Jollibee Foods Corporation

Annual Report Analysis

CHIN NIEVE S. FIGURA

BSA-III
Disclaimer

This analysis is only for the purpose of analyzing the Liabilities and Equity section of
Jollibee Foods Corporation. It does not include asset section and it does not reflect the whole
performance of the company.

INTRODUCTION

Corporate Information

Jollibee is the largest fast food chain in the Philippines, operating a over 900 stores worldwide
market leader in the Philippines, Jollibee enjoys the lion’s share of the local market that is more
than all the multinational brands combined. The company has also embarked on an aggressive
international expansion and currently has more than 100 stores outside the Philippines and
present in USA, Vietnam, Hong Kong, Saudi Arabia Kuwait, Brunei, and Singapore establishing
itself as a growing international QSR player.

Humble Beginnings

Jollibee began as a two-branch ice cream parlor in 1975 offering hot meals and sandwiches
became incorporated in 1978 with seven outlets to explore the possibilities of a hamburger
concept. Thus was born the company that revolutionized fast food in the Philippines In 1993,
Jollibee became the first food service company to be listed in the Philippine Stock Exchange;
thus broadening its capitalization and laying the groundwork for sustained expansion locally and
beyond the Philippines.

Jollibee was founded by Tony Tan and his family with its humble beginnings as an Ice Cream
Parlor which later grew into an emerging global brand. At the heart of its success is a family
oriented approach to personnel management, making Jollibee one of the most admired employers
in the region with an Employer of the Year Award from the Personnel Management Association
of the Philippines, Best Employer in the Philippines Award from Hewitt Associated and a Top
20 Employer in Asia citation from the Asian Wall Street Journal. Aside from promoting a family
oriented work environment, the brand’s values also reflect on their advertising and marketing.
Jollibee knows their target audience very well: the traditional family and all communication
materials focus on the importance of family values, making Jollibee the number one family fast
food chain in the Philippines and a growing international QSR player.

Expanding market coverage

The company acquired Greenwich Pizza in 1994 to penetrate the pizzapasta segment. From a 50-
branch operation, Greenwich has established a strong presence in the food service industry. A
year later the company acquired the franchise of Delifrance, an international food company. This
expanded its penetration in the food service industry into the French café-bakery. In 2000, the
acquisition of Chowking allowed it to have leadership in a major fast food market - the Chinese
quick service restaurant segment.

On March 2004, Jollibee International (BVI) Ltd., a wholly owned subsidiary of Jollibee Foods
Corporation completed the acquisition of 85% of the issued share capital of Belmont Enterprises
Ventures Ltd. (Belmont), the holding company of the Yonghe Group of Companies. The
acquisition of Yonghe King has provided the Company an opportunity to become a major
regional player in the Quick Service Restaurant business in Asia.

On October 27, 2005, the Company completed the acquisition of Red Ribbon Holdings, Inc.
(“Red Ribbon”), owner of the Red Ribbon Bakeshop chains in the Philippines and in the United
States. Like Jollibee and its other brands, Red Ribbon is a strong brand with a wholesome and
high quality image driven by good tasting food and good-looking stores with excellent service
built over years of development

On July 24, 2007, JFC started testing of a new restaurant concept with the trade name “Manong
Pepe’s Karinderia”. This new restaurant concept serves Filipino food at very low price points,
aimed mainly at people in the work force in urban centers.

On October 1, 2008, JFC completed the purchase of 100% of Hong Zhuang Yuan, a chain of
restaurants located mostly in Beijing, People’s Republic of China. On April 30, 2010, JFC
entered into an agreement that provided joint ownership of San Ping Wang, a chain of restaurants
of 34 stores in Nanning, China. On May 4, 2010, JFC entered into another joint venture
agreement that made it a Master Franchisee in the Philippines of Caffe Ti-Amo, a gelato and
coffee business.

To support the continued growth of the Company’s retail chain, the company has set up
commissaries (manufacturing and distribution centers) to manage the total supply chain process
of each strategic business unit: from the planning of raw materials and ingredients, distribution
and logistics.

The JFC Group has eleven Commissaries: Jollibee, 2; Greenwich, 1; Chowking, 2; Delifrance, 1;
and, Red Ribbon, 5. In January 2004, Jollibee opened its largest commissary in Canlubang,
Laguna. The new commissary, which sits on a 10-hectare property in the Carmelray Industrial
Estate features custom made state-of-the-art production equipment that would service as many as
800 Jollibee and Greenwich outlets. The new commissary employs over 300 people.

International Expansion

Jollibee’s international operations continue to grow driven by the opening of 18 new stores in
2013 and steady growth in all markets. Jollibee is now present in 8 countries outside the
Philippines, including Vietnam, Brunei, US, Hong Kong, Saudi Arabia, Qatar, Kuwait and the
newest market- Singapore

Since Jollibee Singapore opened in March last year, it has delivered the highest sales
performance among all markets. It also made the list of Singapore’s longest queue restaurants,
proof that our Everyday Delicious meals appeal highly to the palates of not just Filipinos but
Singaporeans as well.

With these gains, Jollibee is poised to aggressively expand and conquer new markets like
Indonesia and Canada in line with its vision of becoming a truly global brand. With its Everyday
Delicious food offerings and high standards of service

A Well-Loved Brand

Customer satisfaction has always been key to Jollibee’s success. Never losing sight of its goals,
Jollibee has grown to be one of the most recognized and highly preferred brands in the
Philippines. Now the market leader among fast food chains in the Philippines, claiming a market
share that totals to more than half of the entire industry.

Great tasting products and quality systems

Jollibee’s growth is due to its delicious menu line-up - like its superior-tasting Chickenjoy,
mouthwatering Yumburger and Champ hamburger, and deliciously satisfying Jollibee Spaghetti
-ably complemented with creative marketing programs, and efficient manufacturing and logistics
facilities

It is made possible by well-trained teams that work in a culture of integrity and humility, fun and
family-like. Every Jollibee outlet welcomes customers with a clean and warm in-store
environment and friendly and efficient service.

And it is this tried and tested formula of delivering great-tasting food, adherence to world class
operating standards and the universal appeal of the family values the brand represents that are
driving the expansion of Jollibee both locally and in the overseas market.

A Reputable Fast Food Chain Company

The Jollibee Group is a reputed leader and innovator in the fast food industry comprising three
market segments; namely the Chicken & Hamburger chain (Jollibee); the Pizza-Pasta fast food
segment (Greenwich); and the Oriental Food market (Chowking). Recently, we have welcomed
into our family, our latest acquisitions – In the Philippines: Red Ribbon and Mang Inasal. In
China: Yonghe King, Hong Zhang Huan and Sang Ping Wang. In Vietnam: Pho 24 and
Highlands Coffee.

Summary of Analysis

 The financial statements are presented fairly, in all material respects;

 The company will continue to operate in the near foreseeable future
Background of the Analyzes

Fast food invasion has been a successful business endeavor in the Philippines. Because of
the busy lifestyle of modern Filipinos, it is a common instinct that they simplify their eating
habits. Instead of spending a significant portion of their time shopping ingredients that needs to
be cooked, they tend to resort to fast food to save time and energy in getting their meals ready.
Not only that it is fast and convenient, people are more likely to buy from fast food chains
because of the small amount of money involved in exchange for a speedy meal.

One of the leading players in the Quick Service Restaurants (QSR) industry in the
Philippines is the Jollibee Foods Corporation (hereinafter referred to as “JFC” or “Jollibee”).
Established in 1978, Jollibee still continues to dominate the market through its cheap product
offering

A liability is classified as current when:

If It is expected to be settled in the normal operating cycle; ƒ It is held primarily for the
purpose of trading;

 It is due to be settled within twelve months after the reporting period; or

 There is no unconditional right to defer the settlement of the liability for at least
twelve months after the reporting period.

The Jollibee Group classifies all other assets and liabilities as noncurrent. Deferred tax
assets and liabilities are classified as noncurrent assets and liabilities.

All assets and liabilities for which fair value is measured or disclosed in the consolidated
financial statements are categorized within the fair value hierarchy, described as follows, based
on the lowest- level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or
liabilities Level 2 - Valuation techniques for which the lowest-level input that is significant to the
fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for
which the lowest-level input that is significant to the fair value measurement is unobservable
 For assets and liabilities that are recognized in the consolidated financial statements on a
recurring basis, the Jollibee Group determines whether transfers have occurred between levels in
the hierarchy by reassessing categorization (based on the lowest-level input that is significant to
the fair value measurement as a whole) at the end of each reporting period.

LIABILITIES

Financial Liabilities (Applies before and after January 1, 2018)

Initial Recognition and Measurement. Financial liabilities are classified, at initial

recognition, as financial liabilities at FVTPL, loans and borrowings, payables or as derivatives
designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognized initially at fair value and, in the case of loans and
borrowings and payables, net of directly attributable transaction costs.

The Jollibee Group’s financial liabilities include loans and borrowings, payables and
derivative financial liabilities as at December 31, 2018 and 2017.

Subsequent Measurement

 Financial Liabilities at FVTPL. Financial liabilities at FVTPL include financial

liabilities held for trading and financial liabilities designated upon initial
recognition as at FVTPL. Financial liabilities are classified as held for trading if
they are incurred for the purpose of repurchasing in the near term. This category
also includes derivative financial instruments entered into by the Jollibee Group
that are not designated as hedging instruments in hedge relationships as defined
by PAS 39. Separated embedded derivatives are also classified as held for trading
unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognized in profit or loss.

Financial liabilities designated upon initial recognition at FVTPL are designated at the
initial date of recognition, and only if the criteria in PAS 39 are satisfied. The Jollibee Group has
not designated any financial liability as at FVTPL.
  Loans and Borrowings, and Other Payables. This is the category most relevant to
the Jollibee Group. After initial recognition, interest-bearing loans and
borrowings, and other payables are subsequently measured at amortized cost
using the EIR method. Gains and losses are recognized in profit or loss when the
liabilities are derecognized as well as through the EIR amortization process.

Amortized cost is calculated by taking into account any discount or premium on

acquisition and fees or costs, including debt issue costs for the Jollibee Group’s debts that are an
integral part of the effective interest rate. The effective interest rate amortization is included as
interest expense in the consolidated statement of comprehensive income.

This category includes the Jollibee Group’s trade payables and other current liabilities
(excluding local and other taxes payable and unearned revenue from gift certificates), long-term
debts and operating lease payables as at December 31, 2018 and 2017.

 Debt Issue Costs. Debt issue costs are specific incremental costs, other than those
paid to the lender, that are directly related to issuing a debt instrument. These are
presented in the consolidated statement of financial position as a reduction from
the related debt instrument and are amortized through the EIR amortization
process.

Contract Liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the
Jollibee Group has received consideration (or an amount of consideration is due) from the
customer. If a customer pays consideration before the Jollibee Group transfers goods or services
to the customer, a contract liability is recognized when the payment is made or the payment is
due (whichever is earlier). Contract liabilities are recognized as revenue when the Jollibee
Group performs under the contract.

Taxes Current Tax

Current tax liabilities for the current and prior periods are measured at the amount expected to be
paid to the tax authority. The tax rates and tax laws used to compute the amount are those that
are enacted or substantively enacted at reporting date.
Current income tax relating to items recognized directly in equity is recognized in equity (not in
the profit or loss). Management periodically evaluates positions taken in the tax returns with
respect to situations in which applicable tax regulations are subject to interpretation and
establishes provisions where appropriate.

Deferred Tax.

Deferred tax is provided using balance sheet liability method, on all temporary differences at
reporting date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.

Deferred tax assets are recognized for all deductible temporary differences and carryforward
benefits of unused tax credits from excess of minimum corporate income tax (MCIT) over
regular corporate income tax (RCIT) and net operating loss carryover (NOLCO), to the extent
that it is probable that taxable profit will be available against which the deductible temporary
differences and carry forward benefits of excess of MCIT over RCIT and NOLCO can be
utilized, except:

 where the deferred tax asset relating to the deductible temporary difference arises
from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit; and
 in respect of deductible temporary differences associated with investments in
subsidiaries and interest in joint ventures and associates, deferred tax assets are
recognized only to the extent that it is probable that the temporary differences
will reverse in the foreseeable future and taxable profit will be available against
which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable profit will be available to allow all or
part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at
each reporting date and are recognized to the extent that it has become probable that future
taxable profit will allow the deferred tax assets to be recovered.
Deferred tax liabilities are recognized for all taxable temporary differences, except:

 where the deferred tax liability arises from the initial recognition of goodwill or
of an asset or liability in a transaction that is not a business combination and, at
the time of the transactions, affects neither the accounting profit nor taxable
profit; and
 in respect of taxable temporary differences associated with investments in
subsidiaries and interests in joint ventures and associates, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
year when the asset is realized or the liability is settled, based on tax rates and tax laws that have
been enacted or substantially enacted at the reporting date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or
loss. Deferred tax items are recognized in correlation to the underlying transaction either in other
comprehensive income or directly in another equity account.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for
separate recognition at that date, are recognized subsequently if new information about facts and
circumstances change. The adjustment is either treated as reduction in goodwill, as long as it
does not exceed goodwill, if it was incurred during the measurement period or recognize in profit
or loss.

Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity
and the same taxation authority.

Value Added Tax (VAT).

Revenue, expenses and assets are recognized net of the amount of VAT, if applicable.

When VAT from sales of goods and/or services (output VAT) exceeds VAT passed on from
purchases of goods or services (input VAT), the excess is recognized as part of “Trade payables
and other current liabilities” account in the consolidated statement of financial position. When
VAT passed on from purchases of gods or services (input VAT) exceeds VAT from sales of
goods and/or services (output VAT), the excess is recognized as part of “Other current assets”
account in the consolidated statement of financial position.

Earnings per Share (EPS)

Attributable to Equity Holders of the Parent Company Basic EPS is calculated by dividing the
net income for the year attributable to the equity holders of the Parent Company by the weighted
average number of common shares outstanding during the year, after considering the retroactive
effect of stock dividend declaration, if any.

Diluted EPS

Diluted EPS is computed by dividing the net income for the year attributable to the equity
holders of the Parent Company by the weighted average number of common shares outstanding
during the period, adjusted for any potential common shares resulting from the assumed exercise
of outstanding stock options. Outstanding stock options will have dilutive effect under the
treasury stock method only when the average market price of the underlying common share
during the period exceeds the exercise price of the option.

Where the EPS effect of the shares to be issued to management and employees under the stock
option plan would be anti-dilutive, the basic and diluted EPS would be stated at the same
amount.

Provisions

Provisions are recognized when the Jollibee Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessment of the time value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision due to the passage of time is
recognized as interest expense.

Contingencies

Contingent liabilities are not recognized in the consolidated financial statements but are
disclosed in the notes to financial statements unless the possibility of an outflow of resources
embodying economic benefits is remote. Contingent assets are not recognized in the
consolidated financial statements but are disclosed when an inflow of economic benefits is
probable.

EQUITY

Capital Stock and Additional Paid-in Capital. Capital stock is measured at par value for
all shares issued. Proceeds and/or fair value of considerations received in excess of par value, if
any, are recognized as additional paid-in capital. Incremental costs incurred directly attributable
to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax.

Additional paid-in capital is also credited for the cost of the Jollibee Group’s equity
settled share- based payments to its employees.

Subscription Receivable. Subscription receivable represents the unpaid balance of the

subscription price for subscribed common stock of the Parent Company.

Retained Earnings. Retained earnings represent the Jollibee Group’s accumulated

earnings, net of dividends declared. The balance includes accumulated earnings of subsidiaries,
joint ventures and associates, which are not available for dividend declaration.

Dividends. The Jollibee Group recognizes a liability to make cash distribution to its
equity holders when the distribution is authorized and the distribution is no longer at the
discretion of the Jollibee Group. A corresponding amount is recognized directly in the equity.
Dividends for the year that are approved after the financial reporting date are dealt with as an
event after the reporting period.

Other Comprehensive Income. Other comprehensive income comprises items of income

and expense (including reclassification adjustments) that are not recognized in profit or loss.
These include cumulative translation adjustments, gains or losses on derivatives designated as
hedging instruments in an effective hedge, unrealized gains or losses on AFS financial assets,
remeasurement gains or losses on pension and their income tax effects.

Treasury Shares. Acquisitions of treasury shares are recorded at cost. The total cost of
treasury shares is shown in the consolidated statement of financial position as a deduction from
the total equity. Upon re-issuance or resale of the treasury shares, cost of common stock held in
treasury account is credited for the cost of the treasury shares determined using the simple
average method. Gain on sale is credited to additional paid-in capital. Losses are charged against
additional paid-in capital but only to the extent of previous gain from original issuance, sale or
retirement for the same class of stock. Otherwise, losses are charged to retained earnings.

Estimate and Assumption

Present Value of Defined Benefit Obligation

The pension expense as well as the present value of the defined benefit obligation are determined
using actuarial valuations. The actuarial valuation involves making various assumptions. These
include the determination of the discount rates and the future salary increases. Due to the
complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit
obligations are highly sensitive to changes in these assumptions. All assumptions are reviewed
at each reporting date.

In determining the appropriate discount rate, management considers the interest rates of
government bonds that are denominated in the currency in which the benefits will be paid, with
extrapolated maturities corresponding to the expected duration of the defined benefit obligation.

Future salary increases are based on budgetary salary increases.

The carrying amount of pension liability amounted to P=1,320.6 million and P=1,489.5 million
as at December 31, 2018 and 2017, respectively (see Note 25)

Share-based Payments

The Parent Company measures the cost of its equity-settled transactions with management and
employees by reference to the fair value of the equity instruments at the grant date. Estimating
fair value for share-based payment transactions requires determining the most appropriate
valuation model, which is dependent on the terms and conditions of the grant. The estimate also
requires determining the most appropriate inputs to the valuation model including the expected
life of the share option, volatility and dividend yield and making assumptions about these inputs.
The fair value of the share option is being determined using the Black-Scholes Option Pricing
Model. The expected life of the stock options is based on the expected exercise behavior of the
stock option holders and is not necessarily indicative of the exercise patterns that may occur.
The volatility is based on the average historical price volatility which may be different from the
expected volatility of the shares of the Parent Company.

Total expense arising from share-based payment recognized by the Jollibee Group amounted to
=P312.0 million, =P227.5 million and =P241.3 million in 2018, 2017 and 2016, respectively (see
Notes 19, 22 and 26).

Derivative on Put / Call Rights on SJBF LLC

The Jollibee Group has a derivative arising from put / call rights on the controlling interest in
SJBF LLC. The derivative from put / call rights derive value from the fair value of SJBF LLC’s
equity, which considers forecasted cash flows from its operations and its cost of capital, and the
price to exercise such put / call rights, which consider SJBF LLC’s EBITDA near transaction
date and exit multiples based on SJBF LLC’s achievement of sales targets. Such derivative is
valued using discounted cash flows model, which also takes into account assumptions on the
volatility of the fair value of SJBF LLC’s equity and discount rate to arrive at present value,
among others. Changes in the assumptions mentioned above can result to change in the amount
recognized as derivative and may result to either a derivative asset or liability as recognized in
the consolidated statements of financial position.

The Jollibee Group recognized a derivative liability amounting to nil and P=51.0 million as at
December 31, 2018 and 2017 from put / call rights (see Note 11).

Fair Value of Financial Assets and Liabilities

When the fair values of financial assets and financial liabilities recorded or disclosed in the
consolidated statement of financial position cannot be measured based on quoted prices in active
markets, their fair value is measured using valuation techniques, including the discounted cash
flow model. The inputs to these models are taken from observable markets where possible, but
when this is not feasible, a degree of judgment is required in establishing fair values. Judgments
include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in
assumptions about these factors could affect the reported fair value of financial instruments.

The fair value of financial assets and liabilities are discussed in Note 31.

Provisions and Contingencies

The Jollibee Group is involved in litigations, claims and disputes which are normal to its
business. The estimate of the probable costs for the resolution of these claims has been
developed in consultation with the Jollibee Group’s legal counsels and based upon an analysis of
potential results (see Note 17). The inherent uncertainty over the outcome of these matters is
brought about by the differences in the interpretation and application of laws and rulings.
Management believes that the ultimate liability, if any, with respect to the litigations, claims and
disputes will not materially affect the financial position and performance of the Jollibee Group.

The Jollibee Group recognized provision amounting to =P794.6 million in 2017. No provision
was recognized in 2018 and 2016 (see Note 23).
Total outstanding provisions amounted to P=825.1 million as at December 31, 2018 and 2017
(see Notes 17 and 29).

STATEMENT OF THE PROBLEM

This study attempts to analyze the liability and equity section of the financial
information of Jollibee Foods Corporation. It aims to answer the following question:

1. Does the company are capable of surviving in a long run?

2. Does the company are capable on paying its present obligation?
3. What are the factors that increased the liability and equity section in the year
2018?

OBJECTIVE

This analysis aims to achieve the following objective:

1. To know if the company can survive for the next years based on its current
financial position.
2. To know if the company are capable of paying its present obligation.
3. To determine what are the factors that affect the liability and equity section

Analysis of the problem

To analyze the problem the researcher had used trend analysis on the financial statement
section to determine if the firm are capable of surviving in a long run based on its present
obligation, are capable of paying its debt and to know what are the factors that affect the changes
of the equity and liability section.
 2018 2017 Increase/Decrease %Change
ASSETS
Current Asset
Cash and Cash equivalent 23,285,915.00 21,107,474.00 2,178,441.00 10%
Short term investment 883,200.00 1,413,400.00 (530,200.00) -62%
Receivable and contract asset 4,862,744.00 3,941,073.00 921,671.00 23%
Inventories 8,812,174.00 6,835,514.00 1,976,660.00 29%
Other Current asset 4,894,168.00 4,031,459.00 862,709.00 21%
Total Current Asset 42,738,201.00 37,328,920.00 5,409,281.00 14%

Non Current Asset

Financial Asset at fair value through profit or loss 39,842.00 39,842.00
Available for sale financial asset 29,862.00 (29,862.00)
Interest in and advances in joint ventures , co ventures and associates 3,512,230.00 7,492,771.00 (3,980,541.00) -47%
Property, plant and equipment 26,693,991.00 20,893,814.00 5,800,177.00 28%
Investment properties 848,974.00 848,974.00 - 100%
Trademarks, goodwill and other intangible assets 31,830,057.00 15,730,239.00 16,099,818.00 2.02%
Operation lease receivable 31,635.00 28,035.00 3,600.00 13%
Derivative asset 82,852.00 11,949.00 70,903.00 6.93%
Deferred tax asset 4,322,996.00 3,908,813.00 414,183.00 11%
Other Non-Current Asset 3,751,044.00 3,510,518.00 240,526.00 7%
Total Non Current Asset 71,113,621.00 52,454,975.00 18,658,646.00 36%
Total Asset 113,851,822.00 89,783,895.00 24,067,927.00 27%

LIABILITY AND EQUITY

Current Liability
Trade Payables and other current liability and contract liability (Note 16, 30,31) 28,716,769.00 25,254,613.00 3,462,156.00 14%
Income tax payable 263,473.00 223,773.00 39,700.00 18%
Current portion of:
Long Term Debt 4,892,102.00 1,216,219.00 3,675,883.00 4.02%
Operating Lease payable 300,945.00 252,233.00 48,712.00 19%
Liability for Acquisition of a business 11,238.00 11,238.00
Total Current Payable 34,184,527.00 26,946,840.00 7,237,687.00 27%

Non Current Liability

Non current portion of:
Long Term Debts 21,372,251.00 14,901,052.00 6,471,199.00 43%
Liability for Acquisition of Business 2,907.00 2,907.00
Pension Liability 1,320,646.00 1,489,546.00 (168,900.00) 87%
Operating Lease payable 2,715,978.00 1,799,332.00 916,646.00 51%
Derivative liability ' 51,042.00 (51,042.00)
Provisions 825,199.00 825,109.00 90.00
Deferred Tax Liability 3,522,253.00 1,188,995.00 2,333,258.00 2.96%
Total Non Current Liability 29,749,144.00 20,225,076.00 9,524,068.00 47%
Total Liabilities 63,933,671.00 47,201,916.00 16,731,755.00 35%

Equity Attributable to Equity Holder of the Parent Company

Capital Stock - net of subscription receiveables 1,088,036.00 1,084,478.00 3,558.00
Additional Paid in Capital 8,638,438.00 7,520,383.00 1,118,055.00 15%
Cumulative Translation Adjustments of foreign subsidiaries and interest in joint venture and associates 589,501.00 340,368.00 249,133.00 73%
Remeasurement loss on net defined benefit plan- net of tax (307,995.00) (461,769.00) 153,774.00 67%
Unrealized gain on change in fair value of available for sale financial asset 6,758.00 (6,758.00)
Comprehensive income on derivative liability 82,852.00 11,949.00 70,903.00 6.93%
Excess of cost over the carrying value of non controlling interest acquired (1,804,766.00) (2,152,161.00) 347,395.00 84%
Retained Earnings
Appropriate for future expansion 20,000,000.00 18,200,000.00 1,800,000.00 10%
Unappropraited 20,275,995.00 16,413,140.00 3,862,855.00 24%
48,544,061.00 40,963,146.00 7,580,915.00 19%
Less: Cost of common stock held in treasury 180,511.00 180,511.00 - 100%
48,363,550.00 40,782,635.00 7,580,915.00 19%
Non Controlling Interest 1,554,601.00 1,799,344.00 (244,743.00) 86%
49,918,151.00 42,581,979.00 7,336,172.00 17%
Total Equity 113,851,822.00 89,783,895.00 24,067,927.00 27%
 Focus only on the liability and Equity section, as you can see there is an increase of 35% in
the total liability and 27% in the total equity in 2018. This indicates that there are factors that
changes this accounts. Based on my analysis, the increase in total assets has an effect to the
increase in liability. Maybe there was a purchase of equipment’s or machineries or due to their
international expansion of their business, to compensate its employees, and to other larger
investments

In the other hand, the total equity section had increased because of the increased in additional
paid in capital, cumulative translation adjustments of foreign subsidiaries and interest in joint
venture and associates, comprehensive income on derivative liability, and appropriate for future
expansion. Though it can be seen that there was a re-measurement loss on net defined benefit
plan, excess of cost over the carrying value of non- controlling interest acquired and the non-
controlling Interest but it does not affect the increase of total equity of the firm.

Alternatives

The Jollibee Food Corporation profitability has increases as time pass by due to the
demand of the people that had reached internationally. However, despite this success the
analyzer can still see some problems especially with regards to their liability. As I analyzed
its financial statement, I noticed that as its asset increases, it’s liability also increases which
made me question if is it really necessary to have larger liability when in fact the firm has
larger income, and by that I therefore determine that the firm has to change their approach to
their debt. There will be a risk involved in this case and that is what if the liability will grow
and grow to the extent that the firm cannot handle it. That is why the firm must take actions
and manage their liability.

The firm must have liability management. This will be the best strategy large companies
like this must have, to manage the use of assets and cash flows to reduce the firm’s risk of
loss from not paying a liability on time.
 Also the firm must not forget to have Equity Management to attract members, while
keeping current members’ needs satisfied. To maintain cooperative profitability while
allowing for growth, all while adhering to the cooperative principles

Liability Management

Liability management is the practice by banks of maintaining a balance between

the maturities of their assets and their liabilities in order to maintain liquidity and to facilitate
lending while also maintaining healthy balance sheets. In this context, liabilities include
depositors’ money as well as funds borrowed from other financial institutions.

Asset Liability Management in practical terms amounts to management of total balance

sheet items, its size and quality. It involves conscious decisions with regard to asset liability
structure in order to maximize interest earnings within the frame work of perceived risk with
quantification of risk.

ALM encompasses the process of managing Net interest Margin (NIM), within the
overall risk. It calls for an integrated approach to decision making with regard to type
(demand/time maturities) and size (portfolios) of financial assets and liabilities and their mix
and volumes (turnover). The success of ALM hinges on matching of assets and liabilities in
terms of Rate and maturity to optimize the yield and maintain/improve the NIM.

In practice, assets and liabilities of a bank are continuously changing which affect
interest cost and interest income. Since Micro level management of assets and liabilities is
not possible, through ALM, the bank groups the assets and liabilities according to the
maturity, rate, risk, and size so as to control mismatches.

While elimination of gaps arising due to mismatches is not possible, the ALM aims at
minimizing the gaps as they are risk-prone and directly affect the NIM. Thus ALM will
enable the bank to protect and if possible improve the Net Interest Margin through conscious
strategies and decisions.
 Pros and Cons of Asset and Liability Management

Implementing ALM frameworks can provide benefits for many organizations, as it is

important for organizations to fully understand their assets and liabilities. One of the benefits
of implementing ALM is that an institution can manage its liabilities strategically to better
prepare itself for future uncertainties.

Using ALM frameworks allows an institution to recognize and quantify the risks present
on its balance sheet and reduce risks resulting from a mismatch of assets and liabilities. By
strategically matching assets and liabilities, financial institutions can achieve greater
efficiency and profitability while reducing risk.

The downsides of ALM involve the challenges associated with implementing a proper
framework. Due to the immense differences between different organizations, there is no
general framework that can apply to all organizations. Therefore, companies would need to
design a unique ALM framework to capture specific objectives, risk levels, and regulatory
constraints.

Also, ALM is a long-term strategy that involves forward-looking projections and

datasets. The information may not be readily accessible to all organizations, and even if
available, it must be transformed into quantifiable mathematical measures.

Risk Mitigated Through ALM

 Liquidity Interest Currency Capital
Risk Rate Risk Risk Market Risk

Equity Management

Equity management is the process of creating and managing owners in your company.
This may sound simple, but it involves everything from tracking and reporting changes in
ownership to updating documents, communicating with stakeholders, consulting your board of
directors, and staying compliant. (Smith, 2020)

Evaluation of the Alternative

In evaluating my alternative and based on other information gathered, debt management and
equity management should be done in every large companies like Jollibee Foods Corporation as
it helps in mitigating risk and achieving the success of every firm.
Recommendation

As I analyzed this case, I can say that based on its financial performance and financial
position the firm is doing well as in every year their profitability has increased. However
despite their great success, I still recommend them the following:

 The company must have Liability and Equity Management

 The company must look at the causes for the loss on defined benefit plan, excess of cost
over the carrying value of non- controlling interest acquired and the non- controlling
interest, for it not to incur for the next years.
 The management of the company should be responsible not only in preparation of
financial statements but also to find ways to mitigate some of the risk involve on their
liability and equity.

Reference

https://asia.nikkei.com/Companies/Jollibee-Foods-Corp

https://www.jollibee.com.ph/about-us/

http://macc.coop/wp-content/uploads/2013/10/equitymanagement.pdf

https://www.businessmanagementideas.com/notes/market/asset-liability-management-alm-
meaning-tools-and-factors/5502

https://corporatefinanceinstitute.com/resources/knowledge/strategy/asset-and-liability-
management-alm/

https://www.investopedia.com/terms/l/liabilitymanagement.asp#:~:text=Liability
%20management%20is%20the%20practice,also%20maintaining%20healthy%20balance
%20sheets.