Financial Analysis of

Perpetual Help Community Cooperative (PHCCI)

Submitted by:

Jasmine Lilang Collado

Submitted To:

Mr. Ray Joseph Inocencio

 I. ABSTRACT

This research aimed to analyze the financial position Perpetual Help

Community Cooperative (PHCCI). This study also aimed to determine whether the

cooperative was stable, solvent, liquid, or profitable. The researcher used analytical

tools (horizontal, vertical, and financial ratio analysis) to analyze the financial position of

the cooperative.

Based on the analysis and interpretation of data, the researcher therefore

conclude that PHCCI has a strong liquidity status, stabilized its long-term financial

position, has a need to efficiently utilize its assets, highly leverage, and has a stable

profitability status.

II. KEY WORDS

 Financial ratios

 Trend ratio analysis

 Structural ratio analysis

 Profitability

 Debt utilization

 Financial analysis

 Liquidity
 III. INTRODUCTION

The main goal of a business is to gain profits. In that case, the management has

needed to come up with relevant economic decisions to meet its goals amidst the

changes of its environment at an unprecedented rate. The business has to evaluate its

performance to be able to stabilize its competitive position on the market. That’s why

there is a need to constantly analyze and monitor firm’s financial position over time to

help the management identify deficiencies and then take corrective actions to make

relevant strategic decisions.

As a requirement for Financial Analysis and Reporting subject, a finance student

made this research that focuses on the evaluation of financial analysis of Perpetual

Help Community Cooperative. Furthermore, the financial performance of Perpetual

Help Community Cooperative will be evaluated by computation of horizontal analysis,

vertical analysis and financial ratios in order to be aware of its financial flexibility and

viability of provisions of capital investment decision making.

 IV. OBJECTIVES

This research paper aims to provide useful financial information about Financial

Analysis of Perpetual Help Community Cooperative (PHCCI) to help the users,

especially its management in making useful economic decisions. It also aims to serve

as their basis in analyzing and evaluating their strengths and weaknesses to help them

assess risks and provide necessary measures. Lastly, the main purpose of this

research is to help the researcher enhance her capability in analyzing business’

financial situation that could be helpful in developing her skills as a future analyst.

V. METHODS

In this study, the researcher used methods such as synthesis, computation of

ratios, analysis and interpretation to come up with conclusion and recommendation. A

synthesis of theory and knowledge will serve to obtain the theoretical basis to meet the

set objective. The analysis will focus on the financial statements of PHCCI. From the

results of the interpretation and analysis, the researcher shall draw conclusions and

suggest actions for improvement of the business subject’s financial and economic

analysis system.
 VI. FINANCIAL ANALYSIS OF PERPETUAL HELP COMMUNITY COOPERATIVE

1. HORIZONTAL ANALYSIS
1.1 Computation

Perpetual Help Community Cooperative

Statements of Financial Position
December 31, 2018 and 2017

2018 2017 Amount Percent

Assets
Current assets
Cash 13,153,855.73 6,798,419.22 6,355,436.51 93.48
Loans receivable 128,645,895.69 122,628,270.62 6,017,625.07 4.91
Trade and other receivables 4,497,623.19 3,738,903.59 758,719.60 20.29
Inventory 3,365,420.77 4,174,214.97 (808,794.20) (19.38)
Other current assets 106,036.30 121,325.05 (15,288.75) (12.60)
Total current assets 149,768,831.68 137,461,133.45 12,307,698.23 8.95
Non-current asset
Investments 2,205,083.65 549,704.34 1,655,379.31 301.14
Investments property 231,035.78 231,035.78 0.00 0
Property and equipment 38,375,088.25 33,851,148.30 4,523,939.95 13.36
Biological assets 1,391,680.43 977,018.17 414,662.26 42.44
Other non-current assets 1,861,939.67 1,440,079.59 421,860.08 29.29
Total non-current assets 44,064,827.78 37,048,986.18 7,015,841.60 18.94
Total Assets 193,833,659.46 174,510,119.63 19,323,539.83 11.07

Liabilities and Members’ Equity

Current liabilities
Trade and other payables 308,467.55 304,686.70 3,780.85 1.24
Savings deposit 45,145,550.92 39,427,314.72 5,718,236.20 14.50
Time deposit 39,081,849.83 28,491,719.27 10,590,130.56 37.17
Loans payable-short term 20,300,005.99 21,300,005.99 (1,000,000.00) (4.69)
Interest on share capital payable 3,457,436.47 3,207,429.05 250,007.42 7.79
Patronage refund payable 1,481,758.48 1,374,612.45 107,146.03 7.79
Due to CETF (Apex) 352,799.64 327,288.67 25,510.97 7.79
Total current liabilities 110,127,868.88 94,434,056.85 15,693,812.03 16.62
Non-current liabilities
Loans payable-long term 360,638.30 660,638.30 (300,000.00) (45.41)
Retirement obligation 1,504,800.65 1,534,829.28 (30,028.63) (1.96)
Members benefit and other fund
6,465,050.73 8,857,164.54 (2,392,113.81) (27.01)
payable
Other non-current liability 109,049.24 289,349.96 (180,300.72) (62.31)
Total non-current liabilities 8,439,538.92 11,341,982.08 (2,902,443.16) (25.59)
Total liabilities 118,567,407.80 105,776,038.93 12,791,368.87 12.09
Members’ Equity
Paid-up share capital-common 62,733,100.00 58,217,908.09 4,515,191.91 7.76
Paid-up share capital-preferred 1,007,850.00 1,062,154.57 (54,304.57) (5.11)
Deposit for share capital 60.55 60.55 0
Donation/Grants 1,824,500.00 1,574,500.00 250,000.00 15.88
 Statutory fund 9,700,741.11 7,879,518.04 1,821,223.07 23.11
Total Equity 75,266,251.66 68,734,080.70 6,532,170.96 9.5
Total Liabilities and Members’
193,833,659.46 174,510,119.63 19,323,539.83 11.07
Equity

Perpetual Help Community Cooperative

Income Statements
December 31, 2018 and 2017

2018 2017 Amount Percent

Revenues
Income from credit operations 28,052,124.9 22, 523, 650.26 5,528,474.64 24.55
Income from consumer operations 4,726,448.72 5, 150, 034.6 (423,585.88) (8.22)
Income from production operations 175,340.69 224,285.82 (48,945.13) (21.82)
Other income
Membership fees 131,900 423,000.00 (291,100.00) (68.82)
Income from investment 55,843.71 61,529.03 (5,685.32) (9.24)
Miscellaneous income 689,719.13 303,470.81 386,248.32 127.28
Total revenues 175,340.69 224,285.82 5,145,406.63 17.94
Expenses
Financing costs 3,432,043.03 3,782,116.53 (350,073.50) (9.26)
Selling/marketing costs 5,003,431.91 3,446,709.38 1,556,722.53 45.17
Gen. administrative expenses 18,359,509.42 14,912,471.04 3,447,038.38 23.12
Total expenses 26,794,984.36 22,141,296 4,653,687.41 21.02
Net surplus below 7,036,392.79 6,544,673.57 491,719.22 7.51
Add: Other item
Gain on sale equipment 19,600.00 1,100.00 18,500.00 1681.82
Net surplus for the year 7,055,992.79 6,545,773.57 510,219.22 7.79

Net surplus distribution follows:

Reserve fund (10%) 705,599.28 654,577.36 51,021.92 7.79
Education and training fund
Due to Apex (5%) 352,799.64 327,288.68 25,510.96 7.79
Due to local primary (5%) 352,799.64 327,288.68 25,510.96 7.79
Community development fund
211,679.78 196,373.21 15,306.57 7.79
(3%)
Optional fund (7%) 493,919.50 458,204.15 35,715.35 7.79
Interest on share capital (70% on
3,457,436.47 3,207,429.05 250,007.42 7.79
remaining net surplus)
Patronage refund (30% on
1,481,758.49 1,374,612.45 107,146.04 7.79
remaining net surplus)
Net surplus as distributed 7,055,992.79 6,545,773.57 510,219.22 7.79
1.2 Analysis and Interpretation

 Liquidity and Solvency

There is an increase in current assets (8.95%) and current liabilities (16.62%). The

increase in Current Assets is less than the increase in Current Liabilities. The increase in

changes in the Current Liabilities is greater than to the increase of changes in Current Assets
mainly due to the increase in the Savings Deposit (14.5%), Time Deposit (37.17%) and Interest

on Share Capital Payable (7.79%).

On the other part, the consumer/marketing operations and the production operations

have shortly declined to (-8.22%) and (-21.82%). It is worth to note the decrease in inventory

(19.38%) that could be interpreted to mean that the Cooperative had sold their inventories which

reflected as one of the factors that caused the increased the Cash account and Trade and Other

Receivables, the other factor is the marked increase in Cost of Goods Sold (17.57%).

 Stability or Long-term Financial Position

The management made a very good job in handling their non-current obligations. The

non-current liabilities have declined up to (-25.59%) which could be reflected the decreased in

Other Non-Current Liabilities (-62.31%), Loans Payable-long term (-45.41%), Members Benefit

and Other Fund Payable (-27.01%) and Retirement Obligation (-1.96%). It is worth to note that

the Loan Payable-short term has also diminished by (-4.46%).

The growth in Total Liabilities (12.09%) is much higher than the growth of total members’

equity (9.5%). This could be accounted for the marked increase in the current liabilities where in

the increase in Savings Deposit (14.50%), Time Deposit (37.17%) and Interest on Share Capital

Payable (7.79%) have found. The Property and Equipment have increased up to (13.36%) due

to the additional acquisition of the Cooperative during the year of 2018.

Based on the result of the analysis, it could be inferred that PHCCI has stabilized its

long-term financial position.

 Operating Efficiency and Profitability

 There is a marked favorable increased in the total revenues (17.94%), however negated

by the greater increase in the total expenses (21.02%). This resulted from the increased of the

selling/marketing costs (45.17%) and general administrative expenses (23.12%).

On the other hand, the total amount of total revenues (P33, 831, 377. 15) was still

greater than to the amount of total expenses (P26, 794, 984. 36). It is worthy to note that the

income from credit operations (24.55%) and the miscellaneous income (127.28%) played the

huge part for the total revenue. PHCCI has to consider the decline of their operations in

consumer/marketing, production, income from investments and membership fees. This must be

investigated.

1.3 Conclusion

Based on the analysis & interpretation, I conclude that PHCCI has a strong liquidity

status, stabilized its long-term financial position and yields sufficient net surplus but had

problems dealing their Cost of Goods Sold and Cost of Sales especially on acquiring inventories

for the product operations and consumer/marketing operations and also managing its expenses

in selling/marketing costs and general administrative expenses.

1.4. Implications to the management

The Cooperative is liquid enough to meet its current obligations. Based on the findings,

the cooperative had suffered a difficulty in managing expenses in acquiring inventories for their

Consumer/Marketing Operations and Production Operations.

I have some suggestions for the cooperative’s management, try to acquire inventories at

lower prices and consider other suppliers who may offer much lower or more reasonable prices,

improve cash discount policies to encourage quick and prompt payment of receivables and

improve cost controlling systems.

2. VERTICAL ANALYSIS
2.1 Computation
Perpetual Help Community Cooperative
Statements of Financial Position
December 31, 2018 and 2017

2018 2017 2018 2017

Assets
Current assets
Cash 13,153,855.73 6,798,419.22 6.79 3.90
Loans receivable 128,645,895.69 122,628,270.62 66.37 70.27
Trade and other receivables 4,497,623.19 3,738,903.59 2.32 2.14
Inventory 3,365,420.77 4,174,214.97 1.74 2.39
Other current assets 106,036.30 121,325.05 0.05 0.07
Total current assets 149,768,831.68 137,461,133.45 77.27 78.77
Non-current asset
Investments 2,205,083.65 549,704.34 1.14 0.31
Investments property 231,035.78 231,035.78 0.12 0.13
Property and equipment 38,375,088.25 33,851,148.30 19.8 19.4
Biological assets 1,391,680.43 977,018.17 0.72 0.56
Other non-current assets 1,861,939.67 1,440,079.59 0.96 0.83
Total non-current assets 44,064,827.78 37,048,986.18 22.73 21.23
Total Assets 193,833,659.46 174,510,119.63 100.00 100.00

Liabilities and Members’ Equity

Current liabilities
Trade and other payables 308,467.55 304,686.70 0.16 0.17
Savings deposit 45,145,550.92 39,427,314.72 23.29 22.59
Time deposit 39,081,849.83 28,491,719.27 20.16 16.33
Loans payable-short term 20,300,005.99 21,300,005.99 10.47 12.21
Interest on share capital payable 3,457,436.47 3,207,429.05 1.78 1.84
Patronage refund payable 1,481,758.48 1,374,612.45 0.76 0.79
Due to CETF (Apex) 352,799.64 327,288.67 0.18 0.19
Total current liabilities 110,127,868.88 94,434,056.85 56.82 54.11
Non-current liabilities
Loans payable-long term 360,638.30 660,638.30 0.19 0.38
Retirement obligation 1,504,800.65 1,534,829.28 0.78 0.88
Members benefit and other fund
payable 6,465,050.73 8,857,164.54 3.34 5.08
Other non-current liability 109,049.24 289,349.96 0.06 0.17
Total non-current liabilities 8,439,538.92 11,341,982.08 4.35 6.5
Total liabilities 118,567,407.80 105,776,038.93 61.17 60.61

Members’ Equity
Paid-up share capital-common 62,733,100.00 58,217,908.09 32.36 33.36
Paid-up share capital-preferred 1,007,850.00 1,062,154.57 0.52 0.61
Deposit for share capital 60.55 0 0
Donation/Grants 1,824,500.00 1,574,500.00 0.94 0.9
Statutory fund 9,700,741.11 7,879,518.04 5 4.52
Total Equity 75,266,251.66 68,734,080.70 38.83 39.39
Total Liabilities and Members’
Equity 193,833,659.46 174,510,119.63 100 100
 Perpetual Help Community Cooperative
Income Statements
December 31, 2018 and 2017

  2018 2017 2018 2017

Revenues        
Income from credit operations 28,052,124.90 22,523,650.26 82.92 78.52
Income from consumer/marketing operations 4,726,448.72 5,150,034.60 13.97 17.95
Income from production operations 175,340.69 224,285.82 0.52 0.78
Other income        
Membership fees 131,900 423,000.00 0.39 1.47
Income from investment 55,843.71 61,529.03 0.17 0.21
Miscellaneous income 689,719.13 303,470.81 2.04 1.06
Total revenues 33,831,377.15 28,685,970.52 100.00 100.00
Expenses        
Financing costs 3,432,043.03 3,782,116.53 10.14 13.18
Selling/Marketing costs 5,003,431.91 3,446,709.38 14.79 12.02
General administrative expenses 18,359,509.42 14,912,471.04 54.27 51.99
Total expenses 26,794,984.36 22,141,296.95 79.20 77.19
Net surplus below 7,036,392.79 6,544,673.57 20.80 22.81
Add: Other item        
Gain on sale of equipment 19,600.00 1,100.00 0.06 0.0038
Net surplus for the year 7,055,992.79 6,545,773.57 20.86 22.82
         
net surplus distribution as follows:        
Reserve fund (10%) 705,599.28 654,577.36 2.09 2.28
Education and training fund        
Due to Apex (5%) 352,799.64 327,288.68 1.04 1.14
Due to Local primary (5%) 352,799.64 327,288.68 1.04 1.14
Community development fund (3%) 211,679.78 196,373.21 0.63 0.68
Optional fund (7%) 493,919.50 458,204.15 1.46 1.60
Interest on share capital (70% on
remaining net surplus) 3,457,436.47 3,207,429.05 10.22 11.18
Patronage refund (30% on remaining
net surplus) 1,481,758.49 1,374,612.45 4.38 4.79
Net surplus as distributed 7,055,992.79 6,545,773.57 20.86 22.82

2.2 Analysis and Interpretation

 Statement of Financial Position

 The common-size statement reveals that for both periods, the Cooperative's current

assets represent a great bulk of the total assets. This is good as it indicates liquidity. Deeper

analysis of the statement shows that majority of the current assets is made up of loans

receivable (66.37%), this implies that the coop relies mainly on lending. The increase in the

percentage allocation for property and equipment can be noted that the Cooperative had

additions of property and equipment during the year.

The total liability percentage (61.17%) is higher than the total members’ equity (38.83%),

which could be interpreted that most assets were financed by borrowings. It means that the

Cooperative is highly leveraged and a profitable situation will result in greater impact on the

members’ return on investment.

 Income Statement

The noticeable high percentage of Expenses (77.19%) to Revenues is not favorable.

This infers that most of the Revenues are used to cover the Expenses. Management has to

consider the decline of their operations in consumer/marketing, production, income from

investments and membership fees and to look for strategies on managing their expenses and to

establish measures to remedy this.

The decrease in financing costs is favorable for PHCCI. This indicates the Coop's

efficiency in controlling financing costs. The percentage of net surplus is also favorable and has

positive effect to the members as a substantial portion of it is returned and distributed to them.

However, deeper analysis would show that there was a decrease in the net surplus ratio. This

could be accounted for by the unfavorable increase in expenses.

2.3 Conclusion
 The majority of cooperative's current assets are made up of loans receivable. This means

that it relies mainly on lending services. Thus, loans receivable should be managed well in

order to control probable risks during collection days.

2.4 Implications to management

I suggest that the management should think of strategies to avoid future costs such as

limiting the amount of loans to be borrowed by members based on a certain percentage of their

capital build up. Also, implement stricter policies in making agreement between the co-makers.

3. Financial Ratio Analysis

3.1 Computation

 LIQUIDITY RATIOS

2018 2017
Net working Capital 39,640,962.80 43,027,076.6
Current Ratio 1.36 1.46
Quick Ratio 1.33 1.41

 LEVERAGE RATIOS

2018 2017
Debt to Asset Ratio 0.61 0.61
Debt to Equity Ratio 1.58 0.17
Capital Ratio 0.39 0.39

 ACTIVITY OR EFFECIENCY RATIOS

2018
Property and Equipment Turnover 0.94
Accounts Receivable Turnover 0.26
Average Collection Period 1403.85 days
 Inventory Turnover 6.61
Days Inventory 55.22 days
Day Cash 34.02
Operating Cycle 1,459.07 days
Asset Turnover 0.18

 PROFITABILITY RATIOS

2018
Gross Profit Ratio 0.26
Operating Ratio 0.34
Return of Sales 0.21
Return on Asset 0.04
Return on Equity 0.10

3.2-3 Analysis and Interpretation

PHCCI has a strong Liquidity status, somehow need to efficiently utilize its assets,

highly leverage, and has a stable profitability status. In terms of Short-term solvency, the

Cooperative has effectively managed its assets and is liquid enough to pay its current maturing

debts. Both the average receivables can be collected and inventories can be disposed in a long

period of time that shows the management's inefficiency in this portion. Likewise, its long term

assets could not generate a great amount of revenue so as of net income.

3.4 Implications to the management

The slow movement of the company's operating cycle due to the slow conversion of

inventory and receivable needs to be addressed. New policies that would speed up of the

operating cycle must be designed. Improved cash discount policies to encourage quick and

prompt payment of receivables must be put in place. Strict and assertive measures for

receivable collection must also be established. New marketing strategies to increase sales of
inventories are also needed. There is a need for the management to consistently monitor the

utilization of its long term assets to generate more revenues.

Since the Cooperative is highly leveraged, that is, most assets were financed by

borrowings, management should be mindful of the efficient use of its borrowings. There is a

need to monitor and implement policies that would result in a profitable situation to have a

greater impact on the members’ return on investment. Management must come up with more

stringent cost control measures to decrease cost of sales.

 VII. CONCLUSIONS

With the financial tools; Horizontal Analysis, Vertical Analysis and Financial Ratios

Analysis, I can now conclude that PERPETUAL HELP COMMUNITY COOPERATIVE has a

strong liquidity status, has a need to efficiently utilize its assets, highly leverage, and has a

stable profitability status.

In terms of Short-term solvency, the Cooperative has effectively managed its assets and

is liquid enough to pay its current maturing debts. It has stabilized its long-term financial

position and yields sufficient net surplus but could not generate a great amount of revenue so as

net income and had problems dealing their Cost of Goods Sold and Cost of Sales especially on

acquiring inventories for the product operations and consumer/marketing operations and also

managing its expenses in marketing costs and general administrative expenses.

Both the average receivables can be collected and inventories can be disposed in a long

period of time that shows the management's inefficiency in this portion. Since it is a

cooperative, borrowing is its main source of fund. We could see that in its current assets that

are made up of loans receivable. This means that it relies mainly on lending services. Thus,

loans receivable should be managed well in order to control probable risks during collection

days. The high risk of its capital structure should be controlled also in using its borrowing in

improving operations to gain higher yields.

 VIII. RECOMMENDATIONS

Based from the analysis, interpretations, and conclusions, the management should think

of strategies to control probable risks during collection days of loans receivable such as limiting

the amount of loans to be borrowed by members based on a certain percentage of their capital

build up and by implementing stricter policies in making agreement between the co-makers.

Also, create new policies that would speed up of the operating cycle must be designed. Strict

and assertive measures for receivable collection must also be established.

The analyst must consistently monitor the utilization of its long term assets to generate

more revenues and to implement policies that would result in a profitable situation to have a

greater impact on the members’ return on investment.

 IX. REFERENCES

https://www.investopedia.com/terms/v/vertical_analysis.asp

https://www.investopedia.com

https://www.phcci.coop/

https://www.wallstreetmojo.com/horizontal-analysis/

https://www.accountingformanagement.org/horizontal-analysis-of-financial-statements/

https://www.phcci.coop/about-us/cooperative-movement/statement-on-the-cooperative-
identity

https://www.phcci.coop/about-us/our-cooperative

https://www.myaccountingcourse.com/financial-ratios/net-working-capital

https://www.thebalancesmb.com/interpreting-the-cash-flow-statement-1200760

https://www.academia.edu/11440051/Sustainability_and_Stability_through_Cooperatives

https://www.readyratios.com/reference/business/credit_cooperative.html

https://www.myaccountingcourse.com/financial-ratios/net-income

https://corporatefinanceinstitute.com/resources/knowledge/modeling/working-capital-
formula/

https://joe.org/joe/2007october/rb1.php

https://www.sciencedirect.com/science/article/abs/pii/S175115770900073X