Financial Statement Analysis

I. Liquidity Ratio

Ratio Industry Ayala Land Robinsons Land Favorable to

Average
Current Ratio 1.48 1.83 3.41 Robinsons
Quick Ratio 1.02 1.20 2.18 Robinsons
Inventory
0.5 1.5 0.73 Ayala
Turnover

a. Current Ratio - Compared to the industry average, both companies’ current ratio

is well within range. However, Robinson’s current ratio is more than two times

that of the industry and Ayala’s ratio. This means that Robinson’s Land has a

greater ability to pay their current debts with a 3.41 ratio than that of the industry

and its competitor.

b. Quick Ratio – Like the current ratio, both companies fall within the range of the

industry average and Robinson’s Land is twice than that of the industry and its

competitor which indicates that it has a greater ability to pay its debts as they fall

due as compared to that of Ayala’s paying capability.

c. Inventory Turnover – both Ayala and Robinson’s ratios are higher than that of the

industry average. In this instance, however, Ayala’s Inventory Turnover ratio is

higher than Robinson’s with 1.5 against .73. Therefore Ayala has greater control

on its inventory.

II. Operational Efficiency

Ratio Industry Ayala Land Robinsons Land Favorable to

 Average
Gross Margin 70.2% 36.99% 51.56% Robinsons
Net Profit
7.2% 15.98% 33.94% Robinsons
Margin
Asset Turnover 0.1 .25 .22 Ayala
Return on
1.3% 4.20% 7.45% Robinsons
Asset
Return on
10.69% 7.0% 13.07% Robinsons
Equity

a. Gross Margin – both companies are in the range of the real estate industry

average. This may be due to a high Cost of Goods Sold or a low revenue since the

real estate industry is one that suffered most when the economic recession hit.

Comparing both companies, Robinson’s has a higher Gross Margin ratio, gaining

14.57% over Ayala.

b. Net Profit Margin – both companies earn a greater amount of net profit as

compared to that of others in their industry. Although the gross margin suffered,

presumably through a high amount of Cost of Goods Sold, the Net Profit Margin

of both companies amounts to more than twice than that of the industry average.

This indicates that Ayala and Robinsons do not have large amounts of expenses

and interest payments that drive this ratio down. In comparison, Robinson’s ratio

is twice than that of Ayala which means that it earns two times more net profit

than the other company.

c. Asset Turnover – the companies’ ratios rate higher than the industry average. The

difference is insignificant, however. Ayala’s advantage over Robinson’s is only .

03 in this particular ratio.

d. Return on Asset - the companies’ Return on Asset ratios are considerably higher

than that of the industry average, indicating that both companies earn more in

utilizing their assets as compared to other businesses in the same industry.

Robinson’s ratio, however, rated 3.25 points higher than that of Ayala’s

e. Return on Equity - the ratio of both companies is greater compared to the industry

average, Robinson’s gaining 6.07 higher vis-à-vis Ayala’s ROE

III. Solvency Ratio

Ratio Industry Ayala Land Robinsons Land Favorable to

Average
Debt Ratio N/A 0.4658 0.4776 Ayala
Debt/Equity 1.99 0.99 .91 Robinsons
Ratio
Interest 1.6 20.35 15.23 Ayala
Coverage

a. Debt Ratio- No industry averages is available. So far as the two companies are

concerned. Robinsons has higher debt ratio and therefore has a greater risk of

being unable to meet its maturing obligations. As such Ayala can better withstand

losses without impairing its creditors’ interest.

b. Interest Coverage (Times Interest Earned) – both companies’ ability to pay their

interest expenses far outweighs that of the industry, signaling that both companies

borrow less from creditors, preferring instead, to invite investors into their

companies. Ayala’s ability to pay its interest expense exceeds that of Robinson’s,
 getting 5.12 points higher in its Interest Coverage Ratio than that of its

competitor.

c. Debt/Equity Ratio – the industry average indicates that the debt composition of

businesses in the international real estate industry is twice than that of the capital

stock or equity. Ayala and Robinson’s show that their debt composition more or

less equals its equity. The difference in the companies’ ratios is insignificant,

Ayala getting a ratio which is .08 higher than that of Robinson’s.

IV. Profitability

Ratio Industry Ayala Land Robinsons Land Favorable to

Average
Return on
Common
11.54 8.10 13.57 Robinsons
Stockholders’
Equity
Return on
1.5% 5.54% 8.45% Robinsons
Capital
Earnings per
N/A .30 1.31 N/A
share

a. Return on Capital – both companies’ Return on Capital ratios are markedly higher

than the industry average, showing that local companies earn more net profit than

international businesses. Ayala’s ratio falls short of 2.91 points compared to that

of Robinson’s.

b. Return on Common Stockholders’ Equity- Robinsons Land’s return on common

Stockholders’ Equity is higher than the industry average. This indicates that for
 each peso invested by the owners of the two companies, Robinsons Land earns

more as a percentage of its net income compared to Ayala.

c. Earnings per share- EPS is not meaningful when used for comparisons between

companies since there are wide variations in number of shares outstanding. This

will be used for intracompany trend comparisons.

V. Other Ratios

Ratio Industry Ayala Land Robinsons Land Favorable to

Average
Price/Earnings
56.9 49.67 12.26 Ayala
Ratio
Price/Book
3.11 3.44 1.47 Ayala
Value
Leverage Ratio 3.1 2.09 1.98 Ayala
Book
16.30 4.33 10.98 Robinsons
Value/Share

a. Price/Earnings Ratio – the ratio of Ayala is nearer to that of the industry average

while Robinson’s ratio is incomparable because it is very low. This may be due to

a low market exchange price for Robinson’s Land or the company may have a

large amount of earnings which are not reflected on its market price. Comparing

the two companies, however, Ayala has a higher Price/Earnings ratio than that of

Robinson’s.

b. Price/Book Value – Ayala’s ratio is within the industry range while Robinson’s

ratio falls short, bearing only nearly a third of the industry average. This indicates

that Robinson’s Price/Book Value ratio is much lower than that of Ayala’s.
 Robinson’s low Price/Book Value ratio may be due to low market exchange rates

and/or high amount of capital stock and/or retained earnings.

c. Leverage Ratio – both companies’ ratios are considerably lower than that of the

average. However, Robinson’s fall back .11 against Ayala in this ratio.

d. Book Value/Share – both companies’ BVPS ratio is lower than that of the

industry average, suggesting share dilution, too many outstanding shares, or a

lower amount of equity as compared to that of other businesses in the real estate

industry. In comparison, Robinson’s BVPS ratio is considerably higher than that

of Ayala, being 10.98 which is twice as that of Ayala’s 4.33.

Intracompany Trend Comparison

I. AYALA LAND INC.

Year
Ratio 2010 2009 2008
Liquidity Ratios
• Current Ratio 1.83 1.95 1.88
• Quick Ratio 1.20 1.40 1.34
• Inventory 1.5 2.09 2.75
Turnover
Operational
Efficiency
• Gross Margin 36.99% 40.40% 39.53%
• Net Profit Margin 15.98% 13.26% 14.25%
• Asset Turnover .25 .29 .33
• Return on Asset 4.20% 4.9% 5.80%
• Return on Equity 7.0% 7.70% 9.8%
• Solvency Ratios
 • Debt Ratio 0.4658 0.4523 0.4521
• Debt/Equity Ratio 0.99 0.93 0.93
• Interest Coverage 20.35 19.29 26.05
Profitability
• Return on 8.10 9.11 11.22
Common
Stockholders’
Equity
• Return on Capital 5.54% 5.83% 7.49%
• Earnings per share .30 .22 0.36
Other Ratios
• Price/Earnings 49.67 60.32 17.78
Ratio
• Price/Book Value 3.44 8.53 4.86
• Leverage Ratio 2.09 2.06 1.94
• Book Value/Share 4.33 1.3187 `1.3156

 As to liquidity, the inconsistency in the current ratio and quick ratio was due to

increases/decreases in inventory, cash, AR, profit or loss financial assets and short

term investments. It was higher in 2009 due to large increases in some of the items

which offsets the decreases of some items.

 As to its operational efficiency, it shows that most of the indicators are declining

especially in 2010; this may be due to decreasing gross margin. Although there was

an increase in the net profit margin, we can conclude that there’s a problem in the

productivity and efficiency of the company’s assets and the use of resources provided

by the owners resulting to lower returns.

 As to its solvency, the ratio is indicating that the company is having a greater risk of

being unable to meet maturing obligations every year. This is due to the new and

additional loans. Most of the company’s liabilities increased. This indicates that they
 tend to rely more on borrowing. There lesser protection for creditors in case of

insolvency. But as shown in the figures above, the decrease has been minimal.

 As to its profitability, there is a decrease in returns each year. This signals that the

investors and owners have been earning less. On the other hand, greater income was

earned on each share of common stock during 2010 but it is not an assurance since

the trend suggests that there is more possibility that it will decrease the following

year.

 And as to the other aspects, the figures suggest that there are drastic movements as to

the market ratios. These may be due to changes in market value of the shares of the

company or changes in the number of outstanding shares and net income. On the

other hand figures in the leverage ratio and Book value per share indicate that the

company has greater investments in assets in relation to investment share of owners

therefore has sufficient net assets applicable to each common share.

II. ROBINSON’S LAND CORPORATION

Year
Ratio 2010 2009 2008
Liquidity Ratios
• Current Ratio 3.41 2.95 1.55
• Quick Ratio 2.18 2.12 0.79
• Inventory 0.73 0.84 1.08
Turnover
Operational
Efficiency
• Gross Margin 51.56% 52.02% 43.56%
• Net Profit 33.94% 31.12% 29.50%
Margin
• Asset Turnover .22 .22 .22
• Return on Asset 7.45% 7.27% 7.97%
• Return on 13.07% 12.83% 13.79%
 Equity
Solvency Ratios
• Debt Ratio 0.4776 0.5034 0.4298
• Debt/Equity .91 1.01 .75
Ratio
• Interest 15.23 63.37 63.10
Coverage
Profitability
• Return on 13.57 13.51 13.77
Common
Stockholders’
Equity
• Return on 8.45% 8.05% 10.91%
Capital
• Earnings per 1.31 1.19 1.15
share
Other Ratios
• Price/Earnings 12.26 8.82 6.61
Ratio
• Price/Book 1.47 1.13 .91
Value
• Leverage Ratio 1.98 2 1.76
• Book 10.98 9.31 8.37
Value/Share

 As to liquidity, the indicators has been increasing therefore the company has greater

ability to meet currently maturing obligations from its existing current assets each

year. it has more current assets relative to its current liabilities. As such it has greater

immediate liquidity each year. On the other hand, the company has been experiencing

declines their ability to control their inventory, there is greater chances of inventory

obsolescence.

 As to its operational efficiency, there are declines and increases. The gross profit

margin and net profit margin suggest that though there maybe declines, it was only

minimal since considerable increases follows. But as to the returns, decreases

 happened during 2009 maybe due to problems in productivity and efficiency in the

use of the assets but the company was trying to cover it up the next year though the

increase is less than the decrease.

 As to its solvency, during 2009 and 2010, we can say that there was greater risk of

not being able to meet maturing obligations compared to 2008. The debt ratio

indicates that the company has more loans and depends on the borrowings during

those years. On the other hand, this has implications on the interest coverage since

interest has drastically increased from a 2 digit to a 3 digit figure (in millions). But

the debt/equity ratio suggests that the company has been trying to balance its

borrowings and its equity investments.

 As to its profitability, the company has experienced ups and downs. The company has

been more profitable during 2008 and declined in 2009. But the company regained

themselves during 2010 even though the increase was not enough to reach the same

level as to 2008. As to the earnings of each common share, there is a positive trend

since it keeps on increasing each year.

 As to the other aspects, there is large increase in the market ratio. This may be due to

increase in the market value of the company since the EPS was also increasing. the

figures in the leverage ratio and Book value per share also suggest that the company

has greater investments in assets in relation to investment share of owners therefore

has sufficient net assets applicable to each common share.

SWOT ANALYSIS

Problem:

As investors, in what company shall we invest? Ayala Land or Robinsons Land?

Objectives:

• To analyze the quantitative and qualitative aspects of the two companies

• To choose a company to invest in

Ayala Land Inc.

Strengths Weaknesses
• It has established its name in the
market.
• Net income is getting higher.
• There are improvement in residential
and corporate business margins
• It has a strong cost control.
• There is efficiency improvement
• It has higher average occupancy rates
• Shopping center joint ventures has
strong performances.
• There are strong cash inflows from
successful pre-sales of residential
launches.
• Affiliate investments perform better.
• It has sufficient net assets applicable to
each common share.
Opportunities
• There is increasing demand for BPO
expansion.
• Holiday spending increases.
• There are strong remittances from
Filipino overseas workers
• There is a demand for and
prevailing prices of shopping malls
and office leases
• Social trends may affect the choice
of buyers.
• Changing spending patterns may
affect the demand for real estate,
• Current trend of low interest rates
may attract buyers.
• The industry is performing well.
• The possible increase in numbers of
retirees may affect demand.
• Industrialization may increase
demand
• Shopping center margins drop.
• There are higher payroll costs and
benefits.
• new and additional loans were incurred
• There’s a problems in the productivity
and efficiency of the company’s assets
and the use of resources provided by the
owners resulting to lower returns.
• Returns decrease each year.
Threats
• There is a continuing decline in
average rental rates on shopping
centers.
• The overall economic performance of
the country
• The interest rate movements may
affect the sales
• There is an increase in the
development of specialty malls by
companies that are not traditional
players in the industry.
• The political and security situation in
the Philippines may change the
preferences of buyers.
• The availability of large tracts of land
may affect the major operations
• The decline in the income levels may
influence the demand.
• The Asian crisis may affect the
operations, rates and demands.
• The oversupply in the market will
decrease the sales.
• Low property prices affect the
revenue.
Robinson’s Land Corporation

Strengths Weaknesses

• It has its own mixed-use, retail, • It is highly dependent on Philippine

commercial and residential economy and the Philippine property
developments. market
• It has large and experienced sales • The company has been experiencing
and distribution networks declines their ability to control their
• It has established its name in the inventory.
market. • It has incurred more loans.
• The company has greater ability to
meet currently maturing obligations
from its existing current assets each
year.
• Earnings are increasing each year.
• There is an increase in the market
value of the company.
• It has sufficient net assets applicable
to each common share.

• It has higher average occupancy

rates
• It has greater immediate liquidity
each year.
• It has efficiency of earning net
income from sales.
• It has expertise in delivering mixed-
use mid- to high-rise developments
located within business districts and
emerging cities.

Opportunities Threats

• There is increasing demand for BPO • There is a continuing decline in

expansion. average rental rates on shopping
• Holiday spending increases. centers.
 • There are strong remittances from
Filipino overseas workers
• There is a demand for and
prevailing prices of shopping malls
and office leases
• Social trends may affect the choice
of buyers.
• Changing spending patterns may
affect the demand for real estate,
• Current trend of low interest rates
may attract buyers.
• The industry is performing well.
• The possible increase in numbers of
retirees may affect demand.
• Industrialization may increase
demand.
• The overall economic performance
of the country
• The interest rate movements may
affect the sales
• There is an increase in the
development of specialty malls by
companies that are not traditional
players in the industry.
• The political and security situation in
the Philippines may change the
preferences of buyers.
• The availability of large tracts of
land may affect the major operations
• The decline in the income levels may
influence the demand.
• The Asian crisis may affect the
operations, rates and demands.
• The oversupply in the market will
decrease the sales.
• Low property prices affect the
revenue.

Recommendation:

Based on the preceding information provided, we recommend that the right company

to invest in is Robinsons Land. It is apparent that the company has a good financial standing

and is one of the leading real estate company in the Philippines. The financial statement

analysis certainly indicates that investing in Robinsons Land is very much favorable since it

is profitable, liquid and solvent. Its operations are doing well and the increase in market

value shows that the investors are very much willing to invest more in the company for it will

provide them greater earnings in the future. The trend in the company’s financial ratios also

suggests that even though declines may occur, the company immediately does something to

regain and enhance its performance. Robinsons Land can compete not just with bigger
companies but also with the fast-rising companies that are not traditional players in the

industry. We can say that it will be a wise investment. Although there are more threats, the

company already has its Enterprise Risk Management Group (ERMG) that will mange

possible risk. Robinsons Land provides us security that our investment is in a good hand.