Ratio Analysis on Property Firms

For someone who spent more or less two-three years studying accounting concepts, applying lessons learned inside the classroom to real life is a a real challenge. Knowing is one thing and applying that knowledge is another.

For this post, i have decided to do ratio analysis using selected Philippine Stock Firms engaged in the property business. According to investopedia, Ratio analysis a tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.

Anyway, i downloaded the quarterly report filing for the period ended June 2011 for selected property firms. The numbers are below and here's my take.

Profitability Ratios

Profit Margin on Sales tells us how much per Peso of Sales is converted to profit. Clearly, FLI is the winner here. For every peso of sales, they convert it to 30 centavos profit. SMDC trails closely with 28.14%. The advantage of FLI probably stems from the fact that it has the highest gross profit margin at 61.06%. Disclaimer: My computation may be wrong but i tried my best to make sure they are correct. Nevertheless, do check and have your own analysis as well. 

Return on Assets and Return on Equity tells us how efficiently management is using the assets/equity of the company in generating profit. SMDC reported the highest ROA while reporting the highest ROE as well.  FLI did well in reporting profits but comparing that profits with the total assets of the company, I'd say the other companies are more efficient.

So for profitability ratios the choice is SMDC

Other Ratios

The only thing that concerns me here is the level of debt. Debt can be a friend or an enemy. It provides capital to fund expansion and operations but it also brings expense in the form of interest. Debt Equity ratio tells us the percentage of capital owed to creditors compared with the capital owed to the owners of the company. 100% means debt and equity are equal. Any percentage above 100% means more debt and less than 100% means more capital infused by owners. FLI has the lowest debt with ALI reporting the highest debt. Now, this may or may not be good. Currently, we have low interest rates in the Philippines and low interest rates means lower interest expense. We must also remember that if interest rates are low, people generally don't put their money in the bank but search for higher yielding returns. This means that capital in the form of shareholder infusion might me the better option in the market.

For other ratios the choice is FLI

Summary

SMDC and FLI are my choice. I have exposure in FLI but no money is invested in SMDC. I still have P8k in my portfolio. The market is still red and I am waiting for the perfect entry point. Nevertheless, i guess it would not hurt me if i follow my own analysis. Let's see how far a P4k investment in these companies will bring me. I am not even sure if that money is enough to buy the minimum lot. Let's see