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Financial Case Study
Financial Case Study
I. COMPANY PROFILE
Historical Background
ABS-CBN Corporation (“ABS-CBN” or the “Company”) traces its roots from Bolinao Electronics
Corporation (BEC), established in 1946 as an assembler of radio transmitting equipment. In 1952, BEC
adopted the business name Alto Broadcasting System (ABS) and 7 setting up the country’s first television
broadcast by 1953. On September 24, 1956, Chronicle Broadcasting Network (CBN), owned by Don
Eugenio Lopez Sr. of the Lopez family, was organized primarily for radio broadcasting. In 1957, Don
Eugenio Lopez Sr. acquired ABS and on February 1, 1967, the operations of ABS and CBN were
integrated and BEC changed its corporate name to ABS-CBN Broadcasting Corporation. On August 16,
2010, the Philippine Securities and Exchange Commission (SEC) approved the change of Company’s
corporate name to ABS-CBN Corporation. This change is a reflection of the Company’s diversified
ABS-CBN achieved many firsts since it started the television industry in the country in 1953. However,
with the imposition of martial law in September 1972, ABS-CBN ceased operations as the government
forcibly took control of the Company. ABS-CBN resumed commercial operations in 1986 after the
Recovery after 14 years of absence was difficult as resources were scarce. Nevertheless, through
relentless effort, ABS-CBN recaptured leadership in the Philippine television and radio industries by
1988. During the 1990s and the early part of the new millennium, the Company expanded and ventured
into complementary businesses in cable TV, international distribution, mobile services, and magazine
Corporate Information
on July 11, 1946. On July 27, 1994, the Philippine Securities and Exchange Commission (SEC) approved
the extension of the corporate term of the Parent Company for another 50 years. The Parent Company’s
core business is television and radio broadcasting. Its subsidiaries and associates are involved in the
following related businesses: cable and direct-to-home (DTH) television distribution and
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telecommunications services overseas, movie production, audio recording and distribution, video/audio
post production and film distribution. Other activities of the subsidiaries include merchandising, internet
The Parent Company is 79%-owned by Lopez, Inc. a Philippine entity, the ultimate Parent
Company.
In 2013, Capital International Private Equity Fund VI, L.P. (CIPEF) subscribed to P2.5 billion
worth of new Philippine Depository Receipts (PDRs) issued by ABS-CBN Holdings Corporation (ABS-
CBN Holdings) which in turn subscribed to the same number of newly issued common shares of the
Parent Company. Lopez, Inc. also subscribed to 34,702,140 common shares and 987,130,246 preferred
shares of the Parent Company in 2013. After the subscription, Lopez, Inc.’s economic interest in the
Parent Company decreased to 56% while its voting rights increased from 57% to 79%.
The common shares of ABS-CBN were listed beginning July 8, 1992 and have been traded in the
The registered office address of the Parent Company is ABS-CBN Broadcast Center, Sgt. Esguerra
The accompanying consolidated financial statements were approved and authorized for issuance by the
FOREIGN EXCHANGE GAINS (LOSSES)-net -145,500 -0.44 -31,704 -0.09 113,796 -78.21030928
(Amounts in Thousands)
ASSETS
Current Assets
Cash and cash equivalents 10,616,855 18.2 13,238,377 19.69 2,621,522 24.6921
Trade and other receivables 8,333,761 14.29 10,717,317 15.94 2,383,556 28.6012
Program rights and other intangible assets 1,385,972 2.376 1,315,987 1.96 -69,985 -5.04952
Noncurrent Assets
Program rights and other intangible assets - net of current portion 5,429,192 9.308 6,465,599 9.62 1,036,407 19.0895
Investments in associates and joint ventures 166,591 0.286 199,874 0.297 33,283 19.9789
Deferred tax assets - net 2,530,164 4.338 2,858,187 4.251 328,023 12.9645
Current Liabilities
Trade and other payables 11,332,006 19.43 12,788,120 19.02 1,456,114 12.8496
Obligations for program rights 448,861 0.77 724,266 1.077 275,405 61.3564
Interest-bearing loans and borrowings 1,345,471 2.307 110,751 0.165 -1,234,720 -91.7686
Noncurrent Liabilities
Interest-bearing loans and borrowings - net of current portion 13,334,579 22.86 20,214,484 30.06 6,879,905 51.5945
Obligations for program rights - net of current portion 276,344 0.474 224,472 0.334 -51,872 -18.7708
Accrued pension obligation and other employee benefits 4,191,082 7.185 4,790,813 7.125 599,731 14.3097
Deferred tax liabilities - net 637,533 1.093 587,654 0.874 -49,879 -7.82375
Capital stock
Exchange differences on translation of foreign operations -270,632 -0.46 -456,773 -0.68 -186,141 68.7801
Unrealized gain on AFS investments 121,766 0.209 143,281 0.213 21,515 17.6691
Philippine depository receipts convertible to common shares -1,164,146 -2 -1,264,096 -1.88 -99,950 8.58569
Equity attributable to Equity Holders of the Parent 24,106,468 41.33 25,387,330 37.76 1,280,862 5.31335
TOTAL LIABILITIES AND EQUITY 58,329,816 100 67,236,820 100 8,907,004 15.27
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A. Liquidity Ratios
B. Solvency Ratios
7
C. Profitability Ratios
D. Growth Ratios
2,142,392
= 2.68
799,828,863
8
b. Diluted Earnings per share = the company has no dilutive potential common shares
outstanding, therefore basic EPS is the same as diluted EPS.
0.40
d. Dividend Payout Ratio = 2.68 = 0.149
0.40
e. Dividend Yield Ratio = 2.096 = 0.19
A. Liquidity Ratios
i. Operating turnover = collection period + inventory days = 102 + 7 days = 109 days
B. Solvency Ratios
C. Profitability Ratios
D. Growth Ratios
2,383,418
= 2.867 𝑜𝑟 2.87
831,220,288
b. Diluted Earnings per share = the company has no dilutive potential common shares
outstanding, therefore basic EPS is the same as diluted EPS.
0.59
d. Dividend Payout Ratio = 2.87 = 0.21
0.59
e. Dividend Yield Ratio = 2.098 = 0.28
V. INTERPRETATIONS
The Vertical Analysis of Income Statement shows the proportion of individual accounts such as all
costs, expenses, income, losses or gains, other income and net income to the gross sales. Therefore, the
gross sales is used as the base and all of other components stated are shown as a percentage of sales. On the
other hand, the Horizontal Analysis of the ABS-CBN’s Statement of Income shows changes in the amounts
of each item on the statement over the period of two years. The gross sales in 2014 increased by
P165,724,000 which constitutes a .497% increase after a year. A large portion of this amount came from
the advertising revenue which constitutes more than half of the gross sales for the two periods. The gross
profit of the network increased by P590,382,000 because of the reduction of costs of production, services
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and sales by 1.62%. The pre-operating income increased by P74,476,000 or a percentage change of 2.745.
The increase of this account happened because of large increase of interest income by 63.04% and the
decrease of foreign exchange losses by P113,796,000. Also, the Associates and Ventures, and other income
increased in 2014. Finally, the net income of ABS-CBN in 2014 increased by P1,789,000. Although the
provision for income tax increased by 2.257%, still it resulted to a more amount of net profit since the pre-
operating income of 2014 is more than that of 2013. Indeed, the ABS-CN Corporation and Subsidiaries
The vertical analysis of financial position shows the proportion of each line item on the statement
to the amount of total assets. Hence, the total assets or the sum of liabilities and equity is used as the base
and the individual account in the statement is shown as percentage of total assets or sum of liabilities and
equity.
Similar in the statement of income, the horizontal analysis shows the changes or trends in each account of
the balance sheet. All in all, the current assets increased by P5,557,521,000 or a 23.77% change. The large
portion of this amount came from cash and cash equivalents which also increased by P2,621,522,000.
However, trade and other receivables increased by P2,383,556. Since the cash increased along with
the increase of receivables, it can be inferred that the cash available is idle. In addition, the amount in
program rights and other intangible assets decreased by P69,985,000. This happened may be, some of the
TV programs of the network marked poor ratings in 2014. Under the non-current section of assets, there is
an increase of property, plant and equipment by P2,036,638,000. It may indicate that the network invest
more properties that would help them to be more profitable after a year. All in all, the noncurrent assets of
the network increased by P3,349,483,000 due to the acquisition of property, plant and equipment.
Under the liability section of financial position, the trade other payables increased by 12.85%. The possible
reason of this is there is an increase of short-term borrowings made by the network. The big portion of the
total amount of noncurrent liabilities came from the interest-bearing loans and borrowings, which may
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indicate that there is high rate of interest of the long-term borrowings every month that are accumulated
around a year.
Finally, the equity part of the balance sheet shows no significant difference on common and
preferred shares since amounts there are no changes in the amount of these accounts in the two periods. The
big amount comprising this part goes to retained earnings since income of the network is reflected on this
account. Since the network became profitable in its operation in 2014, the retained earnings increased by
LIQUIDITY RATIOS
The current ratio is a liquidity ratio that measures a company’s ability to pay short term and long-
term obligations. The current ratio of statement of financial position of ABS-CBN in the year 2013 is 1.76
and increased by 2.08 in a year 2014, it indicates that company is continuous to have a greater assets than
its liabilities and suggests that the company is stable to pay off its obligation.
The acid-test ratio is a strong indicator whether a firm has sufficient short-term assets to cover its
immediate liabilities. The acid-test ratio of statement of financial position of ABS-CBN in a year 2013 is
1.42 and increased by 1.72 in a year 2014; since they are both lower than their current ratio it means that
the current asset of the company is highly dependent on inventory. Moreover, the company does have the
The receivable turnover, it indicates the efficiency of collection of receivables. The receivable
turnover of the statement of financial position of ABS-CBN in a year 2013 is 3.16 and increased by 3.52 in
a year 2014; it implies that the company has greater collection of accounts receivable in a prior year than
The collection period, it determines the average duration of accounts receivable during a year. The
collection period based on the balance sheet of ABS-CBN in 2013 is 113 days and then drop to 102 days in
2014; it is good for the company because they are able to collect their receivable in a short period of time
The inventory turnover is a ratio showing how many times a company's inventory is sold and
replaced over a period. The inventory turnover of ABS-CBN during 2013 and 2014 are 79 and 50.22
respectively, since it is diminished the sales of the company must have been weakened so that it is
unfavorable to the company because the number of products deteriorate are increased as they sit in a
warehouse.
The inventory sales period is a financial measure of a company's performance that gives investors
an idea of how long it takes a company to turn its inventory into sales. The inventory sales period of ABS-
CBN in a year 2013 is 5 days and increased by 7 days in a year 2014. It is unfavorable to the company
because it takes longer than previous year to generate profit using their inventory.
The payable turnover, it short-term liquidity measure used to quantify the rate at which a company
pays off its suppliers. The payable turnover of ABS-CBN from year 2013 to 2014 is 269 to 173 respectively,
since the ratio is lowered, it is unfavorable for the company because it is the sign that the company is taking
The payable payment days tells how long it takes a company to pay its invoices from trade
creditors, such as suppliers. The payable payment days of ABS-CBN from year 2013 to 2014 is 134 to 208
respectively, since it is increased, it is both favorable and unfavorable for the company. Favorable because
the company has more money on hand from which is good for the working capital and free cash flow.
Unfavorable because if the company takes too long to pay its creditors, they will be unhappy. They may
refuse to extend credit in the future, or they may offer less favorable terms.
The Operating turnover, it indicates the number of day cash is invested until the day of its
recovery. The operating turnover of ABS-CBN from year 2013 to 2014 is 109 to 118 respectively, it is good
for the company because the earlier they invest cash the earlier the cash is to be recovered.
The cash turnover measures how many times per year it replenishes its cash balance with its sales
revenue. The cash turnover of ABS-CBN from 2013 to 2014 is 1.13 to 0.85 respectively, since it is
decreased, it is unfavorable for the company because they turn over their cash balance less times per year
The Days to operating expenses it is a measure of what it costs to operate a piece of property
compared to the income that the property brings in. The days to operating expenses from year 2013 to 2014
is 319 and 423 respectively, it is unfavorable because it takes longer time pay their operating expenses in a
The working capital turnover, It is the measurement of comparing the depletion of working
capital to the sales over a given period. The working capital turnover of ABS-CBN during 2013 is 0.57.
Obviously, the company is not generating a lot of sales compared to the money it uses to fund the sales.
The ABS-CBN net working capital during 2013 is 10,981,207. The firm uses its net working
capital to fund operations and purchase inventory, the higher the working capital the higher the opportunity
to generate profit.
The debt ratio is a financial ratio that measures the extent of a company’s or consumer’s leverage.
The debt ratio of ABS CBN during 2013 and 2014 are 56:1 and 60:1 respectively. It indicates that the
company have more assets than debt during those years. Therefore, the company has more leveraged at the
same time implying greater financial risk and probably they find expensive to borrow. A very low debt ratio
is good in the sense that the company’s assets are sufficient to meet its obligations; it may indicate
underutilization of a major source of finance which may result in restricted growth. A very high debt ratio
indicates high risk for both debt-holders and equity investors. Due to the high risk, the company may not
be able to obtain finance at good terms or may not be able to raise any more money at all.
The debt-to-equity ratio, it is a debt ratio used to measure a company’s financial leverage. The
debt-to-equity ratio of ABS-CBN during 2013 and 2014 are 1.25 and 1.50 respectively. Lower values of
debt-to-equity ratio are favorable indicating less risk. Higher debt-to-equity ratio is unfavorable because it
means that the business relies more on external lenders thus it is at higher risk, especially at higher interest
The equity ratio is used to measure a company’s financial leverage. The equity ratio of ABS-CBN
during 2013 is 44% and 40% in 2014. Therefore, the equity ratio in 2013 is more favorable than 2014.
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Higher investment levels by shareholders shows potential shareholders that the company is worth investing
in since so many investors are willing to finance the company. A higher ratio also shows potential creditors
that the company is more sustainable and less risky to lend future loans. Companies with
higher equity ratios should have less financing and debt service costs than companies with lower ratios.
The times interest ratio measures a firm's ability to make interest and debt service payments. The
time interest ratios of ABS CBN during 2013 and 2014 are 2.78 and 1.72 respectively. It shows that ABS
CBN is more favorable in 2013 than 2014. Higher value of times interest earned ratio is favorable meaning
greater ability of a business to repay its interest and debt. Lower values are unfavorable.
Fixed assets to non-current debts indicate the percentage of investment in fixed assets
financed from non-current debt. The percentage of fixed assets to non-current debts of ABS-
CBN in a year 2013 is 155% but in a year 2014 it decreased by 124%, it means that the fixed
assets investment arises from non-current portion of liabilities has been reduced which is
Fixed assets to shareholders’ equiy indicate the percentage of investment in fixed assets
CBN from year 2013 to 2014 is 114% and 122% respectively; since it increased it means that
some of the shareholders invested additional fixed assets to the company by use of their shares. It
is good for the company because their total assets have increased. However, the company has to
Fixed assets to total equity indicate the percentage of investment in fixed assets. The
percentage of investment in fixed assets to total equity of ABS-CBN in a year 2013 is 51% but in
2014 it decreased by 49%, it implies there was a depreciation that reduced the value of their fixed
assets. It is good for the company because they could generate profit by using their fixed asset
but since its value has reduced their total assets also decreases.
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PROFITABILITY RATIO
The gross profit rate shows the proportion of profits generated by the sale of products or services,
before selling and administrative expenses. It is used to examine the ability of a business to create sellable
products in a cost effective manner. The gross profit rate of ABS-CBN in 2013 reaches to 13% lesser than
the rate in 2014 which is 40%. This only shows that the company will have more money to pay in operating
expenses like salaries, utilities, and rent. Since this ratio measures the profits from selling inventory, it also
measures the percentage of sales that can be used to help fund other parts of the business.
The operating profit margin of ABS-CBN in 2013 is 9.22% and 9.46% in 2014. This means that
the percentage of their profit increase. This indicates that the management is able to control the company’s
operating expenses.
The net profit margin of ABS-CBN in 2013 is 6.08 % the same in 2014 which is also 6.05%. It
The return on investment of ABS-CBN in 2013 is 5.3% and in 2014 5.06%. This is not favorable
because every one peso in 2013 and 2014, the return on investment are 5.3 centavos and 5.06 centavos
respectively.
The return on shareholder’s equity of ABS-CBN in 2013 is 3% and 8% in 2014 which may
The return on total assets of ABS-CBN in 2013 is 4% and 5% in year 2014. This only shows that
their operating income and usage of assets increases. The return for year 2013 is 4 cents for every one peso
The return on current asset of ABS-CBN in 2013 is 9% and 8% in 2014 which indicates decrease
in returning the resources in current assets cause by gradual decreasea in operating or increase in costs and
expenses incurred.
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GROWTH RATIO
The basic earnings per share of ABS-CBN in 2014 is 2.87% higher than in 2013 which
is 2.68%. This indicates that the company is capable of generating a significant dividend for
investors. Moreover, the company has a potentially worthwhile investment depending on the
The price earnings per ratio of ABS-CBN in 2014 is 7.3% lesser than in 2013 which is
7.8%. This is an indication of poor current and future performance. This could also prove to be a
poor investment.
The dividend payout ratio of ABS-CBN in 2014 is 2.1% and 1.5% in 2013. It increases
by 6%. A high ratio does not mean that much. Investors are mainly concerned with sustainable
trends. For instance, investors can assume that a company has a payout ratio of 20% for the last
The dividend yield ratio of ABS-CBN in 2014 is 2.8% higher than in 2013 which is 1.9%.
This indicates that the company pays its investors a large dividend compared to the fair market
value of the stock. This means that the investors are getting highly compensated for their
The dividend per share of ABS –CBN in 2014 is 5.9%. It increases by 1.9% compared in
2013 which is 4%. This shows that there is an increase in the company’s net profits out of which
dividends are paid. There may also be a shift in the company’s growth strategy that leads the
company to decide to expend less of its earnings in seeking growth and expansion, thus leaving a
larger share of profits available to be returned to equity investors in the form of dividends.
The book value per share of ABS-CBN in 2014 is 14.5% higher than in 2013 which is
13.8%. This shows that there is an appraisal and the net worth of the company increases.
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Based on our analysis, year 2014 is the better year with a better position for ABS-CBN
Corporation. The operation performance of the company increases gradually. The liability and
equity both increases. The equity for 2013 and 2014 are P25,922,757 and 26,874, 828 while the
liability for 2013 and 2014 are 32,407,059 and 40,361,992. Even though their liabilities increased,
it may imply that creditors trust the company for them to pay on time because of their improving
operating performance. Our group conclude that ABS-CBN corporation is financially stable.
We recommend that they continue their operations and still find ways to improve to
generate more income and to strengthen the trust and support of their consumers, creditors and
investors. They find ways to lessen cost while not sacrificing their performance to continually
APPENDIX
December 31
2014 2013
ASSETS
Current Assets
Cash and cash equivalents (Note 6) =13,238,377
P =10,616,855
P
Trade and other receivables (Notes 7 and 22) 10,717,317 8,333,761
Program rights and other intangible assets (Note 11) 1,315,987 1,385,972
Other current assets (Note 8) 3,669,314 3,046,886
Total Current Assets 28,940,995 23,383,474
Noncurrent Assets
Property and equipment (Notes 9, 10, 17 and 30) 20,572,543 18,535,905
Program rights and other intangible assets - net of current portion
(Note 11) 6,465,599 5,429,192
Goodwill (Notes 4 and 15) 5,289,956 5,288,350
Available-for-sale (AFS) investments (Note 12) 242,368 219,191
Investment properties (Notes 9, 10 and 17) 198,734 196,916
Investments in associates and joint ventures (Note 13) 199,874 166,591
Deferred tax assets - net (Note 28) 2,858,187 2,530,164
Other noncurrent assets (Note 14) 2,468,564 2,580,033
Total Noncurrent Assets 38,295,825 34,946,342
Noncurrent Liabilities
(Forward)
-2-
December 31
2014 2013
Equity Attributable to Equity Holders of the Parent Company
Capital stock (Note 21):
Common =872,124
P =872,124
P
Preferred 200,000 200,000
Additional paid-in capital (Notes 2, 4 and 21) 4,495,050 4,495,050
Exchange differences on translation of foreign operations (456,773) (270,632)
Unrealized gain on AFS investments (Note 12) 143,281 121,766
Share-based payment plan (Note 21) 34,349 34,349
Retained earnings (Note 21) 21,363,395 19,817,957
Philippine depository receipts convertible to common shares (Note 21) (1,264,096) (1,164,146)
Equity attributable to Equity Holders of the Parent 25,387,330 24,106,468
Noncontrolling Interests (Notes 4 and 23) 1,487,498 1,816,289
Total Equity 26,874,828 25,922,757
REVENUE
Advertising revenue (Note 22) P18,879,946
= =19,331,908
P =16,611,731
P
Sale of services (Note 30) 14,029,684 13,287,245 11,827,501
Sale of goods (Note 22) 351,528 579,140 421,079
Others 282,470 179,611 123,329
33,543,628 33,377,904 28,983,640
PRODUCTION COSTS
(Notes 9, 11, 22, 24, 29 and 30) (11,007,656) (11,499,365) (10,555,162)
COST OF SERVICES
(Notes 8, 9, 11, 14, 22, 25, 29 and 30) (9,045,527) (8,853,440) (8,061,381)
COST OF SALES (Notes 8, 9, 22, 25, 29 and 30) (201,993) (330,029) (292,095)
OTHER INCOME - net (Notes 14, 19, 27 and 30) 652,352 512,322 788,099
Attributable to
Equity holders of the Parent Company (Note 33) =2,387,085
P =2,145,725
P =1,580,623
P
Noncontrolling interests (356,949) (117,378) 37,276
=2,030,136
P =2,028,347
P =1,617,899
P
Attributable to:
Equity holders of the Parent Company =1,895,412
P =2,906,433
P =1,413,954
P
Non-controlling interests (364,669) (67,949) (160,600)
=1,530,743
P =2,838,484
P =1,253,354
P
(Forward)
-2-