REPUBLIC FLOUR MILLS CORPORATION

Financial Analysis and Reporting

Submitted by:

Billanes, Alfred Anthony

Diaz, Kirt Emmanuel
Heje, Joshua John
Lanticse, Cindy Michelle

Submitted to:

Geoffrey C. Butanas, CPA, MBA

September 2021
I.COMPANY BACKGROUND

Brief History

RFM Corporation in the Philippines, mainly operates in the food and beverage
industry. It processes and manufactures flour and flour-based products, milk and juice
drinks, canned and processed meats, ice cream, and bottled mineral water. The
company also engages in non-food businesses, like barging services, Rizal Lighterage
Corporation, and insurance brokerage, RFM Insurance Brokers, Inc. The company
operates two major business segments, the flour and bakery products and some
branded food groups that produce flour-based mixes, pasta, canned and processed
meat, milk, and juices.

Nature of Business and its products

RFM Corporation largely gained its revenue through the production of flour and
flour-based products, milk, juice drinks, canned and processed meats, and ice cream.
The company has a wide range of products that can cater all age groups. Its products
are sold through hypermarkets, supermarkets, grocery stores, convenience stores,
wholesalers, distributors, food establishments, flour dealers, flour end users and the
company store.

Major Stockholders

The major stockholders of RFM Corporation are mostly Filipino owned

companies. Triple Eight Holdings, Inc. holds the greatest number of common shares,
which is 745,157,169 or 22.11% of the total shares. The second major stockholder is
the PCD Nominee Corporation, which holds 730,635,674 or 21.68% of the shares, and
followed by Horizon Realty, Inc. who holds 650,139,738 or 19.29% of the common
shares. These major stockholders contributed an outstanding part to the success of the
corporation.

Major Financial Challenges

1. Decrease in Cash and Cash Equivalents Account

- RFM Corporation’s financial statements have shown a significant

decrease of almost P1.5 billion in the company’s “Cash and Cash
Equivalents” account. Having enough cash and equivalents ensures that
the company has the ability to pay its immediate debts. Thus the
decreasing trend in RFM’s “cash and Cash Equivalents” account poses a
huge challenge for the company.

2. Retained Growth of Investments and Revenue

- The RFM Corporation, a food and beverage manufacturer, has reported a

7 percent growth in net income of P893 million in the first nine months of
2020 from the P836 million earned in the previous period. With its
improvement of the earnings RFM corporation has, therein lies the
challenge of continuing the growth of the corporation, especially of the
market competition and pandemic that the company is facing currently.
 3. Maintaining Lower Capital Expenditures

- In order to cope with the COVID 19 pandemic, RFM Corporation trimmed

its capital expenditures. The capex for this year has just amounted to less
than 100 million. If last year capex was over 400 million, this year would
be less than 100 million so far. RFM Corporation continues to post rises in
their profits even on lower capital expenditures. For maximization of
profits, preserving this low amount of capex stands as a challenge to the
corporation.

4. Keeping Low Payout Ratio

- Even in times of crisis, RFM corporation manages to keep their payout

ratio at a low rate compared to its industry average. This year they posted
a 56.56% ratio contrast to the 61.46% in its industry. Lower ratio means a
more sustainable dividend payment program. This appears to be a
challenge to the corporation because keeping this low will attract more
shareholders.

Strengths and Weaknesses

Strengths

- Sustained Growth: Despite the onset of the pandemic, RFM Corporation

has managed to sustain it’s annual growth in both sales and net revenue
in 2020. The first half of the year showed 2% higher sales and 5% higher
income when compared to 2019.
- Strong Employee-Employer Relationship: RFM corporation believes
that it’s relationship with its employees is generally good as evidenced by
the lack of interruptions in its operations due to labor disagreements.
- Leading Product Manufacturer: RFM manufacturer is the leading
manufacturer in a number of its products. The company is known to be the
leading pasta and sauce manufacturer with 32% Volume share and 29%
value share. RFM also continued to dominate the ice cream category with
 76.5% market share. Milk products are also strong with the company’s
ready to drink milk products having a 26% market share in 2020.
Weaknesses

- Old Equipment and Machineries: Due to being in the flour

manufacturing industry for several decades, its operating mills are older
and less advanced than those used by its new competitors. This often
results in considerably lower operating yields for the corporation.
- Decrease in Cash and Cash Equivalents: RFM corporation’s cash and
cash equivalent accounts have decreased when compared to the previous
year. This is concerning because it gives the company lower capability in
immediate debt payments.
- Low Performance in Flour Business. Compared to its performance in its
pasta, sauce, milk, and ice cream products, RFM Corporation suffers from
a weak performance in the flour business. In the flour category, the
company has 8% to 9% of total industry volume sales.

II.INDUSTRY ANALYSIS

RFM Corporation, being a company in the food industry with a wide variety of
products offered in the market is faced with a vast range of competitors, ranging from
those in the food industry such as San Miguel Corporation, Alaska, and, Nestle, though
it should be noted that these competitors are mostly rivals with RFM in the ice cream
industry. There are those as well who are RFM’s competitors in the flour mill industry
such as Liberty Flour Mills, Universal Robina Corporation, and Pilmico Foods
Corporation.
For this portion of the paper RFM will be compared to only Liberty Flour Mills and
Universal Robina Corporation. Liberty Flour Mills is another company who, just like
RFM, manufactures, distributes, and sells flour and flour-based products. Universal
Robina Corporation is also involved in the flour milling business, as well as in
ready-to-drink (RTD) products both in which RFM also takes part in.
Challenges Faced by the Industry

Restricted Movement
One of the challenges that the food industry faces is the COVID 19 disease that
has damaged the entire economy. With this in mind, spending power has lowered due
to unemployment and restricted movement caused by health protocol. Thus lower sales
for companies in the food industry. The lockdowns and the mentioned restricted
movement caused by health protocols has led food retail sectors to expand in the digital
platform. Therefore, one challenge that this sector in the food industry faces is for food
retailers to increase their presence in the digital platform

Food Safety Concerns

Companies who manufacture food products are faced with the risk of having
contaminated or deteriorated products at any point of the production process.
Contaminated and deteriorated products produce loss for the manufacturers, therefore
efforts in improving production, quality control, and packaging are underway to lessen
the risk of having contaminated and deteriorated products.

Hectic Production
Under the food industry, the competition in the market burdens firms the need to
be able to keep up with the hectic demand of products. Companies in the food industry
must make sure that they’re production output is able to keep up with the demand.
Because of this, companies must not neglect technological improvements in their
production line.

Comparison with Competitors

Upon first glance one could say that Universal Robina Corporation outweighs
both RFM Corporation and Liberty Flour Mill. RFM has capital worth P13 billion, LFM’s
capital is P3 billion, and URC has capital worth P122 billion. RFM has 504 employees,
while LFM has about 127 workers. Universal Robina Corporation has about 14,259
employees. RFM’s assets are worth P18,996,234,000. LFM’s assets are lower which
amount to P4,128,362,000, while URC’s assets are larger compared to the two which
amount to P176,194,930,267. In terms of revenue, URC has P133 billion, RFM had
about P15 billion revenue, and LFM got P1 billion in revenue. For the year 2020 RFM
earned profit worth P1,287,650,000, LFM earned about P192,425,105 in profit, and
URC earned a profit of P11,624,602,710. Finally, for the stock price URC has the higher
price which is about P130, LFM’s stock price amounts to P27.55, and RFM has a stock
price of P4.54.

Company Capital

RFM Corporation P13,695,725,000

Liberty Flour Mill, Inc. P3,030,282,506

Universal Robina Corporation P122,527,100,377

Company Number of Employees

RFM Corporation 504

Liberty Flour Mill, Inc. 127

Universal Robina Corporation 14,259

Company Assets

RFM Corporation P18,996,234,000

Liberty Flour Mill, Inc. P4,128,362,000

Universal Robina Corporation P176,194,930,267

 Company Revenues

RFM Corporation P15,700,906,000

Liberty Flour Mill, Inc. P1,351,461,175

Universal Robina Corporation P133,140,081,384

 Company Profit

RFM Corporation P1,287,650,000

Liberty Flour Mill, Inc. P192,425,105

Universal Robina Corporation P11,624,602,710

Company Stock Price

RFM Corporation P4.54

Liberty Flour Mill, Inc. P27.55

Universal Robina Corporation P130

Opportunities and Threats

Opportunities
- Increase On-shelf Availability and Visibility: 94% of sales, particularly
to RFM’s pasta and spaghetti products, come from key channels such as
supermarkets and grocery stores nationwide. Improving distribution and
availability and visibility will result in higher sales for the company on its
pasta products.
- Shift in Eating Behavior: The pandemic has shifted consumer eating
behaviour towards healthier home-cooked meals which give RFM an
opportunity to boost its sales in its pasta, sauce, and milk products.

Threats
- Low Frequency in Product Purchase: As the leading pasta
manufacturer, RFM has the challenge to increase frequency in spaghetti
and pasta preparation. Currently at home, frequency is still twice, once at
Christmas time and once during birthdays. Additionally, because of the
 pandemic celebrations are now limited which affects sales in its spaghetti
and pasta products. RFM has attempted to mediate this threat by
introducing affordable products and leveraging on birthday celebrations.
- Strong Competitors: RFM’s competitors have larger assets and higher
CFOs compared to the company. It is worth mentioning that most of their
competition have better equipment. Particularly in the flour business, RFM
faces large ventures such as Universal Robina Corporation and San
Miguel Corporation. RFM has to face this threat and find ways so that it
remains competitive in the market.

III.MARKET ANALYSIS

Target Market
The RFM Corporation, due to its wide variety of products, has a diversified
consumer market in different regions in the Philippines. The business targets individuals
of all ages 1-64 years old such as children, teens, and adults, given their various
preferences and needs. For instance, most children love pasta and ice creams in their
meals. While teens and adults preferred snacks, which are bread, using one of the
finest quality flour they have. Additionally, the customers' monthly income range may
vary between Php 10,000 to Php 130,000, as long as they have the financial capacity to
buy their product and satisfy their needs.

The company also targets business consumers around the country. The RFM
Corporation manufactures goods such as flour, milk, and ice cream to the market, so
they attract firms that need these ingredients to create their desired product. Businesses
may include restaurants, fellow manufacturers and retailers.

Market Share
According to the Philippines Food and Beverage Report, the market for the food
and beverage industry has earned ₱1,874,659,054,384 in the year 2020. With that said,
the market shares of the 3 companies can be computed. The revenue of RFM
 Corporation is ₱15,700,650,000, Liberty Flour Mill, Inc. has ₱1,351,461,175, and
Universal Robina Corporation has ₱133,140,081,384.

Company Market Share

RFM Corporation 0.84%

Liberty Flour Mill, Inc. 0.07%

Universa Robina Corporation 7.10%

Comparing the market share of RFM Corporation to two of its major competitors,
the Universal Robina Corporation has the greatest market share with 0.84%. Second to
it is the RFM Corporation which has a market share of 0.84%. Lastly, Liberty Flour Mill,
Inc. has the least market share out of the 3 with 0.07%. The remaining 91.99% is the
market share of other different companies in the food and beverage industry market.

IV.SUMMARY OF FINANCIAL RATIOS AND INTERPRETATION

Ratio Formula Detailed Solution Calculated Interpretation Favorable/

Value Unfavorable

1. Working Current Assets - The calculated value Favorable

 Capital Current Liabilities 7,953,340,000 - ₱2,652,831,000 of RFM’s working
5,300,509,000 capital shows that it
has positive working
capital meaning it can
cover its short-term
liabilities

2. Current Ratio Current The current ratio of Favorable

Assets/Current 7,953,340,000 / 1.50 : 1 RFM Corporation
Liabilities 5,300,509,000 amounted to 1.50,
shows that the
company has the
ability to pay its short
term obligations.

3. Quick Ratio Quick Having a quick ratio of Favorable

Assets/Current (7,953,340,000 - 1.10 : 1 1.10 means RFM has
Liabilities 2,130,248,000)/ ₱1.10 to cover each
5,300,509,000 ₱1 of its current
liabilities. This means
the corporation has
the capability to pay
off its current
liabilities

4. Accounts Net Sales/Average This means that RFM Favorable

Receivable Accounts 15,700,906,000 / corporation converted
Turnover Receivable [(1,839,919,000 + 8.00x its receivables into
2,085,525,000) / 2] cash approximately 8
times in the year
2020.

5. Number of Average Accounts RFM obtains its Favorable

Days sales in Receivable/ [(1,839,919,000 + 45.63 days receivables in cash on
receivable Average Daily 2,085,525,000) / 2] / an average of 45.63
Sales (15,700,906,000 / days. It shows that it
365) takes the corporation
some time to convert
its receivables into
cash.
6. Inventory Cost of Goods 9,978,386,000 / 5.52x The calculated value Favorable
Turnover Sold/Average [(2,130,248,000 + shows that RFM, in a
Inventory 1,485,147,000) / 2] year tends to turn
over, sell and/or
replace its inventory
5.52 times a year.

7. Number of Average Inventory/ As of the year 2020,It

Days Sales in Average Daily Cost [(2,130,248,000 + 66.12 days takes RFM Favorable
Inventory of Goods Sold 1,485,147,000) / 2] / corporation 66.12
(9,978,386,000 / days to convert its
365) inventory into sales.
That’s more than two
months to turn
inventory into sales.

8. Ratio of fixed Fixed Assets(Net)/ The fixed asset to Favorable

assets to Long Term long-term liability
long-term Liabilities 4,471,300,000 / 3.97 : 1 ratio of RFM
liabilities 1,125,821,000 Corporation which is
397% as of 2020
means that the
company is solvent
and is able to securely
pay its long-term
creditors using its
fixed assets.

9. Ratio of Total Liabilities/ RFM corporation's Favorable

liabilities to Total Stockholders’ ratio of liabilities to
stockholders Equity 6,426,330,000 / 0.51 : 1 stockholders equity
equity (18,996,234,000 - which is equal to 0.51
6,426,330,000) in 2020 means that
the stockholder's
equity is sufficient to
cover at least twice
the liabilities and thus
makes the company
solvent enough for
creditors.

10. Number of Income before The company's times Favorable

 time interest Income Tax + interest earned ratio
charges are Interest Expense/ (1,812,473,000 + 31.18x which is 31.18
earned Interest Expense 60,045,000) / signifies that its
60,045,000 income is 31 times
higher than its
interest expense
owed from debt
obligations in 2020.
Further, this is an
indicator of the
corporation's
solvency.

11. Number of Net

times Income/Preferred 1,287,650,000 / 0 0
preferred Dividends
dividends are
earned

12. Ratio of net Net Sales/Average The asset turnover Favorable

sales to assets Total 15,700,906,000 / 0.85 : 1 ratio resulted in 0.85
Assets(excluding 18,532,946,000 meaning the company
long-term was able to generate
investments) sales 85% of its assets.

13. Ratio earned Net Income + (1,287,650,000 + 0.072 : 1 RFM corporation’s Unfavorable
on total assets Interest 60,045,000) / ROTA is 0.072.. This
Expense/Average [(18,996,234,000 + means that for every
Total Assets 18,668,510,000)/2] peso RFM corporation
invests in assets
during the year the
net income is ₱0.072

14. Ratio earned Net 1,287,650,000 / 0.10 : 1 The ratio earned on Favorable
on Income/Average {(12,569,904,000 + stockholders equity of
stockholders Total Stockholders’ 12,110,132,000)/2} RFM Corporation is
equity Equity 0.10. This indicates
that the company has
generated a profit of
₱0.10 in every peso of
total equity during the
year.
15. Ratio earned Net Income - RFM Corporation’s Favorable
on common Preferred (1,287,650,000 - 0) / 0.15 : 1 ratio earned on
stockholders’ Dividends / {(8,451,448,000 + common
equity Average Common 8,301,678,000/2} stockholders’ equity is
Stockholders’ 0.15. This means that
Equity the company has
earned ₱0.15 for
every peso invested
by the common
stockholders.

16. Earnings per Net Income - The value calculated

share on Preferred (1,287,650,000 - 0) / P0.38 for the earnings per Unfavorable
common stock Dividends / Shares 3,369,549,358 share on common
of Common Stock stock is 0.38. This
Outstanding means every share
receives ₱0.38. This
EPS is low due to the
low net income paired
with the high amount
of shares of common
stock.

17. Price earnings Market Price per

ratio Share of Common For the year 2020 Unfavorable
Stock / Earnings 4.55 / 0.38 11.97 : 1 RFM’s price earning
per Share on ratio is 11.97x this
Common Stock means for one to earn
₱1, ₱11.97 must be
invested.

18. Dividends per Dividends on The company's DPS Favorable

Share Common Stock / ratio for 2020 which is
Shares of Common 728,242,000 / P0.22 0.22 signifies that
Stock Outstanding 3,369,549,358 each share would
receive P0.22 from
the dividends. It also
shows an increase
from the previous
year's ratio.

19. Dividend yield Dividends per RFM Corporation's Favorable

 Share of Common 2020 Dividend yield
Stock / Market 0.22 / 4.55 P0.048 ratio of 4.8% means
price per Share of that its dividend
Common Stock earnings are about
4.8% of its market
price. This dividend
yield is considered
good since it is higher
than 2019 and is
coming from a
corporation with a
strong financial
position.

V.STATEMENT OF FINANCIAL PERFORMANCE

Sources of Revenue of RFM Corporation

1. Consumer Business - RFM’s consumer business segment mainly manufactures
ice cream products, milk and juices, and sells the latter together with pasta and
rice-based mixes. This segment is considered part of Manufacturing revenue.
2. Institutional Business - The corporation’s Institutional Business segment primarily
manufactures flour and bread products, pasta and rice-based mixes but only
sells flour and bread products. This segment is considered part of Manufacturing
revenue.
3. Services and Others - This includes the other segments which consist of
lighterage, office space leasing and other services shown in aggregate as “Other
operations”. Furthermore, Uncollected Corporate Balances are also included in
this part.

Sources of Revenue 2020 2019

Consumer Business P11,714,928,000 P11,197,075,000

 Institutional Business 3,951,647,000 4,089,187,000

Services and Others 34,331,000 44,201,000

Total Revenue P15,700,906,000 P15,330,463,000

Revenue Graphs for RFM Corporation

RFM Corporation’s total revenue for the year 2019 is composed of three
segments, Consumer Business, Institutional Business, and Services and Others. The
Consumer Business segment earned the largest revenue in this year accounting for
73% or P11.1 Billion. Second to the Consumer Business is the Institutional Business
which makes up for 26.7% or P4.08 Billion of the total 2019 revenue. Finally, RFM
Corporation’s Services and Others Segment contributed 0.3% or P44.2 Million of 2019’s
revenue.
 RFM Corporation’s total revenue for the year 2020 is composed of three
segments, Consumer Business, Institutional Business, and Services and Others. Out of
the three, Consumer Business makes up for 74.6% or P11.7 Billion of RFM’s total
revenue. Following it is the corporation’s Institutional Business which has provided
25.2% or P3.9 Billion of the 2020 annual revenue. Lastly, 0.2% or P34.33 Million was
earned from the company’s Services and Others Segment.
RFM corporation has earned total revenues in 2019 and 2020 of
P15,330,463,000 and P15,700,906,000 respectively. One important thing to note is that
despite the 2020 Global Pandemic, RFM Corporation still managed to earn substantial
revenues. Furthermore, 2020’s Revenue is even approximately 2.4% higher when
compared to 2019’s Total Revenue.
 Horizontal Analysis of RFM Corporation Income Statement

RFM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands)
ACCOUNT 2020 2019 % Increase/Decrease
Revenue
Manufacturing P15,666,575 99.78% P15,286,282 99.71% 2.49% Increase
Services and others 34,331 0.22% 44,201 0.29% 22.33% decrease
P15,700,906 100.00% P15,330,463 100.00% 2.42% increase

Cost of Sales and Services

Raw Materials Used 7,819,825 (49.80%) 7,425,405 (48.44%) 5.31% increase
Outside Services 758,002 (4.83%) 589,920 (3.85%) 28.49% increase
Depreciation and Amortization 356,754 (2.27%) 319,947 (2.09%) 11.50% increase
Other COSS Expenses 1,043,805 (6.65%) 1,079,378 (7.04%) 3.30% decrease

Gross Profit P5,722,520 36.45% P5,915,813 38.59% 3.27% decrease

Operating Expenses
Selling and Marketing (2,877,747) (18.33%) (2,796,297) (18.24%) 2.91% increase
General and Administrative (1,031,649) (6.57%) (1,449,800) (9.46%) 28.84% decrease
(3,909,396) (24.90%) (4,246,097) (27.70%) 7.93% decrease

Other Income (Charges)

Interest income 39,954 0.25% 90,104 0.59% 55.66% decrease
Interest expense (60,045) (0.38%) (67,399) (0.44%) 10.91% decrease
Other income - net 19,440 0.12% 33,965 0.22% 42.76% decrease
(651) (0.01%) 56,670 0.37% 101.15% decrease

Income Before Income Tax P1,812,473 11.54% P1,726,386 11.26% 4.99% increase

Provision for Income Tax

Current 563,156 3.59% 460,935 3.01% 22.18% increase
Deferred (38,333) (0.24%) 35,763 0.23% 207.19% decrease
524,823 3.34% 496,698 3.24% 5.66% increase

Net Income P1,287,650 8.20% P1,229,688 8.02% 4.71% increase

Other Comprehensive
Income 297,941 1.90% (44,312) (0.29%) 772.37% increase

TOTAL COMPREHENSIVE
INCOME P1,585,591 10.10% P1,185,376 7.73% 33.77% increase

Significant Account Trends

1. Services and Others - The horizontal analysis of RFM’s consolidated income

statement has shown a 22.33% or P9.87 Million decrease in the company’s
services and others revenue segment which would include lighterage, office
space leasing and other services shown in aggregate as “Other operations”. This
signifies a drop in the earning capabilities of the company which may be an effect
of the global pandemic as most potential and/or existing business clients for its
office spaces and other services temporarily ceased operations.
2. Outside Services - The cost of RFM's Outside Services was found to have
increased by 28.49% or approximately P168 Million from 2019 to 2020. This is
despite the previously mentioned decrease in Services and Others revenue.
3. Depreciation and Amortization - RFM Corporation’s Depreciation and
Amortization has been shown to have increased by P36.8 Million or 11.50% from
the previous year. This is attributed to the company’s additional acquisitions of
PPEs used in operations such as Silos, Factory Buildings, and Machinery.
4. General and Administrative - The 28.84% or P418 Million decrease in General
and Administrative expense can mainly be attributed to significant changes in the
company’s Personnel Costs, Repairs and Maintenance Costs, and
Transportation and travel expenses. These changes except for the repairs and
maintenance are all possible effects of the nation wide lockdowns.
5. Interest Income - The horizontal analysis also showed a significant decrease in
RFM’s Interest Income for 2020 which amounted to P50.15 Million or 55.66%.
The main reason for this is the company’s sale of its HTC investments in 2019
which make up a sizable part of its Interest Income account.
6. Interest Expense - RFM Corporation’s Interest Expense account has also shown
a 10.91% decrease from 2019 to 2020. Looking closer, this can be attributed
mainly to the significantly lower amount in the company’s Bank loans which
ultimately cause interest expenses to also be lower.
7. Other income (net) - The company’s other forms of income have been found to
have decreased by 42.76% or P14.5 Million in 2020.
8. Other Comprehensive Income - The horizontal analysis also showed a very
significant increase in the company’s other comprehensive income which totaled
to an approximate increase 772.37% of P342 Million from 2019. This mainly due to
the revaluation increments earned by the corporation on one of its land
properties.
9. Total Comprehensive Income - The 33.77% or P400 Million increase in the
company’s total comprehensive income is mainly due to the recognition of the
gains the company earned from the revaluation of one of its land properties.
Vertical Analysis of RFM Corporation Income Statement

RFM CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

ACCOUNT AMOUNT PERCENTAGE

Revenue 15,700,906,000 100.00%
Manufacturing 15,666,575,000 99.78%

Services and Others 34,331,000 0.22%

Cost of Sales and Services 63.55%
Raw Materials Used (7,819,825,000) 49.80%
Outside Services (758,002,000) 4.83%
Depreciation and Amortization (356,754,000) 2.27%
Other COSS Expenses (1,043,805,000) 6.65%
Gross Margin 5,722,520,000 36.45%
Operating Expense 24.90%
Selling and Marketing (2,877,747,000) 18.33%
General and Administrative (1,031,649,000) 6.57%
Other Income Charges (651,000) 0.004%
Income Before Income tax 1,812,473,000 11.54%

Significant Income and Expense Accounts

1. Manufacturing Revenue - The vertical analysis of RFM’s 2020 income

statement shows that the manufacturing makes up P15.6 Billion or 99.78% of all
company revenues. The manufacturing revenues are derived from the consumer
and institutional business segments of the company which focus mainly on the
production of ice cream, milk, pasta, and rice-based products.
2. Raw Materials Used - RFM Corporation’s Raw Materials Used are computed to
be 49.80% of total revenues for 2020. This suggests that almost half of the
earned revenues are charged to the costs of materials used in the production of
the company’s products.
 3. Selling and Marketing Expense - The Selling and Marketing expense of RFM
for 2020 are found to be equal to 18.33% of all total revenues for that year. It is
important to note that this account includes expenses on advertisement, freight
and handling, and outside services which are all crucial aspects of business
operations.

Major Expenses of RFM Corporation

1. Cost of Sales and Services - This account is usually the largest expense that a
business incurs. These expenses are for the production of goods and delivery of
services. This consists of raw materials, outside services, depreciation and
amortization, personnel costs, utilities, repairs and maintenance, rental, provision
for inventory obsolescence, direct labor, fuel and oil, taxes and licenses, and
other expenses.
2. Selling and Marketing Expenses - This account includes everyday operating
expenses. This includes advertisements, freight and handling, outside services,
personnel costs, provision for expected credit losses, depreciation and
amortization, rental, transportation and travel, and other expenses.
3. General and Administrative Expenses - This account is also for everyday
operating activities that are not included in the selling and marketing expenses.
This comprises personnel costs, depreciation and amortization, royalty and
service fees, taxes and licenses, professional fees, repairs and maintenance,
outside services, utilities, director’s fees, transportation and travel, rental,
representation and entertainment, office supplies, insurance, donations, provision
for expected credit losses and other expenses..
4. Other Income (Charges) - The other income consists of interest income, interest
expense, and others such as salaries and wages, retirement benefits, and
depreciation expenses.
 Major Expenses 2020 2019

Cost of Sales and Services

‣ Raw materials used and
changes in inventories P7,819,825,000 P7,425,405,000
‣ Outside services
‣ Depreciation and 758,002,000 589,920,000
amortization 356,754,000 319,947,000
‣ Other Cost of Sales
expenses 1,043,805,000 1,079,378,000

Selling and Marketing

Expenses
‣ Advertisements P 1,101,334,000 P1,314,569,000
‣ Freight and handling 964,637,000 881,399,000
‣ Outside services 402,718,000 286,987,000
‣ Other Selling and 409,058,000 313,342,000
Marketing expenses

General and
Administrative Expenses
‣ Personnel Costs P514,583,000 P687,006,000
‣ Depreciation and 151,137,000 152,158,000
amortization
‣ Royalty and service fees 64,100,000 87,506,000
‣ Other General and
Administrative expenses 301,829,000 523,130,000

Total Major Expenses ₱13,887,782,000 ₱13,660,747,000

Expense Graphs for RFM Corporation

The RFM Corporation’s major expenses are divided into four types. These are
the Cost of Sales and Services, the Selling and Marketing Expenses, the General and
Administrative Expenses, and Other Income (Charges). The company’s largest expense
that they have incurred is the Cost of Sales and Services, totalling an amount of
₱9,414,650,000 or 68.6% of the total expenses in 2019. Following this is the Selling and
Marketing Expense with a total of ₱2,796,297,000 or 20.4% of the expenses. Next is the
General and Administrative Expense amounting to ₱1,449,800,000 or 10.6%.
 The RFM Corporation’s major expenses for 2020 have similar types of expenses
as last year which are the Cost of Sales and Services, the Selling and Marketing
Expense, the General and Administrative Expense, and Other Income (Charges).
Resembling the previous year, the Cost of Sales and Services has the greatest expense
amounting to ₱9,978,386,000 or 71.8% of the expenses for 2020. Following this is the
Selling and Marketing Expense with a total of ₱2,877,747,000 or 20.7%. Finally, the
least amount of expense incurred by the company is the General and Administrative
Expense that is totalling to ₱1,031,649,000 or 7.4% out of all the expenses.
 The RFM Corporation’s annual major expenses in 2019 and 2020 are
₱13,660,747,000 and ₱13,887,782,000 respectively. Comparably, the expenses for
2020 are slightly higher than the expenses for 2019, with a little difference of
₱169,714,000. It is worth noting that with or without the COVID-19 pandemic, the total
expenses of the business operate the same, only that during the pandemic their costs
are marginally higher than the previous year.

Profitability Ratios of RFM Corporation

Ratio Formula Detailed Calculated Interpretation Favorable/

Solution Value Unfavorable

1. Ratio of net Net 15,700,906,00 0.85 : 1 The asset turnover Favorable

sales to assets Sales/Average 0/ ratio resulted in 0.85
Total 18,532,946,00 meaning the company
Assets(excludi 0 was able to generate
ng long-term sales 85% of its assets.
investments)

2. Ratio earned Net Income + (1,287,650,00 0.072 : 1 RFM corporation’s Unfavorable

 on total assets Interest 0+ ROTA is 0.072.. This
Expense/Aver 60,045,000) / means that for every
age Total [(18,996,234,0 peso RFM corporation
Assets 00 + invests in assets
18,668,510,00 during the year the
0)/2] net income is ₱0.072

3. Ratio earned Net 1,287,650,000 0.10 : 1 The ratio earned on Favorable

on Income/Avera / stockholders equity of
stockholders ge Total {(12,569,904,0 RFM Corporation is
equity Stockholders’ 00 + 0.10 or 10%. This
Equity 12,110,132,00 indicates that the
0)/2} company has
generated a profit of
₱0.10 in every peso of
total equity during the
year.

4. Ratio Net Income - RFM Corporation’s Favorable

earned on Preferred (1,287,650,00 0.15 : 1 ratio earned on
common Dividends / 0 - 0) / common stockholders’
stockholde Average {(8,451,448,00 equity is 0.15. This
rs’ equity Common 0+ means that the
Stockholders’ 8,301,678,000 company has earned
Equity /2} ₱0.15 for every peso
invested by the
common stockholders.

5. Earnings Net Income - The value calculated

per share Preferred (1,287,650,00 P0.38 for the earnings per Unfavorable
on Dividends / 0 - 0) / share on common
common Shares of 3,369,549,358 stock is 0.38. This
stock Common means every share
Stock receives ₱0.38. This
Outstanding EPS is low due to the
low net income paired
with the high amount
of shares of common
stock.

6. Price Market Price

earnings per Share of For the year 2020 Unfavorable
 ratio Common 4.55 / 0.38 11.97 : 1 RFM’s price earning
Stock / ratio is 11.97x this
Earnings per means for one to earn
Share on ₱1, ₱11.97 must be
Common invested.
Stock

7. Dividends Dividends on 728,242,000 / 0.22 The company's DPS Favorable

per Share Common 3,369,549,358 ratio for 2020 which is
Stock / Shares 0.22 signifies that
of Common each share would
Stock receive P0.22 from
Outstanding the dividends. It also
shows an increase
from the previous
year's ratio.

8. Dividend Dividends per 0.22 / 4.55 0.048 or RFM Corporation's Favorable

yield Share of 4.8% 2020 Dividend yield
Common ratio of 4.8% means
Stock / that its dividend
Market price earnings are about
per Share of 4.8% of its market
Common price. This dividend
Stock yield is considered
good since it is higher
than 2019 and is
coming from a
corporation with a
strong financial
position.

Overall Interpretation:
RFM Corporation’s profitability ratios are mostly favorable since these ratios are
higher when compared to the company’s 2019 ratios and are also above most of the
ratios of its main competitors. However, some ratios such as the Ratio earned on total
assets, EPS, and P/E ratio indicate areas in which the company can improve such as its
efficiency in asset use, profitability of the stockholder’s investments, and the future
earning prospects of its common stock.

Survivability of RFM Corporation

The RFM Corporation is expected to be able to continue operations throughout

next year and throughout the many years to come mainly because of two reasons. First,
RFM corporation was still able to earn a significant profit in 2020 despite the effects of
the nation-wide lockdown due to the covid-19 pandemic. More importantly, the company
even managed to slightly increase its net income by P57,962,000 or 4.7% from last
year’s earnings. This shows that the company has solid foundations and are able to
cope up with unexpected changes in the Philippine economy. Second, while some of its
profitability ratios are interpreted as unfavorable, other important ratios of profitability
such as the Dividend Yield, and Dividends per Share all show favorable results. This
indicates that at least on the part of the shareholders and investors, RFM is still
delivering above-average results and thus would continue to be a popular investment
choice for the market.

Net Profit Graphs of RFM Corporation

 RFM Corporation has earned a total net income in 2019 of P1,229,688,000 and
P1,287,650,000 in 2020. Similar to its total revenues, the company has managed to
perform quite positively in 2020 as its figures are even higher than the previous year by
about P57,962,000 or 4.7% despite the continuing restrictions on movement and
business operations.

VI.STATEMENT OF FINANCIAL POSITION

Assets

RATIOS CALCULATED VALUE CALCULATED VALUE

(2020) (2019)

Working Capital P 2,652,813,000 P 2,863,061,000

Current Ratio 1.50 1.54

Quick Ratio 1.10 1.26

Accounts Receivable 8.00x 7.81x

Turnover

Number of Days Sales 45.63 days 46.73 days

Receivable

Inventory Turnover 5.52x 5.21x

Number of Days Sales in 66.12 days 70.08

Inventory

Ratio of Fixed Assets to 3.97 3.54

Long-Term Liabilities

Ratio of Liabilities to 0.51 0.54

Stockholder’s Equity

Number of times Interest 31.18x 26.61x

Charges are Earned

Number of Times Preferred 0 0

Dividends are
Earned
 Table 1: Liquidity and Solvency Ratio
As what is presented, the ratios from the previous year and current year are
nearly identical. There are no significant changes among these ratios because most, if
not all of the changes are less than 10%. Meaning the company continues to perform at
a great pace despite the time of this pandemic.

Introduced also in the summary of financial ratios and interpretation, that we

labelled these ratios as favorable. Since RFM Corporation solvency ratios resulted in a
positive manner, it interprets that the company has the capability or can manage to
offset its financial obligations when it becomes due.

Liabilities
The loans that were acquired by RFM Corporation from the bank decreased in
the current year. In 2019, it amounted to P978,500,000, and in 2020 it only amounted to
P595,000,000. Other than that, there are no major loans that were obtained by the
company. This is possibly because, in the financial risk management objectives and
policies of the company, their management is tasked to minimize the credit risk. For that
reason, there are also no new projects that are funded by these loans.

Referring to Table 1, the ratio of liabilities to stockholder’s equity is nearly the

same in both current and previous year. It implies that the stockholder’s equity is
sufficient to cover at least twice the liabilities and making the company more solvent.
The number of times interest charges are earned also changed in a small amount of
percentage from the previous year. In the interpretation we still labelled it as favorable,
meaning RFM Corporation manages its financial leverage ratios well.

Equity

RATIO 2020 2019

Earnings Per Share 0.38 0.36

Dividend Yield 0.048 0.030

 Table 2: Profitability Ratios

In the current year, the RFM Corporation’s earnings per share and dividend yield
has increased, as shown in table 2. It indicates that the company pays out higher
dividends to their stockholders compared to the previous year. The overall dividend
payout to stockholders amounted to 366 million pesos.

VII.CASH FLOWS

Cash Flow from Operating Activities

 Based on RFM’s Cash Flows from Operating Activities major receipts are
from the adjustments for depreciation and amortization, increase in receivables, and
increase in accounts payable and other liabilities. Major disbursements are from
decrease in inventories, and from income taxes paid, including creditable withholding
taxes. RFM’s cash flow statement uses the indirect method which explains why
accounts such as depreciation and amortization are involved. However, since this
account is not a cash expense it’s details won’t be explored much. Depreciation and
amortization had a value of P 556,498,000 (values in the cash flow statement are in
thousands) for the year 2020.
The increase in cash due to accounts receivable is due to the decrease of
receivables from the year 2019 to 2020. From the balance sheet there was a decrease
of receivables by P 245,000,000. A decrease in receivables means an increase in cash
since customers are paying off their accounts. The year 2019 had an inventory worth P
1,485,147,000, then increased to P 2,130,248,000 in the year 2020. This increase is
worth P 645,101,000, which explains the decrease in cash for the increase in inventory,
in which the company spent money to add to inventories. The accounts payable show
an increase of P 372,972,000 in cash. In the liabilities portion of the financial statement
RFM’s accounts payable increased from P 4,154,472,000 in 2019 to P 4,531,514,000 in
2020. Having more payables means that more money must be set aside to pay its
increase, thus more cash was recorded in the cash flow statement. The decrease in
cash by P 482,403 is due to the income taxes paid by the group.
According to RFM’s notes, receivables are usually on a 30 to 60 day term. On
average RFM turns its receivables into cash on an average of 45.63 days. In terms of
efficiency, it can be said that RFM is doing well in terms of collecting its receivables.

Cash Flows from Investing Activities

 The material disbursements and receipts for the CFI include acquisitions of
PP&E and financial assets at FVOCI, proceeds from maturity of financial assets, and
investments in financial assets at FVOCI. RFM purchased additions to its PP&E worth P
519,850,000 which explains the decrease in cash in its CFI. Below is the breakdown of
the expense

The remaining three receipts and disbursements in the CFI relate to RFM’s
financial assets at FVOCI. The negative P 3,644,108,000 in the cash flow is explained
through the group’s purchase of various government and corporate debt securities. The
P 1,204,000,000 increase in cash is from the maturities of these financial assets.
Finally, on various dates in July and September 2020 RFM corporation sold a portion of
its assets at FVOCI, with a carrying value of P 752.66 million, consequently resulting in
a gain in sale amounting to P 0.40 million, which was recognized under the Other
income account. Thus explains the increase of P 753,066,000 in the cash flows from
investing activities.
Cash Flows from Financing Activities

The major disbursements and receipts from the cash flows from financing
activities are from the payment of dividends, the company’s payment and availment of
bank loans, and finally it reacquisition of shares into its treasury stock. The P
728,242,000 decrease in cash is due to the company’s payment of dividends to its
shareholders. Unilever RFM Ice cream Inc. (URICI), a joint venture between RFM and
Unilever Philippines, was able to avail unsecured short-term loans from local banks and
lending investors with effective annual interest rates within the range of 3% to 5.4% in
the year 2020. The P 70,912,000,000 is part of RFM’s proportionate share. Then the
group paid P 71,265,500,000 to cover the availed loan and a portion of its outstanding
balance. In 2020 RFM also purchased 87.13 million shares into its treasury which
amounted to P 382,859,000, thus a decrease in cash.

VIII.CONCLUSION
 After the thorough analysis conducted on RFM Corporation’s financial
statements, market, and industry the following are concluded:

Liquidity/ Solvency
RFM Corporation’s liquidity and solvency ratios, which indicate the company
ability to pay-off its short-term and long-term debts, both show positive results and are
even higher when compared to not only the previous year’s ratios but also to the
industry average. Furthermore, the company’s favorable Current and Quick ratio as well
as its Ratio of Fixed Assets to Long-term Liabilities indicate that the company is able to
meet its currently maturing obligations and is able to provide security for its long-term
creditors. Also, RFM’s Accounts Turnover and Inventory Turnover ratios indicate that
the company is efficient in collecting its receivable and managing its inventories, both of
which are good measures of Liquidity. With all this said, the company is judged to be
both liquid and solvent, with the ability to pay off its debts and continue future
operations.

Profitability
RFM Corporation has earned a net income of P1,287,650,000 in 2020 which is
P57,962,000 or 4.7% higher when compared to 2019. This tells us that the corporation
was still able to generate a considerable profit despite restrictions bright by the global
pandemic. So, on a basic level, RFM can be said to be a profitable company in 2020.
However, while most of its Profitability Ratios agree on this conclusion, some of its
ratios such as the Ratio earned on total assets, Earnings per share, and Price-earnings
ratio suggest some areas of concern for investors and shareholders. These unfavorable
ratios reveal RFM’s inefficiency in its use of assets to generate sales as well as the low
profitability of investments by stockholders and the low future earning potential of its
stocks.

Financial Leverage
The company’s leverage ratio, specifically its Debt-to-equity Ratio indicates that
RFM is mainly financed by equity as its debts are only 51% of its total stockholders
equity account. This can be seen as favorable for the company because it means that
its creditors feel more secure in loaning the corporation funds for future expansions and
operations. More importantly, the Debt-to-equity ratio indicates that the firm’s equity is
able to cover its debts at least twice, securing the possibility of RFM’s continued
operations.

Additional Learnings
Lastly, the corporation’s income statement has also shown a number of
significant information through the vertical and horizontal analysis. The horizontal
analysis method has shown that there are a number of material trends within the
company’s income statement such as the increase in both Outside Services Expense
and Depreciation and Amortization Expense while the Services and Others revenue
also significantly dropped. On the other hand, the vertical analysis revealed that both
Raw materials used and Selling and Marketing expenses make up a huge part of the
deductions made to RFM’s 2020 revenue.

IX.RECOMMENDATION

After reading and analyzing the major parts of the annual report of RFM
Corporation, here are some recommendations from the group in order to help improve
some points that we think will help the company for its future operations:

● First, is concerned about the company’s cash flow from investing activities. In the
year 2020, RFM purchased Financial assets at FVOCI worth P3,644,108,000,
which resulted in a negative cash flow in the CFI worth P2,101,799,000, which
exceeds the cash flow from operating activities. Furthermore, the investment
made for Financial Assets at FVOCI far exceeds the company’s purchase on
HTC investments during the years 2019 and 2018. The group recommends that
RFM would lessen its purchase on Financial Investments at FVOCI in the
following year to help increase its cash and cash equivalents.
● Additionally, as observed in the horizontal analysis of the Statement of Financial
Performance, the expenses incurred for raw materials has a 5.31% increase in
2020 than the previous year. This increase could affect the firm’s income in the
preceding years. Thus, the financial analysts recommend finding alternatives for
the company’s suppliers that offer a lower cost in producing their products in
order to decrease their expenses in the future.

● Another observation is related to the increase of Cost of Sales and Services. This
increase is contributed by the outside service account, which is the cost
attributed to RFM’s Services and Others segment which includes office spaces
leasing and lighterage. The account had a significant increase of 28.49% from
the year 2019 to 2020. Therefore, it is recommended that RFM corporation
decrease this amount by either improving the efficiency of their lighterage
businesses or reducing repairs and other expenses related to the office spaces
they are leasing out. This decrease would greatly help improve RFM’s income
before income tax and even improve their profitability ratios.

● RFM’s Earnings per Share is P0.38. This low EPS would be connected to the
high amounts of issued shares to a low net income. What the company can do to
increase the EPS instead of buying back the shares is by not issuing additional
shares of common stock to offset the low net income. For instance, RFM’s
forecasted net income in the year 2022 would be P1,389,503,000. This was
found by finding the percentage change of the net income from 2018 to 2019 and
2019 to 2020. The average of both percentages was found to be 7.91%. This
was used to forecast the net income for the year 2021. If RFM were to retain its
issued shares the earnings per share would be P0.41 while if RFM also issued
the shares that were bought back in the year 2020 its EPS would be at P0.40.
Though not a sure estimate this example shows how the eps would change if the
company didn’t issue additional shares.
● The company’s products are mostly seasonal or occasional in nature. As
mentioned earlier in this paper, RFM’s pasta and spaghetti products are
purchased by customers only twice in a year, during Christmas and birthdays. Ice
cream products clearly aren’t staple foods, and are bought during occasions. To
improve sales, increasing purchase frequency is appropriate. One way the
company can do this is by continuing their initiative of creating and introducing
ice cream, and spaghetti products that are more affordable to the masses.
X.CURRICULUM VITAE

Contact Information
Name: Kirt Emmanuel O. Diaz
Address: Cogon Heights Subdivision, Cogon, Digos City
Cell Phone No.: 09301872016
Email: keodiaz@addu.edu.ph

Personal Information
Date of Birth: May 30, 1999
Place of Birth: Digos City, Davao del Sur
Citizenship: Filipino
Gender: Male
Civil Status: Single

Education
Elementary:
● Cor Jesu College (2006-2012)
Junior High School:
● Cor Jesu College (2012-2016)
Senior High School:
● Cor Jesu College (2016-2018)
Contact Information
Name: Alfred Anthony V. Billanes
Address: 01 Allah Valley Drive, Surallah, South Cotabato
Cell Phone No.: 09982554989
Email: aavbillanes@addu.edu.ph

Personal Information
Date of Birth: June 25, 2000
Place of Birth: City of Koronadal, South Cotabato
Citizenship: Filipino
Gender: Male
Civil Status: Single

Education
Elementary:
● NDMU-IBED (2007-2013)
Junior High School:
● NDMU-IBED (2013-2017)
Senior High School:
● Ateneo De Davao University (2017-2019)
Contact Information
Name: Joshua John S. Heje
Address: Purok 3, San Teodoro,
Bunawan, Agusan del Sur
Cell Phone No.: 09398154015
Email: joshuah3j3@gmail.com

Personal Information
Date of Birth: December 2 2000
Place of Birth: Davao City, Davao del Sur
Citizenship: Filipino
Gender: Male
Civil Status: Single

Education
Elementary:
● Colegio de San Ignacio (2007-2010)
● Rizal Special Education Learning Center (2010-2013)
Junior High School:
● Holy Child College of Davao (2013-2017)
Senior High School:
● Ateneo de Davao Senior High School (2017-2019)
Contact Information
Name: Cindy Michelle B. Lanticse
Address: Mayon St., Juliville Subd.,
Tigatto, Davao City
Cell Phone No.: 09284204044
Email: cmblanticse@gmail.com

Personal Information
Date of Birth: January 14, 2001
Place of Birth: Davao City, Davao del Sur
Citizenship: Filipino
Gender: Female
Civil Status: Single

Education
Elementary:
● Ateneo de Davao Grade School (2008-2013)
Junior High School:
● Ateneo de Davao Junior High (2014-2017)
Senior High School:
● Ateneo de Davao Senior High School (2018-2020)