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Solvency Ratios

1. Equity Ratio

2015 2014 2013 2012 2011


Equity ratio 30.35% 30.38% 26.17% 31.50% 37.01%

The equity ratios computed above indicate that Globe Telecom has a low equity
ratio. Over the past five years, the highest equity ratio it had was during 2011 which is
37.01%. In the most recent year, 2015, the debt ratio is 30.35% and this means that
only 30.35% of total assets are financed with equity. The debt ratio in 2011 to 2013 is
decreasing at it is caused by the decrease in the retained earnings account. The
decrease in the retained earnings account of the company is caused by the increase in
the cost of sales account. The cost of the handsets, devices and accessories used in
the operation of the business increased during these 3 years. It decreased again the
next year and it is the reason why the equity ratio went up again. These equity ratios are
relatively low so it means that the company is more reliant on their debt financing and
not on their equity financing.

2. Debt Ratio

2015 2014 2013 2012 2011


Debt ratio 69.65% 69.62% 73.82% 68.50% 62.99%

Globe Telecom is prioritizing debt financing over equity financing and it is evident
by the high debt ratios of the company. The highest debt ratio it had was during 2013
where the debt ratio reached 73.82%. This high debt ratio can be attributed to the
increase in its long-term loans. This increase is caused by the different deals it made
with different creditors. Among them are the deals with the Bank of Tokyo – Mitsubishi
UFJ, Ltd. Singapore branch where Globe signed a USD 75 million 3-year term loan with
floating interest rate for the bank to serve as a lender. These loans were used to fund
the company’s capital expenditures. Relatively, these debt ratios are on the high side
and having a high debt ratio is often a concern to the creditors because they are
concerned about being repaid. However, Globe Telecom is an established company
and creditors already know what they are going to get and they know that their loans will
be paid accordingly.

3. Debt to equity ratio

2015 2014 2013 2012 2011


Debt-to-equity
ratio 229.44% 229.14% 282.04% 217.47% 170.17%

As mentioned earlier, the company’s debt to equity ratio is high because it is more
focused on using debt financing rather than equity financing. The increase from 2011 to
the next year indicates that the company also increased the risk on its capital structure.
This increase in the debt-to-equity ratio can be attributed to both the company’s
increase in cost of sales and the increase in the long-term loans. The increased cost of
handsets and other materials used in the business decreased its retained earnings and
therefore also decreased its debt ratio. Moreover, the increase in the long-term loans
because of the different deals that the company accepted also increased the equity ratio
of the company. In 2015, the debt-to-equity ratio is 229.44% and this means that the
company is driven more by creditors and not by investors. This means that the company
is very risky in the view of creditors but due to the reason stated earlier, Globe Telecom
is a big company and they know how to handle debt financing even though it is riskier
that equity financing.

4. Time Interest Earned

2015 2014 2013 2012 2011


Times Interest
Earned 7.48 times 7.79 times 2.69 times 4.0 times 6.49 times
The times interest earned during the previous year, 2015, is 7.48 times. This
means that the company is able to afford paying its interest payments when they come
due. Their operating income is more than sufficient for Globe Telecom to pay its interest
expenses. In 2012 and 2013, the times interest earned decreased up to 3.80 times. This
is caused by the same reasons mentioned above. The increase in the cost of sales
account due to the increasing cost of handsets and other materials used in the business
decreased the operating income of the company. At the same time, the deals signed by
the company increased the interest expenses. Every time there is an increase in the
long-term debt of a company, its interest expense also increases because it is a debt is
most often accompanied by an interest. Globe Telecom was able to regain its control
and increased its times interest earned ratio in 2014 because it decreased its cost of
sales and the interest expense balance decreased. The high debt-to-equity ratio may
indicate that the company is risky but the high times interest earned balances it since it
indicates a less risky capital structure.