I.

Executive Summary

This paper aims to evaluate the historical financial performance of Max’s Group Inc.
(MGI) and provide a recommendation using the different managerial accounting theories and
concepts that will improve the company’s current status. Financial ratios of Max’s Group Inc.
versus the industry median will be evaluated in order to see how the company performs in the
market. Moreover, this paper will specifically provide 3-year forecast of the MGI’s financial
statements and analysis of its actual performance and budget.

In order to achieve the desired result, the group will use both qualitative and quantitative
techniques to analyze the financial performance of Max’s Group Inc. Pertinent financial
information will be gathered from the company’s website and Thomson Reuters financial
database. The results and recommendations will be based on realistic assumptions and actual
market behavior.

II. Company Background

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
 Max's Group, Inc. (MGI) is the largest operator of casual dining in the Philippines. It
started as a small family business in 1945 as Max’s Restaurant by Maximo Gimenez catering
American soldiers. Its Sarap-to-the-Bones Fried Chicken and quality service became the
foundation of the business for the years to come. In 1998, it begun franchising and
professionalizing its different departments through its steadfast growth. More than seventy years
later, MGI has a portfolio of 618 local stores and 55 international stores. It has 7,000 employees.
A lot of its success has been attributed to its people, decision making capabilities, and history of
operating efficiency. The company’s vison, mission, and values are:

Vision Statement:
“To be the leading Filipino company with the most loved brands by 2025”

Mission Statement:
“We build loved brands”

Company Values
We do it with love, one customer at a time
We do it right the first time
We do it better – by being genuine, thoughtful, and innovative

Currently, the company has 14 brands that complement each other, each having its own
identity. The restaurants under the company are Max's restaurant, Pancake House, Yellow Cab,
Krispy Kreme, Teriyaki Boy, Dencio's, Jamba Juice, Kabisera, and Maple. Krispy Kreme and
Jamba Juice are some international brands they brought to the country. Pancake House was
acquired by the company in 2014. MGI also established Eats concept wherein customers could
easily access the company's portfolio of restaurants in a single venue. The first Eats concept was
launched in Burgos Circle, Bonifacio Global City then followed by the latest one in Chino Roces
Avenue Extension in Makati City. More than acquiring restaurants, it built loved brands. The
company is becoming closer to reaching its goal of having 1,000 stores by 2020 including 200
international stores.

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
Store Network as of 2017

Board of Directors

MGI has a board composed of nine members and two independent directors who are
elected every annual stockholders meeting by the voting shareholders. The directors is in the
position until next year’s election and until his or her successor is elected by the shareholders
unless he/she resigns, dies, or is removed before the election in compliance with the By-Laws of
the Company, the company must have at least two independent directors or such number will
constitute 20% of the members of the board but will have no less than two. Having a diverse
background of professionals, the board is equipped with the necessary competencies to
judiciously discharge his/her duties and to have an independent judgement on various matters

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
that requires board ratification. The company do not have an executive director who serves as
board member in more than two entities outside the company.

Director Position
Sharon T. Fuentebella Chairperson

Robert F. Trota President and Chief Executive Officer

Dave T. Fuentebella Director and Chief Finance Officer

Carolyn Trota-Salud Director

Cristina T. Garcia Director

Jim T. Fuentebella Director

William E. Rodgers Director

Antonio Jose U. Periquet, Jr. Independent Director

Christopher P. Tanco Independent Director

III. Company Products

 MAX’S RESTAURANT

Max’s Restaurant is the flagship brand of the Company and is one of the leading chained
full-service casual dining restaurant brands in the country. In 2017, the brand further established
its relevance in the market through the introduction of new products, the launch of a new store
identity, and a refreshed communications strategy that reinforced the brand’s appeal to younger
markets. An internal focus on improvements to product standards, service platforms, and process

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
efficiencies helped support the influx of demand, which cascaded to the brand’s various product
categories and overall profitability. At year-end, system wide sales increased by 9% year-on-year
and total transaction count jumped by 8%.

 PANCAKE HOUSE

Pancake House has been serving the changing needs of its customers since it first opened
in 1974 through a culture of responsiveness, innovation, and consistency. This was demonstrated
by a combination of a well-loved selection of comfort food, engaging service, and homey
ambience perfect for an all-day dining experience. One of the focus areas for the year to realize
this goal was the strengthening of its store footprint. In 2017, the brand opened 18 new stores in
various locations nationwide.

 YELLOW CAB PIZZA CO.

Yellow Cab Pizza Company is a Filipino chain that retails fast food, primarily pizza. In
2001, Yellow Cab Pizza Company was founded by Eric Puno, Henry Lee, and Albert Tan. Max's
Group, owner of restaurant chain Max's of Manila, owns the brand. The restaurant operates 145

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
branches in the Philippines and overseas, including branches in Qatar, United Arab
Emirates, China and Vietnam.

 KRISPY KREME

The Real American Doughnut Company, Inc., a wholly-controlled subsidiary of MGI,

has been the exclusive holder of the development and franchise rights for the Krispy Kreme
system and brand in the Philippines since 2006. The brand boasts a storied heritage as an
American doughnut and coffee company founded in 1937 in North Carolina, USA. Today, over
10 years after it first opened its doors in the country, Filipinos and other doughnut-lovers
continue to flock to the stores for a hot-off-the-line Original Glazed Doughnut. With such a
strong demand for this well-loved sweet treat brand, Krispy Kreme opened three fresh shops and
four carts across the country for a total of 99 stores as of end-2017.

 TERIYAKI BOY

Teriyaki Boy has long been known for its accessible menu of good-quality Japanese food
and friendly service. In 2017, the brand focused its efforts on strengthening its core products and
intensified the brand association with teriyaki specials. By year-end 2017, the brand tallied a

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
store count of 13 stores with one full-concept store opened during the year and two existing
stores converted to the Teriyaki Boy-Sizzlin’ Steak combination format, which was first
introduced in 2016.

 DENCIO’S

Dencio’s has been a well-known brand in the bar and grill category in the Philippines
since it first opened in the 90s. The brand is popular among Filipino families, balikbayans, and
working professionals as a relaxed hangout spot serving favorite Filipino dishes like its Krispy
Sisig and Krispy Pata. The brand’s growth was fueled by a strategic expansion effort through
franchising.

 JAMBA JUICE

Founded in California in the late 1900s, Jamba Juice has grown to become a reputed
healthy and lifestyle brand with over 800 stores worldwide, and known for their delicious and
better-for-you smoothies and food choices. In the Philippines, the brand ended 2017 with 23
stores including a new branch each in Clark, Pampanga and Boracay Station 3, which
coincidentally was the brand’s first store outside of Luzon.

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
  KABISERA

From the aesthetics to the service, and the food menu to the beverage list, Kabisera has
positioned itself as a more curated yet restrained version of its counterparts, and one that
creatively celebrates Filipino hospitality and culture. As a specialty brand situated in the heart of
Bonifacio Global City, Taguig, Kabisera has a unique opportunity to cater to different markets
throughout the day. At noon, Kabisera becomes a corporate cafeteria for the lunch crowd, or an
upscale function and events venue due to the customizable menu of Filipino comfort food and
the classy store design. Clients for functions and events can even request for a street food cart or
a Sago’t Gulaman station for a truly Filipino touch to their occasion.
At night, the restaurant is the ideal bar for after-hour dinner and drinks for office workers
in the area. Live acoustic sessions and DJ nights also encourage guests to stay from happy hour
until late evening.

 SIZZLIN’ STEAK

Sizzlin’ Steak was launched in 2007 to provide Filipinos with a Japanese steak dining
experience at an affordable price. It went through a period of reinvention in 2016 as it made
significant contemporary changes in its menu line-up and through the clean and industrial store

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
design inspired by modern-day butcher shops. As a result, 2017 was highlighted by numerous
initiatives that allowed the brand to truly own the affordable steak positioning.

Sizzlin’ Steak introduced three premium steak products all using imported meat cuts – the
Ribeye, the Australian Marbled, and the Tenderloin steaks. These were made more appetizing as
they were topped with garlic butter, served with a side of steamed rice, and presented on a
sizzling plate.

 EATS

The Eats concept is the Company’s pioneering multi-brand dining format that showcases
the breadth of Max’s Group’s portfolio of loved brands. With this new and exciting format, MGI
is going beyond the doors of the individual brands to create a venue where a community of
diners can interact with each other and the Company’s loved food brands. The first Eats concept
was launched in Burgos Circle, Bonifacio Global City, Taguig and is called Burgos Eats. While
the second Eats concept with Eco Eats, which is located on the ground floor of the Company’s
headquarters along Chino Roces Avenue Extension in Makati City. More than a dining
establishment, Eats offers diners the flexibility to choose among MGI’s loved brands such as
Yellow Cab, Pancake House, Teriyaki Boy, Krispy Kreme, and Jamba Juice. The combination of
distinct flavors and a welcoming ambience makes for an innovative approach to give customers
the chance to experience the diversity of dining experiences that MGI offers.

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
  MAPLE

Maple was conceptualized to seize new opportunities in a growing affluent dining market
as it serves the best of elevated Western comfort food to its discerning customers. Throughout
the years, the brand has become known for its quality menu, generous servings, thoughtful
service, and warm interiors.

 MERANTI

Meranti is the maiden hotel venture of Max’s Group. It is a 59-room, 11-storey

development located across the first Max’s Restaurant branch along Scout Tuason, Quezon City.
The hotel opened its doors in September 2015 as a natural extension of the service platform of
Max’s Group, and an opportunity to offer the Filipino care and service experience to
balikbayans, foreign tourists, corporate clients, and Quezon City locals looking for good quality
and relaxing accommodations.

The brand is another exemplification of the Group’s potential to harness synergy among
its brands to provide customer value. Maple serves its well-received international comfort food at

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
the hotel’s in-house restaurant, and Max’s Restaurant accommodates larger functions and events
with room packages for participants staying overnight.

IV. Statement of the Problem

The company’s vision is to become the leading Filipino company with the most loved
brands by 2025. Currently Max’s is currently no. 88 in the Top 100 Brands in the Philippines by
Campaign Asia-Pacific’s top 1000 brands. And the main goal of Max’s group is to have 1,000
stores by 2020 both local and international stores. In 2018, the company shifted towards a
franchising led approach to support its expansion. The plan is to rollout 70 to 80 new stores in
strategic places and generate higher income from franchisees.

Max’s Group Inc. operates in a very competitive industry where offerings of other food
players may directly affect the demands for the company's products. The major competitors
include Jollibee and Shakey’s pizza which are also expanding across the region. Moreover, the
company is also exposed to issues related to increase in commodity prices especially of raw
materials used in producing foods.

With this, the group aims to address this issue by studying the effect of the increasing
prices and the impact of shifting from company owned restaurants to franchise to the company's
profitability and provide recommendations on how Max's Group could maintain and improve its
revenue.

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
V. Market Analysis

 Macro-Environmental Analysis (PESTEL)

OPPORTUNITIES THREATS

● Administration of food ● Implementation of tax

regulations policies

POLITICAL The Food and Drug

Corporate tax
Administration enforces
In the Philippines, the corporate
standards and laws which
tax rate is 30%. The country
safeguards the health and safety
imposes the highest corporate
of the public. One of this is the
tax in Southeast Asia which has
implementation of the Food
an average of 23% with
Safety Law of 2013. According
Singapore imposing the lowest
to Sen. Manuel Villar, the law is
at 17% and Cambodia, Thailand
an “important piece of legislation
and Vietnam imposing rates
[which] lays down a
lower than the average. (ASEAN
comprehensive framework that
Briefing, 2018)
sets the benchmark for food
safety in various stages -- from
Value Added Tax (VAT)
the harvest, manufacture,
In terms of VAT, the country
processing, handling, packaging,
also imposes the highest rate of
distribution, marketing,
12% in Southeast Asia with the
preparation of food until
lowest at 7% in Singapore and
consumption.” (Pedrasa, 2013)
Thailand. (ASEAN Briefing,
2018)

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
 ● Strong Economic growth ● Increasing inflation rate in
the Philippines
“The World Bank projected the
Philippines’ gross domestic “Year-on-year, prices of food
ECONOMIC product (GDP) to grow 6.7 and non-alcoholic beverages
percent in 2018 and 2019, before increased by 8 percent, easing
growing at a slightly slower rate from a 9.4 percent rise in
of 6.5 percent in 2020.” (de Vera, October and marking the lowest
2018) food inflation since July...Prices
increased faster for restaurants
● Rise of Filipino Middle and miscellaneous goods and
Class services (4.5 percent vs 4.2
percent).” (Trading Economics,
NEDA Undersecretary for 2018)
national policy and planning
Rosemarie Edillon said that “the
GNI per capita increased by
6.5%” and the target of becoming
an upper middle-income
economy by 2022 could be
reached as early as 2019. At this
rate, the vision of becoming a
high-income economy by 2040 is
within reach.

● Population Growth ● Consumers shifting to

healthier alternatives
SOCIAL/
As of December 14, 2018,
CULTURAL
according to the latest available In an article by PWC, it was
data from United Nations, the stated that healthy eating is
population in the country is increasingly becoming part of

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
 107,219,618 which is 1.37% of the consumer agenda due to a
the world population and which rise in media exposure. (PwC,
makes the Philippines the 13th 2016).
SOCIAL/
most populated country in the
CULTURAL world. 44.4% of the country’s The report says that over the
population resides in urban areas. year 2015-2016 “nearly half
(Worldometers, 2018) (47%) of the 18-34 age-group
surveyed had changed their
● Food as not only a basic eating habits towards a healthier
need diet, as compared to just 23% of
Food is a basic need for survival those aged over 55.” (PwC,
of every being, but over the 2018)
years, food has not only
remained to be consumed for Also, food establishments which
survival, instead its other purpose offer healthy alternatives have
has been to satisfy the sense of increased in the past years.
taste. Also, food has always been
a significant part of socialization
and every family gathering.
Thus, the number of food related
business have increased around
the country ranging from fast
food to casual dining to fine
dining.

● Social media and the ● Fast dissemination of

internet as a tool in sales negative information
TECHNOLOGICAL
and marketing through social media
People presence on the internet
According to statista, it is and different social media

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
 projected that there would be platforms have increased over
2.77 billion social network users the years, in fact, social media
around the world, approximately population is now approximately
TECHNOLOGICAL
35% of the world’s population. 3.03 billion and 22% of the total
(Statista, 2017) Amongst the population of the world uses
social networking options, Facebook. (Sikandar, 2017)
Facebook still leads the market Taking Facebook comments
with 1.86 billion monthly active section for example, it is evident
users. (Statista, 2017) that nowadays, social media
users are more aware and active
In the country, 47% of Filipinos in participating in discussions or
are active social media users debates regarding events
(House of IT, 2018) with happening around them.
Facebook, Messenger, Instagram,
Twitter, and Youtube as the top
social media sites. Also,
according to a report by We Are
Social, Filipinos spend an
average of 3 hours and 57
minutes a day in social
media.(Camus, 2018)

Social media serves as a medium

for businesses to effective
communicate and reach out its
target market.

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
 ● Existence of Environmental ● Existence of climate change
Laws
Climate change is evident in the
In the Philippines, there are world today, according to PICC,
environmental laws which should global mean temperature would
be adhered to by businesses such increase less than 1.8 to 5.4
ENVIRONMENTAL
as proper waste disposal, sewage degrees Fahrenheit (1 to 3
system, and the use of clean, degrees Celsius).” (NASA,
safe, and ethically produced raw 2018)
materials.

● Improving health and ● Consumer protection rights

product safety regulations

Through health and product Consumers are protected by the

safety regulations, companies law through the Consumer Act
from the food and beverage which includes the following
industry have standardized rights according to the
policies in compliance with the Department of Trade and
LEGAL implemented regulations. Industry: (Department of Trade
and Industry, n.d.)

a. Right to safety, or protection

from hazardous products
b. Right to be informed:
Availability of information
required for weighing
alternatives & protection
from false and misleading
claims in advertising and

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
 labeling practices.
c. Right to choose: availability
of competing goods and
services.
d. Right to be heard: assurance
that government will take
LEGAL
full cognizance of the
concerns of consumers, and
will act with sympathy and
dispatch through statutes and
simple and expeditious
administrative procedures.

 SWOT Analysis

STRENGTHS WEAKNESS

● Has an established brand name and ● Higher price of products compared to its
reputation competitor such as Jollibee Group
● Wide range of food options ● Late to boost franchising as its business
● Offers food with good quality strategy. Most expansion done in the
● Received awards such as being past are company-owned which
recognized at prestigious Investors in constitute large capital investment
People Awards (Business World, ● Weak presence outside the metro
2018) compared to competitors
● Has an established brand name and
reputation
● Wide range of food options
● Offers food with good quality
● Good marketing strategy- recent
commercial featured in Esquire
magazine.
● Strong presence in the metro

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
 OPPORTUNITIES THREATS

● Administration of food regulations in ·

the Philippines ● Implementation of tax policies: 30%
● Strong economic growth of the Corporate Tax and 12% Value Added
country Tax
● Rise of Filipino middle class ● Increasing inflation rate in the
● Population growth Philippines
● Food as not only a basic need ● Consumers shifting to healthier
● Social media and the internet as a alternatives
tool in sales and marketing ● Fast dissemination of negative
● Existence of environmental laws information through social media
● Improving health and product safety ● Existence of climate change
regulations ● Consumer protection rights

VI. Application of Management Accounting Concepts

1. Horizontal and Vertical Financial Analysis

Horizontal and Vertical Analysis of both Balance Sheet and Income Statement were used
in order to clearly understand the performance of the company compared to previous year.

The table below shows the consolidated financial position of Max’s Group Inc for the
period December 31, 2016 and December 31, 2017. The amount and percentage increased from
2016 to 2017 were showed on the horizontal analysis. On the other hand, the vertical analysis
shows the percentage of each asset relative to the total assets and the percentage of each liability
and equity item relative to the total liability and equity.

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
 MAX'S GROUP INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Amounts in Thousand Pesos)

Horizontal Vertical
Actual Analysis Analysis
December 31 Increase/(Decrease) Percentage
2017 2016 Amount % 2017 2016
ASSETS
Current Assets
Cash and cash equivalents 668,983 752,200 (83,217) -11% 5% 6%
Trade and other receivables 1,063,419 955,987 107,432 11% 8% 8%
Inventories 589,045 486,702 102,343 21% 5% 4%
Prepayments and other current assets 355,997 351,311 4,686 1% 3% 3%
Total Current Assets 2,677,444 2,546,200 131,244 5%
Noncurrent Assets
Property and equipment 3,133,531 2,688,832 444,699 17% 25% 22%
Intangible assets 4,988,699 5,025,849 (37,150) -1% 39% 41%
Investment properties 535,734 535,921 (187) 0% 4% 4%
Net retirement plan assets 310,284 439,771 (129,487) -29% 2% 4%
Net deferred income tax assets 304,501 147,370 157,131 107% 2% 1%
Security deposits on lease contracts 469,176 421,954 47,222 11% 4% 3%
Other noncurrent assets 337,620 341,055 (3,435) -1% 3% 3%
Total Noncurrent Assets 10,079,545 9,600,752 478,793 5%

TOTAL ASSETS 12,756,989 12,146,952 610,037 5%

LIABILITIES AND EQUITY

Current Liabilities
Trade and other payables 1,964,026 1,977,081 (13,055) -1% 15% 16%
Loans payable 2,515,437 2,194,639 320,798 15% 20% 18%
Income tax payable 80,648 78,067 2,581 3% 1% 1%
Total Current Liabilities 4,560,111 4,249,787 310,324 7%
Noncurrent Liabilities
Long-term debt 1,583,688 1,695,150 (111,462) -7% 12% 14%
Net retirement liabilities 168,236 204,506 (36,270) -18% 1% 2%
Accrued rent payable 74,742 49,696 25,046 50% 1% 0%
Net deferred income tax liabilities 986,134 1,003,043 (16,909) -2% 8% 8%
Other noncurrent liabilities 3,115 7,041 (3,926) -56% 0% 0%
Total Noncurrent Liabilities 2,815,915 2,959,436 (143,521) -5%
Total Liabilities 7,376,026 7,209,223 166,803 2%

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
Equity

Capital Stock 1,087,082 1,087,082 0 0% 9% 9%

Additional paid-in capital 5,353,289 5,353,289 0 0% 42% 44%
Retained earnings 1,655,492 1,131,932 523,560 46% 13% 9%
Other comprehensive loss (42,979 ) (15,658 ) (27,321) 174% 0% 0%
8,052,884 7,556,645 496,239 7%
Shares held by subsidiaries (2,610,013 ) (2,610,013 ) 0 0% -20% -21%
Non-controlling interests (61,908 ) (8,903 ) (53,005) 595% 0% 0%
Total Equity 5,380,963 4,937,729 443,234 9%

TOTAL LIABILITIES AND EQUITY 12,756,989 12,146,952 610,037 5%

1.1 Horizontal Analysis – Financial Position

Max’s Group’s overall financial position improved by 5% from PHP 12.146 billion in
2016 to PHP 12.756 billion in 2017. Total Assets increased by 5% which includes a substantial
increase in net deferred income tax assets, property and equipment, inventories, and trade and
other receivables. Cash and cash equivalents decreased by 11% which is caused by purchasing
inventory and equipment for new stores, partial loan settlements, and payment of cash dividends.
Subsequently, the decreased in cash flow resulted to a 21% increase in inventory, 17% increase
in property and equipment, and long-term debt decreased by 7%. Trade and other receivables
increased by 11% due to higher trade collectibles (includes credit card and receivables, and
commissary sales) from franchisees.

Total liabilities increased by 2% only which is the result of 5% decrease in noncurrent

liabilities wherein Max’s Group made partial payment of long-term debts and other liabilities.
On the other hand, total equity increased to PHP 5.380 billion from PHP 4.937 billion in 2016.
Retained earnings increased by 46% from PHP 1.131 billion in 2016 to PHP 1.655 billion in
2017.

1.2 Vertical Analysis – Financial Position

Max’s Group aims to expand their business in the coming years, thus, 25% of its assets is
allocated to property and equipment and 39% is intangible assets which includes trademark and
franchise fees. Overall, there were no changes on the percentage contribution from 2016 between

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
current assets and noncurrent assets which are 21% and 79% respectively. Total liabilities
accounts 58% of the company’s financing while total equity shares 42%.

The table below shows the consolidated income statement of Max’s Group Inc for the
period December 31, 2016 and December 31, 2017. Horizontal analysis shows the amount and
percentage increased from 2016 to 2017. While the vertical analysis shows the percentage of
expenses and profit relative to revenue.

MAX'S GROUP INC.

CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousand Pesos)

Vertical
Actual Horizontal Analysis Analysis
December 31 Increase/(Decrease) Percentage
2017 2016 Amount % 2017 2016
REVENUES
Restaurant Sales 10,462,961 9,415,104 1,047,857 11%
Commissary Sales 1,422,768 1,257,053 165,715 13%
Franchise, royalty and
continuing license fees 776,194 766,724 9,470 1%
REVENUE 12,661,923 11,438,881 1,223,042 11% 100% 100%
COST OF SALES 9,386,162 8,255,704 1,130,458 14% 74% 72%
GROSS PROFIT 3,275,761 3,183,177 92,584 3% 26% 28%
GENERAL AND ADMINISTRATIVE
EXPENSES (2,171,264) (1,822,830) (348,434) 19% -17% -16%
SALES AND MARKETING
EXPENSES (390,615) (408,600) 17,985 -4% -3% -4%
FINANCE COSTS (116,355) (116,775) 420 0% -1% -1%
OTHER INCOME - Net 115,581 77,961 37,620 48% 1% 1%
INCOME BEFORE INCOME TAX 713,108 912,933 (199,825) -22% 6% 8%
PROVISION FOR (BENEFIT FROM)
INCOME TAX
Current 232,501 307,226 (74,725) -24% 2% 3%
Deferred (146,083) 43,969 (190,052) -432% -1% 0%
86,418 351,195 (264,777) -75% 1% 3%
NET INCOME 626,690 561,738 64,952 12% 5% 5%

1.3 Horizontal Analysis – Income Statement

The topline revenue of Max’s group increased by 11% from PHP 11.438 billion in 2016
to PHP 12.661 billion on 2017. The highest revenue contribution is from restaurant sales which
is 83% of the revenue then followed by commissary sales then franchise. In 2017, Max’s group

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
executed targeted promotional activities which aims to boost customer visits in order to maintain
its market-leading position in the casual-dining segment. The company also invested in delivery
infrastructures and expanded its online ordering system. As a result of these initiatives, restaurant
sales increase by 11%. Moreover, the franchising operations of Max’s group also expanded
which results to an increase in 13% on commissary sales and provided additional franchise,
royalty, and continuing license fees revenue of PHP 776 million.

Cost of sales increased by 14% which is mainly caused by the increase in commodity
prices including food ingredients. Moreover, the company invested on its employees by
providing leadership and strategic trainings that will enable them to reduce their dependence on
manual intervention which caused General and Administrative expenses to increase by 19%.
Sales and Marketing expenses went down by 4% since the company explored different
advertising platforms in order to increase product awareness and strengthen brand equity. The
new marketing initiatives and other marketing support from supplier resulted to an increase of
48% in other income. The mentioned 2017 activities improved net income by 12% from PHP
561 million to PHP 626 million.

1.4 Vertical Analysis – Income Statement

Using the vertical analysis, it is evident that the increase in cost of sales caused the
decline in gross profit from 28% in 2016 to 26% in 2017. Despite of the decrease in gross profit,
Max’s group was still able to keep net income at 5% of total revenue.

2. Financial Ratios

Financial ratios are used to analyze the company’s strengths and weaknesses compared to
the industry benchmark. For this paper, the company used the following companies in order to
determine the industry benchmark: Max’s Group, Jollibee Foods Corp, and Shakey’s Pizza Asia
Ventures Inc. Other fast food chains were not considered due to lack of available financial data.

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
2.1 Profitability Ratio

Profitability ratio is used to evaluate the company’s ability to generate income as

compared to its expenses and other cost associated with the generation of income during a
particular period. Gross and net profit margin, return on assets, and return on equity are some of
the ratios used to determine the company’s profitability.
a. Gross profit margin

Gross Profit
Gross Profit =
Revenue

b. Net profit margin

Net Profit
Net Profit =
Revenue

c. Return on assets (ROA)

Net Profit
Return on assets =
Total Assets

d. Return on equity (ROE)

Profit after Tax
Return on equity =
Net worth

The table below shows the company’s profitability ratios:

Profitability Ratio 2017 2016 Industry Average
Gross profit margin 25.9% 27.8% 24.5%
Net profit margin 4.9% 4.9% 7.0%
Return on assets (ROA) 5.7% 7.8% 9.0%
Return on equity
13.7% 19.5% 21.3%
(ROE)

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
 Max’s group’s gross profit margin decreased from 27.6% in 2016 to 25.9% in 2017
which is caused by the increasing prices of raw materials. However, despite this decrease, gross
profit margin is still above the industry average of 24.5%. Net profit margin measures the overall
profitability of the company considering all direct and indirect cost. The company’s net profit
margin is stable at 4.9% but low compared to the industry average which is 7%.

Return on assets determine the company’s net earnings relative to total assets. Low ROA
compared to 2016 is the result of purchasing inventory and equipment for expansion. On the
other hand, return on equity expresses the percentage of net income relative to stockholder’s
equity. Stock analysts and investors use ROE as one of the basis in investing. The company’s
ROA and ROE are both relatively lower versus the industry average.

2.2 Liquidity Ratio

Liquidity ratio is used to determine the ability of the company to pay its debts
considering the current assets. Liquidity ratios includes current ratio and quick ratio which are
used to clearly understand how financially sound the company is. The following formulas were
used in computing current and quick ratios:

a. Current Ratio
Current Assets
Current Ratio =
Current Liabilities

b. Quick Ratio
Quick Assets*
Quick Ratio =
Current Liabilities

*Quick Assets = Current Assets – Inventory – Prepaid Expenses

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
Using these formulas, the table below shows Max’s Group’s current and quick ratios versus the
industry average.

Liquidity Ratio 2017 2016 Industry Average

Current Ratio 0.59 0.60 1.04
Quick Ratio 0.46 0.48 0.80

Max’s Group has low liquidity ratio compared to industry average which is caused by
high current liabilities coming from loans payable. There is a huge difference between Max’s
group’s current ratio and the industry average which are 0.59 and 1.04 respectively. The same
scenario also applies to Max’s group’s quick ratio with 0.46 versus the industry average of 0.80.
The low liquidity ratio is also due to purchasing of inventory and equipment and payment of its
noncurrent liabilities which resulted to a decrease in cash and cash equivalents. These ratios
suggest the low capacity of the company to pay its short-term debts.

2.3 Activity Ratio

Activity ratio is used to measure the ability of the company to utilize its assets and
convert its balance sheet accounts into revenue. It also measures how efficiently the business is
performing.

a. Inventory Turnover
Cost of Goods Sold
Inventory Turnover =
Average Inventory

The table below shows the company’s inventory turnover compared to industry average:
Activity Ratio 2017 2016 Industry Average
Inventory Turnover 17.5 17.0 16.8

The inventory turnover ratio is an efficiency ratio that tells how the company manage its
inventory. Max’s group’s inventory turnover ratio improved compared to 2016 and is higher than
This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
the industry benchmark average which means that the company efficiently controls its inventory.
It also shows that the company does not overspend on inventory and could sell what they
purchased.

3. Financial Forecasting
Financial Projection of Max’s Group for the years 2018-2020

3.1 Income Statement (Amount in Thousand Pesos)

Actual Audited Audited Projected Projected Projected

INCOME STATEMENT
2015 2016 2017 2018 2019 2020
Net Sales 10,373,247 11,438,881 12,661,923 14,561,211 16,745,393 19,257,202
Cost of Goods 7,535,695 8,255,704 9,386,162 10,794,086 12,413,199 14,275,179
Gross Profit 2,837,552 3,183,177 3,275,761 3,767,125 4,332,194 4,982,023
Total Operating Expenses 2,066,365 2,270,244 2,562,653 3,041,446 3,041,446 3,041,446
Operating Income 771,187 912,933 713,108 725,679 1,290,748 1,940,577
Income before Taxes 771,187 912,933 713,108 725,679 1,290,748 1,940,577
Provision for Income Tax 269,799 351,195 86,418 232,217 413,039 620,985
Net Income (Loss) 501,388 561,738 626,690 493,462 877,709 1,319,592

The group decided to use 15% as sales growth for the projected years, since based on
historical figures the company was able to grow at least 10% per year while the additional 5% is
the additional revenue from royalty fee since the company wants to push more franchise
restaurants rather than company owned restaurants. The company is still profitable despite the
train law which increase the price of commodities / raw materials since the company usually pass
on the increase to the consumer to make sure that their margins were not affected.

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
3.2 Balance Sheet (Amount in Thousand Pesos)

Actual Audited Audited Projected Projected Projected

INCOME STATEMENT
2015 2016 2017 2018 2019 2020

Cash and Cash Equivalents 817,921 752,200 668,983 697,326 1,135,420 2,122,839
Net - Accounts Receivable 692,118 955,987 1,063,419 1,236,706 1,422,211 1,635,543
Total Inventories 484,724 486,702 589,045 680,175 782,202 899,532
Other Current Assets 357,365 351,311 355,997 355,997 355,997 355,997
Total current assets 2,352,128 2,546,200 2,677,444 2,970,204 3,695,831 5,013,911
Fixed Assets 9,119,311 9,600,752 10,079,545 10,200,752 10,321,959 10,443,166
Total Non-current Assets 9,119,311 9,600,752 10,079,545 10,200,752 10,321,959 10,443,166
Total Assets 11,471,439 12,146,952 12,756,989 13,170,956 14,017,790 15,457,077
Trade Account Payable 2,104,067 1,977,081 1,964,026 2,247,536 2,584,666 2,972,366
Loan Payable 1,663,346 2,194,639 2,515,437 2,263,894 2,012,351 1,760,808
Other Current Liabilities 54,656 78,067 80,648 80,648 80,648 80,648
Total Current Liabilities 3,822,069 4,249,787 4,560,111 4,592,078 4,677,665 4,813,822
Long-term Debt 2,045,979 1,695,150 1,583,688 1,472,226 1,360,764 1,349,302
Other Liabilities 1,151,825 1,264,286 1,232,227 1,232,227 1,232,227 1,232,227
Total Non-current Liabilities 3,197,804 2,959,436 2,815,915 2,704,453 2,592,991 2,581,529
Total Liabilities 7,019,873 7,209,223 7,376,026 7,296,531 7,270,656 7,395,351
Paid up Capital 6,440,371 6,440,371 6,440,371 6,440,371 6,440,371 6,440,371
Retained Earnings 609,181 1,131,932 1,655,492 2,148,954 3,021,662 4,336,255
Other Equities -2,597,986 -2,634,574 -2,714,900 -2,714,900 -2,714,900 -2,714,900
Total Stockholders Equity 4,451,566 4,937,729 5,380,963 5,874,425 6,747,133 8,061,726
Total Liabilities and Equity 11,471,439 12,146,952 12,756,989 13,170,956 14,017,790 15,457,077

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of the Discloser which is referred as the MBA students. (December
15,20187)
 The company's goal is to achieve 1,000 stores by 2020. The group decided to stretch the
additional 327 stores nationwide including international branch for the remaining three years
thus 78% of the remaining stores must be franchise while the 22% will remain company owned.
We imputed a increase in fixed asset for P600M for the next 3 years. P300M will go to
renovation of the existing company owned stores to promote eco-friendly store (installing solar
panel) so that the restaurant will not heavily rely on electricity since they have their own source
of electricity while the remaining 300M will go to opening of company owned stores in the
province (Luzon, Visayas and Mindanao) as well as this funds will be used for additional
marketing campaign for the restaurant brand.

VII. Recommendation

After performing qualitative and quantitative analysis, the group recommends the following to
Max’s Group:

● Continue expanding its presence inside and outside the metro.

● Improve franchising business model to encourage more franchisee to maximize market
penetration and distribution channels. Also, franchising is less costly on Max’s Group’s
end compared to company owned stores.
● As part of corporate sustainability, Max’s Group should continue “encouraging a green
lifestyle and advocating participation in efforts to be carbon neutral and climate
resilient.” (Max’s Group, 2017)

VIII. Ethical Considerations

Environment

Part of Max’s Group corporate sustainability is working with nature. "The natural
environment can be affected by a company's activities and, through channels such as climate
change, can have an effect upon the company. (Boutilier, R. 2011)." With this, Max’s Group
should build more environment friendly stores and aim to enhance the design and engineering of
the existing stores.

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)
IX. References
Briefing, A. (2018, July 26). Comparing Tax Rates Across ASEAN. Retrieved from ASEAN Briefing:
https://www.aseanbriefing.com/news/2018/07/26/comparing-tax-rates-across-
asean.html
Business World. (2018, February 23). Max's Restaurant recognized at Investors in People Awards.
Retrieved from Business World: https://www.pressreader.com/philippines/business-
world/20180223/281943133365983
Camus, M. (2018, February 2018). PH is world leader in social media usage. Retrieved from
Inquirer.Net: https://business.inquirer.net/246015/ph-world-leader-social-media-usage
de Vera, B. (2018, January 10). PH to remain fastest-growing economy in Asean — World Bank.
Retrieved from Inquirer.Net: https://business.inquirer.net/243868/breaking-business-
world-bank-asean-economy-fastest-growth-2018-global-economic-prospects-gdp
Department of Trade and Industry. (n.d.). The Eight (8) Basic Consumer Rights. Retrieved from
Department of Trade and Industry: http://www.region2.dti.gov.ph/index.php/progs-
sevces/consumer-welfare/consumer-rights
House of IT. (2018). Understanding Social Media in the Philippines: A year end report. Retrieved from
House of IT: https://houseofit.ph/understanding-social-media-in-the-philippines-a-year-
end-report/
MAX'S GROUP (2017). Bridging heritage and innovation 2017 annual report. Retrieved from
https://investor.maxsgroupinc.com/download/annual-report/
NASA. (2018). How Climate is Changing. Retrieved from NASA: https://climate.nasa.gov/effects/
Pedrasa, I. (2013, March 27). FDA steps in to regulate, promote resto, street foods. Retrieved from
ABS CBN News: https://news.abs-cbn.com/focus/03/27/13/fda-steps-regulate-promote-
street-foods-resto-products
Philippines Population. (2018, December). Retrieved from Worldometers:
http://www.worldometers.info/world-population/philippines-population/
PwC. (2016, August 26). Healthy eating is increasingly on consumer’s agendas, with millennials
leading the way. Retrieved from PwC:
https://pwc.blogs.com/press_room/2016/08/healthy-eating-is-increasingly-on-
consumers-agendas-with-millennials-leading-the-way.html
Statista. (2017, July). Number of social network users worldwide from 2010 to 2021 (in billions).
Retrieved from Statista: https://www.statista.com/statistics/278414/number-of-
worldwide-social-network-users/
Trading Economics. (2018, December 5). Philippines Inflation Rate. Retrieved from Trading
Economics: https://tradingeconomics.com/philippines/inflation-cpi
Worldometers. (2018, December). Philippines Population. Retrieved from Worldometers:
http://www.worldometers.info/world-population/philippines-population/

This study is considered CONFIDENTIAL between the Discloser and Recipient. No one is allowed to disclose it or any part thereof nor use the same without the prior consent of
the Discloser which is referred as the MBA students. (December 15,20187)