Effects of profitability to capital structure of companies listed in ps ei

STUDENT RESEARCH

BUSINESS ADMINISTRATION DEPARTMENT College of Business, Economics, Accountancy and Management

EFFECT OF PROFITABILITY TO CAPITAL STRUCTURE OF

COMPANIES LISTED IN PSEi

A Thesis Presented to the Faculty of

De La Salle Lipa, College of Business, Economics, Accountancy and Management

In Partial Fulfillment of the Requirements for the Degree

Bachelors of Science in Business Administration Major in Financial Management

By

Escano, Roycelyn Mamiit, Ma. Tiara

Rubis, Leona Marie Tiongson, Roeschelle Anne

October 2014

STUDENT RESEARCH


ACKNOWLEDGEMENT

This research paper is made possible through the help and support from everyone, including: God, parents, teachers, family, and friends. Especially, please allow the researchers to dedicate the acknowledgment of gratitude toward the following significant advisors and contributors: First and foremost, the researchers would like to thank their thesis adviser, Ms. Shiela Maloles for her most support and encouragement. Second, the researchers would like to thank their Teacher In Charge, Mr. Allan Castro who kindly read their research paper and offered invaluable detailed, and to their Statistician, Ms. Winnie Dimaano for her patience and never ending understanding and valuable advices. And to their oral defense committee, who have made this research more possible and well finished. Finally, the researchers sincerely thank their inspiration on pursuing this research, God. Also, their parents, family, and friends, who provide the advice and financial support, the product of this research paper would not be possible without all of them.

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ABSTRACT

Title: Effect of Capital Structure to Financial Performance of

Companies Listed in PSEi

Authors: Escano, Roycelyn, ([email protected])

Mamiit, Ma. Tiara, ([email protected])

Rubis, Leona Marie,([email protected])

Tiongson,RoeschelleAnne

([email protected])

The focus of this paper is to identify the effects of profitability to capital structure by

using different ratios to different companies. The study started with the profiling of the

companies according to their industry. The researchers used the listed companies from

PSEi with different industries. Results provided from the computation of ratios were used

to determine the effects of profitability to the capital structure of the business. This was

identified through the calculations of debt ratio, debt to equity ratio, rate of return on

assets, rate of return on equity and net profit margin. In this study, it was found that the

net profit margin and rate of return on equity are not significantly correlated with debt to

equity ratio and debt ratio while rate of return on assets are significantly correlated with

debt to equity ratio. On the other hand, the rate of return on equity is also not

significantly correlated with the debt ratio.

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TABLE OF CONTENTS

PAGE List of Tables .......................................................................................................... i List of Figures ......................................................................................................... ii

Chapter I Introduction ............................................................................................ 1 Background of the Study ........................................................................... 1 Statement of Research Problems ................................................................ 2 Conceptual Framework ............................................................................... 3 Hypothesis................................................................................................... 5 Objectives of the Study ............................................................................... 6 Significance................................................................................................. 6 Scope and Limitations................................................................................. 8 Definition of Terms..................................................................................... 9 Chapter II Review of Related Literature ................................................................. 11 Related Reviews.......................................................................................... 12 Chapter III Research Methodology ......................................................................... 23 Research Design ......................................................................................... 23 Sampling Design ........................................................................................ 24 Locale of the Study .................................................................................... 24 Research Tools and Instrument .................................................................. 25 Data Gathering Procedure .......................................................................... 25 Data Analysis and Interpretation ............................................................... 26 Chapter IV Results and Discussion ........................................................................ 29 Chapter V Summary, Conclusions and Recommendation ...................................... 99 References ............................................................................................................... 103 Appendices ......................................................................................................... 107

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LIST OF TABLES TABLE PAGE

1. Table 1

Table No. 1.0 Relationship between Rate of Return on Equity

and Debt to Equity Ratio and Debt Ratio ................................ 91

Table No. 1.1 Relationship between Rate of Return on Assets

and Debt to Equity Ratio and Debt Ratio .............................. 92

Table No. 1.2 Relationship between Net Profit Margin

and Debt to Equity Ratio and Debt Ratio ................................ 93

Table no. 1.3 Effect of Rate of Return on Equity to Capital structure .......... 94

Table no. 1.4 Effects of Rate of Return on Assets to Capital Structure ........ 95

Table no. 1.5 Effects of Net Profit Margin to Capital Structure .................... 96

Table no. 1.6 Significant differences of capital structure and financial performance

when group according to industries .......................................... 97

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LIST OF FIGURES

FIGURE PAGE 1. Figure 1.0 Operational Framework ………………………………………….5

2. Figure 1 Debt to Equity Ratio

Figure 1.1 Debt to Equity Ratio of Holding Industry ................................... 30

Figure 1.2 Debt to Equity Ratio of Real Estate ............................................. 34

Figure 1.3 Debt to Equity Ratio of Banks ..................................................... 35

Figure 1.4 Debt to Equity Ratio of Banks ..................................................... 36

Figure1.5 Debt to Equity Ratio of Telecommunication ............................... 38

Figure 1.6 Debt to Equity Ratio of Casino and Gaming Industry ................. 39

Figure 1.7 Debt to Equity Ratio of Food & Beverages Industry .................. 40

Figure 1.8 Debt to Equity Ratio of Mining Industry .................................... 42

Figure 1.9 Debt to Equity Ratio of Transportation Industry ........................ 43

3. Figure 2 Debt Ratio

Figure 2.0 Debt Ratio of Holdings ............................................................... 44

Figure 2.1 Debt Ratio of Real Estate Industry ............................................. 46

Figure 2.2 Debt Ratio of Banks .................................................................... 47

Figure 2.3 Debt Ratio of Industrial/Power/Electricity Industry ................... 48

Figure 2.4 Debt Ratio of Telecommunication Industry ............................... . 50

Figure 2.5 Debt Ratio of Casino and Gaming Industry ................................ 51

Figure 2.6 Debt Ratio of Food & Beverages Industry ................................. 52

Figure 2.7 Debt Ratio of Mining Industry .................................................... 53

Figure 2.8 Debt Ratio of Transportation Industry ........................................ 54

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4. Figure 3 Return on Equity

Figure 3.0 Return on Equity of Holdings ..................................................... 55

Figure 3.1 Return on Equity s of Real Estate Industry ................................. 57

Figure 3.2 Return on Equity of Bank Industry ............................................. 58

Figure 3.3 Return on Equity of Industrial/Power/Electricity Industry ......... 60

Figure 3.4 Return on Equity of Telecommunication .................................... 62

Figure 3.5 Return on Equity of Casino and Gaming .................................... 63

Figure 3.6 Return on Equity of Foods and Beverages ................................. 64

Figure 3.7 Return on Equity of Mining ........................................................ 65

Figure 3.8 Return on Equity of Transportation ............................................ 66

5. Figure 4 Return on Asset

Figure 4.0 Return on Asset of Holdings ....................................................... 67

Figure 4.1 Return on Assets of Real Estate Industry ................................... 70

Figure 4.2 Return on Assets of Bank Industry ............................................. 71

Figure 4.3 Return on Assets of Industrial/Power/Electricity Industry ......... 73

Figure 4.4 Return on Assets of Telecommunication Industry ...................... 74

Figure 4.5 Return on assets of Casino and Gaming ..................................... 75

Figure 4.6 Return on assets of Food & Beverages Industry ......................... 76

Figure 4.7 Return on Assets of Mining Industry (Philex and Semirara) ...... 77

Figure 4.8 Return on Assets of Transportation Industry .............................. 78

6. Figure 5 Net Profit Margin

Figure 5.0 Net Profit Margin of Holdings .................................................... 79

Figure 5.1 Net Profit Margin of Real Estate Industry .................................. 82

Figure 5.2 Net Profit Margin of Bank Industry ............................................ 83

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Figure 5.3 Net Profit Margin of Industrial/Power/Electricity Industry ........ 84

Figure 5.4 Net Profit Margin of Telecommunication Industry .................... 86

Figure 5.5 Net Profit Margin of Gaming Industry ....................................... 87

Figure 5.6 Net Profit Margin of Food & Beverages Industry ...................... 88

Figure 5.7 Net Profit Margin of Mining Industry (Philex and Semirara) .... 89

Figure 5.8 Net Profit Margin of Transportation Industry ............................. 90

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CHAPTER 1

INTRODUCTION

Background of the Study

Deciding on how one company should finance their operations is one of the very

important matters that an organization must need to give much attention. Many

researchers discussed capital structure as part of debt and equity for the use of financing

the operations of business. The objective of this study is to know if the profitability of the

companies affect its capital structure. This study will help the company to determine how

a firm can finance its overall operations and growth by using either debt or equity. This is

also an important matter to discuss because of its influence over the company’s return for

its shareholders and how all of these affect the overall performance of the firm.

There have been researches that show that the capital structure plays an important

factor on the performance of a business. This research aims to identify if the profitability

has a significant effect to firm’s capital structure. In the management, deciding on what to

use for financing has been an important matter for the company. According to Mr.

Ogebe, Ojah Patrick, financing and investment are two major decision areas in a firm.

The firm uses various sources of funds to finance its operation and capital investments.

Thus, capital structure decisions play an essential role in getting the best out of the

performance of firm.

The researchers used different ratios: debt to equity ratio, debt ratio, rate of return

on equity, rate of return on assets, and net profit margin; to find out the relationship of

capital structure and profitability and how the profitability of the companies can have an

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effect to their capital structure. These ratios were used in comparing the different

companies across industries. Through this, the computed ratios became the basis whether

such company’s or industry’s capital structure was affected by their financial

performance in terms of their profitability.

The researchers aimed to identify the relationship of capital structure and financial

performance in their businesses and to know if financial performance affects capital

structure. The studies also give the researchers enough information that will be needed

for the importance of capital structure in firm’s financial performance.

Statement of the Problem

1. What is the industry classification of the companies listed in PSEi?

2. What is the capital structure of the companies listed in PSEi in terms of :

a. Debt Equity Ratio; and

b. Debt Ratio?

3. What is the profitability of the companies per industry for the period 2004-

2013 in terms of:

a. Rate of Return on Equity;

b. Rate of Return on Assets; and

c. Net Profit Margin?

3. Is there a significant relationship between profitability and capital structure?

4. Does profitability significantly affects companies’ capital structure?

5. Is there a significant difference in the capital structure and profitability of

the companies when grouped according to industries?

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Research Framework

The research framework of this study involved conceptual framework from the

previous studies obtained from secondary data and the researchers aim to discuss the

main things to be studied. This section also included operational framework which aimed

to identify the relationship between the variables.

Conceptual Framework

Capital Structure decision is vital since the profitability of an enterprise is directly

affected by such decision (Kajananthan & Nimalthasan, 2012). The most common

scenario that any financial managers face nowadays is on how they will finance their

capital structure, is it through debt financing or equity financing. Debt financing by

means that the company raises money thru selling of bonds, bills or notes to individual

and institutional investors. The good thing about debt financing is that the company

relationship ends once the money is paid back and has no more obligations and the

interest on the loan is tax deductible. And the bad thing is that the borrowed money must

be paid back within a fixed amount of time and the possibility of high risk by potential

investors that will stop the company in raising fund. On the other hand, Equity financing

is where the company earns money through the sale of shares in enterprises. The

company would have more cash on hand for expanding business and not obligated to pay

back the investment if the company fails but the most difficult part of equity financing is

that the company owner might have a hard time to look for the right investor that would

agree on every decision the owner might make.

There are a lot of factors that have to be considered before making any decision in

terms of capital structure. The capital structure is how a firm finances its overall

operations and growth by using different sources of funds. The mixture of it is company’s

long-term debt, specific short-term debt, common equity and preferred equity (Brealey,

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et.al., 2007). A strong and competitive balance sheet is one way to make an edge over

others. Perfect capital structure planning will increase the power of the company to face

the losses and changes in financial market especially in times of recession.

The Pecking Theory best fits the study. This theory states that the cost of

financing increases with asymmetric information. When it comes to methods of raising

capital, companies prefer financing that comes from internal funds, debt, and issuing new

equity, respectively. Raising equity can be considered a last resort. Asymmetric

information is a situation where one party in a transaction has more or superior

information compared to others. There are three factors that the pecking order theory is

based on and that must be considered by firms when raising capital: Internal funds are

cheapest to use (no issuance costs) and require no private information release, debt

financing is cheaper than equity financing and managers tend to know more about the

future performance of the firm than lenders and investors. Because of this asymmetric

information, investors may make inferences about the value of the firm based on the

external source of capital the firm chooses to raise. The theory suggests that firms have a

particular partiality order for capital used to finance their businesses (Myers & Majluf,

1984). Outstanding to the information asymmetries between the firm and potential

investors, the firm will prefer retained earnings to debt, short-term debt over long-term

debt and debt over equity. Myers and Majluf (1984) argued that if firms issue no new

security but only use its retained earnings to support the investment opportunities, the

information asymmetric can be determined. That implies that issuing equity becomes

more expensive as asymmetric information insiders and outsiders increase. Firms which

information asymmetry is large should issue debt to avoid selling under-priced securities.

The capital structure decreasing events such as new stock offering leads to a firm’s stock

price decline. Profitable firms are likely to have more retained earnings.

On this theory, it further explains that corporate management prefers to fund their

investment with internally generated funds instead of externally generated. The pecking

order theory suggests that the firm will prefer first to use internal funds. Companies that

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are more profitable will therefore have less use of external sources of capital and may

have lower debt to equity ratios. The significance of pecking order theory states that, in

contrast to the tradeoff theory, that profitable companies should have a high solvency

whereas less profitable firm should have lower (Myers 1984).

Operational Framework

Figure 1.0 Operational Framework

The profitability of the firm in terms of rate on return on equity, rate of return on

asset, and net profit margin are the independent variables while the capital structure

which are debt to equity ratio and debt ratio are the dependent variables.

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Hypotheses

Ho1: There is no significant relationship between profitability and capital structure.

Ho2: Profitability has no significant effect in capital structure.

Ho3: There are no significant differences in the capital structure and profitability of

companies when grouped according to their industries.

Objectives of the Study

At the end of this research study, the researcher aims to:

1. Classify all the companies according to their industries;

2. Know the capital structure and profitability performance of the 28 listed companies

in PSEi;

3. Determine if significant relationship exist between profitability and capital

structure;

4. Find out if profitability significantly affect capital structure; and

5. Determine if significant differences exist in the capital structure and profitability of

companies when grouped according to industries.

Significance of the Study

The researchers desire that the result of the study will be helpful and significant for

the following:

1. Companies.

The information in this study provides an intuitive understanding of how the

company conducts business. Moreover, this study is for other companies who are not

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included in the PSEi if they want to be on top also just like others. This can help them to

adapt the capital structure used by the top performing companies if it was proven that the

capital structure has a positive effect and relationship to its financial performance.

2. Shareholders or Investors.

It is very important for the shareholders or investors to know whether the money

they will put in a company will gain returns or losses. It is of great use for them to know

how a company finances its overall operation. Through the transparency of the

company’s financial performance, the shareholders and investors would be able to

forecast of where the company is going dependent upon their capital structure. Capital

structure can influence not only the return a company earns for its shareholders, but

whether or not a firm survives in a recession or depression. With these information,

stockholders can find out how management employs resources and whether they use

them properly.

3. Businessman.

The study will also help those who want to start a new business. If they have

knowledge in the importance and the relationship of the capital structure and financial

performance, this will help them in deciding whether to finance its new business by

incurring more debt than their own money to put up such business they want to engage

in.

4. Financial Students.

This can be a great help for the financial students if they will be a future managers

and will be asked to advice some business persons regarding which capital structure will

they prefer if one will start up a new business.

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5. Future Researchers.

This study could be a basis for the future researchers if they will also want to

have a further study about the significance of capital structure in relation to other

financial statements of one company.

Scope and Limitation of the Study

The study mainly focused on the financial statements of the 30 selected companies

from different industries that are listed in the PSEi as of April 05, 2014. Also, the

industries of the top 30 companies are the only industries that will be the basis of the

study. A ten year records of the companies’ Financial Statements were used in computing

the ratios to execute the study, the year will only start from year 2004 up to year 2013.

Unfortunately, due to insufficient data that was gathered from the internet, PSE, and

SEC, the researchers were only able to have the 28 companies having a complete

financial statements that have a complete ten-year period. The only industries included in

the study are the following: holding firms, real estate, bank, electricity/industrial/power,

telecommunication, casino and gaming, food and beverages, mining, and transportation.

Moreover, the following ratios were used in conducting the study: debt asset ratio, debt

equity ratio, rate of return on equity, rate of return on assets, and net profit margin that

are all applicable for the industries. The study mainly focused on the effect and

relationship of the capital structure and financial performance of the companies treated as

one or as a whole and not per industry. The reason for such is that the researchers treated

the 28 companies having the same effect in capital structure towards their financial

performance because all these companies are the largest or biggest companies in the

Philippines.

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Definition of Terms

Bank Industry - It is a business organization that are engaged in a particular kind of

commercial enterprise

Capital Structure – It refers to the amount of money used in financing certain type of

business. It may be through acquiring debt or financing through the shareholder’s equity.

Casino and Gaming Industry - It refers to the type of industry wherein companies are

engaged in casinos and gambling operations. Companies which are classified as casinos

are often engaged in restaurant and hotel services.

Debt Capital – This is the type of financing wherein the company financed their

investments to operate the business through borrowing from another organization or from

public.

Debt Financing - This is the type of financing wherein the company financed their

investments to operate the business through borrowing from another organization or from

public.

Equity Financing - This kind of financing is acquiring funds for the business through the

shareholder’s ownership of wealth or money

Financial Performance- The level of performance of a business over a specified period

of time, expressed in terms of overall profits and losses during that time.

Foods and Beverage Industry – This type of industry is composed of companies which

are involved in the processing of raw food materials, packaging, and distributing them. It

includes foods whether fresh or packaged and alcoholic and nonalcoholic beverages.

Holdings Industry - It is a business organization (parent) that owns and control a portion

of stocks of another company (subsidiaries) for the purpose of controlling and managing

it.

Industrial/Power/Electricity Industry - It is a business organization that provides

electricity to public.

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Mining Industry – It refers to the type of industry wherein the companies are engaged in

the business process of extracting ore or minerals from the ground.

Optimal Capital Structure - It is the greatest proportion of debt over the equity that

maximizes the value of the firm. Optimal Capital Structure is the one that gives

steadiness between the ideal debt to equity array and it decreases the cost of capital of

such firm.

Pecking Order Theory - This theory is also known as the Pecking Order Model in

which this approach aims to define the capital structure of a company and how the

company handles the process of making financial decisions.

PSEi - The Philippine Stock Exchange Index is a capitalization-weighted index

composed of stocks. It is the main stock market index of the Philippine Stock Exchange

that includes most major Philippine companies listed in the PSE.

Real Estate/Property Industry - It is an organization primarily engaged in renting or

leasing real estate to others; managing real estate for others; selling, buying, or renting

real estate for others; and providing other real estate related services, such as appraisal

services.

Stockholders – They are the people behind the existence of a certain business or

company and they are the holder of a large portion of the company’s shares. They may be

a group of people, an individual or an organization that owns a business.

Telecommunication Industry - It is a business organization that engaged in the

transmission of information, pictures, words and images by telegraph, telephone , radio or

television.

Transportation Industry – In this industry, companies provide rail, truck, waterborne

transportation and transit and ground passenger etc.

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CHAPTER 2

REVIEW OF RELATED LITERATURE

This chapter contains different literature and studies that were conducted by the

early researchers that has a significant relation to the topic. Different concept will be

stated that will be of great help to the betterment of the study and will contribute to the

development of the research.

Deciding what sources of fund a company is going to use is one of the most

difficult and most complicated issues that different companies are facing every time an

individual will have a business start up and the most critical decision to have to attain the

long-run survival of their business’ operations. Capital structure is a combination of

company’s debt and equity. It is about how one company finances its overall operations

and development from different sources of money (Investopedia). There are two sources

of funding where firm can get money to raise their capital: from internal and external.

Internal funding is through the issuance of common stocks, preferred stocks and the

reserves. While external funding is through the issuance of loans, short term and long-

term bonds to public to accumulate more capital. These two sources of funding will have

an impact in the debt and equity having an effect in the firm’s financial performance. On

this paper, the proponents want to know if there is a significant connection between

profitability and capital structure of such firm. This study focus on various companies of

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different industries to have a comparison between their performances and to know if

capital structure was affected by company’s profitability.

Related Reviews

R.Kajananthan and P.Nimalthasan (2013) had a research about relation between

capital structure and firm performance of listed manufacturing companies in Sri Lankan.

Managing well the capital structure of every company is one way of ensuring its long-

term existence. A well-managed capital structure will define how a company values their

shareholders and investors. When there is a properly managed firm and capital structure,

it will result to a proper and efficient practice in the administration of business entities.

The researchers gathered annual reports of said manufacturing companies. The

researchers used descriptive statistics, correlation analysis and regression analysis to

estimate results. The researchers ended up with a result that gross profit, net profit, rate of

return on equity and rate of return on assets are not significantly correlated with debt to

equity ratio and gross profit margin and rate of return on equity are significantly

correlated with debt ratio as the measure of capital structure and capital structure has

significant impact on gross profit and rate of return on equity. With all the result, it

proves that the increase in leverage negatively affects the ROE. The researches gave

recommendations to the managers that they shall not use excessive amount of leverage in

their capital structure, always finance their projects well with retained earnings and use

leverage as last option.

Tharmila K. and Arulvel K. K studied about the impact of the capital structure and

financial performance: A study of the listed companies traded in Colombo stock

exchange. The listed companies in Colombo stock exchange have 295 companies

representing 20 business sectors with period of 5 five years from 2007 to 2011. They

gathered annual reports from published annual reports, fackbook, and website of listed

companies in CSE from 2007 to 2011. The authors had a study that focuses on capital

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structure and financial performance. According to this research, one of the most

important resources in the firm’s financial decision-making process is the capital. Capital

basically identified as ownership or non-ownership in corporate financial aspect. The

usually represent equity capital and debt capital. Mixture of different variety of long-term

sources of funds and equity shares including reserves and surpluses of an enterprise

called Capital Structure. The study had an objective that is to identify the relationship

between capital structure and financial performance of listed companies traded in

Colombo Stock Exchange, to also evaluate the interrelationship between two variables

and find out the impact of capital structure on profitability. When considering about the

capital structure effects on the performance of listed companies, it has some impacts on

the performance. Therefore, the capital structure of the companies has the influence on

the performance of listed companies (Tharmila, 2013). According to Champion (1999)

and Leibeste (1966), companies can use more debt to enhance their financial performance

because of debt’s capability to cause managers to improve productivity to avoid

bankruptcy. The point here is that, debt must be repaid while dividend payment is not

obligatory and can even be postponed if the firm is financially hard up. The problem

statement on this study is to study how the capital structure negatively or positively

influences on signaling the firm’s performance. The researchers used quantitative

research and approach to come up with the results of the study and descriptive statistics

to describe and summarize the behavior of the variables in a study. Since the objective of

the researchers is to determine the relationship between the capital structure and financial

performance, the researcher can drive the conclusions regarding the impact of capital

structure on company’s financial performance. There is a negative relationship between

the capital structure and financial performance.

Margaritis and Psillaki (2008) studied the relationship between capital structure and

firm performance across different industries with the use of manufacturing firms in

France. Their study has an analysis also which states that the agency cost or agency

problem can arise between the debt holders and equity holders. Their findings were

supported by the theory formulated by Jensen and Meckling (1976). Margaritis and

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Psillaki concluded that when the owners only finance the capital structure, it can lower

agency cost that can lead to a better financial performance. But they also stated that there

is statistically negative relationship between capital structure and financial performance

in specific industries like computer industries and textile industries.

Mohamad and Abdullah tried to look at the impact of debt and equity financing on

the firm’s performance in five selected sectors in Bursa Malaysia Main Board. They

analyzed financial structure and performance using secondary data gathered from firms’

annual report having a ten-year comparison. They applied regression analysis to test if

there is a significant relationship between capital structure and financial performance.

With their findings based on the regression analysis, they have found out that there was a

negative significant relationship between capital structure and firm’s performance as far

as the sample of Malaysia firm is concern.

Bagheri, et.al. (2012) look into the impact of capital structure on the financial

performance of listed companies in the Tehran Stock Exchange. They used rate of return

on asset (ROA) and rate of return on equity (ROE) to measure the firm’s financial

performance. The research suggests that there is no relationship between debt ratio and

financial performance of the companies but has a positive relationship between asset

turnover, firm size, asset tangibility ratio, and growth opportunities with financial

performance measures. Moreover, research outcome shows that by lowering debt ratio,

management can raise the company’s profitability and the amount of the company’s

financial performance measures and can also increase shareholders wealth. Debt ratio

was used to measure financial status of the companies. This ratio can help investors to

identify how risky a company is.

Elsas and Florysiak (2008) conducted a survey paper that summarizes and

discusses recent developments in empirical capital structure research. They also studied

additional factors that affect capital structure like corporate ratings or irrational managers.

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They found out that leverage adjustments are changing in pattern due to fixed costs of

issuing new securities.

Brenda used 69 Romanian firm listed on the Bucharest Stock Exchange during the

period of 2004-2011 as a sample to know the impact of the recent financial crisis on the

capital structure. With all the estimation with Arrelano and Bond’s (1991) difference

Generalized Method of Moments estimator, they had come up with the use of a dynamic

panel date model. These would also be a source for our team to see if there would also be

some factors that affects capital structure. The optimal capital structure was also

discussed on this research, this states to the structure which maximizes the firm’s value

and includes important decision concerning the kinds of long term financing used by

firms. The recent financial crisis gave an effect in Romania in the late 2008 in terms of

reduced economic growth possible. The decline of exports, partial access to external

finance was the negative results of the crisis. Isarescu (2009) and thus, decrease in the

volume of the available debt, a depreciation of domestic currency, withdrawal of the

investors from the Romanian market, and a deterioration of the firms and population net

assets because of the high proportion of foreign currency loans. With all the given

information, they had come up with a conclusion that the recent financial crisis has a

positive impact on the capital structure as well as to the financial performance of a firm.

To be in general, financing behavior is given by the fact that during the crisis, the market

value of firm’s equity is low and these firms choose debt to finance their activities.

Norvaisiene (2012) defined capital structure as a kind of behavior of the company

as well as its performance results and its value. The researchers used financial annual

reports of the selected listed companies of Lithuanian, Latvian and Estonian for the

purpose of investigation on the impact of capital structure on the performance efficiency

of the said companies. The gathered data has to cover the period of 2002-2011 of 70

listed companies; these are composed of 28 Lithuanian companies, 14 Estonian

companies, and 28 Latvian companies. The researcher stated that the company’s main

goal which is to maximize the return earned by the shareholders that can be encouraged

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when increasing part of the debt capital in the structure of companies’ financing sources;

however this decision leads to a greater financial risk. For the company to have the ability

to readjust in the competitive and quickly changing economic environment, decisions on

capital structure should be taken seriously and important. With all the given statements

on the exact journal, to summarize all the research results by the researcher, capital

structure has a significant impact on the performance efficiency of companies in Baltic

countries: higher level of financial debt leads to lower profitability indicators and lower

current solvency, while higher level of non-financial debt positively impacts fixed asset

turnover and total assets turnover.

Tudose studied about capital structure and firm performance an evolution of

debates. The researcher proposed an objective for them to achieve their goal, first is to

identify the conceptual framework, theoretical aspects were they will emphasize on the

foundations of capital structure and its firm performance, empirical research that show

the dimension and the results of the study. The researcher use a 3 approaches the

conceptual, theoretical and empirical approach in order to conduct the study. The

conceptual approach is where both capital structure and the financial performance were

given by different a meaning that was being debated in the finance. These are the study of

the authors that they are arguing: first Brezeanu, P. (1999) that structure of the total

liabilities on firms balance sheet will be the basis of financial structure, Toma, M. and

Alexandru, F. (1998) that the ratio for short term and long term financing will be the

basis of the firm’s financial structure, Jobard, J. P. (1990) that the relationship of 1 +

(debt/equity) to firm’s financial structure can be distinct but Depallens, that in this case,

the debt maturity that considered is not evenly specified, Ginglinger, E., (1991) the

records of the liabilities in the balance sheet does not only reflect its financial debt,

operational any other kinds of debt but it is also the debt maturity and lastly Giurgiu, A.,

(1992) that the composition of financial structure can be the sources and the duration of

the use of capital. The theoretical approach is the review of theories proposed in respect

to the capital structure and firm performance that constitutes the empirical foundation.

The decision making of a firm will signify its capital structure because it is not only

STUDENT RESEARCH


created in the maximizing of shareholders equity but also to guarantee that it can survive

on the competitive environment. Modigliani, F., Miller, M., (1958) proposed that value of

the firm is independent of its financial structure; subsequently (1963) that the effects of

the benefits of the tax shield of debt wherein debt can lessen the payment obligation and

that capital structure is optimal at a 100% debt financing. The empirical research is done

after studying the theoretical foundation and the list of determinants of performance and

the next will be empirical research. The study results that in the conceptual approach the

difference between the financial structure and financing structure is a part of whole type

relation and its differentiation is the maturity funds. It also result that the assessment of

the firm performance is dependent upon its objectives that are set. In the theoretical

approach, it is the review of the theories that it is the review of the theories that have been

formulated in respect to the capital structure and firms performance; as a result there is no

agreement on the link between capital structure and firm performance. In the empirical

approach, there is evidence that both favorable of positive correlation and also favor to

negative correlation between the capital structure and firms performance.

Thomas (2013) studied about the Indian cement Industry and their Capital Structure

and Financial Performance. The capital plays a large role in the business, and most of

businesses depends their success in efficient handling and utilizing their capital. The

sources of capital are owner’s equity, retained earnings and borrowed money, most

owner’s equity is consists of borrowed fund. Return on Investment (ROI) is a

measurement to know if it is sufficient to meet all the fixed charges that includes the cost

of capital. It has been observed that most business organizations have a tendency of using

excessive borrowed money will results to wealth destruction or bankruptcy. Leverage is

used to utilized the fixed cost assets or funds to increase the returns to the owners of the

firm, using leverage will always connected with risk of uncertainty of returns but also it

will increase the size of returns. Every decision making in capital structure by the

organization has a great effect on them. An optimal capital structure decisions will

minimize firms cost capital while maximizing firms’ value. In India, the cement industry

grows due to construction of real estate, infrastructure and the expansion projects of

STUDENT RESEARCH


industry that led the demand for cement increase than its supply. Modigliani and miller

(1958) are well known in finance in terms of capital structure to its firm value. Since

then, a debate has rise from the theoretical to practical. Halit Gnonenc study titled

“Capital structure decisions under Micro Institutional settings”, test the effect of the asset

tangibility, profitability and growth oppotunities on capital structure and its size”.

Narendar V. Rao, Khamishamed Mohamed Al-Yahyee, Lateef A.M Syed also conduct a

study about the significant of Capital Structure in Oman. As a results, a negative

relationship between the debt and financial performance that contribute an

underdeveloped nature of debt and its high cost of borrowing in Oman. “Why not

leverage you company to the hilt?” a study of Amar Bhide is about the significance of

taking improvement the high leverage if it creates shareholder value. The study says that

the use of leverage will increase the wealth, but if it fails to do, wealth destruction might

happen. The study also finds that due to the high growth and high demand of cement, it

proves that this occurrence is the reason high profit and the major source of finance in

India Cement industry.

Philips and Sipahioglu (2004) studied about the correlation concerning the capital

structure of hotel companies and their corporate performance. By using the information

gathered from the organizations quoted in UK which has a concern in owning and

running hotels, the theory of Modigliani and Miller's (1958) which is all about the capital

structure is tested. Pragmatic analysis bares no relevant connection between the debt level

found in the capital structure and financial performance. The results reveal consistency

with Modigliani and Miller's theory. This appears to have an important issue with hotel

investment, as they are continuously looking to raise funds for expansion purposes.

Consuming a high leverage is an important effect for hotel managers because it could

result to an important change in their performance. Phillips (1994) used debt ratio and

gearing ratio for the level of debt, and the rate of return on assets and rate of return on

equity as a degree for the company’s financial performance; however, there might be the

possibility that these commonly accepted ratios might not be the best for assessing hotel

performance. At the operational level, this involves focusing on three areas: liquidity,

STUDENT RESEARCH


debt maturity structure and capital market access. In situations where financial distress

may occur, companies that have liquidity within their portfolios can have competitive

advantage over their competitors.

Ashim Kumar Kar (2011) studied the impact of the capital structure on the

financial performance of microfinance institutions (MFIs). The results show that while

there is a rise in leverage, the profit-efficiency in MFIs increases too and with these, the

results also reflects that the cost efficiency declines when there is a decrease in leverage.

Also, it can explain the negative relevant impact of the leverage with the depth of

outreach. The agency theory recommends that the increase in leverage also increases the

expected costs of the financial distress, liquidation or bankruptcy. Therefore, the agency

costs of debt overpower the costs from the outside equity, it further raises the level of

leverage result in higher agency costs. This study discovers on whether the agency costs

hypothesis works in MFIs’ performance. The researchers use profit-efficiency and cost-

efficiency as indicators of MFIs’ financial performance. In order to measure the

performance, the researchers utilized the dept dimensions to gain validity in appropriate

and sufficient target. Results revealed that the agency theory claims that when the

leverage increases, the profit efficiency also increases. In addition to this, the cost

efficiency declines when there is an increase in the capital-assets-ratio.

Gatsi (2012) aims to discuss the impact of the debt financing capital of the banks’

financial performance in Ghana which stays as a significant matter. Based on the Ghana’s

banking survey in 2010, the banks’ acquired assets changes which increase the

competition and results to the fall of the ROA. The current study on the profitability of

the banks, which is a main factor in the capital structure composition, tries to investigate

more on the impact of the debt financing. This research had provided a conclusion which

states that the Ghanaian banks uses a larger portion of debt in financing capital rather that

equity financing. This means that these banks are more in favor of the debt rather than

equity that may influenced the profitability positively.

STUDENT RESEARCH


Yousefi, et.al. (2012) used a descriptive research and argues the relationship of

firm’s capital structure and profitability among different industries that are varied due to

the effect of their specific sort of belonged industry. The study was all about the

examination of the effects of industry on the relation between capital structure and

profitability of Tehran Stock Exchange firms and they used a comprehensive sample of

136 selected firms in 6 different industries over the year 2005-2009. They were able to

gather the financial statements data that has to be used by the researchers. The following

questions were given in the research: “how firms should finance in order to have the

maximum positive effect on their profit and stockholders’ wealth?” There were many

given factors that affect financing of any company including the designated kind of

company’s activity, its asset and the kind of industry. The researchers have said on this

research that the designated type of industry the firm is on has an essential and

foreseeable impact on the firm’s capital structure. As well as the relation of capital

structure and profitability be subject on the type of industry the firm is working in

meaning that the kind of industry affects this relation. The study of the researchers have

given a situation on how financial managers faces the matter on how they should choose

their capital structure mechanisms considering the kind of industry they are working in,

for them to end up with the fulfillment of their objective which is to maximize profit. The

researchers had come up with a conclusion in general that a positive relation proposes

that financing by means of debt increases the profitability of the firms, since a main

portion of Iranian firms financial structure contain short term debt that is more cheap

financial resource in contrast with long term ones. And a negative relation suggests that

financing through means of debt decreases firm’s profitability due to forfeiting interests,

stock dividend and so forth. To be able to conclude this research, they have to gather

financial statements of the firms belong to industries in which this relation opposing to

this situation, if the said data is not statistically important, a positive relation not only

does not increase profitability, but it will also lead the firm to financial crisis. With all

these information, the researchers concluded that an alike section of capital structure in

dissimilar industries can result in whichever positive or negative relation or even no

STUDENT RESEARCH


relative between capital structure and profitability due to the effect of the exact kind of

industry on it.

Krasauskaite conducted a study if firm’s size does matter with the Capital Structure

of SMEs or the small, medium enterprises in Baltic countries. He aimed to study the

leverage decision of micro, and SMEs in the country. He tried to investigate if the factors

that affect the capital structure of the micros and SMEs are the same factors that affect

the company’s choice of capital structure that belongs to dissimilar size-based groups. He

also said that company’s size has conflicting effects on leverage. He concluded that if

leverage ratios are based on firms with non-zero leverage ratios, micro firms are more

levered than those of small firms in the Baltic countries but they are more indebted than

medium-sized firms.

Varadi (2012) would like to examine if there is a significant relationship between

capital structure and the industry where the company is into. There are so many theories

and models that have been accepted on the field of capital structure for the past decades.

The researcher had discussed one of these theories namely asymmetric information

theory. This study examines the relationship between industry and capital structure from

this said theory. The researcher had three most important financing opportunities for any

firm, they are retained earnings, to issue bonds or to issue shares. It was said in the

research that industry has a great influence of a company’s capital structure, it was not

empirically proved yet. The gathered data from the research contains of 1.622 Hungarian

corporations and medium sized firms, from 49 industries. The data were collected by

Ecostat in 2003. The research would focus on the year 2003 since it wanted to avoid the

effect of the financial crisis of 2007-2008. The researcher have stated empirical

researches, one of the authors are MacKay and Phillips who comes up with a question,

“what is the role of the industry during developing the capital structure, and how does

firm’s assets and liabilities affect each other.” Their result was that however it can’t be

said that there is a best capital structure in each industry; companies who has a different

point of technology from the industry average will operate with higher leverage. Also, the

STUDENT RESEARCH


researchers have said there is a positive relation between the changes in the capital

structure too. The researcher came up with a result after cross table analysis and

concentration analysis that there is a significant relationship between the industry and the

capital structure. Moreover in those industries where the information asymmetry about

the value of the assets of the company is smaller – because it has notable amount of

tangible assets, which decreases the information asymmetry between the investors and

the company – there exists a representative capital structure.

Synthesis

The studies revealed results that would help managers to determine the capital

structure suited for a specific industry, thus in order to maximize profit, one must

determine the impact of profitability to capital structure. Studies prove that profitability

such as rate of return on equity, rate of return on asset, and net profit margin has no

significant relationship to company’s capital structure. Contrary to the other study, some

researchers explains that rate of return on equity, rate of return on asset, gross profit

margin and net profit margin significantly affect company’s capital structure.

STUDENT RESEARCH


CHAPTER 3

RESEARCH METHODOLOGY

This chapter discusses the research design, sources of data, data gathering

procedure, and procedure in data analysis and interpretation in conducting the study of

the effect of the profitability to capital structure of companies. This includes the

discussion of the research design and on how the researchers gathered the data. This

contains the locale of the study or the place where the researchers conducted their study.

Lastly, this also consists of the statistical tools that were used to come up with the results.

Research Design

The researchers used a descriptive research design that will be applicable with this

type of study to further explain and understand the effect of profitability to capital

structure of firms in different industries listed in PSEi. The main goals of this kind of

research that was conducted were (1) to classify all the companies according to their

industries (2) to recognize the relationship between the capital structure and profitability

of 28 selected companies listed in PSEi and (3) to determine the effect of profitability to

the capital structure of 28 selected companies. Moreover, this research did not use survey

questionnaires or conduct interviews in gathering another data instead the researchers

used different ratios in obtaining the information needed for the study.

STUDENT RESEARCH


Sampling Design

The researchers collected reliable financial statements of 28 selected companies

from PSEi. But the financial statements of different companies were not completely

available in the internet, so the researchers bought financial statements from Securities

and Exchange Commissions and Philippine Stock Exchange. Due to the insufficiency of

data from PSE and SEC, the researchers only chose to include that company that has an

available ten-year period that starts from year 2004 up to year 2013. The different ratios:

debt to equity ratio, debt ratio, rate of return on equity, rate of return on asset, and net

profit margin were used to know if profitability has a significant effect to firm’s capital

structure. The basis of the study came from the computed ratios of the companies that

helped determine the effect of the two variables.

Locale of the study

This study focused on the 28 companies that were listed in PSEi that has different

industries. The chosen companies provided enough information on the research. The

researchers chose only the companies that are operating within the Philippines to be able

to have clearer findings.

The researcher obtained the needed financial statements from Philippine Stock

Exchange (PSE), Securities and Exchange Commission (SEC) and internet with ten-year

annual report. The researchers focused on 9 industries to be able to have an informative

and wide research about the effect of profitability to capital structure. These chosen 9

industries became the root of the research to meet its objectives, stated problems and

hypotheses.

STUDENT RESEARCH


Research Tools and Instruments

The researchers gathered and collected all the information about capital structure

of the 28 selected companies from PSEi that is classified according to their industries

namely Holding Firms, Real Estate, Bank, Industrial/Power/Electricity,

Telecommunication, Casino and Gaming, Food and Beverages, Mining and

Transportation with the use of secondary data. The researchers used accurate and

complete financial statements that were bought or got from the internet, Philippine Stock

Exchange, and Securities and Exchange Commission for the past ten years starting from

year 2004 up to year 2013.

Data Gathering

The researchers gathered secondary data. These data came from the internet. Due to

lack of information in the internet, the researchers went to the Securities and Exchange

Commission to gather more, complete and accurate financial statements. These data are

the financial statements of the 28 different companies listed in PSEi. The financial

statements of the 28 companies consist of ten years comparisons. To execute the study

well, first the researchers chose the 28 companies listed in the PSEi and categorized them

into their respective industry. The researchers computed the following ratios: debt to

equity ratio (DER) and debt ratio (DAR) and firm performance such as rate of return on

equity (ROE) and rate of return on assets (ROA).

STUDENT RESEARCH


Data Analysis and Interpretation

After the researchers have gathered all the data, the researchers computed the

following ratios namely debt to equity ratio, debt ratio, rate of return on equity rate of

return on asset, and net profit margin.

Debt to Equity Ratio is the ratio that measures debt relative to amounts of resources

provided by owners and can be computed by the following formula:

Debt to Equity Ratio = Total Liabilities

Total Equity

Debt Ratio is the ratio that shows proportion of all sets that are financed with debt

and can be computed by the following formula:

Debt Ratio = Total Liabilities

Total Assets

Rate of Return on Equity is the ratio that measures rate of return on resources

provided by owners and can be computed by the following formula:

Rate of Return on Equity = Net Income

Total Shareholder’s Equity

Rate of Return on Asset is the ratio that measures overall efficiency of the firm in

managing assets and generating profits and can be computed by the following formula:

Rate of Return on Assets = Net Income

Total Assets

STUDENT RESEARCH


Net profit margin is the ratio used to measures how much of a company's revenues

are kept as net income.

Net profit margin = Total Income

Sales Revenue

The following ratios were computed by the researchers to be able to identify if

there is a positive or negative relationship between capital structure and profitability of

28 companies listed in the PSEi with different industries. The researchers used the

variables to test the stated hypotheses and statistical techniques were employed to report

the results. The researchers used descriptive analysis, Correlation analysis, Regression

analysis and Anova.

Pearson r Correlation Coefficient was performed to determine the significant

relationship of profitability to capital structure.

According to Altares, et.al., (2005), the correlation value can be interpreted using the

following classification:

±1.00 perfect positive (negative) correlation

±0.91 - ±0.99 very high positive (negative) correlation

±0.71 - ±0.90 high positive (negative) correlation

±0.50 - ±0.70 moderate positive (negative) correlation

±0.31 - ±0.50 low positive (negative) correlation

±0.01 - ±0.30 negligible positive (negative) correlation

0.00 no correlation

STUDENT RESEARCH


Regression Analysis was used to determine the effects of profitability ratios such as

rate of return on equity, rate of return on assets, and net profit margin to capital structure

that includes debt to equity ratio and debt ratio. These figures were statistically treated

using SPSS version 17.00.

Anova or analysis of variance was used in this paper in determining the difference

between two or more variables particularly the profitability and capital structure of the

industries stated. Over all, statistical treatment was done through the use of SPSS

program 17.00 version. This one way analysis of variance (ANOVA) is an inferential

statistical test that validates if any or several means are different from each other. It

assumes that the dependent variable has an interval or ratio scale.

STUDENT RESEARCH


CHAPTER 4

DISCUSSION OF RESULTS

This chapter presented the data and information acquired by the researchers of the

study. Based on the stated objectives, the obtained information were analyzed and

interpreted.

The PSEi is composed of 30 companies with different industries but the

researchers only used 28 companies due to insufficient data of the two other companies,

and the researchers classified it according to its industries. The companies were classified

to nine industries namely holding firms industry, real estate industry, banking industry,

industrial/electrical/power industry, telecommunication industry, casino ad gaming

industry, foods and beverages industry, mining industry, and transportation industry.

Companies that belong to holding industry are the Aboitiz Equity Venture, Alliance

Global Group, Inc., Ayala Corporation, DMCI, JG Summit Holding, San Miguel

Corporation, SM Investment Corporation, and Tanduay Holdings (LT Group). While for

the real estate industry, Ayala Land, Megaworld Company, Robinsons Land Corporation,

and SM Prime are included in the said industry. Next is the banking industry that

composed of BDO, BPI, and Metro Bank. For industrial/electrical/power industry, it

includes Aboitiz Power, Energy Development Corporation, First Generation, Meralco

and Petron. Moreover, telecommunication industry comprises of Globe Telecom Inc. and

Philippine Long Distance Telephone Company. Casino and gaming industry was only

composed of Bloomberry Resorts and Corporation. In addition, Jollibee Foods

Corporation and Universal Robina Corporation belong to Foods and Beverages Industry.

Furthermore, companies included in mining industry were Philex Mining and Semirara

Mining Corporation. Lastly was the International Container Terminal Services, Inc. that

belong to transportation industry.

STUDENT RESEARCH


Figure 1.1 Debt to Equity Ratio of Holding Industry

The figure 1.1 shows the results of the computed debt equity ratio from holding

industry. The increase in the ratio does not mean that the company has bad equity. As

long as the value of the debt equity ratio is less than 1, then it is a good sign for the

company.

Aboitiz Equity Venture have been consistent of having a result of their debt to

equity ratio less than 1 from 2004-2009. According to the notes attached to the financial

statements, for the year 2010 to 2011, it increased more than 1 due to acquiring

unsecured loans obtained in 2006, amounting to P1.0 billion that is payable in five years

from 2006 with10% of the principal due on the second year, 25% due on the third and

fourth year. And the remaining 40% on the fifth year, with interest rates at 2.63% in 2011

and ranging from 2.63%to 5.18% in 2010, to be reprised on a quarterly basis. The said

loan is only fully paid in March 2011 that resulted to an increase in their long-term debt.

Alliance Global has also been consistent until 2013. It means that Alliance Global

is raising money through equity investors to finance their assets and as they less

STUDENT RESEARCH


borrowed money for their operation. The result increases every year. The company has

been consistent in equity funding.

Ayala Corp has been good during the year 2004-2006 due to issuance of P7

billion in bonds, which is considered as the biggest corporate peso bond issuance in the

Philippine History and has $150-million worth of obligations maturing in 2004 and 2005.

Later year, they issued preferred shares worth P5.8 billion and as of 2007, total debts

were down at $278 million from $464 million in December 2006. While for the year

2007-2010, their debt to equity ratio is less than 1 which is good for the company.

According to the notes attached to the financial statements by Ernst & Young, in late

2011-2013, Ayala Corp’s accounts payable and accrued expense has a bigger portion on

their Current Liabilities due to late payments to the supplier and whenever due date will

come. There is a certain 0.5% interest rate per month and also, provision for income tax –

33% increase from P2,900 million to P3,869 million due to higher taxable income of the

several subsidiaries significant part of which comes from real estate, electronics and

water utilities groups on account of better sales and other operating results.

While for DMCI, the company all throughout 10 years, only 2005-2008 and 2012

resulted to less than 1 due to borrowing of more money than gaining more investors to

increase their equity. For the year 2005-2008, the company has more than 1 debt to

equity ratio due to payment of the existing obligations of the company to bank loans and

borrowed moneys. While for the year 2012, it is stated on the notes attached to the

financial statements that the company acquires more loans than gaining more investors to

finance their asset, they have entered into a P11.50 billion Omnibus Agreement with

Banco de Oro Unibank (BDO), Bank of the Philippine Island (BPI) and China Banking

Corporation (CBC) as lenders.

During 2004-2010, JG Summit has been financing their assets thru debt. In 2004,

according to notes attached to the financial statements, JG Summit’s accounts payable

and accrued expenses increased by 9.5% from P19.64 billion as of year-end 2004 to

STUDENT RESEARCH


P21.51 billion mainly due to higher accrued expenses and increased finance liabilities,

notes payable increased by 24.3% from P8.41 billion as of December 31, 2004 to P10.45

billion as of March 31, 2005 due to a during the period, estimated land development costs

significantly increased by 130.2% to P1,324.1 million in 2005 from P575.2 million in

2004 due to real estate business’ additional cost of various projects, and long-term debt,

including current portion, went down by 3% from P59.28 billion as of December 31,

2004 to P57.52 billion due to partial payment of supplier’s credit agreement that resulted

to a debt financing. These factors have a significant effect on the following years of JG

Summit. It was expected that they will not have enough equity to finance their asset. For

the year 2005-2010, looking on the Annual Balance Sheet of JG Summit, the company

has been consistent in debt financing, the amounts for Accounts Payable, Short-term debt

and Long-term debt has no improvement in pulling down their liabilities to be in equity

financing and still higher than their equity. But for the year 2011-2013, the company has

improved their equity and liabilities; there was a decrease in liabilities and enough equity

to be in equity financing.

San Miguel Corporation, the company has a good Debt to Equity Ratio for the

year 2004 but on the year 2005-2006, the result increased by 0.52 due to an increase on

their Current and Non-current Liabilities that has certain maturity needed to be paid on

the said maturity date. The company had increased their Non-Current Liabilities by P73,

393,000,000 due to a large increase in their Long term Debt which means that the

company borrows loans that will mature on the current year. For the year 2008, Draft

and loans payable increased compared to 2007, it mainly represent unsecured peso and

foreign currency denominated amounts payable to local and foreign banks. While during

2009, the company has increased their equity to finance their asset well and has a less

than 1 result. But for the year 2010-2013, the company increased their Debt to Equity

ratio which means that they have more liabilities than equity, the company borrows more

money to finance their asset and continue their operation mainly due to refinance its

existing financial indebtedness and the general working capital purposes and maturity of

loans acquired by the company for the last 5 years has reached its maturity date.

STUDENT RESEARCH


SM Investment Corporation, the company has maintained its Debt to Equity Ratio

stable from 2004 until 2008, which means they use more equity to finance their asset and

operation. But for the remaining years, 2009-2013, the company was not able to finance

their asset well thru equity, it resulted to more than 1 which means that the company has

to borrow more money to finance their asset and continue its operation. SMIC obtained

before a five to seven-year term loans that consist of fixed interest rate and floating

interest rate, these are the factors that affect the long-term debt under non-current

liabilities until 2013.

Tanduay Holdings, Inc (LT Group) has a good Debt to Equity Ratio from 2004-

2005, they have more equity than liabilities. However, during 2006-2010, the company

was not able to finance their asset thru equity, trade payables increased by 28% due to

purchases of inventories, which include raw materials and indirect materials and supplies,

for use in manufacturing and other operations. Trade payables also include importation

charges related to raw materials purchases, as well as occasional acquisitions of

production equipment and spare parts. For 2011-2012, the company was able to raise

their equity and have less liabilities, their equity increased by 26%. And for 2013, the

company has a the lowest result of Debt to Equity Ratio and the highest from Holdings

Industry, long term debt increased by 65% because the Group paid portion of its notes

payable and unsecured term loans amounting to P508.89 million and P116.41 million,

respectively. The Group also reclassified all its Bonds payable, which are due on

February 2015 from noncurrent liabilities to current liabilities. As of March 31, 2014 and

December 31, 2013, the Group has complied with the covenants related to its long-term

debts.

From all of the companies, San Miguel Corporation remained consistent in using

equity to raise funds. The company used more equity than debt to continue its operation.

They continued to improve their debt to equity every year and avoid higher than 1.

Figure 1.2 Debt to Equity Ratio of Real Estate

STUDENT RESEARCH


The Figure 1.2 shows the debt to equity ratio of the real estate industry from year

2004-2013. The Ayala land has been consistent to have a less than 1 from 2004 – 2010.

In 2011, 2012 and 2013 it increase by more than 1 due to its short-term debt of P4.6

million P9.3 million, and P12.4 million that represents unsecured peso-denominated bank

loans and dollar-denominated bank loans of the Company and its subsidiaries.

The Megaworld Company has a consistent debt to equity ratio that is not more

than 1 from 2004 – 2013 which means the financial sources is more on the equity than its

debt financing.

The Robinsons Land Corporation debt to equity ratio in 2006 and 2009 rise due to

outstanding noninterest-bearing advances from Winsome Development Corporation, a

minority stockholder, for working capital requirement amounting to P134 million and a

bond issued in July and August amounting to P5 million bonds and P5 million

constituting direct, unconditional, unsubordinated and unsecured obligations of the Group

ranking pari-passu in all respects and relatable without any preference or priority with all

other outstanding unsecured and unsubordinated obligations of the group.

STUDENT RESEARCH


The SM Prime has a fluctuating value from 2004-2013. The highest value on the

table is in year 2009 due to increase in loans payable consisting of unsecured Philippine

peso-denominated loans, with maturities of less than one year, obtained from banks a

Philippine peso-denominated and U.S. dollar-denominated loans. The Company also

enters into derivative transactions, principally interest rate swaps, cross currency swaps,

foreign currency call options, and non-deliverable forwards and foreign currency range

options.

Figure 1.3 Debt to Equity Ratio of Banks

The figure 1.3 revealed the debt to equity ratio of banking industry. BDO has a

fluctuating value from 2004-2013. In 2012, the value decline to 3.41 due to increase of

equity by BDO Unibank’s and Parent Bank’s issuance of shares and issuance of Global

Depository Receipts.

The BPI has a fluctuating value from 2004-2013. In 2010, the value decline to

1.31 due to bills payable that include funds borrowed from Land Bank of the Philippines

(LBP), Development Bank of the Philippines (DBP) and Social Security System (SSS)

STUDENT RESEARCH


which were relent to customers of the BPI Group in accordance with the financing

programs of LBP, DBP and SSS and credit balances of settlement bank accounts.

The Metropolitan bank has a fluctuating value from 2004-2013. In 2008, it has the

highest value due to increase in bill payable that is sold under repurchase agreement and

the derivative liabilities in this year

Table 1.4 Debt to Equity Ratio of Industrial/Electricity/Power

Figure 1.4 shows the debt to equity ratio of industrial/electricity/power industry.

Aboitiz Power Corporation have been consistent of having a result of their Debt to Equity

Ratio less than 1 from 2004-2008. While for the year 2009 to 2011, it increased more

than 1 due to acquiring unsecured loans obtained in 2006 that is payable in five years.

The said loan is only fully paid in March 2011 that resulted to an increase in their Long

Term Debt.

Energy Development Corporation has a high result of debt to equity ratio in the

year 2004 due to the present value of the stream of future payments for the BOT power

plants during the ten-year cooperation period indicated in the BOT (Build-Operate-

STUDENT RESEARCH


Transfer) contracts. . It continuously decreased in the year 2005 to 2007. From the year

2008 to 2013, the results obtain minimal changes every year.

The First Generation Corporation obtains a debt to equity ratio results more than 1

from the year 2004 to 2010 and the year 2013. This is because of the borrowings of

FGPC availed from various lenders to partly finance the construction of the company’s

power plant complexes. It deceases and became less than 1 in the year 2011 to 2012 due

to the issuance of preferred stock and the increase in authorized capital stock approved by

the Philippine SEC.

The Manila Electric Company obtains a relatively high result of debt to equity

ratio. The results decreased from the year 2005 to 2006 due to settlements of secured and

unsecured loans. It continuously decline from the year 2006 to 2009.

Petron Corporation has a fluctuating debt to equity results with minimal changes

every year. The company obtains increasing total liabilities except for the year 2009. This

is due to a decrease in accrued expenses that includes accrual of unpaid interest

amounting to Php 529 million in 2009 and Php 677 million in 2008.

Figure 1.5 Debt to Equity Ratio of Telecommunication

STUDENT RESEARCH


Debt to equity ratio of telecommunication industry was shown in the figure 1.5.

The Globe Telecommunication Company has a consistent debt to equity ratio result of

less than 2 from the year 2004 to 2011, but from the year 2012 to 2013, it increased and

became more than 2. This is due to the issuance of unsecured term loans and corporate

notes which consist of floating rate notes and dollar and peso-denominated bank loans

that bears interest at stipulated and prevailing market rates.

The Philippine Long Distance Telecommunication has a high result of debt to

equity ratio in the year 2004 with 4.47. It is caused by obtaining loans extended and/or

guaranteed by various export credit agencies for acquiring imported components of their

network infrastructure in connection to their expansion and service improvement

programs. From the year 2006 to 2013, they were able to maintain their debt to equity

results in achieving minimal changes.

Figure 1.6 Debt to Equity Ratio of Resorts and Casino Industry

STUDENT RESEARCH


The figure 1.6 shows the debt to equity ratio of the Bloomberry Resorts & Casino

for the year 2004-2013. It shows that there is an increasing value in the debt to equity

ratio of Bloomberry Resorts & Casino. In the table, it can be seen that from 2004 – 2010

there is a constant value in the debt equity ratio of the company and it valued to zero.

This does not mean that there is no borrowed funds that is circulating in their company,

this just shows that their capital is too high and there is no need for them to borrow large

money from creditors or other financial institutions. However, on the year 2011, it

increases so high up to the recent year. The debt to equity ratio increases by 0.56 or 56%

on the year 2011 and 0.10 or 10% for the following year. This increase in their debt

equity ratio was caused by the acquisition of Bloomberry Resorts Corporation. With this

acquisition, their liability increases because of the liabilities the Bloombeery Resorts

Corporation already has before the Active Alliance, Inc. has been acquired. The debt to

equity of the company is still favorable throughout year 2011 to 2012 because the

changes were very minimal and it is still less than one. But on the recent year, it goes

very high because the liabilities were increased by 12,854,644,256 or 1.12%. Both

current and non-current liabilities were the two factors that contributed to the increased in

the value of liability. The Long-term debt was the account that contributed much to this

increase in the liabilities. The increase in the ratio does not mean that it is bad for the

STUDENT RESEARCH


company. As long as the value of the debt equity ratio is less than 1, it is a good sign for

the company.

In conclusion with, based on the given ten-year analysis of the Bloomberry

Resorts Corporation formerly known as Active Alliance, Inc. is a company that uses

more of its capital in financing the operation of the business for its 10-year of operation

beginning 2004 up to 2013. They utilize more the money of its investors in doing their

business. They prefer to use internal funds to finance its assets and maintain greater

equity for nine years of doing business. It is a very favorable image for the perspective of

the creditors because they have an assurance that the company can pay the borrowed

money in case of insolvency.

Figure 1.7 Debt to Equity Ratio of Food & Beverages Industry

The figure 1.7 shows the trend in the debt to equity ratio of Jollibee and Foods

Corp. and Universal Robina for ten years. Both companies can be said that majority of

their ten-year operation, they are using internal funding. Two companies can be said that

both has a favorable debt to equity ratio except for the year 2013 for the JFC and year

STUDENT RESEARCH


2005 for Universal Robina. In the year 2013 for JFC, it has increased to 1.01 due to the

increase of non-current liabilities. The portion of long-term debt is the large factor that

contributed to the increase of the liabilities. According to the notes attached to its 2013

annual report, this long-term loan consists of the 5-year unsecured loan that they had

acquired from a local bank in the month of February that amounted to 1,632,000,000 that

will be needed for the interest repricing for the near future. While for Universal Robina,

the increase in its debt to equity ratio to 1.17 on the year 2005 was due to increase in its

non-current liabilities that composed of deferred income tax and long-term payable.

Moreover, comparing the year to year value of each company’s debt to equity ratio,

Universal Robina can be said that has more equity than its liabilities compared to JFC.

However, it is still a positive image for the JFC because it is also capable of paying back

the creditors in case of insolvency.

Both companies’ possess a favorable debt to equity ratio because their creditors

can have an assurance that they will be paid by these two companies. Also, with the

perspective of the public, it is a good decision if they will choose to invest in these two

companies because they can have the guarantee that they can get profit and that these

companies can operate for a longer period of time.

STUDENT RESEARCH


Figure 1.8 Debt to Equity Ratio of Mining Industry

The figure 1.8 illustrates the debt to equity ratio of Philex and Semirara for 2004

to 2013. Both companies, even they are within the same industry, can be said that has a

different kind of capital structure for their ten-year of operation. It can be seen that Philex

debt to equity ratio is getting better throughout their operation. In the year 2004 and

2005, it can be observed that their debt to equity ratio is more than 1 meaning they have

more liabilities than their equities. According to the notes to financial statement of this

company, this high liability for the year 2004 and 2005 was because the company entered

into a loan agreement where the loans will be used for the development and operation of

Padcal Mine. While from the year 2006, Philex gain better debt to equity ratio up to year

2013. This means that after year 2005, the company has more equities than its liabilities.

On the other hand, Semirara’s structures of funding its assets were changing throughout

the time of their ten year of operation. Five years in their operation were being financed

by more equities and other five years were also financed by the liabilities.

STUDENT RESEARCH


Figure 1.9 Debt to Equity Ratio of Transportation Industry

The figure 1.9 shows the debt to equity ratio of the International Container

Terminal Services. It can be observed that from year 2004 up to 2007, there is a good

debt to equity ratio of the company. But on the consecutive years, it began to increase

that can be traced back on the increase on the amounts they owed to the outsiders. This

increase in their debt to equity ratio means that they have more borrowed money than

their capital. According to one study, in the year 2008, the company acquired more

equipment to continuously improve its operation. It can be assumed that they acquired

these equipments through the use of debt rather than use their own money that causes

their debt to equity ratio increased. Moreover, throughout the year up to the most recent

year they choose to finance its operation with the use of external funding.

In this situation, the creditor still do not need to worry if the company can pay

back their loans or debts because there is just a small increase in the liabilities compared

to the equity. The company just wants to utilize more the debts it borrowed from the

outsiders for the development of their operations.

STUDENT RESEARCH


Figure 2.0 Debt Ratio of Holdings

Same as Debt to Equity Ratio, less than 1 is better than more than 1. If a company

has a high Debt to Asset ratio, it means that the degree of leverage of their company and

the financial risk that they will be facing is high. It is a solvency ratio and it measures the

portion of the assets of a business, which are financed through debt. All the stated most of

the companies under Holding Industry has favorable debt to asset ratio results because all

of them has been consistent in managing their asset well and not taking too much risk on

financing their asset thru debt. In addition, proportion of their assets are not being funded

with debt instead, the bulk of their asset funding is coming from equity.

The figure 2.0 illustrates the debt ratio of holding industry. Aboitiz Equity

Venture, for the year 2004-2009, almost half of their assets are financed by equity but for

the year 2010-2013, the company has financed their asset thru liabilities due to an

increase of their Noncurrent liabilities increases each year.

Alliance Global has maintained to finance their asset thru equity funding. Ayala

Corporation financed their asset thru debt funding thru issuing bonds during the year

STUDENT RESEARCH


2004-2005 but they have enhanced their debt ratio during the year 2006-2010, they were

able to finance their asset thru equity funding. For the year 2011-2013, they were not able

to manage their asset well due to borrowing more money than equity funding.

DMCI financed their asset thru debt funding for the year 2004 due to issuance of

bonds but throughout 2005-2008, they were able to manage their asset thru equity

funding due to less borrowing of money and more on issuance of stocks. For the year

2009-2013, they encountered mismanagement of assets again that resulted again more

than 50% of their asset are being financed by debt funding due to more borrowing of

money.

San Miguel Corporation all throughout their 10 years of operation, 2004, 2007

and 2007 were the year they financed their asset thru equity funding, mainly due to an

increase of current and non-current liabilities every year which is not favorable for the

company to earn more investors.

SM Investment Corporation had maintained their equity financing for 5 years

from year 2004 to 2008, but during the year 2009-2013, they were not able to maintain

their asset thru equity funding, the company focused more on debt financing due to

payments of banks loans that increases each year.

Tanduay Holding (LT Group) has favorable debt ratio for the year 2004-2005,

they were able to manage their asset by using equity funding. But for the year 2006-2010,

the company were not able to manage their asset thru equity financing, they focused more

on long term loan that is about to mature. The company was able to take control of their

asset thru equity funding for the year 2011-2013, which is favorable for the company to

continue its operation.

STUDENT RESEARCH


From all the companies, San Miguel Corporation continued to improve their debt

ratio. They used more internal funds than issuing bonds that gave them the edge over

other companies. It is useful for the company to lessen their debts to gain more investors

Figure 2.1 Debt Ratio of Real Estate Industry

Figure 2.1 shows the debt ratio of real estate industry. The Ayala land has been

stable from the 2004 – 2013. In 2010 – 2011, the value increase to .07 due to issuing of

the short-term debt of P4.6 million and P2.9 million in 2011 and 2010 respectively, that

represents unsecured peso-denominated bank loans and dollar-denominated bank loans of

the Company and its subsidiaries.

The Megaworld Company has a stable debt ratio from 2004 – 2013 but in 2006 –

2007 it has .09 decrease due to its increase in customer’s deposits and loans in its

liabilities.

The Robinsons Land Corp has a fluctuating values on its debt ratio from 2004 –

2013. In 2007, debt ratio decreased by 0.13 due to transferred of Investment properties

STUDENT RESEARCH


from property and equipment and the Group has entered into commercial property leases

on its investment property portfolio.

The SM Prime has a fluctuating values on its debt ratio from 2004 – 2013. In

2008, the Company increases its long term debt and also enters into derivative

transactions, principally interest rate swaps and cross currency swaps.

Figure 2.2 Debt Ratio of Banks

Figure 2.2 shows the debt ratio for banking industry. The BDO has a minimal

change on its debt ratio from 2004 – 2013. The most decline is in 2009 due to its

receivables from customers amounting to P4,707 and P6,807 as of December 31, 2009

and 2008, respectively, were pledged as collaterals with the BSP to secure borrowings

under rediscounting privileges.

The BPI has a consistent value on its debt ratio from 2004-2013. The company

from 2004 – 2013 maintain the derivative instruments to become favorable (assets) or

STUDENT RESEARCH


unfavorable (liabilities) as a result of fluctuations in market interest rates or foreign

exchange rates relative to their terms.

The Metropolitan bank has a consistent value on its debt ratio from 2004-2013.

According to the notes attached to the financial statements, the company has fair values

of derivative financial instruments of the parent company recorded as derivative

assets/liabilities, together with the notional amounts. The notional amount is the amount

of a derivative’s underlying asset, reference rate or index and is the basis upon which

changes in the value are measured. Interbank borrowings with foreign and local banks are

mainly short-term borrowings.

Figure 2.3 Debt Ratio of Industrial/Power/Electricity Industry

Figure 2.3 shows the debt ratio of industrial/electricity/power industry. The

Aboitiz Power Corporation has been consistent in having a debt ratio of less than 1 from

the year 2004 to 2013. The biggest change was obtained in the year 2009 for the reason

that their bank loans increased by 21% or Php1.03 billion due to Aboitiz Power Parent’s

availment of a short term bank loan to support its investment activities.

STUDENT RESEARCH


The Energy Development Corporation was also able to maintain a debt ratio result

of less than 1 from the year 2004 to 2013. The smallest result was obtained in the year

2007 due to the full payment of obligations to power plant contractor for Malitbog,

Mahanagdong and Leyte Optimization power plants. It increased in the following year

because of the rise in the guarantee fee to 2% per annum which starts in the year 2008.

The results start to fluctuate from the year 2008 to 2013.

The First Generation Corporation has a fluctuating result of debt ratio. The

biggest change of ratio occurs from the year 2012 to 2013. It climbs to 0.65 from 0.47

due to the issuance of $260 million US – dollar denominated convertible bonds by the

parent company in the year 2008 but due on the year 2013.

The Manila Electric Company has a debt ratio results that ranges from 0.64 to

0.77. The highest result was obtained in the years 2004 and 2005 and the lowest result

was obtained in the year 2009 resulted by an increase in the total assets from the previous

year due to the investment properties of the parent company that includes the land and

structures with carrying values of Php1,498 million.

The Petron Corporation obtains a debt ratio results with minimal changes from the

year 2004 to 2013. It ranges from 0.61 to 0.73. The biggest change obtained within two

years was in the year 2007 to 2008. It changes from 0.64 to 0.71 due to the acquisition of

unsecured peso and US – dollar denominated loans obtained from local and international

banks with range of maturities from 30 days to 180 days and with interest from 3% to

9%. These loans are intended to fund the importation of crude oil and petroleum products

or capital expenditures and working capital requirements.

STUDENT RESEARCH


Figure 2.4 Debt Ratio of Telecommunication Industry

Figure 2.4 demonstrates the debt ratio of the telecommunication industry. The

Globe Telecommunication obtains a consistent debt ratio result of less than 1 but more

than 0.5 from the year 2004 to 2013. The results consist of minimal changes from 0.54 to

0.74 and this means that the company assets are financed more from debts.

The Philippine Long Distance Telecommunication also obtains a consistent debt

ratio result of less than 1 but more than 0.5 from the year 2004 to 2013. The results

ranges from 0.53 to 0.82 and this means that the company assets are financed more from

debts. The highest result was obtained in the year 2004 due to short term borrowing for

the year ended Dec 31, 2004 amounted to Php 5 million respectively.

STUDENT RESEARCH


Figure 2.5 Debt Ratio of Resorts and Casino Industry

The Figure 2.5 shows that the debt ratio of the company is increasing with just a

small value. The 0 value in its debt against asset from year 2004 to 2010 indicates that a

very low amount of liabilities were used by the company to finance its assets. This means

that the company uses more of the internal funds than to use external funding. Looking

on the company’s financial position, it is clearly recorded that Active Alliance, Inc. really

borrowed very small amount of liabilities to finance its assets because they are truly

utilizing the internal funds shared by its investors. However, on the year 2011-2013, there

is an increase in the value of borrowed money when Bloomberry acquired the company.

In both year 2011 and 2012, the table indicates that the outsiders financed substantially

less than one-half of the Bloomberry assets.

By the given information, it is still a good image for the company because they

have a favorable debt ratio that implies a positive amount, which is less than 1, that

would mean the creditors are protected in case the company’s operation went down. The

outsiders have the assurance that they can get their money back because the company has

many assets that can be liquidated in case of insolvency.

STUDENT RESEARCH


Figure 2.6 Debt Ratio of Food & Beverages Industry

The figure 2.6 illustrates the debt ratio of the JFC and Universal Robina. This

ratio indicates the percentage of assets financed by the creditors. As viewed above, there

is less than half of both companies’ assets that were financed by the creditors. The JFC’s

value of debt ratio only ranges from 44%-49%. This means that only less than half of the

assets of the JFC is financed by the borrowed funds. On the other hand, Universal

Robina’s debt ratio ranges from 24%-54%. This also means that only less than half of its

assets are financed by its liabilities just like the JFC.

This means that both companies use internal funds in financing its operation. It

also indicates that they used less borrowed money for their operation. It is a very good

image for both companies because they have more assets that they can use as a payment

in case the companies face financial difficulties in the future operation of their business.

STUDENT RESEARCH


Figure 2.7 Debt Ratio of Mining Industry

The figure 2.7 demonstrates the debt ratio of the Philex and Semirara Company

that belongs to Mining Industry for the ten-year operation. Both companies can be

declared that has a good debt ratio. For Philex’s year 2004 and 2005 that has 66% debt

ratio for both years, are the only years that can be articulated that company uses more of

its liabilities to finance its assets rather than using internal funds. Thus, from year 2006-

2013, companies already used equity financing than debt financing. It can be presumed

that they raised more stocks rather than selling bonds to raise money that they can use for

the operation. While for Semirara debt ratios were 65%, 59%, 60%, 58%, and 53% for

the year 2004, 2009, 2010,2011 and 2012 respectively. This means that Semirara’s half

year of its ten-year operation both uses its liabilities and equities to finance its assets.

In conclusion, creditors of these companies have the assurance that the debt owed

to them will be paid back and can get back the money in case of insolvency. Likewise,

the investors can have the guarantee that these companies can operate on the long-run

operation.

STUDENT RESEARCH


Figure 2.8 Debt Ratio of Transportation Industry

The figure 2.8 shows the debt ratio for the International Container Terminal

Services, Inc. for 2004-2013. Throughout the ten-year operation of this company, it can

be said that they are using more of internal funds than from external borrowing to finance

its assets. This means that there is only a small portion of liabilities being used to finance

its assets and there is a greater amount of equities to continue their operation. With this, it

is a positive image for the company to have a debt ratio, which is less than 1 because its

creditors can have the assurance that they will be paid in case the company will face

insolvency.

STUDENT RESEARCH


Figure 3.0 Return on Equity of Holdings

The figure 3.0 shows the results in computing the Return on Equity of 9

companies of Holdings Industry. Return on equity is the ratio of total income of the said

business annually to its stockholder’s equity. It measures the profitability of stockholder’s

investments. Also, it is necessary to measure how profitable the company for the investor

to get more potential investors. The higher the result, the more favorable it is for the

company, it means that the company is efficient in generating income on new investment.

The more debt a company has, the less equity it has; and the less equity a company has,

the higher its ROE will be.

Aboitiz Equity Venture has been consistent in maintaining their Return on Equity

not resulting to negative. The company has positive result of Return on Equity that ranges

from not less than 13% and not more than 36%, this means that the company effectively

manages the money of their investors and has enough money to cover up their liabilities.

Alliance Global has positive Return on Equity though they almost have negative

results. The company has to improve more their sales to generate more income for the

STUDENT RESEARCH


investors. The results above ranges not less than 4% and not more than 29% for the year

2004-2013, it means that the company has low income yet enough to return to the

investors the money they have invested.

Ayala Corporation has positive Return on Equity still not too high to gain more

investors in the future. The results above range not less than 8% and not more than 17%

for the year 2004-2013. It is important for a company to be efficient in generating income

to maintain their investors. This also means that they have enough cash to pay back to

their investors the money they have invested in the company but still has to improve

annually to lessen the burden of losing potential investors.

DMCI has been consistent in maintaining and increasing their Return on Equity

every year,though 2008 was the lowest result, they were able to get back on track of

increasing their Return on Equity. With this, the company could possibly gain more

potential investors due to their efficiency in generating cash.

JG Summit has positive Return on Equity for the year 2004-2007 but for the year

2008, they have encountered a net loss for the whole year due to net foreign exchange

translation loss amounting to P2.93 billion, the reason for this is the combined effects of

the lower market value of its financial assets and fuel hedges and lower value of the peso.

They were able to take back their income for the year 2009-2013 and continued to

generate cash for the investors.

San Miguel Corporation has been efficiently generating cash for the year 2004-

2013. The company had a positive results ranging from not less than 6% and not more

than 25%, also, they have to improve their net income for more increase in Return on

Equity to encourage more investors to continue its investment to them.

SM Investment Corporation had the lowest value of Return on Equity during the

year 2004 due to an increase of expenses. But for the year 2005-2013, the results above

STUDENT RESEARCH


ranges not less than 9% and not more than 13%, the company take back all the losses

they had during the year 2004 and even improved their income. The company has a stable

Return on Equity that can maintain their investors.

Tanduay Holdings (LT Group) had the lowest value of Return on Equity that is

near of becoming negative during the year 2007 due to an increase of selling expenses,

general and administrative expenses and interest expenses that resulted to 2%. The

company was able to get back on track for the following years but still have to be careful

on their expenses to have a higher Return on Equity ratio for the investors.

Figure 3.1 Return on Equity s of Real Estate Industry

The Ayala Land has a consistent percentage from 2004-2013. In 2008 – 2010. it

fell and then rose due to increase in issued stock in 2007 and 2008, and in 2009 Retained

earnings amounted to P6.0 billion that are appropriated for future expansion.

The Megaworld company has a fluctuating percentages on its ROE from 2004 –

2013. In 2011the Company has 11% of ROE due to issuing shares totalling 140,333,333.

The shares were initially issued at an offer price of P4.8 per share. As of December 31,

STUDENT RESEARCH


2011, there are 2,854 holders of the listed shares, which closed at P1.7 per share as of that

date.

The Robinsons Land has a fluctuating percentages on its ROE from 2004 – 2013.

In 2008, it got its highest percentage which is 14% due to Rental income arising from the

lease of commercial properties to affiliated companies which amounted to about P865

million in 2008. The Group also leases commercial properties to affiliated companies and

an increase to the real estate sales on 2008.

The SM Prime had a fluctuating percentages on its ROE from 2004 – 2013. In

2013 it got its lowest percentage which is 10% due to increase in the authorized capital

stock of SMPH by P20,000 million, from P20,000 million consisting of 20,000 million

common shares with a par value of P1 per share to P40,000 million consisting of 40,000

million common shares with a par value of P1 per share.

Figure 3.2 Return on Equity of Bank Industry

The BDO has consistent percentage from 2004 – 2013 except for 2008 because of

the issuance of up to 500,000,000 perpetual, voting, non-cumulative, convertible, non-

STUDENT RESEARCH


participating, peso-denominated Series A preferred shares qualifying as Tier 1 capital of

BDO Unibank Group.

According to the notes attached in the financial statements ,the BPI has a

fluctuating percentage ranging from 1% - 2% from 2004 – 2013. The company has

maintained its ROE and in 2011 – 2013 it is consistent of 2% due to no changes in the

reportable segments during the year. Transactions between the business segments are

carried out at arm’s length. The revenue from external parties reported to management is

measured in a manner consistent with that in profit or loss. Funds are ordinarily allocated

between segments, resulting in funding cost transfers disclosed in inter-segment net

interest income. Interest charged for these funds is based on the BPI Group’s cost of

capital.

According to the notes attached in the financial statements, the Metropolitan Bank

has a consistent rate of return on equity from 2004 – 2011 and in 2012 – 2013. It

increases 1% because of receivables from customers-others of the Group include credit

card receivables, notes receivables financed and lease contract receivables amounting to

P27.8 billion, P9.2 billion and P3.8 billion, respectively, as of December 31, 2012 and

P23.9 billion, P7.3 billion and P2.7 billion, respectively, as of December 31, 2011. As of

December 31, 2012 and 2011, other receivables include dividends receivable of P1.4

billion and P185.7 million, respectively, for the Group, and P158.5 million and P36.4

million, respectively, for the Parent Company.

STUDENT RESEARCH


Figure 3.3 Return on Equity of Industrial/Power/Electricity Industry

According to the notes attached in the financial statements, The Aboitiz Power

Corporation was able to attain a rate of return on equity results that ranges from 2% to

43% from the year 2004 to 2013. The highest percent was obtained in the year 2010

which arise from the 16% of the previous year due to a increase in the sale of power

generation and distribution. The core net income jumped 362% from Php 5.3 billion in

2009 to Php 24.4 billion in 2010. This was mainly due to the rise in generating capacity

and high average selling prices both for contracts and spot market.

The Energy Development Corporation obtains a downward result of rate of return

on equity from the year 2004 to 2008. It increased in the next two years, then, became 2%

in 2011, 29% in the year 2012 and 16% in the year 2013. The highest percentage was

attained in the year 2004 with 141% due to a very low amount of the shareholder’s

equity. This means that the company generates a net income return amounted to 141% of

the company’s equity during that year.

STUDENT RESEARCH


The First Generation Corporation has a decreasing result of rate of return on

equity from the year 2004 to 2008 and starts to fluctuate on the following years. The

major change was obtained in the year 2006, having 21%, which was 32% on the

previous year. This is because of the high increase in the additional paid in capital and an

increase in the retained earnings which include undistributed earnings of an associate

amounting to $ 1.77 million and $ 0.68 million as of Dec. 31, 2006 and 2005

respectively.

The Manila Electric Company obtains a negative rate of return on equity in the

years 2004 and 2005 which has a percentage of -7% and -1% respectively. This is

because of having a much higher expenses than their company’s revenues that resulted to

a net loss. From the year 2005 with -1% rate of return on equity, it jumped to 27% on the

next year due to a very high increase in the company’s net income.

Petron Corporation also has a negative rate of return on equity in the year 2008 of

-12% because according to the notes attached on the financial statements, the company

had a net company loss of Php 3,920 million. The big change that occurs in the year

2011 which has 14% rate to 3% rate of 2012 was mainly due to the high decrease in the

net income and an increase in the shareholder’s because of the preferred shares issued

upon listing on the PSE at P100 per share. The proceeds from issuance were recognized

as additional paid-in capital. The preferred shares are peso-denominated, cumulative,

non-participating, nonvoting and are redeemable at the option of the Parent Company.

STUDENT RESEARCH


Figure 3.4 Return on Equity of Telecommunication

The Globe Telecommunication Company has a rate of return on equity that

contains minimal changes every year starting from the year 2004 to 2013. The major

change occurs in the year 2011 with 20% to the year 2012 with 15%. This is due to the

decrease in the net income of the company for the year 2012 because of a high deduction

on the provision of deferred income tax on unexercised stock options and basis

differences on deductible and reported stock compensation expense.

The Philippine Long Distance Telecommunication obtains a fluctuating result of

rate of return on equity from the year 2004 to 2013. The sudden change in the result

occurs in the year 2010 with 41% to the next year which has 21% results. According to

the notes attached on the financial statements, this change was done due to the increase in

the shareholder’s equity for the additional 27.7 million common shares of PLDT, which

were issued on October 26, 2011 at the issue price of Php2,500 per share, as

consideration for the acquisition by PLDT of the Enterprise Assets of Digitel.

STUDENT RESEARCH


Figure 3.5 Return on Equity of Casino and Gaming

The figure 3.5 shows the rate of return on equity of Bloomberry Resorts

Corporation for the year 2004-2013. It can be seen that there is a negative ROE during

the year 2006, 2007, 2012 and 2013. During the year 2006 and 2007, there was a very

high amount in foreign exchange loss that amounted to 3,807,706 and 7,424,435,

respectively. This causes the net income to become negative. Next is for the year 2012

that has -4% ROE. This was due to the high amounts of expenses. Costs and expense,

foreign exchange losses and market-to-market loss were the accounts that contributed to

the high amount of costs and expenses. Lastly was for the year 2013 which is -8%. The

major factor that contributed to the loss of the net income was the operating costs and

expenses that amounted to 13, 265, 098, 802.

With these information, it can be said that Bloomberry’s ROE throughout its ten-

year operation was not so good and the investors of this company have not received high

dividends. This is also not good for the image of the company having a negative amount

in its ROE because this can be interpreted by other investors as a failure for the company.

STUDENT RESEARCH


Investors might not be interested in investing its money with this type of company

because they will have a perception that they will not receive high dividends in

proportion of the money they have invested.

Figure 3.6 Return on Equity of Foods and Beverages

The figure 3.6 shows the rate of return on equity of Jollibee Foods and

Corporation and of Universal Robina from 2004-2013. It can be said that both companies

have a positive ROE within its ten year of operation. For Jollibee Foods and Corporation,

its ROE ranges from 2%-21%. It is note taking that it was on the year 2005 where it had

the lowest ROE for their ten-year of operation. This lowest percentage value in their ROE

was due to the increase in their equities because of the reissuance of treasury shares

during the beginning of the year. While for Universal Robina, its ROE ranges from 8% to

20%. It is a very good indicator for the Universal Robina that their company is

increasingly profiting.

With the given ROE of Jollibee Foods and Corporation and Universal Robina,

shareholders of these companies have the assurance that they can receive better dividends

pay. Also, having a positive ROE for both companies is a good indicator that they have a

good profitability.

STUDENT RESEARCH


Figure 3.7 Return on Equity of Mining

The figure 3.7 shows the rate of return on equities of Philex and Semirara for the

year 2004-2013. As stated above, the ROE of two companies are fluctuating throughout

its ten-year of operation. In Philex company, it is clearly seen that year 2012 was the year

when its ROE falls down to -1% while for the year 2006 was the year when it has the

highest ROE which value was 61%.During 2006, the Philex company had a total equity

of P5, 067, 078 and a net income of P3, 086, 667. Based on their financial statements,

their revenue for copper was the biggest factor that made their revenue goes higher

compared to other years of their operation that amounted to P6, 347, 798. While for the

year 2012, where their ROE falls down to negative percentage, -1%, this was because of

a loss they had incurred in their net income. These losses were because the parent

company suspended the operation of the Padcal Mine which was the company’s main

source where they get their revenue. Suspension of the operation lead them to suffer

losses and imposed payments that resulted to greater revenue which made them result to a

net loss. On the other hand, even if Semirara Company’s ROE is also fluctuating, it is

still a positive result for them because their computed ROE for the ten year operation

ranges from 14%-98%. On the year 2004, high ROE was due to the high result of their

STUDENT RESEARCH


sales which amounted to P5, 065, 864, 642 that made them generate higher net income

with lesser expenses. While the 14% in their ROE was during year 2006 and 2007. It is a

great image for Semirara rather than for Philex because their value of ROE is greater and

higher than the latter.

Figure 3.8 Return on Equity of Transportation

The table above shows the rate of return on equity of International Container

Terminal Services, Inc. for year 2004 to 2013. It is clearly viewed that ICTS has a good

ROE that signifies profitability of their company. The value of ROE ranges from 10%-

17%. The lowest ROE was during year 2009. This lower value in ROE was due to the

decrease in the revenue that amounted to $421, 651, 311.But still, with this positive ROE,

shareholders of this company have the assurance that their investments will gain positive

outcome and that they can generate more earnings in the future in terms of dividends that

will be raised by the company.

STUDENT RESEARCH


Figure 4.0 Return on Asset of Holdings

The figure 4.0 shows the different results of computed Return on Asset for the

Holdings Industry. Return on Assets is a measure of how profitable company's assets are

in generating profit. On this ratio, the investors have an idea on how effectively the

company is converting the money it has to invest into the net income.

Aboitiz Equity Ventures has been consistent in generating profit thru company’s

asset. The result ranges from not less than 7% but not more than 17%. The company was

better at converting its investment into profit during the year 2009 and for the rest of the

year, they are still profitable enough in generating profit thru their assets, the company’s

management is the most important job is to be wise in choosing the proper allocation of

their resources.

Alliance Global had a good Return on Asset for the whole year especially during

2005 but for the remaining years, they are below the 23% during the year 2005 due to

STUDENT RESEARCH


increase of expenses however, the company are still managing its recourses properly with

good decision making.

Ayala Corporation has maintained their Return on Asset positive until 2013

though, the company did not even go beyond 10%, and they are still effective in

converting the money of the investors thru generating well their asset. The company has

lower value of net income due to yearly increase of net income and not so much increases

on total assets.

DMCI has continued to improve their Return on Asset every year which is

beneficial to the investor. The lowest result of their Return on Asset was during 2008 due

to an increase of operating expenses specifically salaries, wages and employee benefits,

government share, depreciation and amortization, taxes and licenses, repairs and

maintenance, rent expenses, supplies communication, light and water, provision for

doubtful accounts, insurance and miscellaneous that resulted 6% compared to other years

between 2004-2013. They still have profitable assets to pay back their investors.

JG summit has to improve their Return on Asset though only at 2008 that it

resulted to 0%, on the view of the investors, the Return on Assets of JG Summit for 10

years has a bad effect on them that the company is not properly utilizing its capitals and

may have questionable management. The company had a net loss amounted to P694-

million due to an increase of operating expenses by 35.9% consistent with the higher

production for 2008. According to the notes attached in the financial statements, the

increase in gross profit contributed to the drop in net loss from P722.44 million last year

to P673.80 million this year. The company has re-gained their Return on Asset until 2013

which is beneficial for the company especially to the investors.

San Miguel Corporation has been consistent in maintaining their Return on Asset.

They have been generating income for their investors well and properly utilizing their

assets. The result ranges from not less than 3% and not more than 77%. During 2012, the

company performed well compared to other companies. The companies had increased

STUDENT RESEARCH


their net income by 27% but have lost again for 2013. The company is still effective in

utilizing their asset because they were able to avoid a negative result.

SM Investment Corporation has been consistent in generating profit thru

company’s asset. The result ranges from not less than 4% but not more than 7%. Though

the companies were not able to increase their asset and net income for the 10 consecutive

years, they maintained to have a positive Return on Asset for the past 10 years. They had

the lowest result during 2004 due to an increase of cost and expenses for the whole year

that made their net income lower compared to other year. They were still able to take

back the control on their net income and asset.

Tanduady Holdings (LT Group) has maintained their Return on Asset positive for

the whole 10 years. The company had the lowest net income and assets during 2007 due

to continuous increase of their expenses and decrease on their net income that resulted to

1% for Return on Asset. The company has regained the losses they had for the year 2007,

they were able to lessen the expenses and increased their net income but during 2013,

they ended the year with a 2% Return on Asset which is almost near of resulting to

negative due to less operating income compared to 2012.

From all the companies DMCI has continued in improving their return on asset

for 10 years. The company is profitable in generating profit. This means that the investors

would look on their company as an effectively company in converting the money they

have invested into net income.

STUDENT RESEARCH


Figure 4.1 Return on Assets of Real Estate Industry

According to the notes attached in the financial statements, Ayala Land has a

fluctuating percentage from 2004 – 2013.In 2007 it got its highest percentage which is

6% that is due to increase in authorized capital stock by P1.5 billion creating 15 billion

preferred shares with a par value of P0.1. The issued preferred shares were amounting to

13,034,603,880 on October 2007.

The Megaworld company has a fluctuating percentage from 2004 – 2013. In 2010

– 2011 it increases to 1% due to Cash in banks that generally earns interest at rates based

on daily bank deposit rates. Short-term placements are made for varying periods between

15 to 30 days and earn effective interest ranging from 3.5% to 4.9% in 2011. The Group

enters into numerous joint venture agreements for the joint development of various

projects. These are treated as jointly controlled operations; there were no separate entities

created by these joint venture agreements.

STUDENT RESEARCH


According to the notes attached in the financial statements , Robinsons Land

Corporation has a declining percentage from 2004 – 2013 but its lowest is in 2004 which

is 4% due to rental receivables from affiliated companies which are included in trade

receivables amounted to about P110 million as of September 30,2004. Increase in cash

and a cash equivalent due to cash in banks earns interest at the respective bank deposit

rates. Short-term investments are made for varying periods of up to three months

depending on the immediate cash requirements of the Group, and earn interest at the

respective short-term investment rates.

Based to the notes attached in the financial statements, SM Prime has a declining

percentage from 2004 – 2013, its lowest percentage is in 2013 due to its interest income

earned from receivables from sale of real estate and related parties totalled P67 million

for the year ended December 31, 2013. An increase Condominium and Residential Units

for Sale and involve Investment in Associates and Joint Ventures on that year.

Figure 4.2 Return on Assets of Bank Industry

STUDENT RESEARCH


The BDO has a fluctuating ROA from 2004 – 2013, but the lowest percentage is

in 2008 due to Foreign currency-denominated securities amounted to P3,562 as of

December 31, 2008, respectively, in BDO Unibank Group financial statements and

P3,448 as of December 31, 2008 in the Parent Bank financial statements and loans and

other receivables amounting to P23,110 as of December 31,2008.

According to the notes attached in the financial statements, BPI has a fluctuating

ROA from 2004 – 2013. The lowest is 10% in 2008 due to an increase in the assets

especially those in the cash and cash equivalents and trading securities. Interbank loans

on the Parent Bank in 2008 include overnight lending tos BPI leasing of P180 million

also include other lending to various banks of P13, 034 million.

According to the notes attached in the financial statements, Metropolitan has a

fluctuating ROA from 2004 – 2013. In 2012 – 2013 it increase in 4% due to Receivables

from customers-others of the group include credit card receivables, notes receivables

financed and lease contract receivables amounting to P32.6 billion, P4.7 billion and P4.0

billion, respectively, as of December 31, 2013 and P27.8 billion, P4.6 billion and P3.8

billion, respectively, as of December 31, 2012.

STUDENT RESEARCH


Figure 4.3 Return on Assets of Industrial/Power/Electricity Industry

The Aboitiz Power Corporation has been consistent in having a debt ratio of less

than 1 from the year 2004 to 2013. The biggest change was obtained in the year 2009 for

the reason that their bank loans increased by 21% or Php1.03 billion due to Aboitiz

Power Parent’s availment of a short term bank loan to support its investment activities.

The Energy Development Corporation was also able to maintain a debt ratio result

of less than 1 from the year 2004 to 2013. The smallest result was obtained in the year

2007 due to the full payment of obligations to power plant contractor for Malitbog,

Mahanagdong and Leyte Optimization power plants. It increased in the following year

because of the rise in the guarantee fee to 2% per annum which starts in the year 2008.

The results start to fluctuate from the year 2008 to 2013.

The First Generation Corporation has a fluctuating result of debt ratio. The

biggest change of ratio occurs from the year 2012 to 2013. According to the notes

STUDENT RESEARCH


attached in the financial statements, it climbs to 0.65 from 0.47 due to the issuance of

$260 million US – dollar denominated convertible bonds by the parent company in the

year 2008 but due on the year 2013.

The Manila Electric Company has a debt ratio results that ranges from 0.64 to

0.77. The highest result was obtained in the years 2004 and 2005 and the lowest result

was obtained in the year 2009 resulted by an increase in the total assets from the previous

year due to the investment properties of the Parent Company that includes the land and

structures with carrying values of Php1,498 million.

The Petron Corporation obtains a debt ratio results with minimal changes from the

year 2004 to 2013. It ranges from 0.61 to 0.73. According to the notes attached in the

financial statements, the biggest change obtained within two years was in the year 2007

to 2008. It changes from 0.64 to 0.71 due to the acquisition of unsecured peso and US –

dollar denominated loans obtained from local and international banks with range of

maturities from 30 days to 180 days and with interest from 3% to 9%. These loans are

intended to fund the importation of crude oil and petroleum products or capital

expenditures and working capital requirements.

Figure 4.4 Return on Assets of Telecommunication Industry

STUDENT RESEARCH


The Globe Telecommunication Company obtains a nearly fluctuating result which

contains minimal changes. From the year 2011 to 2013, the ratio continues to decline due

to the continuous decrease in the net profit for the reason that there is a high increase in

the cost and expenses of the company. It consists of short term renewable leases on

transmission cables and equipment being incurred by the Globe Group.

The Philippine Long Distance Telecommunication also obtains a nearly

fluctuating result of rate of return on equity for the year 2004 to 2013. The sudden change

in the result occurs in the year 2010 with 14% to the following year which has 8% results.

According to the notes attached in the financial statements, this change was done due to

the increase of the total assets that includes cash in banks and temporary cash investments

amounted to Php1,317 million. Temporary cash investments are made for varying periods

of up to three months depending on our immediate cash requirements, and earn interest at

the prevailing temporary cash investment rates. It also includes the cost of inventories

and supplies recognized as expense for the year ended December 31, 2011.

Figure 4.5 Return on assets of Bloomberry Resorts Corporation Industry

STUDENT RESEARCH


The figure 4.5 illustrates the rate of return on assets of Bloomberry Resorts

Corporation for ten years. With this table, it can be seen that there are five negative rate

on return on their assets. This negative amount means the company has not utilized

efficiently its assets to generate earnings. We cannot say that this company is performing

better in terms of their ROA compared to other company that belongs in the same

industry. This is so because Bloomberry is the only company listed in PSEi which

belongs to Casino and Gaming industry. But looking in its performance, it is not a good

indicator to have their ROA negative in value. This might have a great impact in the

perspective of the future investors and will think that the company is not utilizing well its

assets to generate high income.

Figure 4.6 Return on assets of Food & Beverages Industry

STUDENT RESEARCH


The table above shows the rate of return on assets of Jollibee Foods and

Corporation and of Universal Robina from 2004-2013. Both companies have a positive

return on assets and it is a good image for the two companies. The positive value on their

ROA shows that both companies are utilizing the use of its assets to generate more

income. For JFC, the lower ROA is during the year 2011 which was 8% , while the

highest ROA was during the year 2004 that was 19%. It can be said that the lowest

percentage was due to the increase in assets especially in the Property, Plant and

Equipment that amounted to P10, 557, 402. There is a big allotted cost to construction in

progress and it was because of the ongoing construction of plant and for their expansions.

On the other hand, for Universal Robina, their ROA ranges from 1%-15%. The 1% was

during the year 2008. The fall in value of ROA from 2007 to 2008 which was 9% to 1%

respectively was because of the decrease in the Net Income from P5, 501, 028, 708 to

P341, 195, 729.

Figure 4.7 Return on Assets of Mining Industry (Philex and Semirara)

STUDENT RESEARCH


The figure 4.7 shows the rate of return on assets of Philex and Semirara

Corporation for their ten year of operation. In the illustration above, it can be seen that in

Philex, there is only one year which their ROA valued to negative percentage and that

was during the year 2012. This negative amount can be traced back when the Parent

Company suspended the operation of the source where they get its revenue. This can be

presumed that due to the suspension, assets were not fully utilized and less operations

were conducted that lead to the net loss of the company. On the other hand, Semirara

Mining Corporation got its lowest ROA during year 2009 which amounted to 8%.

Figure 4.8 Return on Assets of Transportation Industry

STUDENT RESEARCH


The figure 4.8 shows the rate of return on assets of International Container

Terminal Services, Inc. for the ten year of operation. It can be seen that even though the

ROA is fluctuating, it is clearly viewed that ROA resulted to all positive percentage. It is

still a good indicator for ICTS for their ROA to be positive. This means that they are

utilizing the use of the assets they have so as to generate higher earnings.

STUDENT RESEARCH


Figure 5.0 Net Profit Margin on Holdings Industry

Net profit margin measures how successful a company has been at the business

marking a profit on each peso sales. This indicates how much net income a company

makes with total sales achieved. The higher the results, the higher the company

efficiently convert sales into actual profit. Net profit margin is one of the most important

financial ratios.

The figure 4.9 shows that holdings industry performed well with only one year of

negative result from JG Summit due high expenses of their Administrative Expenses,

Selling & Contribution Expenses and low Finance and Other Income yet they still get to

manage in converting their sales into a profit.

Aboitiz Equity Venture had been consistent in maintaining their company

profitable and manages well converting sales into net income. The lowest result was

during 2005 and the highest was during 2011 that made the company more competitive

than any other companies under their industry.

Alliance Global had been good in controlling their costs. The company had fewer

expenses each year but according to the notes attached to the financial statement by

Punongbayan & Araullo Co. of Alliance Globe only during 2004, they had their highest

STUDENT RESEARCH


expenses due to an increase of Administrative Expenses, Selling & Contribution

Expenses and low Finance and Other Income. The company still maintained to get their

Net Income and Sales higher as their net income yearly increases.

Ayala Corporation performed well although out 10 years from 2004-2013. The

lowest result was during 2004. According to the notes attached to the Financial

statements of by SGV&Co, it was due to an increase of their General and Administrative

expenses from 2003-2004 and the highest result was during 2005 that the company

increased their net income with more than P1,484,718.00 which means that the company

can still take control of their incomes and sales.

DMCI managed to control their expenses every year and tried to continue their

annual increase of net income and net sales. Based on the notes attached to the Financial

Statement by SGV&Co, the lowest computed Net Profit Margin was during 2008, due to

an increase of operating expenses such as salaries, wages and employee benefits,

government share, depreciation and amortization, rent, supplies, taxes and license, and

provision for doubtful accounts. Looking on the other side, the remaining years are still

under control of the company and well managed.

According to the notes attached in the financial statements, JG Summit had a

problem on making their Net Profit Margin increase every year, most especially during

2008 on where the company had a net loss. According to the message of the Chairman

and Chief Executive Officer and the President and Chief Operating Officer of the

company to the shareholder, the negative effects of foreign exchange translation as well

as the mark-to-market losses on the Group’s financial assets and fuel hedges,

consolidated net income amounted to a net loss of ₱694 million and the net foreign

exchange translation loss amounted to ₱2.93 billion compared with a gain of ₱7.21

billion in the same period last year. This is a direct result of translating the value of the

company’s dollar-denominated assets and liabilities using a much devalued Philippine

peso at the close of the year 2008. The mark-to-market losses amounted to ₱7.14 billion

and this versus a gain of ₱1.96 billion for the same period last year. Again this was

STUDENT RESEARCH


brought about by the combined effects of the lower market value of its financial assets

and fuel hedges coming out of the decline and volatility of global financial and

commodity markets, as well as the lower value of the peso (James L. Go, Lance Y.

Gokongwei 2008). As 2009 started, the company recovered the losses occurred last 2008

and regained the trust of their shareholders.

San Miguel Corporation had been consistent in maintaining their Net Profit

Margin well but the results are not enough to make the company competitive in

comparing it on other companies. The company has low Net Profit Margin due to a low

increase of net income; net income increases around 15% to 20% every year, as well as

operating expenses increases by 20% that can also affect the net income. The company

had the highest result during 2009, according to the notes attached to the financial

statements by Manabat Sanagustin & Co., the company had increased their net sales by

around 5% and net income by 67%. The company is still performing well because their

net profit margin for the year 2004-2013 has no negative result.

SM Investment Corporation had continued in converting note more than 18% and

not less than 10% of their sales into profits. The company had consistently stable yet

fluctuating net margin that often indicate the company’s with one or more competitive

advantages. Furthermore, a high net margin provides a company with a cushion during

downturns in its business. The company had enough net income to cover up their

expenses/

STUDENT RESEARCH


Figure 5.1 Net Profit Margin of Real Estate Industry

Based on the financial report of Ayala Land, in 2012 to 2013 it decreases to 4%

due to increase in its gross profit. The revenues cost and expenses increase due to sales of

real estates and interest income that has an effect on gross profit. As the gross profit

increases the lower will be the net profit margin will be.

Based on the financial report of Megaworld, in 2011 to 2012 it decreases to 4%,

the cause of this is that along in the increase of income it also increase it expenses as a

result the net income decrease. Most of the causes of increase in the operating expenses

are the transportation, rent, and utilities and supplies that when it increases it affects the

net income.

Based on the financial report of Robinsons Land Corp., in 2012 to 2013 it

decreases to 3% due to decrease of interest income it affects the net income. The Interest

earned from cash in banks and short-term investments for the years ended September 30,

2013, 2012 and 2011 amounted to P112 million and P493 million and P414 million,

STUDENT RESEARCH


respectively due to this it decreases an average amount of the interest income and as well

as the net income.

Based on the financial report of SM Prime, in 2012 to 2013 it decreases to 7% due

to increase of its revenues. The rent income amounted to P32,195 million, P28,952

million and P25,208 million for the years ended December 31, 2013, 2012 and 2011,

respectively have an impact to the gross profit. As the gross profit increases the lower

will be the net profit margin will be.

Figure 5.2 Net Profit Margin of Bank Industry

Based on the financial report of BDO, in 2007 to 2008 it decreases to 21% due to

decrease in its operating income. The accounts that decrease operating income are trading

loss, rental income and income assets required which decrease a large amount on that

year.

Based on the financial report of BPI, in 2007 to 2008 it decrease to 20% due to its

operating income. One of the accounts under operating income is investment which has a

STUDENT RESEARCH


low value from 2007 to 2008 and it’s also expenses increase that results to a low

operating income.

Based on the financial report of MetroBank, in 2007 to 2008 it decrease to 14%

due to the reclassification of assets. In September 10, 2008, Parent company reclassified

certain debt securities from held trading securities to AFS investments. In 2008 the

reclassified securities with total carrying P854.6 million were sold on various dates for

net gains of P8.0 million. The effective interest rates on the reclassified securities range

from 4.48% to 6.92%.

Figure 5.3 Net Profit Margin of Industrial/Power/Electricity Industry

Aboitiz Power Corporation has a fluctuating result net profit margin ratio. The

highest result was obtained in the year 2004 with 0.99 and the lowest result was obtained

in the year 2012 with 0.06. It is shown in the management’s report that the result obtained

in the year 2012 is more likely due to the increase in the cost of generated and purchased

power.

STUDENT RESEARCH


Energy Development Corporation also obtains a fluctuating result of the net profit

margin ratio that ranges from 0.55 to 0.03. The lowest result was obtained in the year

2012 because of having net loss from discontinued operations. In October 2012, the

Company discontinued its drilling services to Lihir in Papua New Guinea. As of

December 31, 2012, the remaining assets of the drilling component pertain to trade

receivables only amounting to P133.8 million. Equipment and other tools used in drilling

operations were then being leased from third parties by the Parent Company. This was

stated in the management’s report in the year 2012.

The First Generation Corporation has a low result of net profit margin ratio which

contains minimal changes from the year 2004 to the year 2013. The lowest result was

obtained in the year 2008 with 0.05. Based on the company’s annual report, this result

was due to a decline in the company’s net profit. According to the notes attached in the

financial statements, it is stated in the report that the amounts of fuel inventories

recognized as expense are $12.4 million in 2008, $5.5 million in 2007 which are

recognized as part of “Fuel cost” account in the consolidated statement of income. In

2008, advances to contractors include a 20% advance payment of EDC amounting to $4.2

million (P198.0 million) for the purchase of a new drilling rig expected to be delivered to

EDC in November 2009.

The Manila Electric Company obtains a relatively low result of net profit margin

ratio from 2004 to 2013. The lowest re4sult was obtained in the year 2004 with a

negative result of -0.02. This was due to having a net loss. In the management’s report,

there is an increase in unrecoverable purchased power from related parties consists of

purchases of power, construction services, information systems technology services,

transformers and meters.

According to the notes attached in the financial statements, Petron Corporation

also obtains low result of net profit margin ratio with minimal changes from the year

2004 to the year 2013. The company also has a negative result in the year 2008 because

STUDENT RESEARCH


of their net loss. The high amount of cost of sales contributed a lot with the loss of the

company. It is shown in the company’s report that in 2008, new products of the

Company include Petron E10 Premium, pCHEM CA 6100, pCHEM CI 5140, and

pCHEM DS 9100. Inventories, including distribution or transshipment costs, charged to

cost of goods sold were amounted to P259,391, P191,613 and P194,263 in 2008, 2007

and 2006, respectively.

Figure 5.4 Net Profit Margin of Telecommunication Industry

The Globe Telecommunication Company obtains a relatively low net profit

results which contains minimal changes. From the year 2009 to 2013, the ratio continues

to decline due to the continuous decrease in the net profit for the reason that there is a

high increase in the cost and expenses of the company, stated from the management’s

annual report. It consists of short term renewable leases on transmission cables and

equipment being incurred by the Globe Group.

The Philippine Long Distance Telecommunication has a fluctuating result of net

profit margin which ranges from 0.20 to 0.28. The highest result in the year 2010 was

STUDENT RESEARCH


obtained due to a decline in the company’s net sales. It was stated in the management’s

annual report that the revenues under a multiple element arrangement specifically

applicable to our fixed line and wireless businesses are split into separately identifiable

components based on their relative fair value to reflect the substance of the transaction.

The total consideration is allocated using an appropriate allocation method is where fair

value is not directly observable.

Figure 5.5 Net Profit Margin of Casino and Gaming Industry

Figure 5.5 shows the net profit margin of the Bloomberry Resorts Corporation for

the year 2004 to 2013. It can be clearly seen that they had a fluctuating net profit margin.

Their highest net profit margin during its ten year of operation was during the year 2010

that resulted to 54%. This high net profit margin was due to high net profit which was

more than half of its net sale. Also, there is a small amount of expenses which was

incurred during the year. On the other hand, it was during the following year, 2011, when

Bloomberry had a large decrease in their net profit margin that amounted to -472% due to

increase in their operating expenses.

STUDENT RESEARCH


Figure 5.6 Net Profit Margin of Foods and Beverages Industry

Figure 5.6 shows the net profit margin of Jollibee Foods Corporation and

Universal Robina. For JFC their net profit margin was ranging from 5-7%, while for

Universal Robina it was from 1%-15%. JFC’s net profit margin is increasing and

decreasing as well with just a minimal value in percentage. On the other hand, Universal

Robina has the lowest and highest net profit margin during year 2008 and 2007 which

resulted to 1% and 15%, respectively. Both companies do have a positive net profit

margin, which is a good image for the two companies. This means that both companies

are profitable and they are able to generate profit through their sales. But comparing the

two, it is clearly seen that Universal Robina Corp. has a better profitability performance

than Jollibee Foods Corp. in terms of their net profit margin.

STUDENT RESEARCH


Figure 5.7 Net Profit Margin of Mining Industry

Figure 5.7 illustrates the net profit margin of mining industry that includes Philex

and Semirara for their ten year of operation. Philex Mining Corporation’s net profit

margin has an increasing trend from year 2004 up to year 2007 that amounted to 0%-45%

and then decreases starting year 2008 up to the recent year. The lowest value of the net

profit margin for Philex Mining was during year 2012 that resulted to -3%. According to

the attached notes to financial statements, there was a suspension of the operation during

the year. This negative amount was mainly because of the expenses allotted for the

maintenance costs of the said suspension of the operation during the said year. Semirara

on the other hand has a fluctuating trend on its net profit margin. Their net profit margin

ranged from 9%-37% for their ten year of operation. It was note taking that during year

2011 was the year when Semirara had the highest account in their net profit margin for

their ten year of operations and it amounted to 37%.

STUDENT RESEARCH


Figure 5.8 Net Profit Margin of Transportation Industry

Figure 5.8 shows the net profit margin of International Container Terminal

Services, Inc. for the year 2004-213. It is clearly seen that ICTS has a positive net profit

margin that ranges from 11% up to 21%. Net profit margin of ICTS is fluctuating in trend

though they had a minimal increase or decrease in their percentage. It is note taking that

during 2013 was when ICTS has the highest net profit margin reported for its ten year of

operations that resulted to 21%. It is a good sign for the company having a positive

profitability in terms of their net profit margin.

STUDENT RESEARCH


Pearson’s Correlation Coefficient

Table No. 1.0 Relationship between Rate of Return on Equity and Capital Structure

Correlation coefficient

Interpretation P value Interpretation

Debt to Equity Ratio

-0.082 Negligible Negative

Correlation

0.468 Not significant

Debt Ratio

-0.9 Negligible Negative

Correlation

0.426 Not Significant

Table 1.0 shows the relationship between rate of return on equity and debt to

equity ratio and debt ratio. Figures revealed that rate of return on equity has negligible

negative correlation with debt to equity ratio given a correlation coefficient of -.082. This

means that the higher the rate of return on equity the lower the rate debt to equity ratio

and vice versa. The relationship between rate of return on equity and debt to equity ratio

is found to be not significant with a p value of .468 which is more than .05.

On the other hand, in terms of rate of return on equity relationship with debt ratio,

figures revealed that rate of return on equity has a negligible negative correlation given a

coefficient of 0.90, which means that as rate of return on equity increases then debt ratio

decreases and vice versa. The relationship of rate of return on equity and debt ratio is

found to be not significant given a p value of .426.

The result supports Tharmila & Arulvel (2013) when they study the listed

companies in Colombo stock exchange. According to them also, capital structure has a

negative relationship to financial performance. But on their study, they stated that capital

structure has a weak correlation with both rate of return on equity and rate of return on

asset. However, based on what had resulted in the present study, debt to equity ratio has a

low negative correlation with rate of return on assets that resulted to coefficient of -.454

STUDENT RESEARCH


and a p value of .000 that means there is a significant relationship between the two

variables indicated. Based on the results of the study, it was found out that majority of the

years of the operation of all industries, the higher the debt to equity ratio leads to a lower

rate of return on assets because these industries have a higher expenses that are related to

operations and prefer first to allot the money they had generated to pay their debts

causing their net income to decrease.

Table No. 1.1 Relationship between Rate of Return on Assets and Capital Structure




-.454** Low Negative .000 Significant

Debt Ratio

-.210 Negative, Negligible

.061 Not significant

Table 1.1 shows the relationship between rate of return on assets and debt to

equity ratio and debt ratio. Figures revealed that rate of return on asset have low negative

correlation debt to equity ratio given a correlation coefficient of -.454. This means that

the higher the rate of return on asset, the lower the debt to equity ratio and vice versa. The

relationship between rate of return on assets and debt to equity ratio is found to be

significant given a p value of .000.

On the other hand, in terms of rate of return on assets relationship with debt ratio,

figures revealed that rate of return on assets has a negligible negative correlation given a

coefficient of -.210. Which means that as rate of return on asset increases then debt ratio

decreases and vice versa. The relationship of rate of return on assets and debt ratio is

found to be not significant given a p value of .061.

STUDENT RESEARCH


The result supports the study of Siro (2013) that states that the debt ratio and rate

of return on equity had an inverse relationship. It does not matter how one firm’s finance

their operation, either through debt or through equity, and that the value of the firm’s

capital structure is independent making it irrelevant (Modigliani & Miller). This was

supported by the given figure above that as debt ratio increases, rate of return on equity

and rate of return on assets decreases.

Table No. 1.2 Relationship between Net Profit Margin and Capital Structure



Debt to equity

.176 Negligible Positive Correlation

.097 Not Significant

Debt to asset

.095 Negligible Positive Correlation

.375 Not Significant

Table 1.2 shows the relationship between net profit margin and debt to equity

ratio and debt ratio. Figures revealed that net profit margin has negligible positive

correlation with debt to equity ratio given a correlation coefficient of .176. This means

that the higher the net profit margin, the higher the debt to equity ratio and vice versa.

The relationship between net profit margin and debt to equity ratio is found to be not

significant with a p value of .097 which is more than .05.

On the other hand, in terms of net profit margin relationship with debt ratio,

figures revealed that net profit margin has a negligible positive correlation given a

coefficient of .095. Which means that as net profit margin increases then debt ratio

increases and vice versa. The relationship of net profit margin and debt ratio is found to

be not significant given a p value of .375.

STUDENT RESEARCH


Regression Analysis

Table no. 1.3 Effect of Rate of Return on Equity to Capital structure

Variable B Sig Interpretation

Constant .187 .000

Debt to Equity Ratio -.002 .575 Not significant

Debt Ratio -.013 .518 Not significant

R2 .012

The table 1.3, coefficients provides information on each predictor variable. This

provides us with the information necessary to predict debt to equity ratio and debt ratio

from rate of return on equity. It was revealed that rate of return on equity do not

contribute significantly to the debt to equity ratio and debt ratio, with Sig. of 0.575 and

0.518 respectively. By looking at the B column under the Unstandardized Coefficients

column we can present the regression equation as:

Rate of Return on Equity = .187 -.002 Debt to Equity Ratio - .013 Debt Ratio

This means that for every 1% increase in rate of return on equity, the debt to

equity ratio would decrease by .002. On the other hand, for every 1% increase in rate of

return on equity, debt ratio would decrease by .013.

STUDENT RESEARCH


Table no. 1.4 Effects of Rate of Return on Assets to Capital Structure


Constant .113 .000

Debt to Equity Ratio -

.009

.000 Significant

Debt Ratio -

.013

.273 Not significant

R2 .218

In the table 1.4, coefficients provide information on each predictor variable. This

provides the information necessary to predict debt to equity ratio and debt ratio from rate

of return on assets. It was revealed that rate of return on assets contribute significantly to

the debt to equity ratio, while rate of return on assets do not contribute significantly to the

debt ratio with Sig. of 0.000 and .273 respectively. By looking at the B column under

the Unstandardized Coefficients column we can present the regression equation as:

Rate of Return on Assets = .113 -.009 Debt to Equity Ratio - .013 Debt Ratio

This means that for every 1% increase in rate of return on assets, debt to equity

ratio would decrease by .009. On the other hand, for every 1% increase in rate of return

on assets, debt ratio would decrease by .013.

STUDENT RESEARCH


Table no. 1.5 Effects of Net Profit Margin to Capital Structure


Constant -.020 .856

Debt to Equity Ratio .040 .143 Not Significant

Debt Ratio .065 .654 Not Significant

R2 .033

The table 1.5, coefficients provides us with information on each predictor

variable. This provides the information necessary to predict debt to equity ratio and debt

ratio from net profit margin. It was revealed that net profit margin do not contribute

significantly to the debt to equity ratio and debt ratio with Sig. of 0.143 and .654

respectively. By looking at the B column under the Unstandardized Coefficients column

we can present the regression equation as:

Net Profit Margin = -.020 + .040 Debt to Equity Ratio + .065 Debt Ratio

This means that for every 1% decrease in net profit margin, debt to equity ratio

would increase by .040. On the other hand, for every 1% decrease in net profit margin,

debt ratio would increase by .065.

STUDENT RESEARCH


Table no. 1.6 Significant differences of capital structure and financial

performance when group according to industries

Industries Industry Averages F P

value Interpretation


HOLDINGS 1.0219 69.987 0 Significant REAL ESTATE 0.8457 BANKS 9.182 INDUSTRIAL 2.5504 TELECOMMUNICATION 1.8136 CASINO 0.274 FOODS & BEVERAGES 0.7381 MINING 0.843 TRANSPORTATION 1.095

Debt Ratio

1.64 0.128 Not Significant Rate of

Return on Equity

HOLDINGS 0.1361 13.216 0 Significant REAL ESTATE 0.1085 BANKS 0.144 INDUSTRIAL 0.189 TELECOMMUNICATION 0.2779 CASINO -0.027 FOODS & BEVERAGES 0.144 MINING 0.2815 TRANSPORTATION 0.136

Rate of Return on

Assets

HOLDINGS 0.0812 16.891 0 Significant REAL ESTATE 0.0575 BANKS 0.0123 INDUSTRIAL 0.0656 TELECOMMUNICATION 0.1011 CASINO -0.015 FOODS & BEVERAGES 0.091 MINING 0.189 TRANSPORTATION 0.067 Net Profit

Margin HOLDINGS 0.209 3.55 0.001 Significant REAL ESTATE 0.267 BANKS 0.387 INDUSTRIAL 0.212 TELECOMMUNICATION 0.201 CASINO -0.856 FOODS & BEVERAGES 0.075 MINING TRANSPORTATION

0.223 0.155

STUDENT RESEARCH


Table 1.6 shows the significant differences between profitability and capital

structure when companies are grouped according to their industry. The results show that

they differ significantly in terms of debt to equity ratio, rate of return on equity, rate of

return on assets and net profit margin given an F value of 69.987, 13.216, 16.891, and

3.550 and a P value of .000, .000, .000, .001 respectively. On the other hand, they are not

significantly different in terms of debt ratio given an F value of 1.640 and a P value of

.128.

STUDENT RESEARCH


CHAPTER 5

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

Summary of Findings

The paper focused in the effects of profitability to capital structure of companies

listed in Philippine Stock Exchange Index (PSEi). The PSEi is composed of 30

companies with different industries but the researchers only used 28 companies due to

insufficient data of the two other companies, and the researchers classified it according to

its industries. The companies were classified to nine industries namely holding firms

industry, real estate industry, banking industry, industrial/electrical/power industry,

telecommunication industry, casino ad gaming industry, foods and beverages industry,

mining industry, and transportation industry. Companies that belong to holding industry

are the Aboitiz Equity Venture, Alliance Global Group, Inc., Ayala Corporation ,

DMCI, JG Summit Holding, San Miguel Corporation, SM Investment Corporation, and

Tanduay Holdings (LT Group). While for the real estate industry, Ayala Land,

Megaworld Company, Robinsons Land Corporation, and SM Prime are included in the

said industry. Next is the banking industry that composed of BDO, BPI, and Metro Bank.

For industrial/electrical/power industry, it includes Aboitiz Power, Energy Development

Corporation, First Generation, Meralco and Petron. Moreover, telecommunication

industry comprises of Globe Telecom Inc. and Philippine Long Distance Telephone

Company. Casino and gaming industry was only composed of Bloomberry Resorts and

Corporation. In addition, Jollibee Foods Corporation and Universal Robina Corporation

belong to Foods and Beverages Industry. Furthermore, companies included in mining

STUDENT RESEARCH


industry were Philex Mining and Semirara Mining Corporation. Lastly was the

International Container Terminal Services, Inc. that belongs to transportation industry.

The capital structure can be measured through debt ratio and debt to equity ratio.

Debt equity ratio indicates if the company is more funded by debt or equity, an increase

in the ratio does not mean that the company has bad equity but as long as the value of the

debt equity ratio is less than 1, then it is a good sign for the company. On the other hand,

the debt ratio indicates the ability of the company to pay its debt. The outstanding

company of the nine industries in terms of debt equity ratio and debt ratio are Alliance

Global, Megaworld, Metropolitan Bank, Aboitiz Power, PLDT, Bloomberry Resort and

Corporation, Universal Robina, Philex and International Container Terminal Services.

These companies were outstanding in managing their assets and liabilities and they have

consistent of having a low debt equity ratio which means they finance through equity and

their debt ratio is also low which means they were able to pay their debt through assets.

The profitability can be measured through the use of rate of return on equity, rate

of return on assets and net profit margin, the higher the result of this profitability means

the better the company. The rate of return on equity means the efficiency in generating

income on new investment, rate of return on assets measures how profitable company's

assets are in generating profit and net profit margin means how much net income a

company makes with total sales achieved. The outstanding company of the nine

industries in terms of rate of return on equity, rate of return on assets and net profit

margin are DMCI, SM PRIME, BPI, Energy Development, PLDT, Bloomberry Resort

and Corporation, Universal Robina Corporation, Semirara and International Container

Terminal Services. These companies were outstanding in having a consistent and high

rate of return on equity, rate of return on assets and net profit margin.

The Pearson’s Correlation shows that the there is no relationship between debt equity

ratio to rate of return on equity while the debt equity ratio to debt ratio shows a low

negative relationship. Also the results show that there is no significant relationship

between debt ratio to rate of return on equity and rate of return on asset which means

there is no significant relationship between capital structure and profitability.

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In the Analysis of Variance it shows that there is different significant in terms of

debt to equity ratio, rate of return on equity, and rate of return on assets while in debt

ratio shows that there is no significant difference. In the result it shows that there is

significant when the companies were grouped to their industries because they have

different nature of business that leads to their difference in capital structure and

profitability.

The Regression analysis shows that there is no significant effect between rate of

return on equity from debt to equity ratio and debt ratio and also the rate of return on

asset to debt ratio, while the rate of return on asset shows a significant effect from the

debt ratio which means there is no significant relationship.

Conclusion

• The results show that rate of return on equity and net profit margin has no

significant relationship with capital structure, debt to equity ratio and debt ratio.

Also, rate of return on asset has no significant relationship to debt ratio, but it has

a significant relationship with debt to equity ratio. Therefore, the researchers

concluded that the first null hypothesis should be accepted that profitability has no

significant relationship with capital structure.

• The results show that rate of return on equity and net profit margin has no

significant effect to both debt to equity ratio and debt ratio. Moreover, rate of

return on asset has no significant effects to debt ratio, but has a significant effect

to debt to equity ratio. Therefore, the second hypothesis should also be accepted

that profitability has no significant effect to capital structure.

• The results show that there is a significant difference in terms of debt to equity

ratio, rate of return on equity, rate of return on asset and net profit margin ratio.

STUDENT RESEARCH


On the other hand, the result shows that there is no significant difference on debt

ratio. Therefore, the third hypothesis is rejected.

Recommendation

Based on the results of the findings and conclusions gathered, the researchers would

like to recommend the following:

• For the management of companies with a figure in more than one of their debt

to equity and debt ratio, they should make actions to lessen them or at least

maintain them to avoid them in relying in debt.

• For the management of companies with low rate of return on equity, rate of

return on assets and net profit margin ratio, they should make necessary

actions and be conscious of how will they increase it.

• For the investors, they should not rely on the capital structure in investing;

they should also look in the profitability of the company they want to invest.

• For students and other future researchers, further study is recommended for

the continuous update on the information regarding the subject.

STUDENT RESEARCH


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STUDENT RESEARCH


APPENDICES

1. HOLDINGS INDUSTRY 3. BANKING INDUSTRY D/E D/A ROE ROA NPM D/E D/A ROE ROA NPM

2004 0.74 0.38 0.10 0.06 0.21 2004 8.31 0.89 0.10 0.01 0.36 2005 0.95 0.46 0.17 0.10 0.20 2005 9.44 0.90 0.12 0.01 0.35 2006 0.93 0.46 0.12 0.06 0.13 2006 9.14 0.90 0.12 0.01 0.38 2007 0.78 0.42 0.11 0.07 0.16 2007 8.59 0.90 0.12 0.01 0.40 2008 0.95 0.47 0.08 0.05 0.11 2008 10.80 0.91 0.07 0.01 0.22 2009 0.94 0.45 0.15 0.08 0.26 2009 10.34 0.90 0.10 0.01 0.27 2010 1.19 0.53 0.16 0.08 0.24 2010 9.50 0.91 0.11 0.01 0.37 2011 1.09 0.51 0.16 0.08 0.28 2011 8.62 0.89 0.12 0.01 0.41 2012 1.11 0.51 0.16 0.17 0.29 2012 7.70 0.88 0.13 0.02 0.52 2013 1.54 0.57 0.15 0.07 0.21 2013 9.38 0.90 0.16 0.02 0.59

2. REAL ESTATE INDUSTRY

4. INDUSTRIAL / POWER / ELECTRICITY INDUSTRY

D/E D/A ROE ROA NPM D/E D/A ROE ROA NPM 2004 0.75 0.42 0.09 0.05 0.29 2004 10.02 0.63 0.42 0.08 0.25 2005 0.81 0.44 0.10 0.06 0.27 2005 2.41 0.58 0.28 0.07 0.31 2006 0.89 0.46 0.11 0.06 0.26 2006 1.49 0.56 0.23 0.10 0.16 2007 0.64 0.39 0.11 0.07 0.27 2007 1.46 0.54 0.15 0.07 0.23 2008 0.80 0.44 0.12 0.07 0.25 2008 1.83 0.61 0.04 0.02 0.10 2009 0.90 0.47 0.11 0.06 0.26 2009 1.90 0.66 0.12 0.04 0.11 2010 0.85 0.46 0.12 0.06 0.27 2010 1.55 0.60 0.20 0.08 0.18 2011 0.90 0.47 0.12 0.06 0.28 2011 1.61 0.60 0.15 0.06 0.22 2012 0.97 0.47 0.11 0.06 0.28 2012 1.50 0.52 0.15 0.06 0.30 2013 0.95 0.47 0.10 0.05 0.24 2013 1.73 0.57 0.15 0.07 0.26

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5. TELECOMMUNICTION INDUSTRY

7. FOODS AND BEVERAGES INDUSTRY

D/E D/A ROE ROA NPM D/E D/A ROE ROA NPM 2004 2.95 0.70 0.39 0.10 0.21 2004 0.86 0.45 0.14 0.12 0.07 2005 1.89 0.65 0.33 0.11 0.23 2005 0.62 0.49 0.06 0.07 0.07 2006 1.25 0.56 0.27 0.12 0.23 2006 0.71 0.41 0.15 0.08 0.07 2007 1.12 0.53 0.28 0.13 0.23 2007 0.71 0.41 0.18 0.10 0.11 2008 1.38 0.58 0.28 0.12 0.21 2008 0.86 0.46 0.09 0.05 0.03 2009 1.75 0.64 0.33 0.12 0.23 2009 0.75 0.43 0.14 0.08 0.07 2010 1.82 0.65 0.31 0.11 0.22 2010 0.73 0.42 0.19 0.11 0.10 2011 1.65 0.62 0.21 0.08 0.17 2011 0.78 0.44 0.14 0.08 0.06 2012 1.96 0.66 0.19 0.07 0.15 2012 0.71 0.40 0.17 0.11 0.08 2013 2.37 0.70 0.19 0.06 0.13 2013 0.66 0.37 0.21 0.13 0.09

6. CASINO AND GAMING INDUSTRY 8. MINING INDUSTRY D/E D/A ROE ROA NPM D/E D/A ROE ROA NPM

2004 0 0 0.01 0.01 0.3 2004 1.90 0.66 0.49 0.17 0.13 2005 0 0 0 0 0.12 2005 1.32 0.53 0.29 0.15 0.19 2006 0 0 -0.02 -0.02 -0.45 2006 0.54 0.35 0.38 0.24 0.25 2007 0 0 -0.07 -0.07 -1.49 2007 0.36 0.26 0.37 0.28 0.28 2008 0 0 0.03 0.03 0.4 2008 0.47 0.32 0.20 0.14 0.20 2009 0 0 0.01 0.01 0.37 2009 0.81 0.38 0.17 0.41 0.24 2010 0 0 0.02 0.02 0.54 2010 0.86 0.39 0.26 0.14 0.24 2011 0.56 0.36 -0.13 -0.08 -4.72 2011 0.80 0.38 0.31 0.18 0.38 2012 0.66 0.4 -0.04 -0.02 -3.52 2012 0.73 0.39 0.19 0.09 0.14 2013 1.52 0.6 -0.08 -0.03 -0.11 2013 0.64 0.39 0.19 0.11 0.18

STUDENT RESEARCH


9. TRANSPORTATION INDUSTRY D/E D/A ROE ROA NPM

2004 0.75 0.41 0.13 0.07 0.12 2005 0.74 0.43 0.14 0.08 0.13 2006 0.80 0.44 0.17 0.10 0.15 2007 0.53 0.35 0.13 0.08 0.16 2008 1.77 0.64 0.14 0.05 0.12 2009 1.45 0.59 0.10 0.04 0.11 2010 1.54 0.61 0.16 0.06 0.17 2011 1.07 0.52 0.14 0.07 0.19 2012 1.02 5.00 0.12 0.06 0.19 2013 1.28 0.56 0.13 0.06 0.21

STUDENT RESEARCH


Effects of profitability to capital structure of companies listed in ps ei

Economy & Finance

Transcript of Effects of profitability to capital structure of companies listed in ps ei