Company Profiling

Of
CEBU PACIFIC AIR

Presented to:

MR. KARL IAN S. LAGNAODA, MICB, REB, MBA

Presented by:
PAULA ANDREA M. ENRIQUEZ
ALLEN CLARK L. ESPARRAGO
BIANCA MAE B. GUANGCO
CALVIN JESTIN

October 8, 2019
 TABLE OF CONTENTS

I. COMPANY BACKGROUND

A. Company History 1
B. Industry Analysis 3

II. STRATEGY AND VISION

A. Vision Statement 5
B. Mission Statement 5
C. Values
a. Service 5
b. Integrity 5
c. Trust 5
d. Courage 5
e. Best of Filipino Spirit 6
D. Business Goals 6
E. Business Strategies 6

III. PRODUCTS AND SERVICES

A. Products
a. Fun Café/ Fun Shop 7
B. Services
a. Scheduled Flights 7
b. CEB Cargo
1. CEB X 7
2. Blocked Space Arrangement 7
3. ATR Chapter 7
4. Transshipment 8
5. Cargo Interline 8
6. Packaging Services 8
 c. CEB Travelsure 8

IV. MANAGEMENT AND OWNERSHIP

A. Directors 9
B. Top Investors/ Shareholders 13

V. QUICK RATIO 14

VI. RETURN ON ASSET 15

VII. CAPITALIZATION RATIO 16

VIII. INVENTORY CONVERSION PERIOD 17

IX. AVERAGE COLLECTION PERIOD 18

X. PAYABLES DEFERRAL PERIOD 19

XI. CASH CONVERSION CYCLE 20

XII. REFERENCE 21

XIII. APPENDIX

A. Consolidated Financial Statements

BACKGROUND

Company History

Cebu Pacific Air was established in the city of Pasay at Metro Manila from the Philippines during
late August, 1988. However, the airline company only commenced its operations from early March, 1996,
over eight years later.

In the history of Cebu Pacific, a fatal accident occurred during the second day of February, 1998.
The Cebu Pacific Flight 387 (Model DC-9-32) traveled from Manila to Cagayan de Oro but had crashed on
the slopes of Mount Sumagaya and resulted from pilot error, causing the deaths of the one-hundred-and-
four passengers and crew members on board. During this time, Cebu Pacific Air was grounded by the
government of the Philippines, but continued its services from March onwards, after the aircraft was
recertified.

In the year 2001, during the last days of November, Cebu Pacific Air began operating international
flights by flying to Hong-Kong twice per day. And starting from the first day of March, 2002, Cebu Pacific
Air initiated flights to Seoul, thrice a week. The airline company continued to introduce new destinations
for its customers and increased its frequency of visits on existing routes in the following years. During late
May, 2008, Cebu Pacific received the honor of being named as the world’s leading airline company in
terms of growth and placing fifth (in Asia) for passengers traveling on a budget (ranked twenty-third in the
world). From the 22nd day of July, 2008, Cebu Pacific became the first airline company to use the newly
constructed Terminal 3 at the Ninoy Aquino International Airport (NAIA) in Manila and commenced
operating commercial flights from the terminal, internationally.

Cebu Pacific started a Twitter account in August of 2009 and became the first airline carrier from
the Philippines to officially control its social media presence. Also, Cebu Pacific Air received an upgraded
International Organization for Standardization (ISO) 9001:2008 Certificate on January 2010, from an ISO
9001:2000 Certificate that was held from February 2003. The upgraded certificate guarantees that Cebu
Pacific Air performs consistent procedures in business operations by covering all of its significant processes
such as maintaining adequate records for all transactions, effective monitoring in processes, and placing
mechanisms for perpetual betterment. Cebu Pacific became the Philippines’ largest airline by total number
of passengers flown on domestic and international flights on June, 2010. From October of the same year,
the company held a flight network of 33 domestic and 14 international destinations. Cebu Pacific won the

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'Budgie$ Friendliest LCC Award' on February of 2011 at the Low-Cost Airlines World Asia-Pacific
Conference held that took place in Singapore.

Cebu Pacific and Tigerair, two of the largest budget carriers based in the Philippines and Singapore,
respectively, signed a strategic alliance on January of 2014 creating the biggest network of flights involving
the Philippines. The alliance allows both airlines to leverage on each other’s extensive route networks,
flight frequencies and customer service, providing customers an even wider range of travel options at the
lowest fares possible. And during the next month (February, 2014), the company announced a share
purchase agreement to acquire 100% of Tigerair Philippines, including a 40% stake in Tiger Airways
Holdings Limited. To signify the relationship between Tigerair Philippines as a wholly owned subsidiary
airline of Cebu Pacific Airlines, it was rebranded as CebGo by May of 2015. Exactly a year later (May,
2016), Cebu Pacific became a founding member of Value Alliance, the world’s largest low-cost carrier
alliance. Cebu Pacific is currently the only Philippine carrier to be a member of an airline alliance.

Currently, Cebu Pacific Air is the largest carrier in the Philippine air transportation industry,
offering low-cost services to more destinations and routes with higher flight frequency within the
Philippines than any other airline. The company currently offers flights to 37 Philippine and 26 international
destinations, spanning Asia, Australia, the Middle East, and USA.

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INDUSTRY ANALYSIS

Threat of Substitute
Buyer Power
Number of substitute
Number of customers
products available
Accessibility of
Price performance of
Information
substitute
Switching cost
Travel Time

Threat of New Entrants

Brand loyalty
Supplier Power
Capital Requirements
Fuel supplier
Cumulative Experience Cebu Pacific Aircrafts supply
Access to distribution Airline
channels Competitors
Philippine Airlines
Air Asia

One of the most competitive industry is the airline industry. An airline is a company that provides
air transport services for travelling passengers and freight along a scheduled route. It has made travelling
to different places more easy for the people. With these, they play a big role in trade and tourism. For years,
this industry has been consistent on expanding its routes domestically and globally. The airline industry is
categorized into four different operations; International that takes the passengers anywhere in the world,
National, Regional and Cargo, airline that focuses on carrying goods.

As an example, one of the most knowable airline companies in the world is the American Airlines.
It is the world’s largest airlines in terms of fleet size, revenue, scheduled passengers carried, scheduled
passenger- kilometers flown and number of destination served. Up to this date, they continue to be
aggressive in expanding their track of route, innovation, and improvement of customer experiences with
the help of technology, fair pricing and comfort. Since airlines are expensive and takes long time to produce,
American Airlines have multiple different plane types varying in shape, size, comfort level, capacity and
speed. The information technology also takes part on the success of an airline company. Any malfunction
can cause big problems such as canceled and delayed flights.

One of the booming business in the Philippines is the airline industry. Travelling by air can be
substituted by other modes of transportation such as private cars, bus, ferry and etc. These kinds of
transportation could also have a lower cost compared to what the airline could offer. But there are those

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people who also want to get into their destination as fast they can due to the lack of time. There personal
preference and convenience must also be considered. According to the Civil Aviation Authority of the
Philippines, the country has 70 airports. Out of those airports, 11 can handle international flight, 32 can
accommodate domestic travel and 27 are used primarily for general navigation. There are hundreds of
planes coming in and out of the airport and one of the most well-known one is the Ninoy Aquino
International Airport.

Currently, there are four major commercial airlines in the country: Cebu Pacific, Air Asia,
Philippine Airlines and Skyjet. They carry international and domestic flights in the country. They fly to the
same places in the same airports. The services they offer are most likely the same. Airlines are constantly
threatened by the thought of losing passengers to their competitors. With the help of some ticket agencies,
they can now compare rates and pick a better deal with just simple click. Cebu Pacific Airlines manages
these threats by offering prices that are affordable for those people who are strict on budgeting.

For Cebu Pacific, customers who cancel their flights are fined, and penalties are given to those who
make changes in their flight information or flight bookings. Therefore, switching costs for Cebu Pacific
customers are high and thus the bargaining power of buyers is low. Prices from the different airlines are
accessible in the internet. Customers can compare prices among airlines and choose what fits their budget.
This high level of accessibility gives customers high bargaining power due to airlines competing among
themselves, driving down the prices. In conclusion, bargaining power of buyers of Cebu Pacific is medium
to high because although switching cost is high, it is offset by the high accessibility of information.

The price of the fuel directly impacts the earning of airlines. Phoenix Petroleum has been Cebu
Pacific Airline’s partner for 15 years now. They cannot easily stop supplying fuel for Cebu Pacific since
Cebu Pacific was one of the very first prominent brands that trusted them, and they want to keep that
relationship for a very long time that is why they extended their partnership again. In terms of aircrafts,
there are only two major suppliers existing: Boeing and Airbus. Majority of Cebu Pacific aircrafts are from
Airbus confirming its strong relationship with the supplier.

Due to the growing assistance and access to bank and credit loan, Cebu Pacific is less likely to face
new entrants as competition since the requirements or qualifications in starting up this kind of business are
not easy to attain such as licenses, insurances and distribution channels. It can be expected that existing
players such as Cebu Pacific has already set up a cumulative experience over the years.

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II. STRATEGY AND VISION

Cebu Pacific Air’s Vision Statement:

Cebu Pacific Air vision for 2018 is to connect nations, cultures, communities and people together. Open
opportunities and make every experience possible for everyone.
“We envision stronger nations where cultures and communities are connected, meaningful
relationships are built, and lives are enriched by opportunities and experiences we make possible.”

Cebu Pacific Air’s Mission Statement:

Cebu Pacific Air mission statement: "Why everyone flies.”

“Cebu Pacific brings people together through safe, affordable, reliable, and fun-filled air travel.
We are committed to innovation and excellence in everything we do.
We are an employer of choice providing opportunities for professional and personal growth.
We have a deep sense of family values throughout our airline.
We enhance the quality of life of the communities we serve and are an active partner in our nation's
progress.
We offer our shareholders a fair return on their investments.”

Cebu Pacific Air’s Core Values

SERVICE
We put people at the heart of service.

INTEGRITY
We do what is right.

TRUST
We cultivate trust and commit to collaboration.

COURAGE
We relentlessly pursue new ideas and better solutions.

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BEST OF FILIPINO SPIRIT
We live the best of Filipino spirit at all times.

Business Goals and Objectives:

Cebu Pacific Air target markets are the leisure and business travelers, who want to fly out on low
cost airlines with fun service. Cebu Pacific Air is a low cost airline who can offer many routes and has the
youngest fleet. Cebu Pacific Air wants to make sure that they can cater to their target market well.

Business Strategies:
Cebu Pacific Air pioneered the “low fare, great value” strategy. They offer low-cost flights to
destinations and routes with higher flight frequency for everyone. Cebu Pacific Air is the only carrier to
offer fun in the skies with their “Fun Games” on board. They also have unbundled fare strategy, which
means the passenger will only have to pay for what service they want to avail during the flight.

Cebu Pacific Air is able to offer low cost flight due to their strategies of “unbundled fares”, and
cutting out frills, for example the flight food service. Cebu Pacific Air is the largest carrier in the Philippines
to offer low-cost flight and is currently offering flights to 37 Philippine and international destinations,
across Asia, Australia, the Middle East, and USA.

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III. PRODUCTS AND SERVICES

Products: Fun Cafe/Fun Shop

These are in-flight or duty-free food, beverages, airline merchandise, branded
merchandise, and entertainment provided by Cebu Pacific Air such as: 'Hot Meals', 'Hearty
Meals', 'Savory Snacks', 'Sweet Treats', 'Quick Bites', 'Cold Drinks', 'Hot Drinks',
'Alcoholic Drinks', 'Stuffed Toy', 'Lagu Beach Bag', and many others.

Services: a. Scheduled Flights

The airline currently offers flights to 37 Philippine and 26 international
destinations, spanning Asia, Australia, the Middle East, and USA. Cebu Pacific Air
operates a 66-strong fleet of 48 Airbus (4 A321ceo, 36 A320 and 8 A330) and 18 ATR (8
ATR 72-500 and 10 ATR 72-600) aircraft, one of the most modern aircraft fleets in the
world. It began long-haul services in the 3rd quarter of 2013.

b. CEB Cargo
Cebu Pacific Cargo provides competitive, fast, flexible, and straightforward air
cargo service to individual shippers and cargo agents locally and overseas in the form of
the following:

 CEB X
This service provides the fastest and most effective way of getting cargo to its
destination.

 Blocked Space Arrangement

This service is offered to cargo customers who require a fixed and guaranteed
space with CEB Cargo.

 ATR Charter
This offers chartered services using the ATR 72-500 aircraft. It has an average
capacity of 5,500kg loose cargo with a maximum gross weight of 50kg per piece.

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 Transshipments
This service provides inter-island connections via Cebu Pacific's four major
hubs: Manila, Cebu, Clark and Davao.

 Cargo Interline
The service features intercontinental services involving Europe, Africa and
the America.

 Packaging Services
Services such as: plastic jack wrap services, plastic sheets, bubble wrap, and
styro boxes are offered to protect cargo from unfavorable conditions during flights.

c. CEB Travelsure
This service by Cebu Pacific Air provides an emergency medical treatment in case
of an incident or sickness during travel and personal accident insurance up to PHP
1,000,000.

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IV. MANAGEMENT AND OWNERSHIP

Cebu Air, Inc.’s Board of Directors

CHAIRMAN

Mr. James L. Go is the Chairman of the Board of Directors of

JGSHI. He had been Chairman and Chief Executive Officer of
JGSHI since January 1, 2002. He is also the Chairman and Chief
Executive Officer of Oriental Petroleum and Minerals
Corporation and Chairman of Cebu Air, Inc. He is Chairman
Emeritus of Universal Robina Corporation, Robinsons Land
Corporation, JG Summit Petrochemical Corporation, and JG
Summit Olefins Corporation. He is the Vice Chairman of
Robinsons Retail Holdings, Inc. and a director of Marina Center
Holdings, Private Limited, United Industrial Corporation
Limited, and Hotel Marina City Private Limited. He is also the
President and Trustee of the Gokongwei Brothers Foundation,
Inc. He has been a director of the Philippine Long Distance
Telephone Company (PLDT) since November 3, 2011. He is a member of the Technology Strategy
Committee and Advisor of the Audit Committee of the Board of Directors of PLDT. He was elected a director
of Manila Electric Company on December 16, 2013. Mr. Go received his Bachelor of Science degree and
Master of Science degree in Chemical Engineering from
Massachusetts Institute of Technology, USA.

DIRECTOR
Mr. John L. Gokongwei, Jr. is the founder and Chairman
Emeritus of JG Summit Holdings, Inc. (JGSHI). He is a
member of the Board of Directors of JGSHI and certain of its
subsidiaries. He is currently the Chairman of the Gokongwei
Brothers Foundation, Inc., Deputy Chairman and Director of
United Industrial Corporation Limited, and a director of Cebu
Air, Inc., Robinsons Retail Holdings, Inc. and Oriental
Petroleum and Minerals Corporation. Mr. Gokongwei

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received a master’s degree in business administration from the De La Salle University and attended the
Advanced Management Program at Harvard Business School.

Jose F. Buenaventura is the President and Director of

Consolidated Coconut Corporation. He is also a member of
the Board of Directors of BOO Unibank, BOO Securities
Corporation, Cebu Air, Inc., GROW, Inc., Grow Holdings,
Inc., Hicap Properties Corporation, Himap Properties
Corporation, La Concha Land Investment Corp., Melco
Crown (Philippines) Resorts Corp., Peter Paul Philippines
Corp., Philippine First Insurance Co., Inc., Philplans First,
Inc., Techzone Philippines, Inc., and The Country. Jose
graduated from Ateneo de Manila University with a degree
of Bachelor of Laws. He finished his Master of Law at
Georgetown University Law Center Washington, D.C.

Mr. Lance Y. Gokongweiis the President and Chief Executive

Officer of JGSHI. He had been President and Chief Operating
Officer of JGSHI since January 1, 2002. He is the Chairman of
Robinsons Retail Holdings, Inc. He is also the Chairman of
Universal Robina Corporation, Robinsons Land Corporation,
JG Summit Petrochemical Corporation, JG Summit Olefins
Corporation, and Robinsons Bank Corporation. He is the
President and Chief Executive Officer of Cebu Air, Inc. He is a
director of Oriental Petroleum and Minerals Corporation and
United Industrial Corporation Limited. He is a director and
Vice Chairman of Manila Electric Company. He is a trustee and
secretary of the Gokongwei Brothers Foundation, Inc. He
received a Bachelor of Science degree in Finance and a
Bachelor of Science degree in Applied Science from the University of Pennsylvania.

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 Ms. Robina Y. Gokongwei-Pe has been a director of
JGSHI since April 15, 2009. She is also a director of
Robinsons Land Corporation, Cebu Air, Inc., and
Robinsons Bank Corporation. She is currently the President
and Chief Executive Officer of Robinsons Retail Holdings,
Inc., consisting of Robinsons Supermarket, Robinsons
Department Store, Handyman, True Value, Robinsons
Builders, Robinsons Specialty Stores, Robinsons
Appliances, Toys R Us, Daiso Japan, Ministop and South
Star Drug, and The Generics Pharmacy. She is a Trustee of
the Gokongwei Brothers Foundation, Inc. and the
Immaculate Conception Academy Scholarship Fund. She
was also a member of the University of the Philippines
Centennial Commission and was a former Trustee of the Ramon Magsaysay Awards Foundation. She
obtained her Bachelor of Arts degree in Journalism from the New York University.

Frederick D. Go is a Philippine businessperson who has

been at the helm of 9 different companies. Presently, Mr. Go
occupies the position of Chairman for Philippine Retailers
Association, Group General Manager at Taicang Ding Feng
Real Estate Development Co., Ltd., Group General Manager
at Chengdu Ding Feng Real Estate Development Co., Ltd.,
Group General Manager at Xiamen Pacific Estate
Investment Co., Ltd., Group General Manager at Shanghai
Ding Feng Real Estate Development Co., Ltd., President &
Chief Operating Officer at Robinsons Recreation Corp.,
Group General Manager at Chengdu Dingyuan Real Estate
Co. Ltd., Group General Manager at Chongqing Robinsons
Land Real Estate Co., Ltd. and President, Chief Operating
Officer & Director at Robinsons Land Corp. Mr. Go is also on the board of 18 other companies. Frederick D.
Go received an undergraduate degree from the University of Ateneo de Manila.

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INDEPENDENT DIRECTOR

Mr. Antonio L. Go was elected as an independent director

of JGSHI on May 28, 2018. He is a Director and the
President of Equitable Computer Services, Inc. and is the
Chairman of Equicom Savings Bank and ALGO Leasing
and Finance, Inc. He is also a director of Medilink Network,
Inc., Maxicare Healthcare Corporation, Oriental Petroleum
and Minerals Corporation, Pin-An Holdings, Inc., Equicom
Information Technology, Cebu Air, Inc., Robinsons Retail
Holdings, Inc., and Steel Asia Manufacturing Corporation.
He is also a Trustee of Go Kim Pah Foundation, Equitable
Foundation, Inc., and Gokongwei Brothers Foundation, Inc.
He graduated from Youngstown University, United States
with a Bachelor Science degree in Business Administration.
He attended the International Advanced Management program at the International Management Institute,
Geneva, Switzerland as well as the Financial Planning/Control program at the ABA National School of
Bankcard Management, Northwestern University, United States.

Mr. Wee Khoon Oh is a Managing Director at Sobono

Energy Pte Ltd. He is on the Board of Directors at Cebu
Air, Inc. and Singapore Workforce Development
Agency. Mr. Oh was previously employed as Vice
Chairman by Sustainable Energy Association of
Singapore. He received his undergraduate degree from
the University of Manchester Institute of Science &
Technology and an MBA from National University of
Singapore.

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 Mr. Cornelio T. Peralta is an Independent Director at
Cebu Air, Inc., a Chairman at ZIPP Cargo Corp., an
Independent Director at Securities Clearing Corp. of The
Philippines, an Independent Director at JG Summit
Holdings, Inc. and a Chairman at Pacific East Asia Cargo
Airlines, Inc. He is on the Board of Directors at Cebu
Air, Inc., Capital Markets Integrity Corp., Securities
Clearing Corp. of The Philippines, Grow Holdings
Philippines, Inc., Wan Hai Lines (Phils), Inc., JG
Summit Holdings, Inc., Makati Commercial Estate
Association, Inc., UERM Memorial Medical Center and
University of the East. Mr. Peralta was previously
employed as an Independent Director by Philippine
Stock Exchange, Inc., a President by PT Kimsari Paper Indonesia, and a Chairman, President & Chief
Executive Officer by Kimberly-Clark Philippines, Inc. He received his undergraduate degree from the
University of the Philippines and a graduate degree from the University of the Philippines.

Cebu Air, Inc.’s Top Investors/ Shareholders

Number of
Name of Investors Investor Description Percentage
Shares
CPAir Holdings Inc. is an
enterprise, with the main office
CPAir Holdings, Inc. 400,816,841 66.70%
located in Pasig. It operates in the
real estate industry.
PCD Nominee A wholly owned subsidiary of the
114,345,988 16.71%
Corporation (Filipino) Philippine Central Deposit, a
corporation established to
improve operations in securities
PCD Nominee transactions and to provide fast,
Corporation (Non- safe and highly efficient system 83,707,449 16.26%
Filipino) for securities settlement in the
Philipines.

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V. QUICK RATIO

It is used to measure the airline’s short-term liquidity and cash flow. This reveals whether a
company can cover its short-term debt obligation with its liquid asset or cash. This is almost identical with
current ratio, but quick ratio is a more reliable indicator of a company’s short-term financial strength,
because inventories can be difficult to liquidate.

In order to get quick ratio of the current year, deduct the inventories from the current asset and
divide it by the current liabilities. The table below is the summary of Cebu Pacific’s quick ratio from 2016
to 2018.
Current Assets Current Liabilities Inventories Quick Ratio Industry
Average
2016 15,151,137,743 27,827,484,688 1,190,056,987 0.50 0.45
2017 21,691,072,624 29,245,857,666 1,613,690,533 0.69 0.49
2018 25,944,665,488 34,702,883,709 2,010,145,500 0.69 0.52

Based from the information above:

 In 2016, the quick ratio is 0.50:1, it is relatively low. It means that for every ₱1 of current liability,
the company has₱ 0.50 quick assets to pay for it.
 In 2017, the quick ratio is 0.69:1, it increased by 1.37% from 2016. The company pays ₱0.69 quick
assets for every ₱1 of current liability.
 In 2018, the quick ratio is 0.69:1, it increased by 1% from 2017. For every ₱1 current liability, the
company pays ₱ 0.69 quick assets.

The figures above show that the Quick Ratio from year 2016-2018 is below 1.00, this means that Cebu
Pacific is less liquid when the inventory is excluded. The analysis above shows that for the past 3 years, the
inventories of Cebu Pacific is at an average of 7.7% of the total asset. This can be a huge amount to consider
in paying debts. Despite this, Cebu Pacific is showing progress as its quick ration is increasing every year.

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VI. RETURN ON ASSET

It is a profitability ratio that provides how much profit a company is able to generate from its assets.
In other words, return on assets (ROA) measures how efficient a company's management is in generating
earnings from their economic resources or assets on their balance sheet.

In order to get the return on asset of the current year, divide the net income by the average
total asset. The table below is the summary of Cebu Pacific’s return on asset from 2016 to 2018.

Net Income Average Total Asset Return on Asset Industry

Average
2016 9,754,136,196 100,514,342,283 9.70% 6.57%
2017 7,907,846,625 109,076,668,278 7.25% 3.54%
2018 3,922,744,538 129,391,482,516 3.03% 3.55%

Based on the information above:

 In 2016, the ROA is 9.70% this means that for every ₱1 in asset, the company earns ₱9.7 in profit.
 In 2017, the ROA has decreased by 0.74%. The company earns ₱7.25 in profit.
 In 2018, the ROA has decreased by 1.19%. For every ₱1, the company earns ₱3.03 in profit.

The figures above show that the Return on Asset of Cebu Pacific Air is decreasing. This means that the
company is not making enough income from the use of its asset. As seen in the table, the net income is
slowly decreasing in year 2016 and 2017. In 2018, the company’s net income has decreased by 3.9 billion.
According to them, the decline of their net income is due to high fuel prices, a volatile Philippine peso,
rising interest rates, increased competition, the six-months closure of Boracay, and operational limitations
in the country’s key airports.

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VII. CAPITALIZATION RATIO

The ratio shows the weight that a company puts on its operations, using equity. It may also be called
as the financial leverage ratio and helps assess the risk involved with investing in a company. Companies
that have a high capitalization ratio would usually be classified as risky with regard to insolvency in failing
their debt payments. A high capitalization ratio may also imply that financial institutions would not desire
to lend cash for such companies. However, a high capitalization ratio may increase the return on a
shareholder’s investment because of certain tax advantages associated with the borrowings. The formula is
as follows:

Capitalization Ratio = Long-Term Debt / (Long-Term Debt + Shareholder’s Equity).

Long-Term Debt Shareholder's Equity Capitalization Ratio Industry

Average

2016 35,770,184,170 33,505,272,519 51.63% 56.33%

2017 35,012,953,128 39,785,579,366 46.81% 56.67%

2018 47,182,350,614 40,102,133,279 54.05% 50.67%

Based on the information above:

 The company had an average capitalization ratio with its debt being at 51.63% of its total capital
in 2016.
 In the range of years presented above, Cebu Pacific had the lowest dependency on debt during 2017
with 46.81%, meaning that the company had relied more on equity and was in a relatively
comfortable position.
 While in 2018, the company had the highest dependency on debt related capital at 54.05%,
indicating a relatively average ratio, but less comfortable than in the two years that came before.

The figures above show that Capitalization Ratio of Cebu Pacific Air is unstable. It was high during 2016
and decreased in 2017 but in 2018 it increased by 1.15%. This makes them riskier with regards to insolvency
in failing their debt payments.

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VIII. INVENTORY CONVERSION PERIOD

The inventory ratio shows how effectively the company managed its inventory by comparing cost
of goods sold with its inventory. It measures how many times the company has sold and replaced its
inventory during a period of time. If large amounts of inventory are purchased during the year, to improve
the turnover, the company needs to sell large amounts of inventory. If the company can’t sell the large
inventory, it will incur storage cost and holding cost.

To calculate for the Inventory Turnover, divide cost of goods sold using the inventory then divide
by 365. Thus, below is the summary of the Inventory Turnover of Cebu Pacific for 2016 to 2018.

Inventory Cost of Goods sold Inventory Turnover Industry Average

2016 1,190,056,987 49,648,080,706 8.75 8.20
2017 1,613,690,533 57,894,853,404 10.17 8.28
2018 2,010,145,500 67,063,891,425 10.94 9.28

Based on the information given above:

 In 2016, the company takes roughly 42 days for their inventory to be sold.
 In 2017, the company improved, and it now takes only roughly 36 days for their inventory to be
sold.
 In 2018, the company improved much further by lowering the days to 33 days for their inventory
to be sold.

Inventory turnover shows how efficient a company is in controlling its merchandise. A low turnover
means that the company is efficient in selling their inventory, it shows how fast an inventory is sold.
Generally, a low inventory turnover is ideal, but it is important to mention that the average inventory differs
from one industry to another.

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IX. AVERAGE RECEIVABLE COLLECTION PERIOD

This measurement expresses the average number of days that accounts receivables are outstanding
and to determine the effectiveness of a company in collecting their receivables.

In order to get the average receivable collection period of the current year, divide the annual sales
by 365 days then divide the result into average receivable.

Average Industry
Average Accounts
Annual Sales Receivable Average
Receivable
Collection Period
2016 2,126,793,862 61,899,278,892 12.54 13.93
2017 1,900,482,578 68,029,131,426 10.19 14.37
2018 2,607,900,691 74,113,776,885 12.84 16.50

Based on the information above:

 In 2016, the company took 12.54 days to turn its receivable into cash.
 In 2017, the collection period decreased by 2.35.
 In 2018, it took 12.84 days before the company collected their receivables into cash.

The figures above show that Cebu Pacific Air had an increase on Average Receivable Collection Period
in 2018. This might be due to a reduced collection efforts of the management or a looser credit policy in
order to increase their sales since their sales has decreased due to high fuel prices, a volatile Philippine
peso, rising interest rates, increased competition, and the six-months closure of Boracay.

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X. PAYABLES DEFERRAL PERIOD

The accounts payable days measures the number of days the company takes to pay it suppliers. A
high number of days indicates that the company is paying its supplier more slowly. A low number indicates
that the company is paying its supplier much faster. But a change in the number if days may also indicate
that there are altered payments with the supplier, though the impact is low on the number of days, since the
terms must be modified for many suppliers to get the ratio to a meaningful amount.

To calculate Accounts Payable Days, divide accounts payable by the cost of goods sold divided by
365. The table below summarizes the Accounts Payable days of Cebu Pacific for 2016 to 2018.

Accounts Payable Industry

Accounts Payable Cost of Goods Sold
Days Average
2016 12,583,636,942 49,648,080,706 92.51 55.97
2017 14,182,785,839 57,894,853,404 89.41 47.00
2018 16,341,313,165 67,063,891,425 88.93 51.77

Based on the information above:

 In 2016, Cebu Pacific takes roughly 93 days to pay their suppliers.
 In 2017, Cebu Pacific takes roughly 89 days to pay their suppliers.
 In 2018, Cebu Pacific takes roughly 89 days to pay their suppliers.

Generally, a high number of days is favored. It is because the company should pay their suppliers
until their deadline to further maximize the available cash. But a high number of days has a lot of
indications, it can also mean that the company is struggling financially and has trouble paying their
suppliers. Or the company pays their suppliers slowly to maximize their money, it means the company has
the opportunity to fully utilize its available cash and maximize the benefits before paying it to suppliers. A
low number of days may indicate that the company pays in advance.

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XI. CASH CONVERSION CYCLE

It is a metric that shows the amount of time it takes a company to convert its investment in inventory
to cash. It also accesses how well the company manages its working capital. Inventory conversion period
is the number of days a company can turn its inventory into sales. Average collection period is the number
of days a company can collect its payment after a sale. Payable Deferral Period is the number of days a
company can pay back its payables.

In order to get the cash conversion cycle of the current year, add Inventory Conversion Period and
Average Collection Period then subtract it by the Payables Deferral Period.

Inventory Average Payable Cash Industry

Conversion Collection Deferral Conversion Average
Period Period Period Cycle
2016 41.71 12.54 92.51 -38.26 -22.86
2017 35.87 10.19 89.41 -43.35 -15.78
2018 33.36 12.84 88.93 -42.73 -18.52

Based on the information above:

 In 2016, the cash conversion cycle of the company is -38.26 days.
 In 2017, the cash conversion cycle of the company is -43.35 days.
 In 2018, the cash conversion cycle of the company is -42.73 days.

The figures above show that Cebu Pacific Air has a negative Cash Conversion Cycle for the past 3
years. This means that the company needs less time to sell its inventory and receive cash from its customers
compared to time in which it has to pay its supplier if the inventory. One reason could be that is because
the customers will have to pay first in order to have their ticket early.

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REFERENCE

About CEB Cargo. (n.d). Retrieved on July 21, 2019 from https://www.cebupacificair.com/en-
hk/Cargo/about-cebcargo

About Cebu Pacific.(n.d.). Retrieved on July 21, 2019 from

https://cebupacificaircorporate.com/Pages/company-info.aspx

Alfelor, J. (n.d.). Strategic Marketing Plan of Cebu Pacific Air. Retrieved on July 12, 2019, from
https://www.scribd.com/doc/151819049/Strategic-Marketing-Plan-of-Cebu-Pacific-Air

Annual Reports. (n.d.). Retrieved on July 12, 2019, from

https://cebupacificaircorporate.com/Pages/company-info.aspx

AudIT. (2019). Capitalization Ratio. Retrieved from

https://www.readyratios.com/reference/debt/capitalization_ratio.html

Board of Directors. (n.d.). Retrieved from https://cebupacificaircorporate.com/Pages/board-of-

directors.aspx

CEB Travelsure. (n.d). Retrieved on July 21, 2019 from https://www.cebupacificair.com/en-ae/pages/plan-

trip/add-ons/travelsure

Cebu Pacific. (2019). Investor Relations: Annual Reports. Retrieved from

https://cebupacificaircorporate.com/pages/annual-reports.aspx

Cebu Pacific buys 31 new aircraft. (n.d.). Retrieved on July 21, 2019 from
https://cnnphilippines.com/business/2019/6/19/Cebu-Pacific-buys-planes.html

Fun Cafe/Fun Shop. (n.d.). Retrieved on July 21, 2019 from https://www.cebupacificair.com/en-
us/pages/plan-trip/fun-shop

Phoenix, Cebu Pacific renew deal, celebrate 15-year partnership. (n.d.). Retrieved on July 21, 2019 from
https://www.phoenixfuels.ph/phoenix-cebu-pacific-celebrate-15-year-partnership/

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Porter's Five Forces - Airline Industry Analysis. (n.d.). Retrieved from
https://sites.google.com/site/admn703ai/the-team

Seatmaestro. (2019). History of Cebu Pacific Air. Retrieved on July 21, 2019 from
https://www.seatmaestro.com/airlines-seating-maps/cebu-pacific-air/history/

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