CHAPTER VI FINANCIAL ANALYSIS

1. Assumptions Used
The author should present in this section the assumptions he/she used in the fi-
nancial projections. He/she should also discuss why these assumptions are
reasonable given the current circumstances of the company, the effects of the
proposed strategies and the macroenvironment.

Assumptions Used
The assumptions underlying the financial projections were derived from JCS
Pharmaceutical Inc.'s audited financial statements spanning 2017 to 2019. The years
2020 through 2022 were intentionally excluded from consideration due to the
economic conditions caused by the COVID-19 pandemic, which could have skewed
the underlying data and assumptions. Instead, the company analyzed its historical
growth rates during the pre-pandemic period from 2017 to 2019 to establish a reliable
baseline for forecasting future performance. These historical growth rates will then be
extrapolated and adjusted to account for the company's strategic initiatives, such as
market penetration and market development in Palawan for the purpose of financial
projections.

Assumptions for Projections of Statement of Financial Position

Based on the audited financial statements from 2017 to 2019, the average
historical growth rate for total assets, as well as for total liabilities and shareholders'
equity, is 45.85%. For the average historical growth rate for current assets, it stands at
22.67%. This rate for current assets is reasonable given the company's current
performance, strategic initiatives, and the stable macroeconomic environment. It
reflects the company's readiness to support its market development and penetration
strategies, ensuring sufficient liquidity, inventory, and operational efficiency to
sustain growth.

One of the components of current assets is Cash and Cash Equivalents, which
has 42.17% average historical growth rate, suggesting that JCS Pharmaceuticals, Inc.
continuously increases its liquidity, crucial for funding operations, handling
unexpected expenses, and taking advantage of investment opportunities. This
significant growth rate aligns with the company's strategy to penetrate and develop
new markets, requiring substantial cash reserves. However, since JCS
Pharmaceuticals, Inc. has a strategy to branch out to Palawan, cash and cash
equivalents may decrease as they might be used for expenses. On the other side, they
may also increase when operations begin successfully. Trade Receivables, on the
other hand, have a 5.18% growth rate, which means that there is effective
management of receivables by JCS Pharmaceuticals, Inc., supporting the company's
expansion into new markets while maintaining healthy cash flows and minimizing
credit risk. Moreover, Inventories, with a 26.57% average growth rate, indicate that
JCS Pharmaceuticals Inc. is meeting higher demands, which is actually a good sign.
This growth rate may increase even more, especially considering the need to support
the market development strategy, meaning that the company should maintain more
adequate stock levels. Lastly, Prepayments and Other Current Assets have a 62.70%
growth rate. This rate is reasonable as it aligns with the company's efforts to position
itself favorably in new and existing markets.
 In terms of Non-current assets, it has a 91.79% average growth rate, which is
considered much higher compared to current assets. There are only two components
in the context of JCS Pharmaceuticals, Inc.: PPE’s and Investment Property. In these
two, PPE’s only have an average growth rate of 3.68%, and Investment Properties
have 132.17%. This substantial increase in investment properties supports the high
growth rate, indicating continued investment in long-term assets to support growth.

Moreover, when it comes to Liabilities, only the current liabilities (138.66%)

have an impact as the non-current liabilities remain stable at 0%. There is neither
decrease nor increase in the account of advances from the stockholders. This only
means that JCS Pharmaceuticals, Inc. has not yet paid its obligations to its
stockholders. However, even if it is not yet paid, the consideration is a big amount;
therefore, when paid by JCS Pharmaceuticals, Inc., they might end up having a lesser
amount of cash than they had before. Furthermore, in terms of trade accounts payable,
it has a 156.84% average growth rate, which means that there is a significant increase
in the obligations of JCS Pharmaceuticals, Inc. to pay money owed to suppliers or
vendors over a specific period. For Income Tax Payable, it has increased to a 20.16%
average growth rate, which is reasonable enough as the financial performance of JCS
Pharmaceuticals, Inc. is also increasing.

Finally, the total stockholders' equity growth rate of 27.77%, which aligns
with JCS Pharmaceutical, Inc.'s financially stable position and ability to fund growth
internally through reinvested earnings. The market penetration and development
strategies in Palawan will require capital investments, which an increasing equity base
can support. Moreover, the Capital Stock Growth Rate of 0% indicates JCS has not
needed to raise additional equity capital from investors recently. This is reasonable
given the company's strong profitability and retained earnings growth. Further to that,
the high retained earnings growth rate of JCS at 39.68% is consistently profitable and
reinvesting back into the business. Reinvesting earnings provides internal capital to
execute strategies like geographic expansion without over leveraging.

Assumptions for Projections of Statement of Comprehensive Income

JCS Pharmaceutical Inc has maintained a sales growth with an average rate of
29.36%, indicating effective execution of its existing strategies and operations. Since
the company's expansion plan to Palawan involves venturing into new geographic
markets, introducing fresh products, and potentially collaborating with other firms to
broaden its market reach and offerings, this anticipation considers the potential
increase in sales as the company taps into new markets or customer segments,
leveraging existing consumer trust to sustain and potentially accelerate sales growth.
The assumed growth rate is deemed reasonable given favorable economic conditions,
where consumer confidence in their products could increase the company's ability to
sustain and possibly escalate sales growth.

Direct costs have seen a parallel growth rate of 30.99%, reflecting the cost structure
linked to increased sales volumes. Hence, as sales volume rises, a corresponding
increase in direct costs is expected to support the expanded operations. Moreover,
despite the challenge in cost management, gross profit has seen a significant historical
growth rate of 25.53%, indicating a notable increase in income after subtracting costs.
This suggests that the company is effectively managing its costs to a certain extent.
Therefore, it is imperative for JCS Pharmaceutical Inc to continue monitoring and
addressing cost-related issues, especially with the expansion, to ensure sustainable
growth and profitability in the long term. Failure to do so may result in higher costs
than sales, leading to a decrease in gross income.

General and administrative expenses have also shown an average historical growth
rate of 27.41%. These expenses are escalating to support expanded operations,
reflecting increased overheads and investments in administrative capabilities. It is
noteworthy that operational expenses such as marketing, distribution, and personnel
costs would also rise in tandem to support the strategy, further increasing expenses
deducted from gross income.

Income before income tax has maintained an average historical growth rate of
21.37%, reflecting the company's capability to increase pre-tax income by adeptly
managing both direct costs and general administrative expenses. This trajectory could
fluctuate depending on the company's ability to boost sales while efficiently managing
costs. Failure to do so could lead to a decline in income before tax, highlighting the
crucial duty of JCS Pharmaceutical Inc to manage all aspects, especially costs, in its
new operations.

Income tax expenses have seen an average historical growth rate of 20.16%, in
alignment with evidence of increased income. Similarly, the minimum corporate tax
has averaged a historical rate of 25.53%, indicating that an increase in income will
lead to a proportional rise in income tax expenses.

Interest income has also experienced significant growth with an average rate of
152.60%, while unrealized gains on foreign exchange have steadily decreased by -
66.00% starting from 2017 until disappearing in 2019. Moreover, comprehensive
income, with an average growth rate of 21.80%, slightly lags behind gross income
growth, factoring in all incomes and expenses, including those exempt from or subject
to final tax. Despite significant costs and expenses, JCS Pharmaceutical Inc managed
to increase comprehensive income from 2017 to 2019, primarily due to substantial
sales revenue covering costs and expenses. Consequently, it is anticipated that the
expansion of JCS Pharmaceutical Inc to Palawan will still yield an increase in
comprehensive income, provided that all associated costs and expenses are effectively
managed.

Assumptions for Projections of Statement of Cash Flows

As discussed in the assumptions made for the statement in comprehensive income,
there is really an increase in the historical growth rate of comprehensive income of
21.80% which only means that it reflects the company's profitability, which may also
lead to growth potential especially that JCS Pharmaceutical, Inc is expanding its
operations.

In the statement of cash flows, it is divided into three activities: operating, investing,
and financing. However, in JCS Pharmaceutical, Inc., only 2 activities are included
which are the operating and investing activities. Financing activities are excluded
since JCS Pharmaceutical, Inc. do not engage in transactions involving borrowing of
funds or repaying debt. So for the operating activities, it shows a substantial average
historical growth rate of 249.40%, indicating the company's ability to generate cash
flows from its core operations over the three-year period (2017 to 2019). In
accounting, this is an important indicator of the company's financial health and ability
to sustain and grow its operations. The plans to expand operations in Palawan and
increase market share are expected to further increase cash flow from operating
activities, leading to higher sales and income.

The investing activities also show a significant historical average growth rate of
150.45%, suggesting that JCS Pharmaceutical, Inc. is heavily investing in long-term
assets to support its long-term growth. These investments include the acquisition of
property, equipment, and investment properties, as indicated in the audited financial
statements. There is a substantial increase in investments compared to property and
equipment, which only reflects the company's confidence in its growth prospects and
its ability to generate returns on these investments. It also supports the company's
strategy to establish a presence in new markets like Palawan, ensuring it can meet
increasing demand, improve operational efficiency, and maintain a competitive
advantage. As JCS Pharmaceutical, Inc. plans for further market development and
penetration, net cash flow used in investing activities is expected to continue
increasing due to additional acquisitions of property, plant, and equipment to support
its expanding operations.

Lastly, in terms of the net increase or decrease in cash, there was a 27.27% decrease
overall. This decline stemmed mainly from a significant decrease in 2017, resulting in
a negative balance. Fortunately, there was an improvement in 2018, though the impact
persisted. In 2019, there was further growth, but the gap remained noticeable.
Therefore, for JCS Pharmaceutical, Inc. to execute its strategy successfully, the
company needs to implement cost-saving measures to enhance operational efficiency.
Their strategies are aimed at boosting sales and market share, potentially positively
influencing cash flow if executed well. However, success depends on factors like
market demand and execution capability. Hence, when the company begins operations
in new markets, the net increase or decrease in cash may either increase or continue to
decline.