For the year ended

Account/s

Return on Assets

Net Income Total Assets

11.18%

14.71 %

16.00%

17.31%

Return on Equity

Net Income Common Equity

17.45%

20.62 %

21.63%

24.10%

Net Profit Margin

Net Income Sales

10.86%

12.40 %

12.51%

14.23%

Times Interest Earned

EBIT Interest Expense

11.32

38.64

93.87

76.44

Price-Earnings Ratio

Market Price per Share Earnings per Share

22.90

23.20

35.34

35.1

Market-to-Book Ratio

Market Price per Share Book Value per Share

3.70

4.60

7.29

6.98

Book Value per Common Share

Common Shareholder s' Equity P21.25 Common Shares Outstanding

P23.30

P25.65

P28.34

P4.60

P5.30

P5.66

Earnings Per Share

Net Income Number of shares

2012

P3.70

2013

(Projected)

The group has used the weights 50-30-20 for years 2014, 2013, and 2012 respectively in computing the projected financial ratio for 2015. The 2014 annual report by URC still hasn’t been released therefore the group has used the period ended September 2014. In order to have consistency, the group divided the 2014 ratios by 9 and multiply it to 12 to represent the 12 months/

Looking at URC’s

financial ratio table, it can be clearly seen that all their ratios has increased from 2012 to 2014 whether only in minimal percentage or not. The projected financial ratios in 2015 clearly states otherwise which the group does not agree on. As stated earlier, the computation for the projected financial ratio in 2015 may not accurately project its value since the group only used weighted average method that does not consider other factors especially when the group had made it seem that the ratios

increases equally each month. It is only based on the group’s perception on how the ratios will be affected in the future based on URC’s historical data. URC is best known for manufacturing and distributing high-performing products and it is the country’s first “Philippine multinational.” It operates in the Philippines, Thailand, Malaysia, Singapore, Indonesia, Vietnam, China, and Hong Kong. Just by knowing the company’s location of operation, it is evident that they are doing well in their business. Looking at URC’s financial statement particularly in the statement of consolidated income the sales, cost of sales, and its expenses has increased but their interest expenses are decreasing. Thus, the times interest earned ratio is in turn increasing. The short-term debt of URC has increased from P1,945 of 2013 to P4,327 of 2014, September 30 which represents 122% increase in debt. This means that the company is relying more on debt thus being highly leveraged. On December 28, 2012, URC’s market price was P83.85 and currently on December 29, 2014, the market price was P196.00 which means 133.75% from 2012 to 2014. Looking at the site of Edge PSE, the stock price of URC is upward sloping. The group decided to invest in this company since they know that it is a profitable company and is the 2 nd on the gainers from PSEi. Buying price from P113.1 to P194 which is a 72% gain. The group has bought URC in the second to the last week of the activity hoping to increase the gain since the group had four out of eight companies incurring losses. The decision that the group had made in buying URC at the last minute is pretty good since this is also the company where the group has highest gain compared to the other companies. One group member suggested that the group should just buy URC and nothing else seeing that it is the last week of buying and selling the shares. The other group members had agreed and URC was bought.

● Max’s Group, Inc. (MAXS) Max’s Group, Inc. is popularly known as ‘the house that fried chicken built’. It consists of a chain of Max’s restaurants who serve good food in which started as a cafe during 1945 after World War II which was then incorporated in 1970. Since then, Max’s upheld a long standing tradition of quality food and service and during

the last quarter of 1998 opened its doors to franchising where public individuals may invest in and be part of the Max’s tradition. Max’s Group, Inc. is part of the thriving food industry in which caters to the gastronomic needs of individuals. It is made up of countless restaurant chains who serve the people by giving them quality food and service. Under the corporation include the names Dencio's, Kabisera ng Dencio's, Teriyaki Boy, Sizzlin Pepper Steak, Le Coeur De France, The Chicken Rice Shop, and Yellow Cab which are well known in the food catering business. The strongest competitor of Max’s Group, Inc. may very well be Jollibee Foods Inc. and Golden Arches Development Inc. where they hold the ownership of some restaurants which are very popular in the food industry and have a good customer base. These two corporations owns a plethora of restaurants catering to the food needs of individuals much lie Max’s. Max’s Group, Inc. started out as only a cafe serving chicken steaks and drinks in Quezon City after the World War II. Soon after, the popularity of the grew into a multi-million food empire in which is then founded by Milagros Basa, Leticia Zamora and Carmen Zaragosa in 1970. The notably institutions that own Max’s Group, Inc. are the Norges Investment Bank with 10,979,658 shares in total, BDO Unibank, Inc. with 6,645,506 shares and TIAA-CREF Investment Managemnt LLC with 1,000,000 shares in total. The notable people in the Board of Directors are Sharon T. Fuentabella, Robert F. Trota and Dave T. Fuentabella. Table 1.7 MAX’s Group, Inc. Financial Ratios For the year ended

Account/s

Return on Assets

Net Income Total Assets

Return on Equity

2012

2013

For the period ended September 2014

2015 (Projected)

5.18%

2.67%

-0.07%

1.80%

Net Income Common Equity

7.73%

14.59 %

-1.64%

5.10%

Net Profit Margin

Net Income Sales

2.11%

4.36%

-1.36%

1.05%

Times Interest Earned

EBIT Interest Expense

3.35

4.43

-0.09

1.95

Price-Earnings Ratio

Market Price per Share Earnings per Share

34.09

12.15

-491

-235.04

Market-to-Book Ratio

Market Price per Share Book Value per Share

3.90

2.10

4.74

3.78

Book Value per Common Share

Common Shareholder s Equity P3.88 Common Shares Outstanding

P3.70

P5.17

P4.47

P0.64

P-0.05

P0.24

Earnings Per Share

'

Net Income Number of shares

P0.44

The group has used the weights 50-30-20 for years 2014, 2013, and 2012 respectively in computing the projected financial ratio for 2015. This forecasting technique is used in the basis of the logic that the company’s past performance has a huge influence to its present and future, which is used for all the companies analyzed herein. The profitability ratios of Max’s are at its lowest for the three year comparative period in 2014 due to the net loss incurred during the said year. This is due to the excessive amount of their other operating expensed which would lead to minimal profit. The minimal profit would then be offset with the other expenses of the company such as their interest expenses and other costs which would lead to the net loss of P66,202. The profitability throughout the three year comparative period of the company fluctuates from year to year with relatively low profitability ratios for the year 2012 which would then increase in the year 2013 and would then drop to negative amounts in the year 2014. Due to the losses incurred by the company in the year 2014, it cannot cover its interest expenses therefore it has a negative Times Interest Earned ratio which looks bad for the point of view of the company’s creditors because of the chance that the company may not be able to meet their obligations due to the net loss incurred for the year. However, the trend for the two other years which are the years 2012 and 2013 still follow that of the profitability ratio trend of the company with a relatively low TIER at 3.35 in 2012 and 4.43 in 2013. Despite the losses reported by the company, the market price of the company does not follow the dive in profitability. This would indicate that the trust the investors have in the company is high and that despite the losses reported, people

are still willing to invest in the company. Its market to book ratio is fluctuating with 3.9 in 2012 which would then decrease to 2.10 in 2013 then increases to 4.74 in the year 2014. The group decided to purchase the company’s shares because we wanted to invest in the food industry wherein the ● SM Prime Holdings, Inc. (SMPH) ● Globe Telecom, Inc. (GLO)