ROWENA D.
BAUTISTA
FEU MANACC COMMENTARY – PLDT
1. Is the Company profitable? Why
In reference to the figures above on profit margin and gross profit margin, yes the company
is profitable. The company has a current profit margin ratio of 12.20% in 2016, 12.90% in
2015 and 17.75% in 2014. Although the rates are in a declining state, company was still able
to retain significant amount of income from operations for company’s use.
2. Comment on the degree of operating and financial leverage of the firm
At a glance, the figures are quite alarming due to its declining trend over the past 3 years.
ROA is at a declining rate which means total assets are not being fully utilized thus only
contributing average of 5% on net income.
Working capital is at a negative figure and current ratio average is below 1.0. These are
actually not good indicators and may turn away investors since these are signs that current
liabilities will not be paid on time or when they fall due. Debt-to-equity ratio is also on a red
flag which shows that total assets of the company on average are 75% of total debt.
However, this is to be expected as this is in the nature of the business of the company where
most of its capital is actually in its non-current assets. This is also the case why the non-
current portion of the assets is shown first before the current portion to give emphasis on its
capital assets. Telecommunications companies invest a huge portion of its assets in
infrastructures like cell towers and cable and wire facilities (see Note 9 & 22) so majority of
its assets are in Property and Equipment which in turn are non-current assets.
The negative working capital and current ratio is also telling us that the company is not liquid
but rather solvent. This is shown by its debt ratio wherein total assets cover 75% on average
its total debt. This only means that if we sell all assets of the company, they can still pay all
of their total debts and can still pay equity holders 25% of total assets on average.
Per industry level, in terms of financial checkpoints, PLDT is well within the industry average
numbers with its close, if not, only major rival Globe (see Table 2). Globe seemed to be more
investor-friendly with its average ROE within 26% for the past 3 years compared to the
average ROE of PLDT which is within 20% only and assets seemed to be used more efficiently
in operations as shown by its average ROA of 7% as compared to only 5% average for PLDT.
However, PLDT may pose something bigger with its huge capitalization which is almost
reaching half a trillion pesos in 2016 or P475B. This means that the company has more assets
to use which connotes higher capacity to earn more income using its capital efficiently and
effectively.
While financial indicators are good, PLDT should also focus on non-financial issues which can
affect financials such as entrants of new competition in the market and threats inherent to
its business such as cyber security threats. New entrants of competitors and cyber security
threats, if not addressed properly, may decrease market share thus decrease income
generation.
3. List at least 3 areas of improvements you noted for the firm
The 3 areas of improvement for PLDT are:
a) Use of capital expenditure - PLDT should focus on using its huge assets in more earning-
capacity. Although within industry, the ROA of PLDT is below par compared to Globe
that only has on average P200B in assets yet its ROA is averaging 7% whilst PLDT is only
at 5% average yet has more assets to use. Effective use of assets will increase its income-
producing capacity thus creating more income thus increasing its ROA.
b) Increasing Return on Equity – once they address the issue on a), ROE will also improve.
As compared to Globe, PLDT is quite behind in giving back return on equity of its
investors. PLDT is only averaging 20% while Globe averages 26%.
c) Financing cost – This is eating up a portion of the company’s income, PLDT should review
their debts and obligation and pay up some of its debts in order to lessen financing cost
or interest expense which could have been used in its operations.
4. Will you invest in PLDT? Why?
Yes for several reasons. Firstly, due to the ROE rate of the company. The company has on
average 20% return on equity, which is actually good since for every P1 invested, I get P0.20
return on my investment.
Secondly, PLDT is a blue chip company. According to Investopedia, “a blue chip company
generally sell high-quality widely accepted products and services. They are known to
weather downturns and operate profitably in the face of adverse economic conditions,
which help to contribute to their long record of stable and reliable growth.”
Although the figures for PLDT are not good, since the products and services of the company
are considered as necessary if not a necessity, demand for their products and services will
continue thus creating an overflowing source of income. And with the coming of age of
digitization, telecoms such as PLDT play a huge part in such age of computerization thru
internet connections. It is also to be noted that PLDT is one of the 2 major players in the
telecommunications industry (Globe, the other major player) which is as if almost semi-
monopoly of the market. It is also good to note that last year PLDT gave P48 per share as
dividends to its investors.
Lastly, the stock market is on sale recently. PLDT (or TEL) is currently trading at P1,480 per
share, thus, this is the best time to buy and invest.
