FS Analyses
This section of the financial feasibility study shows emphasis on interpreting the
numerical values calculated through Financial Ratios, comparing it to one of the best performing
meat patty producers in the Philippines – Century Pacific Food Packaging Ventures, Inc
(CPFPVI), and calculation of its Payback Period, Discounted Payback Period, Net Present
Value and Internal Rate of Return.
Financial Ratios
Liquidity Ratios - Current Ratio
The current ratio of Mush-ma-bute is definitely higher with the Century Pacific Food
Packaging Ventures, Inc. (CPFPVI) and going on a trend that is going to be aligned to CPFPVI.
The proponents believed that in the long-run, it will nearly align to the said company. The big
gap of the current ratio is because of the small current liabilities due to first few years of
operation. This is expected to have an increasing incremental trend for the short term liabilities
that will also increase the denominator, resulting to a decreasing current ratio. Based from the
data, there is also a strength in terms of liquidity because there is a reasonable assurance that
short term obligations will be met.
Asset Management Ratios
Inventory Turnover Ratio
Days Sales in Inventory
The inventory turnover ratio is shown initially also to be greater especially on Year 1
because there is no beginning inventory causing the average inventory to be lower. Just like the
prior rates, it will also be expected to be aligned to CPFPVI in the long run. To be able to meet
this expectation, the management should increase the inventory on hold considering the
carrying cost of the inventory. By this, inventory on hand will increase, giving a more reasonable
assurance to accommodate unpredicted and unexpected number of orders that the safety stock
could not accommodate. This will result to a drastic decrease of Inventory Turnover Ratio.
Since there is also no credit policy, the management should consider an option having a
credit policy weighing the probable doubtful accounts. If this were to happen, it will increase its
sales and also it will have an analysis of Accounts Receivable turnover and Days to Collect
Receivables.
Profitability Ratio
Return on Total Assets
Return on Total Equity
Profit Margin
Basic Earning Power
Return on Investment
The Profitability ratios such as Return on Total Assets, Return on Total Equity, Profit
Margin and Basic Earning Power shows a positive incremental rate of trend that is favorable to
Mash-ma-bute. However, the ratio gap between the company and CPFPVI may be big, but the
numerical value is still unfavorable. By this, Mush-ma-bute will be advised to further increase its
marketing to be able to increase its profit and thus affecting the numerical degree of the said
ratios.
Further the proponents calculate the following for Mush-ma-bute
The proponents used the rate 9.25% as per Finbox (2022) along with the data provided
in PSEi. The source indicates a low and high rates. The proponents used the high rates to be
able to project data even more conservative because the proponents believed that increasing
the rate will decrease the present value of the cash flows. Thus, it is more realistic and
believable.
Based from the above calculations, the proponents can conclude that it will reach its
projected financial goal (Payback period of less than 3 years). Also, Mush-ma-bute is in
favorable position by having a positive NPV and its used rate is lower than the IRR.
Opporunities
Upon projecting the 5-year Financial Statements and the basics of Capital Budgeting,
the management should be able to assess the following and make use as an opportunity:
1. Address the excessive cash on hand and be able to find ways to circulate it such as
investing it to marketable securities, insurance, and marketing strategies, or establishing
a vertical integration strategy.
2. Consider having a credit policy and establishing credit terms to supplier to be able to
further increase the flexibility of its working capital.
3. Increase the number of Inventory on hand weighing the carrying cost and ordering cost
along with the opportunity cost of losing a customer.
4. If additional refinancing is needed, consider to have a debt refinancing up to the point
where the additional financing will cause the WACC to be lower.
References
Finbox. (2022). CAPM WACC Model. Retrieved from July 12, 2022,
https://finbox.com/PSE:PSE/models/wacc
Century Pacific Foods Inc. (2022). Annex D Audited Consolidated Financial Statements.
Retrieved from July 12, 2022, file:///C:/Users/user/Downloads/ANNEX-D-CNPF-
Consolidated-Financial-Statements.pdf
