PART I - BUSINESS AND GENERAL INFORMATION
ITEM 1 Business
a. Corporate Overview
ARTHALAND CORPORATION was incorporated on 10 August 1994 for the purpose of
engaging in property development of residential, commercial, leisure and industrial projects, and
holds office at the 8th Floor Picadilly Star Building, 4th Avenue corner 27th Street, Bonifacio
Global City, Taguig City. Its shares are traded in the Philippine Stock Exchange with the trading
symbol ALCO.
ALCO instituted several corporate actions in 2007 to prepare for its medium and long term
business goals. It underwent a quasi-reorganization consisting basically of the reduction in the
par value of its shares and decrease in authorized capital stock2 and subsequently a
recapitalization program and increase in authorized capital stock3 which led to the entry of new
investors, namely AO Capital Holdings 1, Vista Holdings Corporation, The First Resources
Management and Securities Corporation and Elite Holdings, Inc. (collectively, the new
investors).
On 12 August 2008, the Board approved the P750.0 million subscriptions in ALCO by the new
investors equivalent to 3.750 billion common shares.
On 26 April 2011, CPG Holdings, Inc. (CPG), a holding company of leading food manufacturers
domiciled in the Philippines, acquired a total of 1,800,000,000 ALCO common shares, or an
equivalent of 33.847% of ALCOs total issued and outstanding common shares. On 24
September 2014, CPG acquired additional 342,619,910 ALCO shares from the market.
Presently, CPG is the leading shareholder of ALCO.
b. Business/Projects
ALCOs main business activity is the development of residential, commercial and leisure
properties. It is geared to pursuing niched and boutique developments as well as opportunistic
joint venture developments.
ALCO is a registered member of the US Green Building Councils Leadership in Energy and
Environmental Design Program (LEED), a US organization which sets the world standards for
green buildings and sustainable developments. It is a globally recognized green building rating
system that warrants comprehensive, inclusive and calibrated measures in ensuring sustainability
and environmentally sound practices.
ALCO has investments in various properties with aggregate book value of P1.367 billion and
market value of P1.933 billion. Two (2) of these properties are at the Bonifacio Global City
(BGC) and a 35-hectare property in Calamba City.
ALCO is the developer of Arya Residences, the pioneer and only top-end high rise residential
development in the Philippines that is on target to achieve dual green building certification. Due
to its strict adherence to the global sustainability measures from planning to construction, and
even beyond turnover Arya Residences is set to achieve the Gold certification from the US
Green Building Councils LEED.
Arya Residences is the leading high rise residential development that set the standard in the
Philippine Green Building Councils BERDE (Building for Ecologically Responsive Design
Excellence), or the green building rating system used to measure, verify and monitor the
environmental performance of buildings that exceed existing mandatory regulations and
standards in the Philippines. Arya Residences garnered international recognition for two (2)
years in a row now. In fact, no less than the South East Asian Property Awards has chosen Arya
Residences as the Best Residential Development in the Philippines in 2012 and 2013. It has also
been recognized in the Inaugural Philippines Property Awards (PPA) to be the Best Residential
Development in Manila with the Best Residential Architectural Design.
ALCO gained various seals of approval in 2013 and was acknowledged as the Best Boutique
Developer by the PPA and as among the Top 10 Developers in the Philippines by BCI Asia.
Since 2011, ALCO has been a recipient of the Environmental Leadership Award from the World
Wide Fund for Nature (WWFPhilippines) for its staunch support of the groups Climate Change
Adaptation program. ALCO commits to provide property management services to the
condominium corporation of all its development projects even after they are completed and
turned over to the respective buyers. Post-completion involvement allows ALCO to maintain a
high standard of maintenance quality in its developments.
c. Subsidiaries
As of 31 December 2014, ALCO holds 100% ownership interest in the following domestic
companies:
i. Cazneau Inc. was incorporated on 31 July 2008 principally to engage in the realty development
business, including, but not limited to, the acquisition, construction, utilization and disposition,
sale, lease, exchange or any mode of transfer of residential, industrial or commercial property;
ii. Emera Property Management, Inc. (previously named Technopod, Inc.) was likewise
incorporated on 31 July 2008. It was originally established to engage in the realty development
business but now serves as the property management arm of ALCO not only for its flagship
project, Arya Residences, but for all its development projects to ensure the maintenance of high
quality standards therein;
iii. Manchesterland Properties, Inc. was incorporated on 27 March 2008 and is presently the
registered owner of the 6,357-square meter property located along McKinley Parkway on which
Arya Residences stands; and,
iv. Urban Property Holdings, Inc. was incorporated on 23 January 1995 and was established for
the development of a housing project on its 33-hectare property located in Calamba, Laguna.
However, this plan may change subject to market conditions. Subject to matters disclosed in Item
3 (Legal Proceedings) of this Report, none of these subsidiaries are engaged in any bankruptcy,
receivership or similar proceedings. During the period covered by this Report, they are neither
parties to any transaction which involves material reclassification, merger, consolidation or
purchase or sale of a significant amount of assets.
d. Competition
Significant barriers to entry into the market are the considerable capital needed for the
acquisition and development of land, the development expertise and reputation required from an
experienced management team, and the technological know-how from a technical team, to name
a few. ALCO faces competition from other domestic property developers and the level of
competition depends on product types, target market segments, location of developments and
pricing, among others. ALCO views the major property players which are into the middle and
high market categories for high-rise residential developments in the vicinity of ALCOs
investment properties as direct competition.
Competition can also be present in the procurement of raw materials particularly in a tight supply
market. Further, ALCO competes with other property developers for high-caliber sales/leasing
agents and brokers. ALCO believes that given the desirability of the project locations, its strict
adherence to quality, innovation and sustainability, its competitive pricing schemes and
commitment to its projects even after sales, it will be able to compete effectively.
ALCO considers two (2) direct competition in the high-end residential market segment in terms
of relative quality of development and pricing of products Ayala Land, Inc. and Rockwell Land
Corporation. These companies have been in the business many years earlier than ALCO and
therefore, have longer track record and financial mileage. These companies are considered to
have the greater share of the market at the moment. ALCO intends to primarily capitalize on its
niche market of true sustainable developments and doing projects which are unique and special
in terms of design, sustainable features and distinct locations. ALCO believes that it has started
the ground well in sustainable and luxurious projects being the first company to have a LEED-
registered residential project in the country, and intends to continue to provide distinguishing
products with better quality at more competitive pricing. ALCO knows it can achieve this given
its far less overhead costs, being a relatively leaner organization.
e. Industry Risk
The property development sector is cyclical and is subjected to the Philippine economic, political
and business performance. The industry is dependent primarily on consumer spending for
housing. In the past years, a significant portion of housing demand is being driven by purchases
from the overseas workers market. This exposes the industry to the economic performance of
foreign countries of the overseas workers such as the United States, Saudi Arabia and countries
in Europe.
The office market has been largely driven by the business process outsourcing (BPO) sector
which caters largely to US and European customers. The BPO industry, organized under the
Business Process Association of the Philippines (BPAP), comprises primarily of contact centers,
back office operations and medical transcription, among others.
The BPO industry has been experiencing phenomenal growth since the mid-2000. In 2008-2009,
however, demand for BPO office space dropped as a result of the global recession which led to a
glut in office space and a reduction in rental rates. The industry saw a recovery in 2010 as BPO
offices resumed their expansion plans which brought an upward adjustment in rental rates.
Overall, the industry and necessarily, ALCO and its subsidiaries, contend with risks relating to
volatility in overseas remittances, interest rates, credit availability, foreign exchange, political
developments, costs and supply of construction materials, wages, and changes in national and
local laws and regulations governing Philippine real estate and investments. ALCO and its
subsidiaries are sensitive to the political and security situations of the country since a portion of
its sales comes from both foreign and local investors, and to the performance of overseas
remittances and the BPO sectors as these inflows find their way into investments in housing and
other real estates.
ALCO has a very rigid credit approval system to ensure that its buyers are financially capable of
meeting their payment schedules. It has a committee which evaluates credit worthiness of
prospective buyers and regularly monitors the economic performance of the country and global
players through internal research and consultations with its property consultants to be able to
timely adjust policies on pricing, payment schemes and timing of new project launches.
f. Sources and availability of raw materials
Construction of ALCOs project/s is awarded to qualified reputable construction firms subject to
a bidding process and Managements evaluation of contractors qualifications and satisfactory
working relationships. Construction materials primarily cement and rebars, are normally
provided by the contractors as part of their engagement. However, ALCO has the right and may
opt to procure owner-supplied construction materials should Management find the same to be
more cost-effective for its projects.
g. Advances to Related Parties
In the regular conduct of its business, ALCO and its wholly-owned subsidiaries enter into
intercompany transactions, primarily advances necessary to carry out their respective functions
subject to liquidation and reimbursements for expenses. ALCO ensures that while these
transactions are made substantially on the same terms as with other individuals and businesses of
comparable risks, they are fair and treated at arms length. Intercompany transactions between
ALCO and its wholly-owned subsidiaries for the period covered by this Report are discussed in
the Audited Financial Statements hereto attached.
h. Patents and Trademarks
ALCOs operations are not dependent on patents, trademarks, copyrights and the like although
ALCO sought from the Intellectual Property Office of the Philippines and was granted in 2010
the exclusive use of the tradename logos and taglines ArthaLand and Arya Residences.
i. Government approval for principal products or services
ALCO secures various government approvals such as Environmental Compliance Certificates
(ECCs), development permits and licenses to sell as part of its normal course of business. ALCO
does not foresee any material or adverse effect of existing and probable government regulations
on its business.
j. Cost and Effects of Compliance with Environmental Laws
ALCO complied with all environmental regulatory requirements for both the preconstruction and
operational phases of Arya Residences and Arthaland Tower, and paid for the imposed dues, the
aggregate amount of which is P890,000.00 ALCO goes beyond the mandatory environmental
framework, being a member and supporter of the Philippine Green Building Council and US
Green Building Council, as well as a partner of the World Wide Fund. ALCO will definitely be
obtaining the requisite government approvals for its subsequent projects based on the projects
timetable for development and pre-selling.
k. Employees
As of 31 December 2014, ALCO had a total of seventy-six (76) employees consisting of seven
(7) executives, eight (8) senior managers, eighteen (18) managers, fifteen (15) officers and
supervisors (non-management), and twenty-eight (28) rank and file employees. As of 31 March
2015, ALCO has a total of eighty-one (81) employees consisting of seven (7) executives, nine
(9) senior managers, nineteen (19) managers, eighteen (18) officers and supervisors (non-
management), and twenty-eight (28) rank and file employees. None of these employees is
covered by a collective bargaining agreement. It cannot be determined whether additional
employees will be hired for the succeeding year but the same will be closely aligned with
ALCOs actual and programmed growth.
l. Working Capital
In general, ALCO finances its projects through internally generated funds, loans and support
from its major shareholders. The amount spent on development activities and its percentage vis-
-vis ALCOs revenues during the last two (2) fiscal years are reflected and discussed
extensively in ALCOs Audited Financial Statements for the period covered by this Report
hereto attached.
ITEM 2. Properties
ALCO is the registered owner of a 2,233-square meter property (Lot 5 Block 5) along 5th Avenue
within BGCs E-Square, particularly across the street from the proposed Shangri La Hotel. The
development plan for this property is mixed-use. In June 2014, ALCO broke ground for the
construction of Arthaland Tower, a top end office building which is expected to be completed in
the third quarter of 2017. The building will be mainly leased out to provide a source of recurring
income for ALCO. This lot is presently mortgaged with BDO Unibank., Inc. for a P600.0M term
loan. Additional borrowings of P2 billion will also be made against the property to partially fund
the construction of Arthaland Tower.
Manchesterland Properties, Inc. (MPI), a wholly-owned subsidiary of ALCO, is the registered
owner of a 6,357-square meter property (Lot 4 Block 1)5 along McKinley Parkway on which
Arya Residences, ALCOs flagship project, currently stands. ALCOs shareholdings in MPI are
presently subject of a lien in favor of Allied Banking Corporation for a P600.0M term loan.
Urban Property Holdings, Inc., another wholly-owned subsidiary of ALCO, is the registered
owner of a 35-hectare rawland6 located at the junction of the city limits of Tagaytay City and the
provincial boundaries of Laguna and Batangas. The portion of the property lying within the
Tagaytay City limits is nestled along the fairway of Tagaytay Highlands Golf and Country Club.
Approximately one (1) hectare of this property is subject of an expropriation proceeding, a full
disclosure of which is discussed in the succeeding Item.
Operating Lease Commitments as Lessee
ALCO is a lessee under non-cancellable operating leases covering office space and sales. The
leases have terms ranging from three (3) to five (5) years with renewal options and provisions for
escalation.
The future minimum rental payables under these non-cancellable operating leases are as follows:
2014 2013 2012
Within one (1) year P19, 683,565 P13, 104,432 P7, 776,987
After one (1) year but not more
than five years 9,379,641 9,918,733 4,129,230
P29,063,206 P23,023,165 P11,906,217
The total rental expense recognized from these operating leases amounted to P19.70MM,
P19.40MM and P13.10MM in 2014, 2013 and 2012, respectively.
Operating Lease Commitments as Lessor
ALCO was the lessor under cancellable operating leases with Ayala Property Management
Corporation covering parking space. The lease term was for an indefinite period of time until
either party terminates the agreement by giving at least thirty (30) days prior written notice to the
other party. The lease was terminated by ALCO in July 2014.
The rent is seventy percent (70%) of the net operating income of the parking operations in the
leased premises per one (1) month period, exclusive of value added tax.
The total rental income recognized from this operating lease amounted to P1.10MM, P2.90MM
and P3.80MM in 2014, 2013 and 2012, respectively.
ITEM 3. Legal Proceedings
As of the date of this Report, with the exception of the following cases, neither ALCO nor any of
its subsidiaries is a party to any legal action arising from the ordinary course of its respective
business:
1. Quieting of Title
On 18 October 2010, Urban Property Holdings, Inc. (UPHI) filed a complaint for quieting of
title, among other reliefs, before the Regional Trial Court of Calamba, Laguna, Branch 36
because of the erroneous issuance of tax declarations by the City of Tagaytay covering UPHIs
property as described in previous paragraphs. Trial is on-going.
2. Expropriation
A portion of UPHIs property with an area of about one (1) hectare is the subject of an
expropriation proceeding filed by the National Power Corporation (NAPOCOR) in February
1998 and is pending before the Regional Trial Court of Calamba, Laguna, Branch 34, for final
resolution on the amount to be paid by NAPOCOR. NAPOCOR had erected a tower thereon to
form part of the Tayabas-Dasmarinas Line Project.
The potential effect of the foregoing cases on the financial statements of ALCO and its
subsidiaries cannot be determined at the moment. However, it is believed that the effect thereof,
if there is any, is not significant.
ITEM 4. Submission of Matters to a Vote of Security Holders
In addition to electing the members of the Board of Directors for the year 2014-2015 to hold
office as such and until their respective successors are duly nominated, elected and qualified
during the Annual Stockholders Meeting held on 27 June 2014, stockholders representing at
least sixty-seven percent (67%) of ALCOs outstanding common shares which are entitled and
qualified to vote approved the proposal to amend Article Third of ALCOs latest Articles of
Incorporation to reflect therein the specific address of its principal office, to wit:
THIRD That the place where the principal office of the Corporation is to be established
or located is 8/F Picadilly Star Building, 4th Avenue corner 27th Street, Bonifacio Global
City, Taguig City, Philippines.
The Securities and Exchange Commission approved the foregoing amendment to ALCOs
Articles of Incorporation on 14 July 2014.
Vertical Analysis
Financial Position
2014 2013 2012
Cash and Cash Equivalents 15.08% 13.20% 9.22%
Fair Value through Profit 4.91% 0 0
or Loss
Trade and Other 35.16% 32.52% 22.01%
Receivables
Real estate for sale 12.88% 31.89% 42.60%
Investment properties 24.7 15.64% 17.73%
Property and equipment 0.52% 1.05% 0.67%
Net deferred tax assets 0.03% 1.00% 2.27%
Other assets 6.72% 4.70% 5.39%
Total Assets 100 100% 100%
Loans payable 49.96% 40.65% 41.30%
Accounts payable and other 15.91% 22.90% 21.88%
liabilities
Retirement liability .61% .54% 0.41%
Net deferred tax liabilities 2.83% 0 0
Total Liabilities 69.37% 64.09% 63.59%
Capital stock 17.25% 19.54% 22.81%
Additional paid-in capital 1.35% 1.25% 1.50%
Retained earnings 12.07% 15.07% 12.01%
Accumulated unrealized .0014% 0.05% .09%
actuarial gains
Total Equity 30.68% 35.91% 36.41%
Total Liabilities And 100% 100% 100%
Equity
ANALYSIS:
Using the Vertical Analysis Method, the total assets have increased throughout the
years. This is because of the sale activities, collections, and investment transaction happened
during the period. Collections are in lump sum and the company had invested to trust products of
a local bank which is new to them so it brought a major increase in the totals assets of the
company. Another noticeable point is the increase in total liabilities and decrease in the equity.
This could be because they used more on debt financing rather than equity financing, net income
has decreased and the book value per share has also decreased. Though the companys additional
paid in capital has decreased in 2013, it is good that it increased in 2014. This implies that the
many investors are willing to pay more than its par or stated value.
Comprehensive Income
2014 2013 2012
Sales 100% 100% 100%
Cost of Sales 59.25% 66.07% 80.36%
Gross Income 40.75% 33.93% 19.64%
Operating Expenses 17.82% 15.81% 20.91%
Income (loss) from operations 22.93% 18.12% (1.27%)
Finance Costs (3.70%) (3.36%) (4.90%)
Other Income - Net 1.17% 0.79% 28.42%
Income (loss) before income tax 20.40% 15.55% 22.25%
Income tax expense 10.48% 3.41% 3.95%
Net Income 9.92% 12.14% 18.30%
Other Comprehensive Income
Change in actuarial gain (loss) - (0.10%) (0.05%) 0.21%
net of tax
Total comprehensive income 9.82% 12.09% 18.51%
Analysis:
The companys sales have increased in figures from 2012 to 2013 and it slightly decreased in
2014. But the corporations net income is down sharply from the first year through the third year.
Operating expenses significantly decreased in 2013 and slightly decreased in 2014 which is logical given
the increase and decrease in sales. It went up and down parallel to the sales.
The vertical analysis weve computed confirms what we already observed in our initial review of the
financial performance of the corporation. On our computation, the percentage of cost of sales declined
heavily for the time period, thus an increase in gross income. In terms of minimizing cost, the company
did a very good job. However, with this positive data, our net income still decreased sharply in year
three. This is because the income tax expense of the company has largely increased from the last two
years. This is due to the higher financial tax base for the for the year compared with the statutory tax
base.
Horizontal Analysis
Financial Position
2013-2014 2012-2013
Cash and Cash Equivalents 45% 71%
Faie Value through Profit or Loss 100% 0%
Trade and Other Receivables 37% 77%
Real estate for sale -49% -11%
Investment properties 101% 6%
Property and equipment -37% 88%
Net deferred tax assets -96% -47%
Other assets 82% 4%
Total Assets 27% 20%
Loans payable 56% 18%
Accounts payable and other -12% 25%
liabilities
Retirement liability 43% 57%
Net deferred tax liabilities 100% 0%
Total Liabilities 37% 21%
Capital stock 12% 2%
Additional paid-in capital 37% 0%
Retained earnings 2% 50%
Accumulated unrealized actuarial 103% -40%
gains
Total Equity 9% 18%
Total Liabilities And Equity 27% 20%
Analysis (2013- 2014):
The increase in cash and cash equivalents mainly due to collections of lumpsum balances from
matured accounts and from financing activities.
The increase in financial assets at fair value through profit or loss (FVPL) mainly due to short
term investments made under trust products of a local bank.
The increase in trade and other receivables due to additional sales take-up for Arya Residences
Tower 2 and higher completion rate of construction in 2014.
The decrease in real estate for sale attributable to amount charged to cost of sales during the year
and cost of completed Arya Residences Tower 1 retail and parking units reclassified as
investment properties.
The increase in investment properties is due to additional development costs for Arthaland
Tower incurred during the year and cost of completed Arya Residences Tower 1 retail and
parking units reclassified from real estate for sale.
The decrease in property and equipment is due to regular provision for depreciation.
The decrease in net deferred tax assets is due to partial application of deferred tax assets against
the current years tax liability.
The increase in other assets is primarily due to additional creditable withholding taxes and input
taxes, and investments in long-term time deposits with certain local banks.
The increase in loans payable is due to financing activities during the year.
The decrease in accounts payable and other liabilities is mainly due to reduced balance of
payable to buyers as a result of the same being recognized as revenue during the year.
The increase in retirement liability is due to additional provisions for the year to comply with the
requirements of PAS 19 and latest actuarial valuation report for the company.
The increase in net deferred tax liabilities is due to excess of financial over taxable gross profit
on sale of real estate.
The increase in capital stock is due to collections of outstanding subscription receivables from
various stockholders.
The increase in capital stock is due to collections of outstanding subscription receivables from
various stockholders.
This decrease in accumulated unrealized actuarial gains is a result of year-end adjustment to
comply with the requirements of PAS 19.
Analysis (2012- 2013):
The increase in cash and cash equivalents was mainly attributable to collections made on
receivables and proceeds from the sale of a subsidiary.
The significant increase in trade and other receivables was due to additional sales take-up and
higher percentage of completion of the project.
The decrease in real estate for sale was mainly attributable to the sale of lot in Bonifacio Global
City.
The decrease in property and equipment was due to regular provision for depreciation.
The decrease in net deferred tax assets was due to partial application of deferred tax assets
against the current years tax liability.
The increase in other assets was primarily due to additional creditable withholding taxes remitted
and input taxes, coming mainly from construction costs, paid during the year.
The decrease in loans payable was due to pre-payment of a certain bank loans in 2012.
The increase in retirement liability was due to additional provision for the year.
The increase in retained earnings represents the net income for the year.
This Increase in accumulated unrealized actuarial gains is a result of year-end adjustment to
comply with the requirements of PAS 19 and latest actuarial valuation report for the company.
Comprehensive Income
2013-2014 2012-2013
Sales -12% 60%
Cost of Sales -21% 32%
Gross Income 6% 177%
Operating Expenses -1 21%
Income (loss) from operations 11% -2394%
Finance Costs -3% 10%
Other Income - Net 31% -96%
Income (loss) before income tax 16% 12%
Income tax expense 170% 39%
Net Income -28% 6%
Other Comprehensive Income
Change in actuarial gain (loss) - 52% -145%
net of tax
Total comprehensive income -28% 5%
Analysis (2013- 2014):
The high revenue for 2013 was attributable to Arya Residences Towers 1 and 2 sales
and construction accomplishment. In 2014, revenues come mainly from Tower 2 only
since Tower 1 revenues had been substantially recognized in 2013 and prior years.
The cost of Real Estate Sold decreased with the realized revenue for the period.
The increase was mainly due to expenses related to transfer of Condominium
Certificate of Title under buyers name for Arya Residences Tower 1.
The decrease was attributable to reduced marketing and selling activities during the
year.
The increase was mainly due to interests earned on temporary placements with local
commercial banks.
The increase is due to higher financial tax base for the year compared with statutory
tax base.
This is a result of year-end adjustment to comply with the requirements of PAS 19
and latest actuarial valuation report for the company.
Analysis (2012- 2013):
The increase is mainly due to the start of revenue recognition for Tower 2 and completion of
Tower 1. Revenues are recognized using the percentage of completion method.
The increase was due to recognition of additional costs corresponding to the realized revenues
under the percentage of completion method.
The increase is mainly due to higher depreciation and amortization expenses, and manpower
related costs.
Bulk of the increase in in selling and marketing expenses is attributable to sales commission
incurred for the year.
The increase was due to higher level of financing activities in 2013 compared with the 2012
level.
The high level of other income in 2012 was a result of one-time transaction, i.e., sale
of a subsidiary and lot in BGC. There was no similar transaction in 2013.
The significant increase is due to higher taxable income during the year
.
This is a result of year-end adjustment to comply with the requirements of PAS 19 and latest
actuarial valuation report for the company.
Financial Ratio Analysis
Current Ratio
The companys current ratio has greatly increased in three periods. The corporations total
assets, as stated in their financial position, have increased which results to the increase in their
current ratio. This increase indicates the companys improved liquidity or a more conservative
approach to working capital management. Therefore, this tells us that the company has a
greater ability to pay its currently maturing obligations.
Solvency Ratio
The solvency ratio is used to measure an enterprises ability to meet its short-term and long-
term debts. The corporations solvency ratio has decreased, thus indicating the companys
lesser ability meet its liabilities. The lower a companys solvency ratio, the greater the
probability that it will default on its debt obligations.
Debt-to-Equity Ratio
The debt to equity ratio shows the percentage of company financing that comes from creditors
and investors. The companys debt ratio has increased which indicates that the company has
increased its debts and used more creditors financing than investor financing. This implies a
more financially unstable business. A higher debt to equity ratio is considered more risky to
creditors and investors than companies with a lower ratio. The company should lessen their
dependence on financial institutions and use more equity financing as far as practicable.
Asset to Equity
The asset to equity ratio of the company has increased for the past three years. Companies
finance the purchase of assets through debt or equity, so a high asset to equity ratio indicates
that a larger portion of asset financing is being done through debt. Thats why the companys
debt ratio also increased.
Profitability Ratio
The profitability ratio of the company has decreased which explains the sharp decrease of their
net income. This is bad for the company because one of the things that investors look at the
company is their profitability ratio because it tells us the companys ability to generate
earnings, profits and cash flows.