Increasing Puregold's Inventory Turnover

I.
VIEWPOINT: Antonio Delos Santos, National Operations Manager (NOM)
II. TIME CONTEXT: 2017
III. PROBLEM STATEMENT
Decreasing inventory turnover due to aggressive growth strategy
IV. STATEMENT OF THE OBJECTIVE
To efficiently and effectively utilize the inventory; to increase the inventory turnover
ratio, sales and cost of goods sold
V. TOOLS FOR ANALYSIS
a. Ratio Analysis
Liquidity Ratios
2013 2014 2015 2016 2017
Current ratio Current asset

1.36:1 1.48:1 1.58:1 1.73:1 1.62:1
Current liabilities
Quick (acid-test) ratio Current assets - Inventory

Current liabilities 0.63:1 0.67:1 0.69:1 0.70:1 0.71:1
 Acceptable current ratios vary from industry to industry and are generally between
1.5 and 2 for healthy businesses, comparing the current ratio of Puregold and the
benchmark. The Puregold current ratio for 2017 is 1.62:1.
 Puregold’s liquidity has an acid test ratio of .71:1 in 2017. The acid test ratio should
be 1:1 or higher, however this varies widely by industry. Since Puregold is in retail
industry, there’s a high reliance on the inventory to generate cash.
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Activity Ratios
2013 2014 2015 2016 2017
Inventory turnover Cost of goods sold

7.53 6.82 6.68 6.38 6.07
Inventory
Average collection period Accounts Receivable

4.1 5.3 5.7 6.0 7.0
Average sales per day
Average payment period Accounts payable

36.9 35.0 27.7 20.9 21.7
Average purchase per day
Total asset turnover Sales

Total assets 1.47 1.57 1.65 1.72 1.74
 Puregold’s inventory turnover is, 6.38 for December 31, 2016 and 6.07 for 2017.
These only show that Puregold is holding its inventory longer than previously
measured time periods. A decreasing inventory indicates that the company is not
converting its inventory into cash as quickly as before. When this occurs, the
company ends up having increased storage, insurance and maintenance costs.
 The average collection period of Puregold is 6.0 for December 31, 2016 and 7.0 for
2017. Through the results of the ratio analysis, it indicates that the increase is not too
high and it takes 7 days to collect an account receivable for Puregold. A lower
average collection period is more favorable than a higher average collection period. A
low average collection period indicates that Puregold’s collection on receivables is
faster compare to other companies with the same industry.
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 Average payment period increased to 21.7 in 2017 from 20.9 in 2016 due to increase
in trade payable by 1.6 billion pesos in 2017 and an increase in accounts payable by
1.9 billion pesos in 2017.
 Total asset turnover by 2017 is 1.74 while it is 1.72. This is due to the fact that sales
and total assets increased by 10.6% and 9.3%, respectively. The increase in sales is
caused by the opening of new stores in 2017 while the increase in total assets is
caused by increase in cash flow, trade credit transactions, unrealized gain in investing
trading securities, advance payments related to putting up new stores, acquisition of
equity interest of San Roque Supermarkets, and entering in joint ventures with PG
Lawson Company, Inc.
Debt Ratios
2013 2014 2015 2016 2017
Debt ratio Total liabilities

0.38:1 0.36:1 0.35:1 0.34:1 0.33:1
Total assets
Earnings before
Time interest earned ratio interest and taxes 206:1 136 :1 101:1 80:1 67:1
Interest
 The Puregold’s debt ratio from 2013 to 2017 is fluctuating from ratio of 0.38:1 to
0:33:1 because the company insists of funding their expenditures by their internally
generated cash and short-term untapped bank credit lines if necessary. Also, the
company’s debt to equity ratio fluctuates from 2013 to 2017.
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 The Puregold’s time interest ratio from 2013 to 2017 is decreasing from ratio of
206:1 to 67:1 because throughout the years, the company makes loans with varying
interest rates per annum ranging from 2.375% to 3.50%.
Profitability Ratios
2013 2014 2015 2016 2017
Gross profit margin Gross profits 0.17 0.17 0.17 0.16 0.17
Sales
Operating profit
margin Operating profits 0.07 0.08 0.07 0.07 0.07
Sales
Earnings available for

Net profit margin common stock 0.05 0.05 0.05 0.05 0.05
Sales
Earnings per share Earnings available for

(EPS) common stockholders
1.43 1.63 1.81 2 2.11
Number of shares of
common stock outstanding
Return on total assets Earnings available for

(ROA) common stockholders 8.3% 8.8% 8.9% 8.9% 8.5%
Total assets
Return on common Earnings available for

equity (ROE) common stockholders 13.6% 13.9% 13.8% 13.6% 12.8%
Common stock equity
 Puregold Price Club Inc. has maintained its gross profit margin, operating profit
margin and net profit margin for five (5) consecutive years, and if there have been
any changes, it was so minimal.
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 For Earnings per share, it increases from 1.43 in 2013 to 2.11 in 2017, it means that
shareholder’s stock earns higher each year but the dividend given is only P0.20 for
regular dividend and P0.10 for special dividend since they use the retained earnings
to fund their expansions.
 Return on Total Asset increases for the first three (3) years but decreases by 0.4% on
the fifth year which is 2017 because although their net income increases, their total
assets has also increased.
 Return on Common Equity increases for the first two years but after that its trend is
decreasing though very minimal, but in 2017, the change is quite obvious, this is due
to the slower growth rate in net income as compared to the increase in the
shareholder’s common stock equity.
Market Ratios
2013 2014 2015 2016 2017
Price/earnings (P/E) Market price per share of

ratio common stock 26.48x 23.59x 19.19x 19.52x 23.68x
Earnings per share
Market/book (M/B) Market price per share of

ratio common stock
Book value per share of 2.78:1 2.50:1 3.07:1
common stock
 Puregold’s Price Earnings for the year 2017 was 23.68x, which is a bit lower than the
other retail industry in the country. The competitors Price Earnings (PE) was 26.83x
and 26.88x.
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 The market price is overvalued. It is a good indication of investors' perception about
the business. Puregold has a good reputation that people are willing to pay way more
than its book value.
b. Statement of Comprehensive Income – Horizontal and Vertical Analysis
Horizontal Analysis
2017 & 2016 2016 & 2015 2015 & 2014 2014 & 2013
(In millions)
Net Sales 10.6% 15.9% 14.7% 15.7%
Cost of Sales 10.4% 16.6% 15.4% 15.6%
Gross Profit 11.4% 12.4% 11.7% 16.2%
Other Operating Income 7.6% 13.2% 12.6% 16.3%
Gross Income 10.8% 12.5% 11.8% 16.2%
Operating Expenses 13.2% 12.1% 12.7% 14.8%
Operating Income 6.9% 13.2% 10.4% 18.8%
Other Income (Expenses) 49.3% 124.4% 125.0% -116.4%
Net Income Before Tax 5.9% 11.4% 10.0% 15.8%
Income Tax Expense 6.4% 13.7% 8.6% 19.8%
Net Income After Tax 5.7% 10.5% 10.6% 14.2%
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Vertical Analysis
2017 2016 2015 2014 2013
(In millions)
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 83.4% 83.5% 83.0% 82.6% 82.6%
Gross Profit 16.6% 16.5% 17.0% 17.4% 17.4%

Other Operating Income 2.8% 2.9% 3.0% 3.0% 3.0%
Gross Income 19.4% 19.4% 19.9% 20.5% 20.4%

Operating Expenses 12.5% 12.2% 12.6% 12.8% 12.9%
Operating Income 6.9% 7.2% 7.4% 7.6% 7.5%

Other Income (Expenses) -0.2% -0.1% 0.0% 0.0% 0.2%
Net Income Before Tax 6.7% 7.1% 7.3% 7.6% 7.6%

Income Tax Expense 1.9% 2.1% 2.2% 2.3% 2.2%
Net Income After Tax 4.8% 5.0% 5.1% 5.3% 5.4%
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Comparative years 2017 and 2016
Net Sales
For the year ended December 31, 2017, the Group posted consolidated net sales of P124,
491 million for an increase of P11, 902 million or a growth of 10.6% compared to P112.589
million in the same period of 2016. New stores put up in 2016 were fully operating in 2017
increasing consolidated net sales in addition to robust like for like stores sales growth and
revenue contributions from new organic stores/outlets put up as well as acquisitions made
during the same period.
Gross profit
For the year ended December 31, 2017 the Group realized an increase of 11.4% in
consolidated gross profit from P18, 538 million in 2016 to P20, 655 million in 2017 of the
same period, driven by strong sales growth from new and old stores and consistent and
continuing suppliers’ support through additional trade discounts in the form of rebates and
conditional discounts granted during the period. Consolidated gross profit margin was
posted at 16.6% and 16.5% for the years ended December 31, 2017 and 2016, respectively.
Other Operating Income
Other operating income increased by P247 million or 7.6% from P3,266 million in the year
ended December 31, 2016 to P3,513 million in 2017 of the same period. This is attributable
to increase in display allowance, rent income, membership income and other supplier
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supports driven mainly by new stores offering new spaces for product displays and booths
for third party retailers and other promotions to increase customer and supplier’s supports.
Operating Expense
Operating expense increased by P1, 808 million or 13.2% from P13, 707 million in the year
ended December 31, 2016 to P15, 516 million in 2017 of the same period. The increase was
mainly attributable to manpower cost of the Group’s new stores, as well as rent expense
relative to new lease contracts, supplies expense and taxes, all related to full year operating
of acquired stores and operation of new stores.
Other Expenses – net
Other expenses net of other income amounted to P268 million and P101 million for the
years ended December 31, 2017 and 2016, respectively. The increase was due to interest
expenses from additional bank loans availed during the period and recognition of share in
net loss of joint venture operations.
Net Income
For the year ended December 31, 2017, the Group earned a consolidated net income of P5,
840 at 4.7% net margin and an increase of 5.7% from P5, 526 million at 4.9% net margin in
2016 of the same period. This was principally driven by the continuous expansion of the
Group of both organic as well as strategic acquisitions and investments and combined
management strategies and programs to boost revenue contributions from both the base
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stores as well as new stores complemented by sustained operating efficiencies and strategic
costs controls on operating expenses at its current level.
Comparative of 2016 and 2015
Net Sales
For the year ended December 31, 2016, the Group posted consolidated net sales of P112,
589 million for an increase of P15, 418 million or a growth of 15.9% compared to P97,172
increasing the consolidated sales in addition to robust like for like stores sales growth and
revenue contribution from new organic stores/outlets put up as well as acquisitions made
Gross Profit
For the year ended December 31, 2016, the Group realized an increase of 12.4% in
consolidated gross profit from P16, 489 million in 2015 to P18, 538 million in 2016 of the
same period, driven by strong sales growth from new and old stores and consistent
continuing supplier’s support through trade discounts in the form of rebates and conditional
discounts granted during the period. Consolidated gross profit margin was posted at 16.5%
and 17.0% for the years ended December 31, 2016 and 2015, respectively.
ended December 31, 2015 to P3,266 million in 2016 of the same period. This is attributable
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Other Expense – net
Other expenses net of other income amounted to P101 million and P45 million for the years
ended December 31, 2016 and 2015, respectively. The increase was due to interest expenses
from additional bank loans availed during the period and recognition of share in net loss of
joint venture operations.
Net Income
For the year ended December 31, 2016, the Group earned a consolidated net income of P5,
526 million at 4.9% net margin and an increase of 10.5% from P5, 002 million at 5.1% net
margin in 2015 of the same period. This was principally driven by the continuous expansion
of the Group both organic as well as strategic acquisitions and investments and combined
stores as well as new stores complemented by sustained operating efficiencies and strategic
costs controls on operating expenses at its current level.
Net Sales
For the year ended December 31, 2015, the Group posted a consolidated net sales of P97,
172 million for an increase of P12, 474 million or a growth of 14.7% compared to P84, 697
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increasing consolidated net sales in addition to robust like for like stores sales growth and
revenue contributions from new organic stores/outlets put up as well as acquisitions made
Gross Profit
For the year ended December 31, 2015, the Group realized an increase of 11.7% in
consolidated gross profit from P14.760 million in 2014 to P16, 489 million in 2015 of the
same period, driven by strong sales growth new and old stores are consistent and continuing
suppliers’ support through additional trade discounts in the form of rebates and conditional
discounts granted during the period. Consolidated gross profit margin was posted at 17.0%
and 17.4% while gross income stood at 19.9% and 20.5% for the years ended December 31,
2015 and 2014, respectively.
ended December 31, 2014 to P 2,886 million in 2015 of the same period. This is attributable
Operating Expenses
Operating expenses increased by P1, 380 million or 12.7% from P10, 845 million in the year
ended December 31, 2014 to P12, 225 million in 2015 of the same period. The increase was
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mainly attributable to manpower cost of the Group’s new organic stores, as well as rent
expenses relative to new lease contracts, supplies expenses and taxes, all related to
acquisitions and operation of new organic stores.
Other Expenses- net
Other expenses net of other income amounted to P45 million and P20 million for the years
ended December 31, 2015 and 2014, respectively. The increase was due to interest expenses
from additional bank loans availed during the period.
Net Income
For the year ended December 31, 2015, the Group earned a consolidation net income of P5,
margin in 2014 of the same period. This was principally driven by the continuous expansion
of the Group both organic as well as strategic acquisitions and investments and combined
stores as well as new stores (both organic and strategic acquisitions) complemented by
operating efficiencies and strategic cost controls on operating expenses at its current level.
Net Sales
For the year ended December 31, 2014, the Group posted consolidated net sales of P84, 697
million increase of P11, 520 million or 15.7% compared to P73, 177 million in 2013. New
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stores put up in 2013 were fully operating in 2014 increasing consolidated net sales in
addition to robust like for like stores sales growth for the year ended December 2014.
Gross Profit
For the year ended December 31, 2014 the Group realized an increase of 16.2% in
consolidated gross profit from P12, 699 million in 2013 to P14, 760 million in 2014 driven by
strong sales growth from new and old stores and continuous suppliers’ support through
rebates and conditional discounts granted during the period. Consolidated gross profit
margin was posted at 17.4% for the years ended December 2014 and 2013.
Other Operating Income increased by P359 million or 16.3% from P2.204 million in
December 2013 to P2.563 million in 2014. This is attributable to increase in concession
income, display allowance rent income, membership income and service income driven
mainly by new stores offering new spaces for product displays and booths for third party
retailers and other promotions to increase customer and suppliers supports.
Operating Expenses
Consolidated operating expenses expanded by 14.8% from P9, 449 million in 2013 to P10,
845 million in 2014 resulting from the Group’s store expansion. Major expenses lining to
store operations such as manpower cost, rent, utilities, depreciation and taxes increased,
but total operating expenses maintain a 12.8% and 12.9% share in relation to consolidated
net sales in 2014 and 2013 respectively.
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Other Income (Expense) - net
Other income net of other expenses decreased by P 142 million or 116.1% for the year
ended December 2014 compared to previous year. This was due to the absence of the one-
time interest income recognized in 2013 coming from the short-term investment of the
proceeds from the P5 billion corporate notes issued by the Parent Company. The same notes
were pre-terminated and paid in full in April of 2013 due to the changes in the applicable
taxation rules.
Net Income
For the year ended December 31, 2014, the Group posted a consolidated net income of P4,
margin in 2013. This was due to the continuous expansion of the Group and combined
management effort to boost revenue driven from old stores. On a recurring basis,
normalized net income after tax would have increased by P695 million or 18.2% at 5.3% and
5.2% net margin for the years ended December 31, 2014 and 2013, respectively. In previous
year, the Group recognized a one-time interest income coming from the short-term
investment of the proceeds from the P5 billion corporate notes issued by the Parent
Company. The same notes were pre-terminated and paid in full in April of 2013 due to the
changes in the applicable taxation rules.
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c. Statement of Financial Position – Horizontal and Vertical Analysis
Statement of Financial Position

Horizontal Analysis
2017 & 2016 & 2015 &

2016 2015 2014 2014 & 2013
(in millions)
Cash & cash equivalents 25.7% 2.7% -7.6% 27.5%
Short-term investments 0.0% 0.0% -100.0%
Receivables - net 17.7% 44.6% 37.9% 59.9%
Investments in trading securities 7.3% 27.0% -8.1% 29.7%
Merchandise inventory 33.5% 2.0% 16.3% 18.3%
Prepaid expenses and other current assets 20.1% -8.0% 86.3% -43.8%
Total Current Assets 13.5% 20.8% 12.4% 17.0%
Investments and acquisitions of subsidiaries 0.2% -7.9% 9.7% 80.0%

Property and equipment - net 12.6% 12.0% 6.9% 4.9%
Intangibles and goodwill 0.9% 0.2% 8.3% 0.1%
Other noncurrent assets 10.7% 7.3% 12.9% 6.7%
Total Noncurrent Assets 6.2% 4.9% 8.0% 3.3%
9.3% 11.1% 9.6% 8.1%
Accounts Payable and accrued expenses 20.4% -1.4% -6.6% -5.2%

Short-term loans payable -18.0% 59.9% 130.1% 54.3%
Income tax payable 4.0% 11.1% 15.0% 17.7%
Trust receipts payable 0.0% -100.0% 0.0% 0.0%
Due to related parties 9.7% 13.5% 11.7% -66.4%
Current maturities of long-term loans, net
of debt issue costs 1899.3% -78.9% -40.8% 0.0%
Other current liabilities 3.4% 23.0% -8.5% 18.3%
Total Current Liabilities 21.2% 10.0% 5.6% 7.4%
Noncurrent accrued rent 12.1% 16.7% 20.5% 29.3%

Long-term loans - net of current maturities
and debt issue costs -100.0% 0.1% -3.9% -27.8%
Deferred tax liabilities - net -34.6% -25.2% -22.7% -21.7%
Retirement benefits liability 14.7% 6.7% 11.5% 37.6%
Total Noncurent Liabilities -34.3% 5.6% 4.0% -9.1%
Total Liabilities 5.8% 8.7% 5.1% 2.1%
Capital Stock 0.0% 0.0% 0.1% 0.0%

Additional paid in capital 0.0% 0.0% 0.0% 0.0%
Remeasurements of retirement liability -
net of tax 87.6% -9706.6% -98.4% 1564.8%
Retained Earnings 24.2% 31.6% 39.1% 52.8%
Treasury stock, at cost 0.0% 0.0% 172.5% 23.1%
Total Equity 11.1% 12.4% 12.2% 11.9%
9.3% 11.1% 9.6% 8.1%
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Statement of Financial Position
Vertical Analysis
2017 2016 2015 2014 2013

(in millions)
Cash & cash equivalents 11.3% 9.8% 10.6% 12.6% 10.7%
Short-term investments 0.0% 0.0% 0.0% 1.0%
Receivables - net 6.4% 5.9% 4.6% 3.6% 2.5%
Investments in trading securities 24.8% 25.2% 0.1% 0.1% 0.1%
Merchandise inventory 0.1% 0.1% 22.1% 20.8% 19.0%
Prepaid expenses and other current assets 1.7% 1.5% 1.8% 1.1% 2.1%
Total Current Assets 44.2% 42.5% 39.10% 38.2% 35.3%
Investments and acquisitions of subsidiaries 1.1% 1.2% 1.5% 1.5% 0.9%

Property and equipment - net 24.8% 24.0% 23.8% 24.5% 25.2%
Intangibles and goodwill 27.6% 29.9% 33.2% 33.6% 36.3%
Other noncurrent assets 2.3% 2.3% 2.4% 2.3% 2.4%
Total Noncurrent Assets 55.8% 57.5% 60.9% 61.8% 64.7%
100.0% 100.0% 100.0% 100.0% 100.0%
Accounts Payable and accrued expenses 16.3% 14.8% 16.6% 19.5% 22.2%
Short-term loans payable 5.8% 7.7% 5.3% 2.5% 1.8%
Income tax payable 1.2% 1.3% 1.3% 1.2% 1.1%
Trust receipts payable 0.0% 0.0% 0.0% 0.0% 0.0%
Due to related parties 0.1% 0.1% 0.1% 0.0% 0.2%
Current maturities of long-term loans, net
of debt issue costs 3.4% 0.2% 1.0% 1.8% 0.0%
Other current liabilities 0.6% 0.6% 0.6% 70.0% 0.6%
Total Current Liabilities 27.2% 24.6% 24.8% 25.8% 26.0%
Noncurrent accrued rent 4.6% 4.5% 4.2% 3.9% 3.2%

Long-term loans - net of current maturities
and debt issue costs 0.0% 3.7% 4.1% 4.6% 7.0%
Deferred tax liabilities - net 0.3% 0.6% 0.8% 1.2% 1.7%
Retirement benefits liability 0.8% 0.7% 0.7% 0.7% 0.6%
Total Noncurent Liabilities 5.7% 9.4% 9.9% 10.4% 12.4%
Total Liabilities 32.9% 34.0% 34.7% 36.2% 38.4%
Capital Stock 3.9% 4.3% 4.7% 5.2% 5.6%

Additional paid in capital 29.1% 31.9% 35.4% 38.8% 42.0%
Remeasurements of retirement liability -
net of tax 0.2% 0.1% 0.0% -0.1% 0.0%
Retained Earnings 34.0% 29.9% 25.2% 19.9% 14.1%
Treasury stock, at cost -0.1% -0.1% -0.1% 0.0% 0.0%
Total Equity 67.1% 66.0% 65.3% 63.8% 61.6%
100.0% 100.0% 100.0% 100.0% 100.0%
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Comparative Years 2017 and 2016
Current Assets
As of December 31, 2017, and 2016, total assets amounted to p31, 558 million or 44.2% of
total assets, and P27, 802 million or 42.5% of total assets, respectively, for an increase of P3,
757 million or 13.5%.
Cash and cash equivalents as of December 31, 2017 amounted to P8, 066 million or 11.3% of
total assets and increased by P1, 65o million or 25.7% compared to previous year-end
balance. Increase in cash balance was due to net cash generated from operations.
Receivables amounted to P4, 569 million as of December 31, 2017 or 6.4% of total assets,
with an increase of P688 million or 17.7% from P3, 881 million in December 2016. The
growth was due to increase in sales during the year related to full year operation of new
organic and acquired stores.
Merchandise Inventory amounted to P17, 697 million or 24.8% of total assets at the end of
December 2017. Total inventory increased by P1, 209 million or 7.3% principally due to
stocking requirements of new organic and acquired stores.
Investments in trading securities amounted to P47 million as of December 31, 2017 from P35
million in December 2016 and increased by P12 million or 33.5% due to unrealized gain from
changes in fair market values.
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Prepaid expenses and other current assets increased by P198 million or 20.1% due to
purchase of supplies for store and office use and availment of new policies for insurance of
new stores and advance payment of rent for soon to open stores.
Noncurrent Assets
As of December 31, 2017, and 2016, total noncurrent assets amounted to P39, 906 million or
55.8% of total assets and P37, 581 million or 57.5% of total assets, respectively, for an
increase of P2, 325 million or 6.2% as of December 31, 2017.
Investments amounted to P802 million and P800 million as of December 31, 2017 and 2016,
respectively.
Net book values of property and equipment increased by P1, 985 million or 12.6% from P15,
712 million in December 2016 to P17, 696 million in December 2017. This was due
principally to capital expenditures pertaining to new stores establishing during the period.
Intangibles and goodwill amounted to P19, 737 million and P19, 561 million for the years
ended December 31, 2017 and 2016, respectively.
Other noncurrent assets increased by P161 million or 10.7% from P1, 509 million in
December 2016 to P1, 671 million in December 2017. This was primarily due to increase in
advance rent and deposits made in relation to new leases acquired for the establishments of
new Puregold organic stores and S&R warehouses.
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Current Liabilities
As of December 31, 2017, and 2016, total current liabilities amounted to P19, 461 million or
27.2% of total assets and P16, 062 million or 24.6% of total assets, respectively, for an
increase of P3, 398 million or 21.2%
Accounts payable and accrued expenses increased by P1, 969 million or 20.4% primarily due
to increase in trade liabilities and dividend payable as of December 2017.
Short-term loans payable decreased by P905 million or 18% from P5, 018 million in
December 2016 to P4, 113 million in December 31, 2017 due to net settlement of short term
loans during the year.
Income tax payable increased by P34 million from P844 million on December 2016 to P878
million in December 2017 due to recognition of tax liabilities due for the year, for the income
earned on the year ended December 31, 2017.
Due to related parties amounted to P37 million and P34 million for the year ended
December 2017 and 2016, respectively. This pertains to royalty fees.
Current maturities of long-term debt increased by P2, 279 million due to long-term loans
maturing in 2018 reclassified as current as at December 31, 2017.
Other current liabilities amounted by P417 million and P402 million for the year ended
December 31, 2017 and 2016 respectively.
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Noncurrent Liabilities
As of December 31, 2017, and 2016, total noncurrent liabilities amounted to P4, 041million
or 5.7% of total assets, and P6, 147 million or 9.4% of total assets, respectively, for a
decrease ofP2, 106 million or 34.3%
Noncurrent accrued rent increased by P351 million of 12.1% from P2,910 million in
December 2016 to P3, 621 million in December 2017 due to recognition during the year of
additional allocated rent expense and related liabilities pertaining to the remaining lease
period covering long-term operating lease contracts entered into by the Parent Company
and its subsidiaries in compliance with PAS 17 – Leases.
Long-term loans-net of current maturities and debt issue costs was reclassified to current
liabilities as it qualifies as current obligation for the year ended December 31, 2017.
Deferred tax liabilities net of deferred tax assets decreased by P128 million or 34.6% due to
increase in deferred tax assets arising from accrual of rent expense and recognition of
retirement liability.
Retirement benefits liability increased by P69 million or due to increase in salary and
discount rate used in determining the liability as of December 31, 2017.
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Equity
As of December 31, 2017, and 2016, total equity amounted to P47,962 million or 67.1% of
total assets, and P43,173 million or 66.0% of total assets, respectively, for an increase of
4,789 million or 11.1% as of the end of the year.
Re-measurement of retirement liability – net of tax pertains to adjustments made in
compliance with the accounting standard covering employee benefits. As of December 2017,
the account increased by P55 million due to unrealized gain on re-measurement of defined
benefit liability
Retained earnings increased by P4,734 million or 24.2% coming from net after-tax income
realized net of cash dividend declared during the current year.
Treasury stock amounted to P57 million for the year ended December 31, 2017 and 2016.
Current Assets
As at December 31, 2016 and 2015, total current assets amounted to P27,802 million or
42.5% of total assets, and P23,014 million or 39.01% of total assets, respectively, for an
increase of P4,787 million or 20.8%.
Cash and cash equivalents as at December 31, 2016 amounted to P6,416 million or 9.8% of
total assets and increased by P169 million or 2.7% compared to previous year-end balance.
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Receivables amounted to P3,881 million as at December 31, 2016 or 5.9% of total assets
with an increase of P1,198 million or 44.6% from P2,683 million in December 2015. The
growth was due to increase in sales during the year related to full year operation of new
organic and acquired stores.
Merchandise inventory amounted to P16,488 million or 25.2% of total assets at the end of
December 2016. Total inventory increased by 3,505 million or 27.0% principally due to
stocking requirements of new organic and acquired stores.
Investments in trading securities amounted to P35 million as at December 31, 2016 from P34
million in December 2015 and increased by P1 million or 2.0% due to unrealized gain from
changes in fair market values.
Prepaid expenses and other current assets decreased by P85 million or *.0% due to
application of input VAT, on purchase of inventory a payment of various expenses. This was
slightly offset by the increase in prepaid expenses from availment of new policies from
insurance of new stores and advance payment of rent for soon to open stores.
Noncurrent Assets
As at December 31,2016 and 2015, total noncurrent assets amounted to P37,581 million or
increase of P1,752 million to 4.9% as at December 31, 2016.
Investments decreased by P68 million or 7.9% from P868 million in December 2015 to P800
million in December 2016 due mainly to recognition of share in net losses during the year
23
from its unconsolidated joint venture affiliate, Ayagold Retailers and PG Lawson Company,
Inc.
Net book values of property and equipment increased by P1,678 million or 12.0% from
P14,034 million in December 2015 to P15,712 million in December 2016. This was due
principally to capital expenditures pertaining to new stores established during the period.
Intangibles and goodwill amounted to P19,561 million and P19,521 million for the years
ended December 31, 2016 and 2015, respectively.
Other noncurrent assets increased by P103 million or 7.3% from P1,406 in December 2015 to
P1,509 million in December 2016. This was primarily due to increase in advance rent and
deposits made in relation to new leases acquired for the establishment of new Puregold
organic stores.
Current Liabilities
As December 31, 2016 and 2015, total current liabilities amounted to P16,062 million or
24.6% total assets, and P14,606 million or 24.8% of total assets, respectively, for an increase
of P1,456 million or 10.0%.
Accounts payable and accrued expenses decreased by P133 million or 1.4% primarily due to
settlement of trade and nontrade liabilities as the end of December 2016.
24
Loans payable increased by 1,880 million from or 59.9% from P3,138 million in December
2015 to P5,018 million in December 2016 due to additional availment of short-term loans
during the period intended to augment general working capital requirements.
Income tax payable increase by P84 million from P759 million in December 2015 to P844
million in December 2016 due to recognition of tax liabilities due for the year related to
income earned during the year ended December 31, 2016.
Due to related parties amounted to P34 million and 20 million for the year ended December
2016 and 2015, respectively. This pertains to royalty fees.
Current maturities of long-term debt decreased by P450 million due to settlement made as
at December 31, 2016.
Other current liabilities decreased by P75 million or 23.0% from P327 million in December
2015 to P402 million in December 2016 relatively due principally redemption of PERKS
points earned by members and recognition of other income from promotions for the period.
As at December 31, 2016 and 2015, total noncurrent liabilities amounted to P6,147 million
or 9.4% of total assets, and P5,824 million or 9.9% of total assets, respectively for an
increase of P324 million or 5.6%.
Noncurrent accrued ret increased by P417 million or 16.7% from P2,493 million in December
2015 to P2,910 million in December 2016 due to recognition during the year of additional
25
allocated rent expense and related liabilities pertaining to the remaining lease period
covering long-term operating lease contracts entered into by the Parent Company and its
subsidiaries in compliance with PAS 17 – Leases.
increase in deferred tax assets arising from accrual if rent expense and recognition of
retirement liability.
Equity
As at December 31, 2016 and 2015, total equity amounted to P43,173 million or 66.0% of
total assets and P38,413 million or 65.3% of total assets, respectively, for an increase if
P4,760 million or 12.4% as at the end of the year.
Remeasurements of retirement liability – net of tax pertains to adjustments made in
compliance to new accounting standard covering employee benefits. As at December 2016,
the account increased by P63 million due to unrealized gain on remeasurement of defined
benefit liability.
Treasury stock amounted to P57 million for the year ended December 31, 2016 and 2015.
26
Comparative Years 2015 & 2014
Current Assets
As at December 31, 2015 and 2014, total current assets amounted to P23,014 million or
increase of P2,533 million or 12.4%
Cash and cash equivalents as at Dec. 31, 2015 amounted to P6,246 million or 10.6% of total
assets and decreased by P512 million or 7.6% compared to previous year-end balance.
Decrease in the consolidated cash position was attributable mainly to settlement of trade
and non-trade payables, payment for 2014 cash dividend, acquisition of NE supermarkets
and capital expenditures for 2015 new Puregold organic stores.
Receivables amounted to P2,683 million as at Dec. 3, 2015 or 4.6% of total assets, with an
increase of P737 million or 37.9% from P1,946 million in Dec. 2014. The growth was due to
increase in sales during the year.
Merchandise Inventory amounted to P12,983 million or 22.1% of total assets at the end of
Dec. 2015. Total inventory increased by P1,816 million or 16.3% principally due to stocking
requirements of new organic and acquired stores during the year.
Investments in trading securities amounted to P34 million as at Dec. 31, 2015 from P37
million in Dec. 2014 and decreased by P3 million or 8.1% due to unrealized loss from changes
in fair market values.
Prepaid expenses and other current assets increased by P495 million or 86.3% due to
increase in input VAT on purchase of inventory and payment of various expenses and
incresase in prepaid expenses from availment of new policies for insurance of new stores
and advance payment of rent for soon to open stores.
27
Noncurrent Assets
As at Dec. 31, 2015 and 2014, total noncurrent assets amounted to P35,829 million of 60.9%
of total assets, and P33,185 million or 61.8% of total assets, respectively, for an increase of
P2,644 million or 8.0% as at Dec. 31, 2015
Investments increased by P77 million or 9.7% from P792 million in Dec. 2014 to P868 million
in Dec. 2015 due mainly to additional equity investments during the years to its
unconsolidated joint venture affiliate, Ayalagold Retailer.
Net book values of property and equipment increased by P902 million or 6.9% from P13,132
million in Dec. 2014 to P14,034 million in Dec. 2015. This was due principally to capital
expenditures pertaining to new stores established during the period.
Intangibles increased by P1,504 million or 8.3% from P18,017 million in Dec. 2014 to P19,512
million in Dec. 2015 due to goodwill recognized resulting from acquisition of 9 NE
supermarkets in Feb. 2015 and 8 Budget lane stores in Aug. 2015.
Other noncurrent assets increased by P161 million or 12.9% from P1,245 million in Dec. 2014
to P1,406 million in Dec. 2015. This was primarily due to increase in advance rent and
deposits made in relation to new leases acquired for the establishment of new Puregold
organic stores.
Current Liabilities
As at Dec. 31, 2015 and 2014, total current liabilities amounted to P14,606 million or 24% of
P771 million or 5.6%
settlement of trade and nontrade liabilities as at the end of Dec. 2015.
28
Loans payable increased by P1,774 million or 130.1% from P1,364 million in Dec. 2014 to
P3,138 million in Dec. 2015 due to additional availment of short term loans during the period
intended to augment general working capital requirements.
Income tax payable increased by P99 million from P660 million in Dec. 2014 to P759 million
in Dec. 2015 due to recognition of tax liabilities due for the year related to income earned
during the year ended Dec. 31, 2015.
Due to related parties amounted to P30 million and P27 million for the year ended Dec. 2015
and 2014, respectively. This pertains to royalty fees.
Current maturities of long-term debt decreased by P393 million due to settlement made as
at Dec. 31, 2015.
Other current liabilities decreased by P30 million or 8.5% from P357 million in Dec. 2014 to
P327 million in Dec. 2015 relatively due principally to redemption of PERKS points earned by
members and recognition of other income from promotions for the period.
As at Dec. 31, 2015 and 2014, total noncurrent liabilities amounted to P5,824 million or 9.9%
of total assets, and P5,598 or 10.4% of total assets, respectively, for an increase of P226
million or 4.0%
Noncurrent accrued rent increased by P424 million or 20.5% from P2069 million in Dec. 2014
to P2,493 million in Dec. 2015 due to recognition during the year of additional allocated rent
expense and related liabilities pertaining to the remaining lease period covering long-term
operating lease contracts entered into the Parent Company and its subsidiaries in
compliance with PAS 17 – Leases.
Deferred tax liabilities net of deferred tax assets by P146 million or 22.7% due to increase in
deferred tax assets arising from accrual of rent expense and recognition of retirement
liability.
29
Equity
As at Dec. 31, 2015 and 2014, total equity amounted to P38,413 million or 65.3% of total
assets and P34,233 million or 63.8% of total assets, respectively, for an increase of P4,180
million or 12.2% as at the end of the year.
Re-measurements of retirement liability - net of tax pertain to adjustments made in

compliance to new accounting standard covering employee benefits. As at Dec. 2015, the
account increased by P41 million due to unrealized gain on re-measurement of defined
benefit liability.
Treasury stock increased by P36 million due to reacquired shares during the year pursuant to
the parent company’s share buy-back program.
Current Assets
As of December 31, 2014, and 2013, total current assets amounted to P20,481 million or
Cash and cash equivalents as of December 31, 2014 amounted to P6,758 million or 12.6% of
total assets and decreased by P1,460 million or 27.5% compared to previous year-end
balance. Net cash utilization was attributable to increase in cash generated from operations
net of settlement of trade and non-trade liabilities, payment of income taxes, payment for
2013 cash dividends and capital expenditures for 2014 new organic stores.
30
Short-term investments pertain to a 90-day placement with a commercial bank which
already mature as of December 31, 2014.
Receivables net of allowance for impairment losses amounted to P1,946 million as of
December 31, 2014 or 3.6% of total assets, with an increase of P729 million or 59.9% from
P1,217 million in December 2013. The increase was due to increase in sales during the year.
Investments in trading securities amounted to P37 million as of December 31, 2014 from P29
million in December 2013, with an increase of P9 million or 29.7% coming from unrealized
gain on change in fair market values.
Merchandise inventory amounted to P11,167 or 20.8% of total assets at the end of
December 2014. Total inventory increased by P1,725 million of 18.3% principally due to
stocking requirements of existing and new operating stores
Prepaid expenses and other current assets decreased by P446 million or 43.8% at the end of
December 2014, due to application of input vat against output vat payable.
Noncurrent Assets
As of December 31, 2014, and 2013, total noncurrent assets amounted to P33,185 million or
Investments increased by P352 million or 80.0% from P440 million in December 2013 to
P792 million in December 2014. This was due to equity investments made by the Parent
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Company in September 12, 2014 in a joint venture company, PG Lawson Company, Inc.,
established pursuant to a joint venture agreement with Lawson Asia Pacific Holdings PTE.
LTD. and Lawson, Inc. for the establishment and operations of Lawson convenience stores in
the Philippines.
Net book values of property and equipment increased by P618 million or 4.9% from P12,513
million in December 2013 to P13,132 million in December 2014. This was due to additional
capital expenditures made for new organic stores established during the period.
Other noncurrent assets increased by P79 million or 6.7% from P1,167 million in December
2013 to P1,245 million in December 2014. This was primarily due to increase in security
deposits in relation to new leases acquired for operation of new organic stores.
Current Liabilities
As of December 31, 2014, and 2013, total current liabilities amounted to P13,835 million or
25.8% of total assets, and P12,882 million or 26.0% of total assets, respectively, for a
decrease of P953 million or 7.4%
settlement of trade and nontrade liabilities and payment of cash dividend to stockholders.
Income tax payable increased by P99 million from P561 million in December 2013 to P660
million in December 2014 due to recognition of tax liabilities incurred net of settlements
made during the period.
32
Trust receipts payable decreased by P17 million due to settlement made on all outstanding
liabilities for purchases made for goods covered under the trust receipts agreement.
Current maturities of long-term loans net of debt issue cost increased by P963 million due to
reclassification of long-term loans that falls due within 1 year.
Other current liabilities increased by P55 million or 18.3% from P302 million in December
2013 to P357 million in December 2014 relatively due to recognition of VAT payable and
promo funds during the period from various suppliers.
As of December 31, 2014, and 2013, total noncurrent liabilities amounted to P5,598 million
or 10.4% of total assets, and P6,157 million or 12.4% of total assets, respectively, for a
decrease of P559 million or 9.1%
Noncurrent accrued rent increased by P469 million or 29.3% from P1,599 million in
December 2013 to P2,069 million in December 2014 due to recognition of rent expense for
lease contract entered into by the Parent Company and its subsidiaries in compliance with
PAS 17 – Leases.
Long term loans net of current maturities and debt issue cost decreased by P959 million or
27.8% due to current maturities reclassified under current liabilities.
increase in deferred tax assets arising from accrual of rent expense.
33
Retirement benefit liability increased by P108 million or 37.6% from P287 million in
December 2013 to P394 million in December 2014 due to recognition of obligation incurred
based on the latest independent actuarial report in accordance with PAS 19 – Employee
Benefits.
Equity
As of December 31, 2014, and 2013, total equity amounted to P34,233 million or 63.8% of
3,647 million or 11.9% as of the end of the year.
Remeasurement of retirement liability – net of tax pertains to adjustments made in
compliance to new accounting standard covering employee benefits. As of December 2014,
the account decreased by P39 million due to unrecognized actuarial loss during the year.
earned net of cash dividend declared during the year.
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d. Trend Analysis
2017 2016 2015 2014 2013

Net Sales 170.12% 153.86% 115.74% 86.40% 100%
Cost of Sales 171.69% 155.51% 115.64% 86.47% 100%
Operating Expenses 164.21% 145.06% 114.77% 87.13% 100%
Other Income (Expenses) -219.67% -82.79% -16.39% -610.00% 100%
Income Before Tax 150.36% 141.98% 115.82% 86.34% 100%
Income Tax Expense 147.87% 147.87% 119.79% 83.48% 100%
Net Income After Tax 151.38% 139.58% 114.20% 87.57% 100%
2017 2016 2015 2014 2013

Total Current Assets 180.28% 158.82% 117.00% 85.47% 100%
Total Noncurrent Assets 124.24% 117.00% 103.31% 96.79% 100%
Total Current Liabilities 151.07% 124.69% 107.40% 93.11% 100%
Total Noncurent Liabilities 65.63% 99.84% 90.92% 109.99% 100%
Total Equity 156.81% 141.15% 111.92% 89.35% 100%
35
e. Altman Z-score Formula
Ratios Weights 2017 2016 2015 2014 2013

EBIT/Total Assets 3.3 0.4 0.41 0.4 0.39 0.36
Net Sales/ Total Assets 1 1.74 1.72 1.65 1.58 1.47
Equity/ Total Liabilities 0.6 1.22 1.17 1.13 1.06 0.96
Working Capital (CA-CL)/ Total
1.2 0.2 0.22 0.17 0.15 0.11
Assets
Retained Earnings/ Total Assets 1.4 0.48 0.42 0.35 0.28 0.2
Z-Score 4.04 3.94 3.7 3.46 3.1
The Z-score formula for predicting bankruptcy was published in 1968 by Edward I.
Altman. The formula may be used to predict the probability that a firm will go into
bankruptcy within two years.
The Interpretation of Z-Score:
Z-SCORE ABOVE 3.0 – The company is safe based on these financial figures only.
Z-SCORE BETWEEN 2.7 AND 2.99 - On Alert. This zone is an area where one should exercise
caution.
Z-SCORE BETWEEN 1.8 AND 2.7 – Good chances of the company going bankrupt within 2
years of operations from the date of financial figures given.
Z-SCORE BELOW 1.80 – Probability of Financial embarrassment is very high.
36
VI. AREAS OF CONSIDERATION
37
STRENGTHS
 Strong Brand Recognition
Puregold is known as a brand with relatively low prices with the quality product. It has
strong consumer relationship through quality service, discounts and promos. It is also one of
the biggest hypermarket in the Philippines. The company had also been awarded as one of
the best companies to work for in Asia 2018 by the HR Asia.
 Many branches located strategically
As of 2017, Puregold has a total of 309 stores operating in the Philippines. All of these
branches are located strategically to be accessible towards the company’s customers. The
company assess through informal market research whether a proposed store will be within
the catchment area of, and easily accessible by its target customers.
 Multi-format stores
One of Puregold’s strengths is its business model in which they establish different format
of stores appropriate for specific areas. They have different type of stores for different
customers. Through these multi-format stores and careful analysis and selection of location,
they increase their revenue and establish strong relationship towards its customers.
 Not highly levered
Puregold is a company that is not high levered, in terms of operation and financially. This
is an indication that the company has little debt relatively to its asset. It is also an indication
that there is less risk in the company. The company can also satisfy its debt obligations.
38
WEAKNESSES
 Slow growth in net income
Puregold price club is experiencing slow growth in net income. This is evident because in
2013 to 2014, the net income of the company grew by 14.2% but in 2015, it became only
10.6%, then in 2016 by 10.5%, then dropped down to 8.5% of growth by the year 2017.
 Fewer branches in Visayas and Mindanao region
Puregold price club has many branches in Luzon, but not in the Visayas and Mindanao
region. In 2014, Puregold only had 1 branch in Visayas and 5 branches in Mindanao. Three
years later, in 2017, they only have 20 branches in Visayas and 8 branches in Mindanao. The
growth of expansion in these region is slow compared to the growth in Metro Manila and in
other parts of Luzon.
 Decreasing inventory ratio
Inventory ratio is the measure of how inventory is managed by comparing cost of goods
sold with average inventory. A decreasing ratio only implies that efficiency in inventory
management is decreasing. From 7.53 in 2013 the ratio dropped to 6.07 in 2017.
 Limited product assortment
Product assortment is a key factor of a business, especially for a business like Puregold
where they try to be a one-stop shop, customers might not find the products they are
searching for. Puregold has more than 25,000 SKU (stock keeping unit), while comparing to
39
their leading competitor, which is SM, having more than 150,000 SKUs. Compared to SM,
Puregold has very limited product assortment.
OPPORTUNITIES
 6.8% increase in GDP of the Philippines
Strong government and household consumption drove the Philippine economy to grow
by 6.8% in the 1st quarter of the year, despite a slower agricultural output, higher inflation,
and wider trade deficit. National Statistician Lisa Grace Bersales announced on Thursday,
May 10, that the gross domestic product (GDP) grew by 6.8% from January to March 2018.
This is the 10th consecutive quarter that the economy grew by 6.5% or better. This is slightly
higher than the 6.4% growth in the same period a year ago, and 6.5% in the last quarter of
2017. This placed the country's growth pace outside the government's full-year target of 7%
to 8%. (Rappler, 2018)
 1.55% population growth rate
Population growth is relative to increase in GDP. Higher population means a higher
demand and consumer spending and a higher workforce that will facilitate the production in
the economy. Thus, increase in GDP will be inevitable. A higher demand for the retailers,
especially for the basic needs they provide.
40
 Decreases of Unemployment rate from 5.7% to 5.5%
Unemployment rate in the Philippines dropped to 5.5 percent in the June quarter of
2018 from 5.7 percent a year ago. The number of unemployed persons went down by 83
thousand to 2.36 million.
 Internet penetration now stands at around 63% percent out of 105.7 million
Filipinos
Information and communications technology (ICT) plays a crucial role towards our
nation's development. The median age of people using the internet is 24. The Millennial who
grew up as digital natives. The mobile Internet penetration rate is growing at a rate of 1.5x
(or 30 million users) every year, consuming about 150k terabytes of data annually. There are
now 47 million active Facebook accounts and it is the fastest growing app market in
Southeast Asia. In addition, E-commerce is gaining ground: 5 in 10 have recently bought
something through their phone (games, music, apps, services, and physical items); Media
streaming services such as Netflix, Spotify and HOOQ are also fast gaining popularity;
Filipinos are starting to open up to a sharing economy, fueled by platform-powered services
such as Uber, Grab, and AirBnB. Currently, we have one of the highest digital populations in
the world. The Internet audience's growth rate shows no signs of slowing down either.
(Rappler, 2018)
41
 Ease of entry in mom and pop’s store, small, and medium convenience store.
Puregold has this customized, holistic membership program which allows sari-sari store
owners and other business owners to increase potential net earnings (Puregold, 2018). The
cost of setting a sari-sari store is quite inexpensive, with averagely P10, 000 needed
depending on how much work is to be done. With 35% of Puregold’s sale contributing to
TNAP members, which ranges from small to medium sized stores, Puregold can improve
their program.
 Internet penetration now stands at around 63 percent out of 105.7 million Filipinos
Information and communications technology (ICT) plays a crucial role towards our
nation's development. The median age of people using the internet is 24 - the millennials
who grew up as digital natives. The mobile Internet penetration rate is growing at a rate of
1.5x (or 30 million users) every year, consuming about 150k terabytes of data annually.
There are now 47 million active Facebook accounts and it is the fastest growing app market
in Southeast Asia. In addition, E-commerce is gaining ground: 5 in 10 have recently bought
something through their phone (games, music, apps, services, and physical items); Media
streaming services such as Netflix, Spotify and HOOQ are also fast gaining popularity;
Filipinos are starting to open up to a sharing economy, fueled by platform-powered services
such as Uber, Grab, and AirBnB. Currently, we have one of the highest digital populations in
the world. The Internet audience's growth rate shows no signs of slowing down either.
(Rappler, 2018)
42
THREATS
 Tax Reform and Acceleration and Inclusion (TRAIN Law)
The new law also raised duties on fuel and sugar-sweetened drinks. All we know, when
the price of fuel rises, the price of goods also rise because fuel is used for transportation of
the goods. Due to this reform, the price of the goods in the market is relatively high compare
in the latter.
 Increase in local competition
The local retail scene has never been as competitive as today. It currently accounts for
about one-fifth of our country’s total economic output, having been ranked 16th among the
developing economies on A.T. Kearney’s 2016 Global Retail Development Index (from rank
24th in 2015). The industry is also continuously being forecast to have a stable to positive
growth outlook in the coming years until 2020. Competition can be either be direct or
indirect. The intensity of that competition will affect the overall potential for success. Some
consumer prefer buying stuff and commodities in mini supermarkets or convenient stores
rather than going to big supermarket. (Dinio, 2017)
 6.4% increase in inflation
The inflation rate has been registering a faster pace every month since the
implementation of TRAIN law in January 2018. High inflation rate can also have unexpected
side effects; it can negatively affect current exchange rates and bring about an export slump.
43
Latest data from PSA showed that the movement of prices surged to an increase of 6.4%.
Higher price increases were noted for rice, corn, fish, fruits and vegetables.
 Sensitivity to Price Changes
Puregold Price Club Inc. sells consumer goods, which price may be affected by some
factors. An example of this are customers. Pricing is affected on how the customers shall
react, or how they perceive the value of the certain products. Another factor is how much
competitors sell the same products. Lastly, price is affected by the economy and government
laws and regulations. Some regulations may affect price as to tax changes, and other policies
affecting businesses.
VII. ASSUMPTIONS
1. All accounts will increase according to the trend derived from years 2013-2017.
2. The increase in demand will continue as projected.
3. The aggressive growth strategy of the company will still be undertaken.
4. The result on the Altman Z-score projection for 2017 will further increase in the
following years.
44
VIII. ALTERNATIVE COURSES OF ACTION AND ANALYSIS
ACA No. 1: Bundling of variety of products
ADVANTAGES:
a. Increase unit sales volume
Through bundling of products, it can influence the buying decisions of a
consumer. Most of the consumers prefer buying a group of products at a lower price
than the sum of the prices of individual items. It may conclude that bundled products
may possibly increase the net sales of the company.
b. Exposure to new products
Due to product bundling, a company can market its less known product to
customer and can create demand for that product which in turn will create the extra
source of revenue for the company.
c. Clear out overstock or slow-selling products
The company may decrease the number of slow-selling products through this
alternative course of action. It may also lessen the number of spoilage cost of the
company specifically in products that can easily perished.
45
DISADVANTAGES:
a. Providing sales discounts
One limitation of product bundling is that company has to give some
discounts for the bundled products. Through that circumstance, it may lead
company’s revenue to decrease.
b. Bundled products as inferior products
The demerit of product bundling is that sometimes customers view bundled
products as inferior products. They consider bundled products to sell their outdated
products along with the main products which can turn away some customers
towards the company’s competitors. This may lead to decrease in sales of the
company as well as bad reputation for the company.
ACA No. 2: Improving online grocery store by launching it to their ordinary customers
ADVANTAGES:
a. Increase market share
46
Once the Puregold has also launched their online grocery store, there will be a
wide range of customers or larger customer base that will increase their sales and
eventually increase their market share. Due to the improved online grocery store, there
would be a high retention of customer that will induce more customer to buy that will
create more sales and profit to the company.
b. Compete with the increasing competition in the industry they operate
Since grocery retail stores are highly competitive, Puregold must adapt with the
changing trend in business. Also, its main competitors have joined the E-revolution, they
will be able to compete well by means of launching their own online grocery store.
c. Increase shopping convenience of customers
The main attraction for shopping online is its convenience. The customer can save
time and energy in going to grocery store by shopping online. This is also in line with
their mission of being the most customer-oriented hypermart.
d. Increase inventory turnover
Since online grocery store attracts more customers to shop, it may improve sales
and increase cost of goods sold and also utilize their inventories so that it can reduced its
inventory end. This eventually increases their inventory turnover.
e. Can easily track customers’ demand and preferences
47
Since, it is online, it is much easier to track the customers’ most-bought product
and those that are not that popular or not that often bought by the customers. In turn,
this may also help them as to which inventories to buy the most.
DISADVANTAGES:
a. Additional expenditure
Since the company are engaging in the online grocery store, the company should
invest on vehicles to be used on shipping the ordered goods and website cost which are
investment in online business. The management should consider this in their financing
decisions. This entails additional expenditure for the company.
b. Unsatisfied Customers
A customer has to buy a product without seeing actually how it looks like.
Customers may click and buy some product that they think is good but when the product
arrived, they may not meet their expectation of the product. Failure to satisfy the
customers may result to a decrease in sales transaction.
c. Additional Overhead Cost
Engaging on online business the company will incur additional overhead costs that
may lower the company’s profit like delivery expense, salary for the drivers and
increased depreciation because of increased vehicles. Fictitious customers may also arise
that may cause unnecessary costs of delivering the goods to this fictitious.
48
ACA No. 3: Selling through Puregold Panalo Truck
ADVANTAGES:
a. Provides easy access to consumers
This course of action may provide convenience to consumers and brings better
access to areas that not penetrated by Puregold specifically on Visayas and Mindanao. By
bringing the stores through their places it can help the consumers to save their time and
efforts instead of dropping to stores. This action may give an advantage to the company
because through this, grocery truck may increase their market share as well as their sales
and income.
b. Attracts new customers
Setting out to gain new customers may enhance the connection between the
consumers and the company. Grocery truck may create new marketing channel that is
essential when inviting other consumer to buy and patronize the company’s product and
services. It may provide additional growth in the company’s net income.
c. Increase in sales and net income
Grocery Truck may generate a high volume of sales to make an increase to their sales
and income. Getting into new and unique kind of business strategy like having a grocery
truck will encourage consumers to go on a new trend. When the company is in new
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trend there is a higher possibility that the company may earned an increase in sales and
net income.
d. Increase in inventory turnover
A decreasing inventory indicates that the company is not converting its inventory into
cash as quickly as before. When this occurs, the company ends up having increased
storage, insurance and maintenance costs. It may increase their inventory turnover if
they convert their inventory quickly compared to their previous years.
DISADVANTAGES:
a. Limited Space inside the truck
A typical-sized truck does not have a lot of spaces in it, therefore it will be restricted
as to the amount of staff that it can operate impacting the speed of service to customers
and the amount of revenue it can earn. Moreover, it will be constrained as to the volume
of stocks it can carry hence, it will inadequately serve the customer’s order.
b. Cost
In order to have grocery truck, the company should have enough amount of money
to acquire and comply with the requirements. Purchasing of trucks to be used as a
mobile grocery stores can be expensive considering the costs that will be incurred such
as legal costs particularly permits, licenses, and insurance cost; customization cost of the
interior of the truck where goods are to be placed; and maintenance cost and fuel that
will be utilized for its day-to-day operations.
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c. Access can be Difficult
Some events might be in places that grocery store trucks might find difficult to get
into or out of such as roads that are rocky, narrow, or steep that will affect the form and
the arrangement of the products it carries. Access can also be difficult to some places
due to the traffic condition especially in Metro Manila.
d. Safety and Security
Grocery store on wheels is risky. Safety on the road is unpredictable and is prone to
accidents and calamities such as landslides and typhoons. In addition, maintaining the
security of the grocery truck is also precarious because of the fortuitous event made by
humans like theft.
IX. Decision Matrix
Legends:
5 – Least risky, easiest to implement, most beneficial, most effective and quickest to
respond to the statement of the objective
1 – Most risky, hardest to implement, least beneficial, less effective and slowest to
respond to the statement of the objective
ACA 1: Bundling of variety of products
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Risk (27%) 4 1.08
Ease of Implementation (7%) 4 .28
Cost-Benefit (20%) 4 .80
Effectiveness (33%) 3 .99
Response Time (13%) 3 .39
TOTAL 18 3.54
Bundling of variety of products is less risky because it will increase the sales discount.
Offering sales discount on bundled products is a minor sacrifice yet the company will benefit
more from this course of action due to an increase in sales volume. From this, the company
will be able to maintain or increase its revenue.
As for the ease of implementation, product bundling is easy to carry out because the
company will combine supplementary products. It is placid to execute because the products
to be bundled are already existing and available in the stores. This will make the customers
buy the bundle.
Bundling is cost-beneficial because the company will not incur additional cost to do
this course of action but they may have to suffer from sales discounts since bundling of
products have an implied discount.
With regards to effectiveness, product bundling is an effective and efficient way to
decrease the number of slow-selling products because it can influence the buying decisions
of a consumer and market its less known product to customer and can create demand for
that product which in turn will create the extra source of revenue for the company.
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According to consulting firm Collabera, product bundling can boost sales by 15 to 30 percent
which will reflect the sales in the financial statements of the company.
Product bundling instantly affects the inventory control. Getting rid of excess or
obsolete stock without simply disposing it or passing it on to charity can be difficult and may
not be financially beneficial for the Company. Product bundling is a good way to get
customers to buy fast-moving items with less popular products, while still making a sale. This
way, you can offset any loss caused by excess stock, facilitating successful inventory control.
The company will be providing product bundling not on a seasonal basis but on a regular
basis.
ACA No. 2 Improving online grocery store by launching it to their ordinary customers
Risk (27%) 3 0.81
Ease of Implementation (7%) 4 0.28
Cost-Benefit (20%) 3 0.60
Effectiveness (33%) 3 0.99
Response time (13%) 2 0.26
Total 15 2.94
TNAP members have experienced the online grocery store of Puregold Price Club Inc.
It has been exclusively for TNAP members. Opening it to ordinary customers shall bring new
service for them to enjoy, but this comes with a risk. The company shall risk serving fictitious
customers and fake orders. It may also incur additional costs in implementing this action.
Though it may improve inventory turnover and increase sales, the costs it bears may
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outweigh the benefits. This may be mitigated by strict screening and internal control, but
doing so may lead again to additional costs. Opening to ordinary customers is a breeze to
Puregold since it is already serving its TNAP or Tindahan ni Aling Puring members.
This strategy will grab the opportunity of increasing internet penetration as more
people uses the internet and also its competitors have entered in the E-revolution. Its
current website should be improved as to cater not only its TNAP members but also its
ordinary customers.
Though there are increasing online shoppers, the demand for online shopping of
groceries are not yet that high. So the response time for this action may not be that fast.
Though, the effectiveness of the online grocery may be proven after some time of its
implementation. Factors that influence the importance of this strategy is product
uncertainty, retailer visibility and logistics services in customers' online purchase decisions.
Puregold already has an application of online grocery for TNAP members, thus,
implementing this to their ordinary customer shall be easy enough because of there will only
be improvements in their existing website. The website shall have more visitors but with
improvements of better UI and design, it shall cater the needs of more customers.
ACA No. 3 Selling through Puregold Panalo Truck

Risk (27%) 2 .54
Ease of Implementation (7%) 4 .28
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Cost-Benefit (20%) 3 .60
Effectiveness (33%) 3 .99
Response Time (13%) 3 .39
Total 15 2.8
The implementation of this grocery store is more risky because the safety on the
road is unpredictable and is prone to accidents and calamities. In addition, maintaining the
security of the grocery truck is also precarious because of the fortuitous event made by
humans like theft.
In analyzing the ease of implementing this action, the company may certainly
established the company’s name throughout the area. The execution of the grocery truck is
definite to happen knowing their capability to grow in the industry is already proven. With a
well-established name, Puregold is surely to attract customers especially those who doesn’t
want to leave the comfort of their homes. It is also an ease of implementing since trucks
shall be making routes on specific places.
The cost and benefit relation of investing in trucks shall be somewhat in the middle
ground. Firstly, new trucks shall be purchased and the customized in order to meet the
required format of the operation. Secondly, the company will incur additional depreciation
expense which shall effect their net income. Lastly, additional repairs and maintenance
expense shall be incurred. Though this cost shall be incurred, implementing this shall
increase additional sales.
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The effectiveness of this strategy is on a neutral side. This won’t be too effective
because not every day there will be people buying from that truck but this strategy can
increase the inventory turnover by shifting the company’s product to other geographical
locations.
Our objective is to enhance the utilization of company’s inventories and resources.
This strategy’s time response to objective is neutral because the company may moderately
utilize their resources and inventories in a given time period. With the reason that the
consumers will not buy the products daily.
X. CONCLUSION
Based on our financial analysis, the researchers have found out that its inventory turnover
has a decreasing trend from 2013-2017. This decrease is caused by their aggressive store
expansion that resulted from more inventory build-up since they also have more stores. The
decrease in the inventory turnover means that they become less efficient in utilizing their
inventories.
In order to mitigate this issue, Puregold may do product bundling where they will put in
one package the products that are not that popular and are less bought by customers to
products that are often bought by the customers in order to prevent stagnant products or
even wastage of products. Another action that they may resort is to launch their online
grocery store to their ordinary customers and not only to TNAP members. Last one is to
launch the “Puregold Panalo Truck”, it is a roaming grocery store in a truck that will mainly
56
focus in the Visayas and Mindanao region, but still there will also be similar service in the
Luzon area.
After we identify these alternative courses of action and evaluated it, the researchers
reached the conclusion of providing product bundling regularly and not just seasonally. This
is to augment the decrease in the Company’s inventory turnover due to inventory build-up
and stagnant inventories that are not often sold because the customers do not buy these
products often. This strategy has the lesser risks, deemed effective, it is not that costly but
beneficial, good response time and easy to implement.
XI. RECOMMENDATION
To prevent the decrease in inventory turnover even though they still continue on their
aggressive growth strategy, the best option is to have product bundling to reduce their
inventory ending and increase sales which will also increase the cost of goods sold. This will
also improve the company’s reputation as they will be known to provide customers of
discounts when they buy in bundles, not just seasonally but regularly. It will be
advantageous not just for the company but also to their customers. Aside from this, this will
also beneficial to the suppliers of those product that are not popular since through bundling
those products may be put in a package with those products that are often bought. Puregold
will be able to help raise brand awareness for these products.
XII. GENERAL PLAN OF ACTION
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ACTIVITIES PEOPLE INVOLVED DATE
Board meeting with CEO, Board of 1st week of January
the following agenda: Directors, 2018
 Inventory Department Heads
Management
 Marketing of
Product Bundling
 Effect in Sales
 Implementation
of the strategy
Planning and setting Operations and 2nd week of January
of products that are Marketing 2018
available in the store Department
to be combined
Bundling of assigned Operations 3rd week of January
products and Department 2018
placement in the
store
Supervision Operations 4th week of January
Department 2018
Initial Customer Operations st
1 week of March
satisfaction test Department 2018
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Increasing Puregold's Inventory Turnover

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I.

VIEWPOINT: Antonio Delos Santos, National Operations Manager (NOM)

II. TIME CONTEXT: 2017

III. PROBLEM STATEMENT

Decreasing inventory turnover due to aggressive growth strategy

IV. STATEMENT OF THE OBJECTIVE

ratio, sales and cost of goods sold

V. TOOLS FOR ANALYSIS

2013 2014 2015 2016 2017

Current ratio Current asset

Quick (acid-test) ratio Current assets - Inventory

benchmark. The Puregold current ratio for 2017 is 1.62:1.

industry, there’s a high reliance on the inventory to generate cash.

2013 2014 2015 2016 2017

Inventory turnover Cost of goods sold

Average collection period Accounts Receivable

Average payment period Accounts payable

Total asset turnover Sales

company ends up having increased storage, insurance and maintenance costs.

low average collection period indicates that Puregold’s collection on receivables is

faster compare to other companies with the same industry.

1.9 billion pesos in 2017.

trading securities, advance payments related to putting up new stores, acquisition of

Lawson Company, Inc.

2013 2014 2015 2016 2017

Debt ratio Total liabilities

company’s debt to equity ratio fluctuates from 2013 to 2017.

interest rates per annum ranging from 2.375% to 3.50%.

2013 2014 2015 2016 2017

Earnings available for

Earnings per share Earnings available for

Return on total assets Earnings available for

Return on common Earnings available for

any changes, it was so minimal.

to fund their expansions.

assets has also increased.

shareholder’s common stock equity.

2013 2014 2015 2016 2017

Price/earnings (P/E) Market price per share of

Market/book (M/B) Market price per share of

than its book value.

b. Statement of Comprehensive Income – Horizontal and Vertical Analysis

2017 2016 2015 2014 2013

Gross Profit 16.6% 16.5% 17.0% 17.4% 17.4%

Gross Income 19.4% 19.4% 19.9% 20.5% 20.4%

Operating Income 6.9% 7.2% 7.4% 7.6% 7.5%

Net Income Before Tax 6.7% 7.1% 7.3% 7.6% 7.6%

Net Income After Tax 4.8% 5.0% 5.1% 5.3% 5.4%

during the same period.

Other Operating Income

of acquired stores and operation of new stores.

Other Expenses – net

net loss of joint venture operations.

costs controls on operating expenses at its current level.

Comparative of 2016 and 2015

during the same period.

Other Operating Income

Other Expense – net

joint venture operations.

costs controls on operating expenses at its current level.

Comparative years 2015 and 2014

during the same period.