Boys Over Flower: Altejos, Laurente, Santos

I. THE PROBLEM AND ITS BACKGROUND

INTRODUCTION

Food is considered as a necessity in our daily life in order to survive. In fact, whatever
your status food is our common denominator. With that being said, business venture take this
opportunity to gain available customer base with their unique product offerings.

Frozen products and quick service restaurants were introduced and it dominates the
Philippine market because the lifestyle of a modern Filipino is to simply their needs in terms
of celebrations, casual meetings and leisure time. Having this in mind, ‘convenience’ is the
key word that’s why there is a continuous patronage of their products. In the other side,
casual restaurants also captures the Philippine market for showcasing class in regards to their
service and food offerings.

Three of the leading players in the world of Food and Beverage Industry are Jollibee
Food Corporation, San Miguel Food & Beverage and Max’s Group Incorporated. Likewise,
Jollibee Food Corporation and Max’s Group Inc. are both restaurants in nature however it is
different in terms of their service and products offerings. Jollibee is one of the major
components in the Quick Service Restaurant where they offers product that is cheap yet it
satisfies the tastes of every Filipino. Foregoing, Max’s introduced the casual restaurant where
they are offering Filipino cuisine and combining with unique fine dining experience. In
regards to San Miguel Food (also called Purefoods) they offers frozen product to the people
so that it will be free hassle and saves the time and energy in getting their meals ready.

However things changed from the start of 2020 because of COVID-19 Pandemic
where those giant companies suffered from financial distress and continues to suffer.
Consequently, it affects the financial performance of those companies and it creates a
dilemma for them. Furthermore, investors of those companies are generally affected in
regards to their investments as the stock prices goes down. With that being said, assessing the
financial performance of the companies during these situations helps the potential investors in
terms of the investment decision. Such investment decision is much important because
practically financial resources are at risk and the credibility of the firm is also at stake.

As the reiterated by Kaddumi (2015) Investment decision is a crucial issue that

influence the organization`s financial position even the possibility of its existence. There are
numerous techniques that can be adopted by decision makers so as to help them in embracing

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Boys Over Flower: Altejos, Laurente, Santos

certain investment opportunity and these methods may be payback period or net present value
or even internal rate of return.

In the other hand, financial analysis is a systematic process which prompts to

acquiring information which helps all stakeholders in decision making and evaluating past,
present and future performance of companies under investigation. Financial analysis process
help in extracting various indicators related to companies ‘financial performance and
position, in addition it helps in discovering weakness and strength points of the company,
moreover we can also discover company source of finance and its uses (investment).

There is a direct relationship between financial analysis and investment decision

because according to the study of Anaja B. & Emmanuel E. (2015) stated that the success of
financial analysis is rooted from accuracy that’s why it must came from the quality raw
materials which is financial statements so that there will be a good quality finished goods and
it helps the investors to rely on reliability and credibility to it.

In order to have an effective financial analysis, there must be an understanding of the

structure of the financial statements, the economic characteristics of the industry in which the
firm operates and the strategies of the firm pursues to differentiate itself from the
competitors. For this reason, foundation of the financial analysis should be started from the
financial statements where it was governed by accounting theory; stated that it involves a
review of both the historical foundations of accounting practices, as well as the way in which
accounting practices are changed and added to the regulatory framework that governs
financial statements and financial reporting. In relation to business environment where it was
operating, open-system theory purports those environmental influences can impact the
efficiency of an organization. Then, the competitive strategies of the firm are related to the
consistency theory and institutional theory where it defines that an organization are
influenced by social norms and beliefs in regards to their products offering. All of the said
theories are generally concerned to have a critical and wider scope for understanding the
financial analysis.

This paper aims to study the financial performance of the Top Three PSE listed
companies (JFC, Max’s and San Miguel Food and Beverage) under Food and Beverage
Industry for quarters 1 and 2 of 2020. Specifically, this paper also attempts to compute
financial ratios based on the available data and assess how these companies performed in

Initial Draft submitted to Prof. Jephte O. Muñez – Research 1, Rizal Technological

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Boys Over Flower: Altejos, Laurente, Santos

handling corporate finance in the quarters covered by this study. With that being said, and
how those financial ratios affects the investment decision of the stakeholders.

BACKGROUND OF THE STUDY

As emphasized by Smyth (2019) corporations play a vital role in the economic

development and wealth of a country. Success in business translates to the economic well-
being of a company and its residents through job creation and offering improved quality of
life for the country’s citizens. Specifically, one of the reasons why businesses exist primarily
is for profit and wealth maximization. With that being said, exerting efforts to increase the
profitability and firm’s value could affect the shareholders involved. In order to extend their
wealth some entities established themselves in the stock market for being ‘publicly listed’,
where as defined by Banton (2020) it is a corporation whose ownership is distributed
amongst general public shareholders via free trade of shares of stock on exchanges or over-
the-counter markets. For this reason, being publicly held corporation generates more capital
and revenues, promotes publicity and company’s brands, products and services and
established shareholders value through the company’s reputation and profitability.

It is clear that the shareholders has a direct impact to the success of the firm because
as evidenced by Basu (2019) they are playing important role in regards to financing,
operations, governance and control. That’s why corporations doubling their efforts to
improve their position in the industry so that they can attract more investors. In terms of
attracting the investors, usually some investors based on the most recent financial statements
of the companies listed in stock exchanges because based on the study of Maverick (2020)
Financial statements provide a snapshot of a corporation's financial health at a particular
point in time, giving insight into its performance, operations, cash flow, and overall
conditions. Shareholders need them to make informed decisions about their equity
investments, especially when it comes time to vote on corporate matters. Moreover, Nkuhl
(2015) also suggested that investors use information from financial statements to test if the
company they are about to invest in will be able to meet up with its objective as the primary
objective of every is to increase its shareholders Somehow, shareholders doesn’t satisfied
with the content of financial statements that’s they are also based their decisions through
financial analysis because through presented financial ratios it correlates with a certain
interpretation that helps them to decide whether to invest or not.

Initial Draft submitted to Prof. Jephte O. Muñez – Research 1, Rizal Technological

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Boys Over Flower: Altejos, Laurente, Santos

Financial statement is a clear pathway to ensure the shareholders to trust in their firm
and attract more potential investor that’s why some companies tend to ‘window-dress’ their
financial statements so as to add more fragrance to position in their certain industry. One of
the biggest window-dressing scandal that happened before is the Enron Scandal. There is a
fraudulent way to make the investors' decisions affected. It is the financial statement window
dressing. This refers to the manipulation done by the management of the company
intentionally in the financial statement to present a more favorable picture of the company in
front of the users (Averkamp, 2017). One of the companies that committed this kind of action
is the infamous Enron Corporation. According to Yuhao Li (2010), Enron was founded in
1985, and as one of the world's leading electricity, natural gas, communications, and pulp and
paper companies before it bankrupted in late 2001, its annual revenues rose from about $9
billion in 1995 to over $100 billion in 2000. At the end of 2001, it was revealed that its
reported financial condition was sustained substantially by institutionalized, systematic, and
creatively planned accounting fraud. According to Thomas (2002), the drop in Enron's stock
price from $90 per share in mid-2000 to less than $1 per share at the end of 2001, caused
shareholders to lose nearly $11 billion. And Enron revised its financial statement for the
previous five years and found that there was $586million in losses. Enron falls into
bankruptcy on December 2, 2001. To keep appeasing the investors to create a consistent
profiting situation in the company, Enron traders were pressured to forecast high future cash
flows and low discount rates on the long-term contract with Enron. The difference between
the calculated net present value and the originally paid value was regarded as the profit of
Enron. In fact, the net present value reported by Enron might not happen during the future
years of the long-term contract (Li 2010). Mark to market is a plan that Jeffrey Skilling and
Andrew Fastow proposed. This way of planning is to expand the stock price, covering the
loss and attracts more investors, in contrast, it is impossible to gain in this operation of in a
long-term basis; it means it is illegal to do.

The case above tells that the financial statements can influence directly the investment
decision of stakeholders. For this reason, as reiterated by Patrick, et al. (2017), Investment
decisions are very crucial and caution must be taken because huge, scarce and hard earned
resources are involved, irreversible in nature, risky and have long term implication which no
investor would want to be confronted with if negative results occurred. Therefore there is
every need for investors to have good knowledge and understanding of the cash flow
statement, value added statement, income statement, the price, earnings, value and dividend

Initial Draft submitted to Prof. Jephte O. Muñez – Research 1, Rizal Technological

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Boys Over Flower: Altejos, Laurente, Santos

per share and other relevant financial statements to avoid irrationality in investment decision
making. It must be noted that the financial information prepared by management as a
responsibility has to be reviewed by independent external auditors and duly analysed by
professional financial experts prior to investment decision making. In order to bridge the gap,
it is important also to note that the investors are provided with the financial statements to
evaluate the financial performance, before making decisions but the company’s performance
cannot be measured by simply looking at the financial statements that’s why ratios under the
cloak of financial analysis provides understanding to the investor of financial statement and
make good decisions out of it that will benefit and increase shareholders’ wealth.

RESEARCH FRAMEWORK

I. THEORETICAL FRAMEWORK

Involves the assumptions and

methodologies used in
Accounting financial reporting, requiring
Theory a review of accounting Open-Systems
practices and the regulatory Theory
framework.
Suggests that the actions Environmental influences
of the firms and the Financial that impacted the
outcomes of these efficiency of
actions are influenced by
Analysis: Impact organizations, most
knowledge systems, on Investment theorists and researchers
beliefs and rules that Decisions embraced an open-
characterize the context systems view of
of the organization. Theory for marketers and organizations.
writers comes from the point
that there also has a very
strong need to believe which
Institutional
is being consistent with social Consistency
Theory
norms. Theory

Initial Draft submitted to Prof. Jephte O. Muñez – Research 1, Rizal Technological

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 Boys Over Flower: Altejos, Laurente, Santos

II. CONCEPTUAL FRAMEWORK

Financial Analysis: Impact on Impact on

Investment Decisions

Accounting Institutional Consistency Open-Systems

Theory Theory Theory Theory

Financial Data Marketing PESTLE

Strategies Analysis

It is the strategy of the It is used to determine the

The structure of the firm pursues to economic environment or
financial statement. differentiate itself from the characteristic of the
the competitors. industry which the firm
operates.

Initial Draft submitted to Prof. Jephte O. Muñez – Research 1, Rizal Technological

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 Boys Over Flower: Altejos, Laurente, Santos

III. OPERATIONAL FRAMEWORK

Financial Analysis

Financial Accounting

- Kinds of Financial
Statements
- Items in Financial
Statement
Phase 1
- Recognition and
Measurement of Items in
Financial Statement
- Standards

Financial Performance Investment Decisions

- Liquidity - Long Term

- Profitability (Capital
Phase 2 Budgeting)
- Leverage
- Stability - Short Term
- Cost Efficiency (Working
Capital
Management)
Competitive Advantage - Investment
Strategies
- SWOT Analysis
Phase 3 - PESTLE Analysis
- Porter’s Five Factors

Good Governance

- 4P’s (People, Power,

Phase 4 Purpose and
Performance
- Accountability
- Transparency

Initial Draft submitted to Prof. Jephte O. Muñez – Research 1, Rizal Technological

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 Boys Over Flower: Altejos, Laurente, Santos

IV. RESEARCH PARADIGM

INPUT PROCESS OUTPUT

Financial Data Ratio Analysis
Study of the Environment Business Analysis Investment Decisions
Marketing Strategies SWOT Analysis
PESTLE Analysis
Trend Analysis

DEFINITION OF THE VARIABLES

Financial Analysis (independent variable) – involves using financial data so as to assess the
financial performance of the company and how it can be improved.

Investment Decision (dependent variable) - it is selecting the type of the financial assets that
the investor will invest based on the some kind of analysis.

STATEMENT OF THE PROBLEM

This paper aims to analyze the financial performance of the Top Three Companies (JFC,
Max’s and San Miguel Food & Beverage) under Food and Beverage Industry which are listed
in Philippine Stock Exchange for the quarters 1 and 2 of 2020, in terms of financial analysis.
Specifically, this paper attempts to answer the following questions:

1. Did those companies perform well in regards to managing their corporate finance for
the quarters 1 and 2 of 2020?
2. Are the companies projected to perform well in the next financial year?
3. Based on the ratio and projection, is it good to invest on those companies?

Initial Draft submitted to Prof. Jephte O. Muñez – Research 1, Rizal Technological

University
Boys Over Flower: Altejos, Laurente, Santos

SIGNIFICANCE OF THE STUDY

This study was projected to be impactful and to add additional information and/or knowledge
to the following stakeholders:

Existing investor. This study would help them to assess or benchmark their holding in their
respective holdings in the said companies. Moreover, they can help them to continue their
investment or terminate it due to lack of profitability.

Potential investor. Through this, they would identify or evaluate the financial performance
of the said companies before they make such investment, specifically they can assess if it was
financially good or not.

General public. This study will help them to gain more knowledge regarding the financial
management and to awaken their interests regarding the latter.

Academe. This study will serve as a reference in teaching basic financial management,
especially the financial ratios and analysis of the financial statement.

Government and Regulatory Agencies. By way of this study, they can formulate a certain
policy or regulation so as to boost the Food and Industry sector and encourage them to
redefine their policies for the sake of the stakeholders and the business entities.

Other Researchers. This study can help them to use it as their future reference so that there
will be thorough and further study about it.

SCOPE AND DELIMITATION

This study is bounded within the scope and limitations of the following:

1. The study is limited for the quarters 1 and 2 of 2020. All other financial data that
doesn’t fall with the said timeframe are excluded in this study.
2. The study will use the audited consolidated financial statements of those companies
(listed in the PSE edge).
3. Subsidiaries of San Miguel Food and Beverage, Jollibee Food Corporation and Max’s
Group Inc. will be included in the study. This is accepted because all or most of their
subsidiaries fall under the category of Food and Beverage Industry.

Initial Draft submitted to Prof. Jephte O. Muñez – Research 1, Rizal Technological

University
Boys Over Flower: Altejos, Laurente, Santos

DEFINITION OF TERMS

To aid in the better understanding and interpretation of this study, the following terms are
operationally defined:

Initial Draft submitted to Prof. Jephte O. Muñez – Research 1, Rizal Technological

University