New Era University

College of Business Administration

No.9 Central Avenue, New Era, Quezon City 1107
1st Semester, SY 2015-2016

Comparative Analysis on the Financial Statements of Jollibee Food Corporation

and Golden Arches Development Corporation (McDonalds) for Investors
Investment Decision Making

In Partial Fulfilment of the requirements for the course

SECURITY ANALYSIS

Submitted to:
Prof. Liwanag

Submitted by:
Mercado, Abigail
Laurel, Maureen
Lofamia, Aisa
Ghanie, Leonard
Almosara, Shiela Mae
Inductivo, Aries
BSBA Financial Management, 4th Year Students

September 2015

CHAPTER I
THE PROBLEM AND ITS BACKGROUND
Introduction
A lot of businessmen and entrepreneurs would rather choose franchising a as
business than starting a new one from scratch. In franchise, you dont have to be known
because your franchise business is known already and has been successfully
established years ago. You will save a lot of time too in thinking about building and
executing your business because all aspects have been laid out and planned already.
Franchising is a proven profitable business that requires big investment capital in return
of bigger and higher profit for you. Jollibee and McDonalds, the two competing giants in
the Philippines, have competed in terms of offering various food products and services
to its customers. The competition between two giant fast food chains, Jollibee and
McDonalds has existed for years. These fast food chains compete not only to win the
market share of fast food customers, but also to dominate the Quick Service
Restaurants (QSR) industry in the Philippines. The obvious side of the fierce
competition is the offering of similar product lines. But the question remains which
company is more successful in managing its operations.
We choose to study fast food business as a good investment vehicle simply
because food businesses are ninety-five percent profitable than any other kind of
business. People always eat, anytime, anywhere and at any cost. You can skip buying a
new pair of shoes or fancy clothing in a mall but you can never skip dining inside your
favourite fast food restaurant. When youre on a road trip, you always drop by any drive

thru or when youre lame at home, a fast food delivery is just a call away. Would you
pass not eating fried chicken, fries, etc. in any of your favourite fast food restaurant in a
year? Or probably not even in a month nor week? See, fast foods are already part of
our lives.
This aims to perform an analysis of the financial statements of Jollibee Foods
Corporation (JFC, Jollibee) and Golden Arches Development Corporation (GADC
[the licensee of McDonalds Corporation in the Philippines], or McDonalds. Specifically,
the study delves in the financial aspect of these companies by comparing them to the
existing industry averages and making an evaluation of which company would have
greater chances of dominating the fast food industry in the Philippines, as well as to be
able to give informative analysis for investors as to which company should they invest or
put their money into.

Statement of the Problem

An analysis of their respective financial statements will help users broaden their
understanding about the companys financial position and the results of operations.
Thus, the research questions for this study will be:
1. Among Jollibee and McDonalds, what is their position in the stock market in
terms of their financial position?
A. Liquidity
B. Profitability
C. Solvency
2. How would the investor relay the decision on choosing the right company to
invest?

3. How well the investors have understood the financial statement and financial
ratios before making their investment decisions?
4. In to what extent does the investor depend on the credibility of auditors/ financial
expert approval of financial statement in making investment decisions?
5. What are the risks an investor might face?
6. How will this study be use in providing investors with investment guidelines and
information prior to investing?

Objective of the Study

This study will analyze the financial statements of Jollibee and McDonalds and to
determine which fast food company will lead in terms of financial performance. The
study aims to provide informative data and analysis in which the investors can use in
deciding where to put their money in form of investment between Jollibee and
McDonalds.

Hypothesis of the Study

When deciding where to invest, there are three basic factors to consider, what
risk do you want to take with your financial investments? If you want higher
expected returns, you will have to take on higher risks. There is no way to avoid

that trade-off.
Assets as an item of financial statement do significantly assist the effectiveness

ofinvestment decision making.

There is a significance extent to which investors depend on the credibility of
auditors/financial expert approval of financial statement in making investment
decisions.

There is significance in how well the investors have understood the financial
statements and financial ratios before making investment decisions.

Significance of the Study

This research study would be valuable for the following:
Present and Future Investors will be able to evaluate the performance of the two
companies for reassessing and making sound investment decisions.
The Academe would utilize this research to be a reference material in the study of
Financial Analysis and Financial Management. In addition, the research will serve as a
guide for future researchers in analyzing the financial statements of other companies
within and outside the fast food industry. It also gives insight to researchers as to how to
integrate current issues and modern philosophies in business and conducting financial
analysis.
General Readers will be able to obtain an objective understanding and to determine the
real score on the financial status of Jollibee and McDonalds, plus an overview of their
commitment to their social responsibility for the general welfare of many.
Government and Regulatory Authorities, and Non-Governmental Organizations
(NGOs) can benefit from this research in formulating policies, setting up guidelines, and
enforcing laws that promotes social responsibility among Quick Service Restaurants,
particularly those related to environmental safety and protection, waste disposal
systems, and investing on youth nutrition and education.

Scope and Limitation

The scope and limitations on the analysis of financial statements of Jollibee and
McDonalds in the Philippines are the following: The study used consolidated financial
statements for the years 2012 2014. Accounts receivable turnover and Average
collection period are not used in the study because fast food restaurants generate. The
subsidiaries of both fast food companies were not excluded; however, since 95 percent
of their subsidiaries are also engaged in food service, then this might tolerable for the
research. Benchmarking is important in order to compare the financial ratios of each
company with the prescribed industry average. However, there is difficulty in obtaining
the industry averages for the Philippine fast food industry since the Hotel and
Restaurant Association of the Philippines (HRAP) cannot provide that information. In
this case, the average data for the United States fast food.

Definition of Terms
Financial Statements - used to evaluate a companys financial performance and
position; to determine the ability of a business to generate cash, and the sources and
uses of that cash; to derive financial ratios from the statements that can indicate the
condition of the business.

Assets - an expenditure that has utility through multiple future accounting periods.
Liabilities - incurred in order to fund the ongoing activities of a business.
Financial Ratios - compare different line items in the financial statements to yield
insights into the condition and results of a business.
Leverage Ratios - compare the total debt obligation to either the assets or equity of a
business to determine the relative level of debt load that a business has incurred.
Liquidity Ratios - result of dividing cash and other liquid assets by the short term
borrowings and current liabilities. They show the number of times the short term debt
obligations are covered by the cash and liquid assets
Profitability Ratios - comparison of revenues to difference groupings of expenses
within the income statement to determine the ability of a business to create earnings.
Activity Ratios - compare the assets of a company to its sales revenue to indicate how
successfully a company is utilizing its assets to generate revenues.
Investor - commits money to a venture with an expectation of generating a return. They
are the risk taker.
Investment Decisions - determination of where, when, how, and how much capital to
spend and/or debt to acquire in the pursuit of making a profit.
Franchise - a right to market a companys goods and services in a specific territory.
This right is granted by the company to an individual, group of individuals, marketing
group, or entity.

Comparative Analysis - comparison of two or more comparable alternatives,

processes, products, qualifications, sets of data, systems, or the like.
Financial Risk - probability that an actual return on an investment will be lower than
the expected return.
Dividends - represents the amount earmarked for distribution to shareholders
Ratio analysis - used to evaluate various aspects of a companys operating and
financial performance such as its efficiency, liquidity, profitability and solvency.
DuPont Analysis - with this method, assets are measured at their gross book value
rather than at net book value in order to produce a higher return on equity (ROE)

CHAPTER 2
REVIEW OF THE RELATED LITERATURE AND STUDY
This chapter review a historical summary that shaped Jollibee and McDonalds to
lead the fast food (QSR) industry in the Philippines. It also discusses the factors that
might affect the investors investment decision. The review also includes the Role of

Financial Statement in Making Investment Decisions, Types of Ratio and their uses, and
DuPont Analysis.

LITERATURE
Investment decisions are made by investors and investment managers. Investors
commonly perform investment analysis by making use of fundamental analysis,
technical analysis and judgment. Investment decisions are often supported by decision
tools. It is assumed that information structure and the factors in the market
systematically influence individuals investment decisions as well as market outcomes.
The following are the factors that might affect the investors investment decision.
Past market trends
Sometimes history repeats itself; sometimes markets learn from their mistakes. You
need to understand how various asset classes have performed in the past before
planning your finances.

Your risk appetite

The ability to tolerate risk differs from person to person. It depends on factors such as
your financial responsibilities, your environment, your basic personality, etc. Therefore,
understanding your capacity to take on risk becomes a crucial factor in investment
decision making.

Investment horizon
How long can you keep the money invested? The longer the time-horizon, the greater
are the returns that you should expect. Further, the risk element reduces with time.
Investible surplus
How much money are you able to keep aside for investments? The investible surplus
plays a vital role in selecting from various asset classes as the minimum investment
amounts differ and so do the risks and returns.
Investment need
How much money do you need at the time of maturity? This helps you determine the
amount of money you need to invest every month or year to reach the magic figure.
Expected returns
The expected rate of returns is a crucial factor as it will guide your choice of investment.
Based on your expectations, you can decide whether you want to invest heavily into
equities or debt or balance your portfolio.

History of Jollibee Foods Corporation Philippines

Jollibee is founded by Filipino-Chinese Tony Tan Caktiong and his family began
as a two-branch ice cream parlor in 1975 at Cuba offering hot meals and sandwiches.
The original company name was Jolibe then Mr. Lumba next reformed the name Jolibe
to Jolly Bee and made the two words form a single name Jollibee. Almost 15 years

when Jollibee entered the industry but they rapidly became successful to other fast food
that came first. It was incorporated a 100% Filipino company 1978 with seven outlets to
explore the possibilities of a hamburger concept.
In 1984, Jollibee hit the P500 million sales mark, landing in the Top 500
Philippine Corporations. Their first international venture was at Singapore by 1985 and
they already have 31 stores by 1986. In 1987, barely 10 years in the business, Jollibee
landed into the countrys Top 100 Corporations. It became the first Philippine fast food
chain to break the P1 billion sales mark in 1989.
In 1993, Jollibee became the first food service company to be listed in the
Philippine Stock Exchange and the new Main Office site has been moved to Jollibee
Centre Building in Ortigas Center, Pasig. By 1994 he got Greenwich for Jollibee
expansion into the pizza-pasta segment and by the end of the year there has been
already 148 Jollibee stores nationwide. By 1995 Jollibee acquires franchise of
Delifrance and Jollibee successfully opens stores abroad. By 1996, the Far Eastern
Economic Review cited Jollibee as one of the leading companies in Asia. The Jollibee
Food Corporation has been serving us with their delectable collection of fast food
service and cleanliness offered by Jollibee is an advantage
History of McDonalds
The birth of McDonald's began with Raymond Albert Kroc. Ray Kroc was the
exclusive distributor of a milk shake maker called the Multimixer. Meanwhile, two
brothers, Richard and Maurice McDonald owned and ran a hamburger restaurant in San
Bernadino, California, in the 1950s. Ray Kroc heard how well the McDonald brothers

were doing using his Multimixers to serve their customers. He met up with them and
acquired the franchising right from them to run McDonald's restaurants.
A great success story was in the making. In 1955, Ray Kroc founded the
McDonald's Corporation and opened the first restaurant in Des Plaines, Illinois. In 1961,
he bought out the McDonald brothers. McDonald's grew into the largest restaurant
organization in the world. Today, there are more than 33,000 McDonald's restaurants in
119 countries.
In the Philippines, George T. Yang opened the first two McDonalds restaurants in
Morayta and New Frontier in 1981. Since 1982, the restaurants branched out to
different parts of the country like Greenhills (1982); Dau, Pampanga (1983); Roxas
Boulevard (1985); Makati (1988); Subic (1989); Tarlac (1991); Baguio (1991); Cagayan
(1992); Cebu, (1992); and Marikina (1997), the 100th store of McDonalds in the
Philippines. In 2005, McDonalds Philippines became a 100% Filipino-owned Company.
At present, approximately 300 stores are now operating in the Philippines. Previously
under the supervision of McGeorge, McDonalds stores in the Philippines are now under
the tutelage of Golden Arches Development Corporation (GADC).

STUDY
The basis of financial planning analysis and decision making is the financial
information. Financial information is needed to predict, compare and evaluate a firms
earning ability. It is also required to aid in economic decision making investment and

financing decision making. The financial information of an enterprise is contained in the

financial statements.
Financial statement according to V. S Gavtam (2005) is defined as financial
information which is the information relating to financial position of any firm in a capsule
form.
Financial statement according to J. A Ohison (1999) was defined as a written
report that summarizes the financial status of an organization for a stated period of time.
It includes an income statement and balance sheet or statement of the financial position
describing the flow of resources, profit and loss and the distribution or retention of profit.
Financial statement according to Academic of organization Dictionary is a
document which sets out the assets, income, expenses and debts of a company to
allow a third person to assess that companys health.
Financial statement can also be defined as the process whereby information
relating to the organization as a whole is reported to the outside world. They are reports
on management and not to management. It deals with most external financial
transactions of the organization.

The Role of Financial Statement in Making Investment Decisions

The aim of financial statement is to provide financial information about an entity
to interested parties. The information contained in the reports, however, it can only
become meaningful through financial interpretations derived from the analysis of the

reported data. This interpretations and decision unveils the essence of financial
statements as the major custodian of financial information necessary for any investment
decisions. Investment decisions are not made on a vacuum hence; there are bedrocks
on which they will stand.
One major tool for these investment decisions is the ratio analysis. Ratio analysis
is the judgmental process which aims at evaluating the current and past financial
positions and the results of an entity the primary objectives of determining the best
possible estimateabout the future conditions and performances.
Types of Ratio and Their Uses
The ratio analysis involves comparison of useful interrelated figures over a
number of years to establish a trend. There is no common ratio that can serve the
purpose of assessing the financial statement of a company for as banks. As a matter of
fact, ratios have been chosen and applied by various banks according to its nature of
business and purpose.
1. Liquidity ratios measure Companys capability to pay its payable current
liabilities.
2. Leverage ratios measure how the company is financed from creditors
resources.
3. Activity ratios measure how efficiently company uses its own resources.
4. Profitability ratios measure the return of the invested capital and show the
highest managerial efficiency.

DuPont Analysis

The DuPont Analysis also called the DuPont model is a financial ratio based on
the return on equity ratio that is used to analyze a company's ability to increase its
return on equity. In other words, this model breaks down the return on equity ratio to
explain how companies can increase their return for investors.
The DuPont analysis looks at three main components of the ROE ratio.

Profit Margin
Total Asset Turnover
Financial Leverage

Based on these three performances measures the model concludes that a company
can raise its ROE by maintaining a high profit margin, increasing asset turnover, or
leveraging assets more effectively.
Formula
The DuPont Model equates ROE to profit margin, asset turnover, and financial leverage.
The basic formula looks like this.

Since each one of these factors is a calculation in and of itself, a more explanatory
formula for this analysis looks like this.

Every one of these accounts can easily be found on the financial statements. Net
income and sales appear on the income statement, while total assets and total equity
appear on the balance sheet.
Analysis
This model was developed to analyze ROE and the effects different business
performance measures have on this ratio. So investors are not looking for large or small
output numbers from this model. Instead, they are looking to analyze what is causing
the current ROE. For instance, if investors are unsatisfied with a low ROE, the
management can use this formula to pinpoint the problem area whether it is a lower
profit margin, asset turnover, or poor financial leveraging.

Conceptual Framework

The framework of the study delves on the analysis of financial statements (Ratio
Analysis) in making investment decision. Simply put by U.S Gavtan (2005) ratio analysis
is a process of determining and interpreting the relationship between the items of
financial statement to provide a useful understanding of the performance, solvency and
profitability of an enterprise.
Figure 1 shows the framework for the study. The analysis of the financial
statements requires computing for Profitability ratios, Liquidity ratios, Activity ratios, and
Leverage ratios. After a thorough and careful analysis of the financial statements, the
users of the financial statements can make conclusions about the companys
performance and investment decisions on these companies. . More so, for ratio to be
useful investment decision, significant literature will be used to complement the
outcome of the computed financial ratios and it must be compared with earlier periods
to indicate trends or compared with similar organizations in the industry to determine
strengths and weaknesses ideally compared with the industrial average and to see who
among them would be the right company to invest your money with.
Figure 1
Conceptual Framework on the Analysis of Financial Statements
Financial
Statements of
Jollibee and
McDonalds

Ratio Analysis
(Profitability ratios, Liquidity
ratios, Activity ratios, and
Leverage ratios)

DuPont Analysis
Benchmarking

CHAPTER 3

Investment guidelines prior to

investing between Jollibee
and McDonalds
Sound Investment Decision

RESEARCH METHODOLOGY
Methodology
The purpose of this chapter is to give the reader a better understanding of the
structure of our thesis and description of the way in which we proceeded with our
research. It also gives an idea of how and why we formulated and identified our
questions, and the choice of the specific case studies which illustrate our research topic.
We will first start with describing our research strategy and method. Then we will further
discuss the quality of the methods we chose. Finally, we explain how we chose and
collected data.
Research Design
The study adopted a comparative analysis (Acuna, et al., 2004) to establish a
comparison among the financial ratios of Jollibee and McDonalds. The financial ratios of
each company were subjected to a confrontation with average financial ratios of the fast
food industry to determine the extent of closeness of the companys ratios with the
benchmark ratio. The discussion on the results of the financial analysis requires the use
of additional information provided by each company.
Respondents of the study
The respondents of this study were professionals and businessman in
Commonwealth Avenue, Quezon City with ages between 30-40 yrs old that can be a
prospective investor in the future.
Research Instrument

The sampling technique used is purposive sampling. The provided instruments

are the use of two types of questionnaires for surveys which are allotted to the random
professionals and businessman. Meanwhile, the use of financial statements, journals,
books, and other reliable host of related ideas are the foundation for the secondary
information. It is deemed that the combination of the survey and secondary information
can target both qualitative and quantitative approach in the study. The questionnaires
being used as the main material for interview are presented in the end of the study.

Data Gathering Procedure

The first step is to obtain the financial statements of both companies. After that,
the researcher will now compute their financial ratio and compare the two. Next is to
make a request letter. Upon approval, the researchers will now construct a
questionnaire and conduct an interview to the professionals and businessman that can
be prospective investors. We will seek for their opinion based on the result of the
financial ratios.

Statistical Treatment of Data

Responses to the questionnaire by the respondents were statistically analyzed.
Aside from that, the data gathered from the financial statements of both company were
treated through financial ratios analysis.
Survey Questionnaire

Occupation/ Business: ________________________________ Age: _______________

Kindly check ( ) box
for your feedback.

Strongl
y
Disagre
e

you feel appropriate

Agree

Strongl
y Agree

Disagree

1. Fast food business

vehicle

is a good investment

2. The origin of the

or international
investors decision.

company, domestic
does not affect the

3. Assets of the
significantly assist
investment

company do
the effectiveness of
decision making.

4. News, internet,
materials available
your investment

and reading
are helpful in making
decision

5. Jollibee and
accurate and
their financial
public.

McDonalds are
prompt in providing
position to the

6. Reputation of the
important role in

company play an
your choice

7. Availability or
institutions or
your disposal
decision

accessibility of the
licensed brokers at
affects the investors

8. The investment
and uncomplicated
investors

process is simple
for first time

9. Expected dividend
investment

affects the investors

decision.

10. Past market

investors

trends affects the

investment decision.

11. Investors risk appetite affects their investment decision.

12. Affordability of the investment tools affects the investors investment decision.