FINANCIAL STATEMENT

ANALYSIS
BY CANDHYSS SHANE MALLA
 Critical Profit Margins Impelled by High Raw Material
Figure 1: Profitability Ratios Cost
20.0% 160,000,000

JFC's sales are increasing on a 6-year average (FY 2012-

15.0% 120,000,000
FY 2017) year-on-year growth of 13.16%, driven by new
10.0% 80,000,000
stores (PPE). Despite strong sales growth, profitability
5.0% 40,000,000 figures fall short to the industry and sector average. For
0.0% - instance, regardless of the company’s expense efficiency
2012 2013 2014 2015 2016 2017
effort in FY 2014-2015 with a sudden drop of 15.97% from
Sales NPM OPM GPM
19.19%, the company reached its lowest NPM of 5.01% in
FY 2015. This was mainly attributed to rising raw material
Figure 2: Asset Turnover
prices caused by increasing inflation rate. Other causes of
1.80x 25%
the plunge of 2015 net income include the acquisition of a
1.70x 20%
40% stake in US-based hamburger chain Smashburger,
1.60x 15%
and extra supply chain and logistics expenses. (See Figure
1.50x 10%
1)
1.40x 5%

1.30x 0%
Overexpansion Stuns TATO
2012 2013 2014 2015 2016 2017

Total Asset Turnover Sales Growth Asset Growth

JFC’s total asset turnover has continuously decreased, as
asset growth has significantly dominated sales growth
which signals overexpansion. Sales growth rate in 2014
Figure 3: Operating Leverage Risk
20% 3.60x has declined from 12.94% to 11.15%, while OPEX growth
rate increased from 9.52% to 19.19%. This should be an
15% 2.70x
indication that the business focus to utilize its assets in a
10% 1.80x
more efficient manner. (See Figure 2)
5% 0.90x
Volatile Operating Leverage Risking Profit Margins
0% 0.00x
2012 2013 2014 2015 2016 2017
Operating Leverage has gradually increased throughout
Operating Leverage Sales Growth OPEX Growth
the years, risking its operating margins in the case of
adverse situations such as a decrease in sales growth.
This has been the case of JFC as its OPEX growth has
exceeded its Sales growth. In 2017, sales has increased by
15.61% while OPEX has increased by 18.70%. As
mentioned, its operating income has been hit the most, as
seen in its OPM in Figure 1. (See Figure 3)
 Return on Equity Primarily Sensitive to TOTA
Figure 4: Du Pont Analysis
0.25 2.50
As forementioned, asset growth rate has increased
0.20 2.00
substantially compared to sales growth rate. This has
0.15 1.50
negatively affected JFC’s Total Asset Turnover, and
0.10 1.00
concurrently its Return on Equity. For instance, in FS 2014
0.05 0.50
despite the increase of its NPM to 6.05% from 5.88%, the
- 0.00
2012 2013 2014 2015 2016 2017 ROE has shown a decrease as the TATO dwindled from
ROE NPM Financial Leverage Asset Turnover
1.74x to 1.68x. (See Figure 4)

Slowly Creeping Up Debt Due to Overexpansion

Figure 5: Capital Structure and Leverage
1.20x
JFC’s debt ratio increased leisurely from FS 2012-2017. In
0.90x contrast, its capital structure spiked up to accommodate its

0.60x goal to expand operations and make substantial acquisitions

in the next few years. D/E in FS 2015 soared high from 0.93x
0.30x
to 1.04x, just as its asset growth rate rose up. Due to this,
0.00x
2012 2013 2014 2015 2016 2017 D/E ratios of FS 2015-2017 are higher compared to industry
Debt to Equity Debt Ratio average of 1.03x. This increases JFC’s risk of failure,
since it becomes more difficult to repay debt in the case
of adverse situations. Thus, making this a riskier choice
of investment for potential investors. (See Figure 5)
Financial Ratios 2012 2013 2014 2015 2016 2017
Solvency - Liquidity
Current Ratio 0.94 1.18 1.26 1.29 1.27 1.39
Quick Ratio 0.70 0.83 0.80 0.80 0.84 0.94
Cash Ratio 0.53 0.63 0.40 0.55 0.70 0.79
Solvency - Turnover
Receivables Turnover 25.84 26.04 11.90 18.55 33.70 33.39
AR Days 14.13 14.02 30.68 19.68 10.83 10.93
Inventory Turnover 22.22 18.34 12.35 15.13 15.50 15.75
Inventory Days 16.43 19.91 29.56 24.12 23.55 23.17
Payables Turnover 4.97 4.58 4.52 4.24 4.23 4.26
Payable Days 73.41 79.67 80.67 85.98 86.36 85.62
Cash Conversion Cycle (42.86) (45.75) (20.43) (42.18) (51.99) (51.51)
Operating Efficiency
Total Asset Turnover 1.70 1.74 1.68 1.56 1.56 1.47
Fixed Asset Turnover 6.43 6.82 6.78 6.93 6.83 6.30
Equity Turnover 3.38 3.56 3.33 3.29 3.39 3.23
Profitability
GPM 17.76% 18.68% 18.69% 17.75% 18.45% 18.18%
OPM 6.11% 7.39% 6.77% 5.31% 5.68% 5.07%
NPM 5.22% 5.88% 6.05% 5.01% 5.32% 5.07%
ROE 0.17 0.20 0.20 0.16 0.18 0.16
ROA 0.09 0.10 0.10 0.08 0.08 0.07
Risk Analysis - Business Risk
Debt Ratio 0.48 0.49 0.48 0.51 0.53 0.53
Operating Leverage 2.91 2.53 2.76 3.34 3.25 3.59
Financial Leverage 1.92 1.97 1.93 2.04 2.12 2.11
Risk Analysis - Financial Risk
Debt to Equity 0.92 0.97 0.93 1.04 1.12 1.11
Interest Coverage 13.13 20.09 20.90 15.19 14.93 11.69
DSCR 1.02 5.14 2.59 4.93 4.95 6.86
Du Pont
ROE 0.17 0.20 0.20 0.16 0.18 0.16
Financial Leverage 1.92 1.97 1.93 2.04 2.12 2.11
ROA 0.09 0.10 0.10 0.08 0.08 0.07
Asset Turnover 1.70 1.74 1.68 1.56 1.56 1.47
NPM 0.05 0.06 0.06 0.05 0.05 0.05
Net income/EBT 0.76 0.76 0.81 0.78 0.78 0.80
EBT/EBIT 1.12 1.05 1.10 1.20 1.20 1.25
EBIT/Sales 0.06 0.07 0.07 0.05 0.06 0.05

Sales Growth 0% 12.98% 12.94% 11.15% 12.93% 15.61%

OPEX Growth 0% 9.52% 19.19% 15.97% 15.94% 18.70%
Asset Growth 0% 10.20% 17.58% 19.67% 12.30% 23.45%
 Statement of Financial Position
Historical Results Horizontal Analysis Trend Analysis Common Size Analysis
2012 2013 2014 2015 2016 12-13 13-14 14-15 15-16 16-17 2012-2017 2012 2013 2014 2015 2016 2017
Assets
Current Assets
Cash and cash equivalents ₱ 8,848,592 ₱ 9,903,877 ₱ 7,618,473 ₱ 11,497,560 ₱ 16,733,346 11.9% -23.1% 50.9% 45.5% 26.1% 21.2% 21.5% 14.1% 17.8% 23.0% 23.5%
Receivables 2,750,341 3,082,873 7,621,193 5,432,776 3,376,702 12.1% 147.2% -28.7% -37.8% 16.7% 6.6% 6.7% 14.1% 8.4% 4.6% 4.4%
Inventories 2,629,744 3,560,432 5,971,814 5,478,416 5,987,346 35.4% 67.7% -8.3% 9.3% 14.2% 6.3% 7.7% 11.0% 8.5% 8.2% 7.6%
Other current assets 1,394,525 1,836,995 2,809,911 3,828,229 3,545,339 31.7% 53.0% 36.2% -7.4% 8.4% 3.3% 4.0% 5.2% 5.9% 4.9% 4.3%
Total Current Assets 15,623,202 18,384,177 24,021,391 27,169,166 30,368,735 17.7% 30.7% 13.1% 11.8% 22.3% 37.4% 39.9% 44.4% 42.0% 41.8% 41.4%
Noncurrent Assets
Available-for-sale financial assets 128,150 21,479 21,479 21,462 26,212 -83.2% - -0.1% 22.1% 13.9% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0%
Interests in and advances to joint ventures, co-ventures and associates 3,011,502 3,322,394 3,388,903 8,449,310 9,873,297 10.3% 2.0% 149.3% 16.9% -24.1% 7.2% 7.2% 6.3% 13.0% 13.6% 8.3%
Property, plant and equipment 11,059,464 11,772,441 13,363,567 14,547,152 16,655,567 6.4% 13.5% 8.9% 14.5% 25.4% 26.5% 25.6% 24.7% 22.5% 22.9% 23.3%
Investment properties 754,013 751,767 1,025,645 998,113 983,428 -0.3% 36.4% -2.7% -1.5% -13.7% 1.8% 1.6% 1.9% 1.5% 1.4% 0.9%
Goodwill and other intangible assets 8,837,559 9,103,637 9,385,110 9,412,134 9,086,742 3.0% 3.1% 0.3% -3.5% 73.1% 21.2% 19.8% 17.3% 14.5% 12.5% 17.5%
Operating lease recievables 22,560 21,267 21,089 12,517 25,995 -5.7% -0.8% -40.6% 107.7% 7.8% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
Derivative asset - - - 75,031 78,329 - - - 4.4% -84.7% - - - 0.1% 0.1% 0.0%
Deferred tax assets - net 685,822 756,197 751,965 1,408,489 2,585,495 10.3% -0.6% 87.3% 83.6% 51.2% 1.6% 1.6% 1.4% 2.2% 3.6% 4.4%
Other noncurrent assets 1,645,859 1,893,275 2,139,529 2,669,674 3,044,552 15.0% 13.0% 24.8% 14.0% 21.5% 3.9% 4.1% 4.0% 4.1% 4.2% 4.1%
Total Noncurrent Assets 26,144,929 27,642,457 30,097,287 37,593,882 42,359,617 5.7% 8.9% 24.9% 12.7% 24.3% 62.6% 60.1% 55.6% 58.0% 58.2% 58.6%
₱ 41,768,131 ₱ 46,026,634 ₱ 54,118,678 ₱ 64,763,048 ₱ 72,728,352 10.2% 17.6% 19.7% 12.3% 23.5% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Liabilities and Equity

Current Liabilities
Trade payables and other current liabilities ₱ 11,753,066 ₱ 14,249,926 ₱ 16,295,665 ₱ 19,527,046 ₱ 21,960,567 21.2% 14.4% 19.8% 12.5% 15.0% 28.1% 31.0% 30.1% 30.2% 30.2% 28.1%
Short-term debt - - 1,865,000 282,360 - - - -84.9% -100.0% - - - 3.4% 0.4% - -
Current portion of long-term debt 4,572,840 1,106,275 715,520 927,916 1,561,516 -75.8% -35.3% 29.7% 68.3% -22.1% 10.9% 2.4% 1.3% 1.4% 2.1% 1.4%
Current portion of liability for acquisition of businesses 216,368 107,667 32,906 94,852 - -50.2% -69.4% 188.3% -100.0% - 0.5% 0.2% 0.1% 0.1% - -
Total Current Liabilities 16,621,232 15,618,613 19,090,920 21,068,154 23,831,414 -6.0% 22.2% 10.4% 13.1% 12.0% 39.8% 33.9% 35.3% 32.5% 32.8% 29.7%

Noncurrent Liabilities
Noncurrent portion of long-term debt 854,616 4,062,970 4,428,013 8,790,712 10,593,850 375.4% 9.0% 98.5% 20.5% 40.7% 2.0% 8.8% 8.2% 13.6% 14.6% 16.6%
Noncurrent portion of liability for acquisition of businesses 151,204 129,008 101,064 - - -14.7% -21.7% -100.0% - - 0.4% 0.3% 0.2% - - -
Pension liability 521,578 932,841 832,390 1,466,530 1,658,178 78.8% -10.8% 76.2% 13.1% -10.2% 1.2% 2.0% 1.5% 2.3% 2.3% 1.7%
Operating lease payables 1,460,168 1,569,071 1,544,846 1,615,640 1,792,897 7.5% -1.5% 4.6% 11.0% 14.4% 3.5% 3.4% 2.9% 2.5% 2.5% 2.3%
Derivative liability 22,783 4,533 1,546 34,921 33,531 -80.1% -65.9% 2158.8% -4.0% 52.2% 0.1% 0.0% 0.0% 0.1% 0.0% 0.1%
Provisions 30,501 30,501 30,501 30,501 30,501 - - - - 2605.2% 0.1% 0.1% 0.1% 0.0% 0.0% 0.9%
Deferred tax liabilities 374,745 318,157 11,378 - 506,577 -15.1% -96.4% -100.0% - 134.7% 0.9% 0.7% 0.0% - 0.7% 1.3%
Total Noncurrent Liabilities 3,415,595 7,047,081 6,949,738 11,938,304 14,615,534 106.3% -1.4% 71.8% 22.4% 40.3% 8.2% 15.3% 12.8% 18.4% 20.1% 22.8%
Total Liabilities ₱ 20,036,827 ₱ 22,665,694 ₱ 26,040,658 ₱ 33,006,458 ₱ 38,446,948 13.1% 14.9% 26.7% 16.5% 22.8% 48.0% 49.2% 48.1% 51.0% 52.9% 52.6%
Equity
Less cost of common stock held in treasury 180,511 180,511 180,511 180,511 180,511 - - - - - 0.4% 0.4% 0.3% 0.3% 0.2% 0.2%
20,998,202 22,548,879 27,190,327 30,623,224 33,602,216 7.4% 20.6% 12.6% 9.7% 21.4% 50.3% 49.0% 50.2% 47.3% 46.2% 45.4%
Total Equity 21,731,304 23,360,940 28,078,022 31,756,590 34,281,404 7.5% 20.2% 13.1% 8.0% 24.2% 52.0% 50.8% 51.9% 49.0% 47.1% 47.4%
Total Liabilities and Equity ₱ 41,768,131 ₱ 46,026,634 ₱ 54,118,680 ₱ 64,763,048 ₱ 72,728,352 10.2% 17.6% 19.7% 12.3% 23.5% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
 Statement of Comprehensive Income
Historical Results Horizontal Analysis Trend Analysis Common Size Analysis
2012 2013 2014 2015 2016 2017 12-13 13-14 14-15 15-16 16-17 2012-2017 2012 2013 2014 2015 2016 2017
Revenue 0
Net Sales ₱ 67,493,954 ₱ 76,313,489 ₱ 86,209,778 ₱ 95,810,689 ₱ 107,924,454 ₱ 124,663,548 13.1% 13.0% 11.1% 12.6% 15.5% 95.0% 95.1% 95.1% 95.1% 94.8% 94.7%
Royalty and franchise fees 3,565,086 3,969,280 4,461,460 4,969,029 5,887,016 6,913,003 11.3% 12.4% 11.4% 18.5% 17.4% 5.0% 4.9% 4.9% 4.9% 5.2% 5.3%
71,059,040 80,282,769 90,671,238 100,779,718 113,811,470 131,576,551 13.0% 12.9% 11.1% 12.9% 15.6% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 58,435,499 65,284,763 73,727,792 82,891,701 92,815,488 107,658,140 11.7% 12.9% 12.4% 12.0% 16.0% 82.2% 81.3% 81.3% 82.3% 81.6% 81.8%
Gross Profit 12,623,541 14,998,006 16,943,446 17,888,017 20,995,982 23,918,411 18.8% 13.0% 5.6% 17.4% 13.9% 17.8% 18.7% 18.7% 17.7% 18.4% 18.2%
Expenses
General and administrative expenses 6,908,803 7,427,887 8,953,711 10,288,043 11,861,440 13,905,845 7.5% 20.5% 14.9% 15.3% 17.2% 9.7% 9.3% 9.9% 10.2% 10.4% 10.6%
Advertising and promotions 1,369,720 1,639,023 1,852,968 2,244,943 2,669,495 3,342,911 19.7% 13.1% 21.2% 18.9% 25.2% 1.9% 2.0% 2.0% 2.2% 2.3% 2.5%
8,278,523 9,066,910 10,806,679 12,532,986 14,530,935 17,248,756 9.5% 19.2% 16.0% 15.9% 18.7% 11.7% 11.3% 11.9% 12.4% 12.8% 13.1%
4,345,018 5,931,096 6,136,767 5,355,031 6,465,047 6,669,655 36.5% 3.5% -12.7% 20.7% 3.2%
Interest Income (Expense)
Interest income 270,114 245,574 242,045 257,783 286,913 259,567 -9.1% -1.4% 6.5% 11.3% -9.5% 0.4% 0.3% 0.3% 0.3% 0.3% 0.2%
Interest expense (206,013) (152,920) (152,471) (225,544) (267,618) (405,820) -25.8% -0.3% 47.9% 18.7% 51.6% -0.3% -0.2% -0.2% -0.2% -0.2% -0.3%
64,101 92,654 89,574 32,239 19,295 (146,253) 44.5% -3.3% -64.0% -40.2% -858.0% 0.1% 0.1% 0.1% 0.0% 0.0% -0.1%
Equity in Net Losses of Joint Ventures and an Associate (50,954) (115,561) (126,174) (189,086) (337,145) (282,645) 126.8% 9.2% 49.9% 78.3% -16.2% -0.1% -0.1% -0.1% -0.2% -0.3% -0.2%
Other Income - Net 503,535 337,325 659,304 1,236,757 1,582,923 2,098,753 -33.0% 95.5% 87.6% 28.0% 32.6% 0.7% 0.4% 0.7% 1.2% 1.4% 1.6%
Income Before Income Tax 4,861,700 6,245,514 6,759,471 6,434,941 7,730,120 8,339,510 28.5% 8.2% -4.8% 20.1% 7.9% 6.8% 7.8% 7.5% 6.4% 6.8% 6.3%
Provision for (Benefit from) Income Tax
Current 1,277,161 1,521,967 1,694,769 1,926,078 2,334,855 2,310,630 19.2% 11.4% 13.6% 21.2% -1.0% 1.8% 1.9% 1.9% 1.9% 2.1% 1.8%
Deferred (127,457) 741 (424,239) (537,470) (658,244) (643,702) -100.6% -57352.2% 26.7% 22.5% -2.2% -0.2% 0.0% -0.5% -0.5% -0.6% -0.5%
1,149,704 1,522,708 1,270,530 1,388,608 1,676,611 1,666,928 32.4% -16.6% 9.3% 20.7% -0.6% 1.6% 1.9% 1.4% 1.4% 1.5% 1.3%
Net Income 3,711,996 4,722,806 5,488,941 5,046,333 6,053,509 6,672,582 27.2% 16.2% -8.1% 20.0% 10.2% 5.2% 5.9% 6.1% 5.0% 5.3% 5.1%
Total Other Comprehensive Gain (Loss) (536,485) 71,636 177,974 (203,270) (190,974) 561,832 -113.4% 148.4% -214.2% -6.0% -394.2% -0.8% 0.1% 0.2% -0.2% -0.2% 0.4%
Total Comprehensive Income ₱ 3,175,511 ₱ 4,794,442 ₱ 5,666,915 ₱ 4,843,063 ₱ 5,862,535 ₱ 7,234,414 51.0% 18.2% -14.5% 21.1% 23.4% 4.5% 6.0% 6.2% 4.8% 5.2% 5.5%
 Historical Results
2012 2013 2014 2015 2016 2017
Cash Flows from Operating Activities
Income before income tax ₱ 4,861,700 ₱ 6,245,515 ₱ 6,759,471 ₱ 6,434,941 ₱ 7,730,120 ₱ 8,339,510
Adjustments for:
Depreciation and amortization 2,705,626 3,072,456 3,186,380 3,425,677 3,995,868 4,745,166
Gain from the re-measurement of the previously held interest - - - - - (1,328,733)
Interest expense 206,013 152,920 152,471 225,544 267,618 405,820
Accretion of debt issue cost - - - - - 3,274
Impairment losses on:
Receivables 97,559 11,206 35,433 325,908 91,415 143,772
Inventories - 9,367 2,577 11,049 78,621 7,443
Other assets - - - - - 122,759
Property, plant and equipment 53,677 (13,300) (60,647) - 42,731 431,939
Equity in net losses of joint ventures and an associate 50,954 115,561 126,174 189,086 337,145 282,645
Interest income (270,114) (245,574) (242,045) (257,783) (286,913) (259,567)
Deferred rent amortization 121,185 110,196 (24,048) 79,366 193,237 256,630
Stock options expense 76,984 150,419 166,491 173,212 241,324 227,483
Loss (gain) on divestment of subsidiaries and interest in joint venture - - - - (66,695) 116,207
Reversals of impairment losses on:
Receivables - - - (4,606) (3,188) (20,705)
Inventories - - - (12,047) (18,129) (53,819)
Property, plant and equipment - - - - (2,000) (2,111)
Loss (gain) on disposals and retirements of:
Property and equipment 318,631 446,159 156,615 136,747 236,809 174,510
Investment properties - - - - - (231,036)
Movement in pension liability 56,018 86,991 187,284 212,636 89,781 37,840
Provisions - - - - - 794,609
Net unrealized foreign exchange gain (30,893) (34,236) 6,320 (31,603) (79,314) (6,913)
Loss (gain) on movement in derivative assets - 4,343 - - (3,298) 129,371
Income before working capital changes 8,247,340 10,112,023 10,452,476 10,908,127 12,845,132 14,316,094
Decrease (increase) in:
Receivables (214,753) (324,828) (4,543,770) 2,269,040 2,299,070 (532,690)
Inventories 243,401 (940,056) (2,413,959) 494,396 (593,238) (715,127)
Other current assets 308,052 (447,087) (972,105) (1,510,843) 327,544 (229,836)
Increases in trade payables and other current liabilities 858,005 2,041,413 1,794,597 2,976,473 1,865,217 2,176,062
Net cash generated from operations 9,442,045 10,441,465 4,317,239 15,137,193 16,743,725 15,014,503
Net cash provided by operating activities ₱ 8,237,964 ₱ 9,219,500 ₱ 2,862,428 ₱ 13,485,112 ₱ 14,760,321 ₱ 12,843,628

Cash Flows from Investing Activities

Acquisitions of:
Property, plant and equipment (3,755,907) (3,907,876) (5,045,474) (4,596,787) (6,694,133) (8,904,796)
Intangible assets - (267,270) (318,737) (99,980) (23,706) (69,634)
Proceeds from disposals of:
Property, plant and equipment 41,767 50,663 291,196 46,049 92,730 362,288
Investment properties - - (277,485) - - 365,490
Subsidiaries - net - - - - 96,486 -
Net cash used in investing activities ₱ (3,883,708) ₱ (4,288,944) ₱ (5,798,024) ₱ (10,813,817) ₱ (10,076,799) ₱ (10,544,400)

Cash Flows from Financing Activities

Payments of:
Cash Dividends ₱ (2,274,367) ₱ (3,232,637) ₱ (1,560,658) ₱ (1,899,666) ₱ (1,988,082) ₱ (2,347,164)
Long-term debt (728,864) (3,149,352) (1,096,988) (734,360) (929,558) (1,607,623)
Short-term debt (900,000) - - (9,191,000) (282,360) -
Proceeds from:
Long-term debt 1,700,800 2,582,580 1,053,535 5,176,600 2,993,810 5,517,281
Issuances of and subscriptions to capital stock 301,597 210,908 657,387 435,029 368,620 861,125
Short-term debt - - 1,865,000 7,594,200 - -
Revolver
Net cash used in financing activities ₱ (2,168,993) ₱ (3,880,163) ₱ 644,654 ₱ 1,218,505 ₱ 550,540 ₱ 2,077,341

Net Increase (Decrease) in Cash and Cash Equivalents 2,185,263 1,050,393 (2,290,942) 3,881,528 5,234,062 4,376,569
Effect of Exchange Rate Changes on Cash and Cash Equivalents 8,016 4,892 5,538 (2,441) 1,724 (2,441)
Cash and Cash Equivalents at Beginning of Year ₱ 6,655,313 ₱ 8,848,592 ₱ 9,903,877 ₱ 7,618,473 ₱ 11,497,560 ₱ 16,733,346
Cash and Cash Equivalents at End of Year ₱ 8,848,592 ₱ 9,903,877 ₱ 7,618,473 ₱ 11,497,560 ₱ 16,733,346 ₱ 21,107,474