De La Salle University

Ramon V. Del Rosario

College of Business

Group term Paper

DMCI Holdings, Inc. vs. Ayala Land Inc.

In Partial Fulfillment of the

Course Requirements for

FMDFINA - K48
1st Term, A.Y. 2023-2024

Submitted by:
GROUP 6
Decena, Kyle Adrianne
Go, Krisean
Lim, Angelie
Mondejar, Mikhaella Ellis
Yepez, Maxin

Submitted to:
Ms. Vivian Y. Eleazar
 TABLE OF CONTENTS

I. INTRODUCTION...................................................................................................................... 3
Objectives.................................................................................................................................. 3
Financial Concepts.....................................................................................................................3
Industry Background..................................................................................................................4
II. COMPANY PROFILE............................................................................................................. 5
DMCI Holdings, Inc.................................................................................................................. 5
Ayala Land, Inc.......................................................................................................................... 6
III. BALANCE SHEET ANALYSIS............................................................................................ 6
DMCI Holdings, Inc.................................................................................................................. 7
Ayala Land, Inc.......................................................................................................................... 8
IV. INCOME STATEMENT ANALYSIS.................................................................................... 9
DMCI Holdings, Inc.................................................................................................................. 9
Ayala Land Inc......................................................................................................................... 10
V. FINANCIAL RATIOS AND ANALYSIS..............................................................................10
DMCI Holdings, Inc................................................................................................................ 10
Ayala Land, Inc. (Benchmark).................................................................................................22
DuPont Analysis...................................................................................................................... 27
VI. Financial Planning.................................................................................................................27
VII. CONCLUSIONS AND FINDINGS/RECOMMENDATIONS........................................ 28
VIII. BENCHMARKING........................................................................................................... 30
REFERENCES.............................................................................................................................36
I. INTRODUCTION

Objectives
Illustrated below are the following objectives which are in consideration of DMCI
Holding Inc. performance during the years 2020 until 2022 Financial analysis with Ayala Land
Inc. performance during the years 2022 and 2021 as a benchmark company:
● Identifying the percent change of the following assets, liabilities, and
Shareholder’s Equity in accordance with DMCI Holding Inc. and Ayala Land
with its corresponding years mentioned above.
● Using the income statement of the following companies the percentage
according to sales was identified.
● Financial Ratios such as market value ratios, asset management efficiency
ratios, profitability ratios, component ratios, leverage and ROE ratios, and
liquidity ratios are computed in accordance with the companies and years
mentioned.
● A comparison using performance, efficiency, leverage, and liquidity measures
were applied to contrast the two companies.
● Lastly, the data collected was analyzed and evaluated to provide conclusions
and recommendations.

Financial Concepts
The cost of capital concept is generally a percentage or rate that is used to decide whether
an investment shall be pushed forward or undertaken. For instance, DMCI Holdings Inc.’s
marketing department provided a proposal for conducting an event that will result in a 15% rate
of return and since the initial required rate of return amounts to 10% the investment shall be
made. This action is supported by the premise that the 15% rate of return exceeds the minimum
required rate of return. Additionally, another term for the required rate of return is hurdle rate
since this ensures the projects will be fully compensated and will not negatively affect the
shareholder wealth. In detail, the hurdle rate uses the weighted average cost of capital (WACC)
which is based on the current market values.
The accounting rate of return is connected to the previous concept as it also considers the
rate of return on an investment. Though in contrast, the accounting rate of return (ARR) has the
purpose of creating budgeting decisions. This is computed by finding the quotient of the
expected average net income of an asset and average capital cost. Generally, if the rate is less
than ACC it is simply rejected and anything equal or higher than would be accepted ​(Tim
Vipond, 2023)​. This is like the cost of capital concept. However, it was discussed that if it is
consistently high then the company may become too complacent and fail to manage the
investment responsibly. Therefore, it is recommended to take the option which allows a rise and
fall of earnings.
 The diversification concept is a practice to induce risk management as it applies the act of
investing in various projects to avoid concentrated losses. For example, DMCI Holdings Inc. will
invest in several classifications of real estate or stocks. By doing so DMCI Holdings Inc. reduces
its risk of experiencing large losses. Even though stocks may suffer losses due to their
unfavorable performance in a bull market. The investment made through real estate may have
encountered a gain. However, this concept or strategy is limited by the law of diminishing
marginal utility which proposes that the more one invests or consumes a specific good the more
their satisfaction will decline ​(Jonathan Dash, 2021; Will Kenton et al., 2022)​. As DMCI
Holding Inc. invests in more diverse assets, the benefits decrease.
Introducing the capital asset pricing model first is the Capital Market line (CAPM) which is used
though a risk-free asset and a risky portfolio. In detail, risk-free assets are stated to have assured
returns. While the risky portfolio is used to derive all the risky assets that can be found in the
marketplace. Moreover, Arbitrage pricing theory (APT) will be the next pricing model discussed
since in comparison to the CAPM, which is a one-factor pricing model, it is a multifactor pricing
model. The following factors are considered; inflation, growth in GNP, major political upheavals,
and changes in interest rates. In fact, the APT consequences with profit through the use of
navigating the mispriced securities.

Industry Background
By the year 2022, the real estate industry of the Philippines reached about 536 billion
pesos and has shown a slow but consistent increase in growth. Especially as it is still currently
recovering from the COVID-19 pandemic ​(Real Estate Industry in the Philippines - Statistics &
Facts, 2022)​. It continues to thrive through the increase of middle-class, investments from
foreign powers, and support provided by Overseas Filipino Workers (OFWs) ​(Philippines: Real
Estate Developers by Net Income, 2022)​.
DMCI Holding Inc. participated in the real estate industry for both residential and
commercial. In fact, in the Philippines, there is a variety of residential properties suited for mid
to high-class. This is divided into two; public and private housing with 50% being owned.
However, in cities such as Metro Manila, it is a more common practice to rent or lease
apartments and condominiums. On average, the per square meter of a unit may amount to 220
Pesos. Furthermore, commercial real estate mostly consists of spaces for the purpose of industry,
hospitality, or retail. In the year 2023 commercial real estate is greatly controlled by the
Philippine Information Technology and Business Process Management sector (IT-BPM) ​(Real
Estate Industry in the Philippines - Statistics & Facts, 2022)​.
 Figure 1.1 Real Estate Developers by Net Income

As for competition, the big three are considered to be SM Prime Holdings, Inc, Ayala
Land, and Megaworld Corporation. Respectively these real estate developers have current net
incomes of 22, 13.3, and 9.7 billion pesos. Coming in 6th place is DMCI Holding, Inc., with a
net income of 3.9 billion pesos. A gap between the following developers may be observed
therefore the industry may be regarded to be difficult to penetrate ​(Philippines: Real Estate
Developers by Net Income, 2022)​.

II. COMPANY PROFILE

DMCI Holdings, Inc.

DMCI Holdings, Inc. provides civil engineering and general construction services. It
operates through the following segments: Construction and Others, Coal Mining, Nickel Mining,
Real Estate, On-grid Power, Off-grid Power, and Water. The Construction & Others segment
offers the production and trading of concrete products, handling steel fabrication, and electrical
and foundation works. The Coal Mining segment explores, mines, and develops coal resources in
Semirara Island. The Nickel Mining segment mines and sells nickel ore from existing stockpiles
in Acoje and Berong mines. The Real Estate segment focuses on mid-income residential
development under the DMCI Homes brand. The On-grid Power segment consists of power
generation through coal-fired power plants. The Off-grid Power segment comprises power
generation through satellite power plants. The Water segment provides water services for the
 west portion of Metro Manila, Olongapo City, and Subic Bay Freeport. The company was
founded by David M. Consunji on March 8, 1995, and is headquartered in Makati, Philippines.

Ayala Land, Inc.

Ayala Land, Inc. operates as a property developer in the Philippines. It operates through
Property Development, International, Shopping Centers, Offices, Hotels and Resorts,
Construction, and Property Management, and Other segments. The company sells high-end and
upper-middle-income residential lots and units, affordable housing units and lots, and economic
housing and leisure community developments; leases residential developments under joint
venture; acquires, develops, and sells large-scale, mixed-use, and master-planned communities;
and sells override units. It also develops and sells residential lots and units. In addition, the
company develops shopping centers, and leases retail space and land to third parties; operates
movie theaters, food courts, entertainment facilities, gas stations, and car parking in shopping
centers; manages and operates malls; develops, leases, and sells office buildings; and sells
industrial lots and leases factory buildings. Further, it engages in the development and
management of hotels and resorts/serviced apartments; leasing of land to hotel tenants; and land
development and construction, and facilities management activities. Ayala Land, Inc. was
incorporated in 1988 and is based in Makati City, Philippines.

III. BALANCE SHEET ANALYSIS

Figure 3.1 DMCI Holdings, Inc. Assets Analysis

 Figure 3.2 DMCI Holdings, Inc. Liabilities and Shareholders’ Equity

DMCI Holdings, Inc.

According to the Balance Sheets of DMCI Holdings, Inc., there has been an 11.9%
increase from fiscal year 2021 to fiscal year 2022. Total current assets increased by around ₱23
million and total liabilities increased by around ₱2 million. Total shareholder equity increased
from ₱108,846,612 to ₱132,669,634. Short-term debt increased by ₱90,055 and long-term debt
increased by ₱3,056,888. The authorized number of shares and issued number of shares has
stayed the same.

Figure 3.3 Ayala Land, Inc. Assets

 Figure 3.4 Ayala Land, Inc. Liabilities and Shareholders’ Equity

Ayala Land, Inc.

According to the Balance Sheets of Ayala Land, Inc., there has been a 4.59% increase
from fiscal year 2021 to fiscal year 2022. Total current assets increased by around ₱34 million
and total liabilities increased by around ₱11 million. Total shareholder equity increased from
₱270,502,321 to ₱293,664,525. Short-term debt decreased by ₱10,235,228 and long-term debt
increased by ₱30,093,048. The authorized number of shares has increased from 15,381,195,961
to 15,706,946,537 and the issued number of shares has increased from 14,811,126,679 to
15,064,662,731.
IV. INCOME STATEMENT ANALYSIS

DMCI Holdings, Inc

DMCI Holdings has almost doubled its Net Income After Tax(NIAT) from ₱25,667,124
in 2021 to ₱48,475,975 in 2022. They have seen a 73.8% increase in Gross Profit. Their earnings
before interest and taxes(EBIT) have increased by ₱25,773,377 and their tax rate has increased
from 6% to 9%.
Ayala Land Inc.

Ayala Land, Inc. has increased its Net Income After Tax (NIAT) from ₱15,659,363 in
2021 to ₱22,524,253 in 2022. They have seen a 29.28% increase in Gross Profit. Their earnings
before interest and taxes(EBIT) have increased by ₱8,313,514 and their tax rate has decreased
from 22.81% to 20.18%.
V. FINANCIAL RATIOS AND ANALYSIS

DMCI Holdings, Inc.

1. Market Value Ratios
- Market to Book Ratio

Figure 5.1 DMCI Holdings, Inc. Market to Book Ratio

The Market to Book ratio (M/B) of DMCI Holdings, Inc. exhibited a

downward trend from 1,213.57 in 2020 to 1,128.35 in 2021, and further to 925.73
in 2022. This decrease implies a potential alteration in how the market assesses
the relationship between the company’s market value and its book value, signaling
changes in asset valuation or investor sentiment regarding growth prospects.

- Earnings per share

Figure 5.2 DMCI Holdings, Inc. Earnings per share

 DMCI Holdings, Inc. displayed consistent growth in Earnings Per Share,
climbing from ₱0.0006 in 2020 to ₱0.0019 in 2021 and ₱0.0037 in 2022. This
consistent increase showcases improved profitability and operational
performance, indicating the company’s capacity to generate higher profits per
outstanding share and potentially attracting investor confidence in its financial
health and growth potential.

- Price Earnings Ratio

Figure 5.3 DMCI Holdings, Inc. Price Earnings Ratio

The Price Earnings Ratio (P/E) witnessed a notable decline from

16,578.67 in 2020 to 4,784.98 in 2021 and further to 2,533.56 in 2022. The
significant decline in the price-earnings ratio could likely be attributed to various
factors, among which the impact of COVID-19 might have a crucial role. The
decreasing P/E ratio suggests a potential reevaluation of the company’s future
earning potential or a shift in market sentiment regarding its growth trajectory.
This decline in the P/E ratio signifies a period of evolving market perceptions
about the company’s financial performance and operational efficiency.
2. Efficiency Ratios
- Total Asset Turnover

Figure 5.4 DMCI Holdings, Inc. Total Asset Turnover

DMCI Holdings, Inc. Total Asset Turnover reflects the efficiency of

utilizing all assets to generate revenue. In 2020, the company displayed a Total
Asset Turnover of 0.33, indicating that for every unit of assets, the company
generated 0.33 units of revenue. This ratio steadily increased, reaching 0.50 in
2021 and 0.59 in 2022. Although it is below the minimum, this upward trend
suggests an enhanced efficiency in utilizing its total assets to generate sales over
the years, implying improved operational performance and potentially increase
revenue-generating capacity

- Fixed Asset Turnover

Figure 5.5 DMCI Holdings, Inc. Fixed Asset Turnover

Examining DMCI Holdings, Inc.'s Fixed Asset Turnover ratio, the

company demonstrated 1.09 in 2020, indicating that each unit of fixed assets
 generated 1.09 units of revenue. This increases to 1.83 in 2021 and 2.47 in 2022.
These escalating values signify a substantial improvement in utilizing fixed assets
to generate revenue efficiently. The significant increase showcases a positive
trajectory in the company’s effective management and utilization of its fixed
resources, potentially leading to improved productivity and profitability
associated with these assets.

- Inventory and Accounts Receivable Period

Figure 5.6 DMCI Holdings, Inc. Inventory and Accounts Receivable Period

DMCI Holdings’ Inventory Period incurred a huge increase in 2020 due to

the lockdowns brought on by the COVID-19 Pandemic. As restrictions eased by
2021, inventory period lessened from 437 days to only 317 days which is good.
As 2022 passed by, the inventory period increased again which may have
contributed to the opening of the whole real-estate market with several
competitors. Meanwhile, DMCI’s Accounts Receivable Period exhibits good
collection measures for payments from debtors. For 2020 to 2022, DMCI has
consistently lessened the collection period for their accounts receivables.
 - Inventory and Accounts Receivable Turnover

Figure 5.7 DMCI Holdings, Inc. Inventory and Accounts Receivable Turnover

DMCI’s Inventory Turnover was low during 2020 and 2022 but increased
in 2022 which contributed also to the lessening of the Inventory Period of DMCI
for 2021. The real estate industry is highly capital-intensive, so it is expected that
inventory turnover would be low and the inventory period would be long since the
product to be sold is real property which requires millions of pesos. Meanwhile,
the Receivable turnover is consistent in its improvement, indicating a good
strategy in payment collection of DMCI.

3. Profitability Ratios
- Gross Profit Margin

Figure 5.8 DMCI Holdings, Inc. Gross Profit Margin

DMCI Holdings, Inc.'s Gross Profit Margin, which represents the

proportion of revenue retained after deducting the cost of goods sold, exhibited a
 positive trend over the years. In 2020, the Gross Profit Margin stood at 34.45%,
which significantly improved to 43.25% in 2021 and 57.12% in 2022. These
rising figures indicate that the company effectively managed its production costs,
potentially commanding higher prices or achieving cost efficiencies, thus
enhancing profitability. The standard or benchmark for Gross Profit Margin can
vary by industry, but generally, a higher Gross Profit Margin signifies better
control over production costs and higher profitability potential.

- Operating Profit Margin

Figure 5.9 DMCI Holdings, Inc. Operating Profit Margin

The Operating Profit Margin reflects the proportion of revenue left after
deducting both the cost of goods sold and operating expenses. For DMCI
Holdings, Inc., they showcased a similar positive trend. In 2020, the Operating
Profit Margin was at 12.93%, which substantially increased to 25.31% in 2021
and further elevated to 37.31% in 2022. These escalating percentages indicate
improved efficiency in managing both production and operating costs relative to
sales, highlighting the company's ability to generate more profits from its core
business operations. However, a higher Operating Profit Margin is generally more
favorable, signifying better operational efficiency and profitability.

- Net Profit Margin

 Figure 5.10 DMCI Holdings, Inc. Net Profit Margin

Examining DMCI Holdings, Inc.'s financial performance, the Net Profit

Margin, a critical metric indicating the percentage of revenue remaining as profit
after covering all expenses, including taxes and interest, displays a compelling
upward trend. In 2020, the company recorded a Net Profit Margin of 10.94%,
which notably increased to 23.69% in 2021 and further rose to an impressive
33.99% in 2022. These consistent year-over-year improvements signify the
company's adeptness in managing expenses effectively and underscores an
enhancement in overall profitability, showcasing the company's capacity to
convert a more substantial proportion of sales revenue into net profits.

4. Leverage Ratios
- Leverage Ratio

Figure 5.11 DMCI Holdings, Inc. Leverage Ratio

 The leverage ratio is a financial metric that assesses a company's debt
levels concerning its equity or assets. It provides insights into a firm's financial
risk and the extent to which it relies on debt financing. DMCI Holdings, Inc.'s
leverage ratios for the years 2020, 2021, and 2022 were 2.538, 2.554, and 2.420,
respectively. These figures indicate a relatively stable trend in the company's
leverage position over this period.

A leverage ratio above 1 signifies that the company has more debt than
equity, suggesting higher financial risk. In the case of DMCI Holdings, Inc., the
leverage ratios consistently remained above 2 during the stated years. While this
could indicate a relatively high reliance on debt financing, it is essential to
evaluate this in conjunction with industry standards and the company's specific
operational needs.

- Long-term Debt-Equity Ratio, Total Debt Ratio, Times Interest Earned,

Cash Coverage Ratio, and Long-term Debt Ratio

Figure 5.12 DMCI Holdings, Inc. All Leverage Ratios

The Long-term Debt-Equity Ratio exhibited a downward trend indicating

that the assets financed by noncurrent liabilities are declining. Every company
wants to maximize its assets and minimize liabilities, so having a downward trend
is a good indication that equity is higher than liabilities. To add, the downward
trend of the Total Debt Ratio of DMCI is a positive indication that the company is
handling its debt well. This means that every year, the assets financed by debt
decrease. The Times Interest Earned and Cash Coverage Ratio of DMCI is 0
because they did not incur any interest expense for the year 2022. Lastly, the
long-term debt ratio of DMCI Holdings, Inc. for 2020, 2021, and 2022 stood at
0.29, 0.28, and 0.25, respectively. A lower long-term debt ratio indicates a lower
 reliance on long-term debt to finance its operations. The declining trend observed
in DMCI Holdings, Inc.'s long-term debt ratio from 2020 to 2022 suggests a
reduction in the proportion of long-term debt relative to its total assets. This trend
might indicate improved financial stability and a more conservative approach to
debt financing.

5. Liquidity Ratios
- Total Assets Ratio

Figure 5.13 DMCI Holdings, Inc. Total Assets Ratio

The net working capital to total assets ratio reflects the proportion of a
company's working capital in relation to its total assets. DMCI Holdings, Inc.'s
ratios for 2020 and 2021 remained constant at 0.312, but notably increased to
0.393 in 2022. This trend indicates a higher percentage of working capital
concerning total assets, suggesting improved efficiency in utilizing its current
assets to meet short-term obligations. This ratio is essential as it indicates the
ability to cover short-term debts and expenses using current assets. A higher ratio
signifies a more significant buffer to cover liabilities, enhancing the company's
liquidity position.

- Current Ratio
 Figure 5.14 DMCI Holdings, Inc. Current Ratio

DMCI Holdings, Inc.'s current ratios for 2020, 2021, and 2022 were 2.31,
2.25, and 2.90, respectively. These ratios indicate the company's consistent ability
to cover short-term obligations using available current assets over the evaluated
period, with a notable improvement observed in 2022. With ratios consistently
above 1, it suggests that DMCI Holdings, Inc. maintained a healthy position,
possessing more current assets than its short-term liabilities. This signifies the
company's capability to meet its immediate financial obligations, including
payments for debts and operational expenses.

- Quick Ratio or Acid Test Ratio

Figure 5.15 DMCI Holdings, Inc. Quick Ratio or Acid Test Ratio

DMCI Holdings, Inc.'s quick ratios for 2020, 2021, and 2022 were 0.81,
0.78, and 1.11, respectively. The increasing trend indicates an improvement in the
company's ability to fulfill immediate obligations without relying on inventory
 sales. As a measure of the most liquid assets excluding inventory, this ratio
demonstrates the company's capacity to address short-term liabilities using readily
available resources. The consistent enhancement of this ratio implies a
strengthening ability to meet immediate financial commitments, portraying
prudent management of liquid assets.

- Cash Ratio

Figure 5.16 DMCI Holdings, Inc. Cash RatioFixed Asset Turnover

The cash ratios for DMCI Holdings, Inc. in 2020, 2021, and 2022 were
0.39, 0.34, and 0.57, respectively. This metric emphasizes the company's
capability to cover short-term obligations solely through available cash and cash
equivalents. The increasing trend in the cash ratio highlights DMCI Holdings,
Inc.'s improving capacity to address immediate liabilities directly from cash
reserves, without relying extensively on other current assets. This indicates a
more robust immediate liquidity position, which is vital for meeting unforeseen
financial demands or seizing immediate opportunities.

6. Accounting Rates of Return

- Return on Capital, Return on Assets, and Return on Equity
 Figure 5.17 DMCI Holdings, Inc. Rates of Return

Return on Capital (ROC), Return on Assets (ROA), and Return on Equity

(ROE) as its data. According to Mitchell (2023), the Return on Capital is used to
determine the company’s net income to its total liabilities and shareholders’
equity. A higher ROC indicates that a company is generating more returns relative
to its invested capital, which is generally considered favorable. DMCI has a
Return on Capital of 0.273 or 27.30% which is considered good and which means
that the company is healthy and growing. ROA provides an indication of how
well a company is able to generate profits from its assets. A higher ROA suggests
better asset utilization and efficiency in generating earnings, while a lower ROA
may indicate less efficient use of assets. The Return on Assets of DMCI is 0.201
or 20.10% which means that it is good considering that DMCI is involved in the
real estate and construction industry which requires a lot of assets.

Birken (2022) even explained that an ROA of 5% is already good but an

ROA of 20% or more is better because the higher the Return on Assets, the more
profit generation for the company. Lastly, the Return on Equity is used to measure
the company’s net income to its total shareholders’ equity (Mitchell, 2023). ROE
provides insights into how well a company is generating returns for its
shareholders. A higher ROE suggests that a company is more effectively using its
equity capital to generate profits, while a lower ROE may indicate less efficient
use of equity. DMCI has a return on equity of 0.365 or 36.50%.

Ayala Land, Inc. (Benchmark)

1. Market Value Ratios

 - Market to Book Ratio and Price Earning Ratio

Figure 5.18 Ayala Land MTB Ratio and PE Ratio

- Earnings Per Share

Figure 5.19 Ayala Land Earnings per Share

This particular ratio is significant because the main goal of companies is to

increase the benefits for stakeholders. Hence, the importance of market value
ratios which allows DMCI to compare and contrast stock and market prices with
its competitors, particularly Ayala land. With all that stated Ayala showcases a
market-to-book ratio of 1,506.101. Ayala Land’s market-to-book ratio and
price-earnings ratio decreased for 2022 due to bad financial performance during
2022. The price-earnings ratio is low due to the low earnings per share incurred
by Ayala Land for 2022.

2. Efficiency Ratios
- Total Asset Turnover and Fixed Asset Turnover
 Figure 5.20 Ayala Land Total Asset Turnover & Fixed Asset Turnover

In consideration of internal operation Efficiency Ratios are used as it

analyzes the performance of assets and liabilities. In fact, Ayala Land
unfortunately shows a .15 Total asset turnover which is less than 1. This denotes
that the assets are not efficiently managed as it does not maximize sales. In
contrast the fixed assets turnover is sufficient as it results in a 3.22 ratio which
exceeds the minimum of 1.
However in consideration for inventory Ayala showcases a .42 inventory
turnover which ultimately means that Ayala Land sold less than half of its
inventory in a year. Although in a day it portrays a 858.48 inventory turnover. As
for receivables turnover, Ayala Land collects only 1.14 receivables in a year with
a collection period of 316.05 days.

- Inventory and Accounts Receivable Period

Figure 5.21 Ayala Land Inventory Period & A/R Period

 Ayala Land’s Inventory period is not good for the year 2021, and it got
worse in 2022. Low sales contributed to the longer inventory period of properties
to be sold. Meanwhile, Ayala Land’s Accounts Receivable period improved as it
decreased for the year 2022. This means that Ayala Land improved their payment
collection system.

- Inventory and Accounts Receivable Turnover

Figure 5.22 Ayala Land Inventory Turnover & Receivables Turnover

Ayala Land’s Inventory Turnover declined which is not good while their
Receivables Turnover improved. As consistent with the inventory period
increasing, inventory turnover will decrease. As the Average collection period
decreases, the receivables turnover will increase. It is suggested for Ayala Land to
increase their Sales objectives in order to reach higher inventory turnover targets.

3. Profitability Ratios
- Gross Profit Margin, Operating Profit Margin, and Net Profit Margin
 Figure 5.23 Ayala Land Profitability Ratios

Moving on to efficiency margins with Ayala Land Profit margin at 19%

which is the profit generated for every dollar generated. While the operating profit
margin amounts to 28% which is greater than 15%. Therefore it is possible to
conclude that Ayala Land has efficient operations. Finally, in account of Cost of
Goods sold Ayala Land identifies its Gross profit margin ratio to be 35%. This
gross profit margin exceeds the average which is 20%, hence goods results.

4. Leverage Ratios
- Long-Term Debt Ratio, Long-Term Debt-Equity Ratio, Total Debt Ratio,
Times Interest Earned, and Cash Coverage Ratio

Figure 5.24 Ayala Land Leverage Ratios

For Ayala Land long-term debt ratio is used and it was computed that 42% of
total assets are long-term debt contributed. In general, a ratio of 5% or less is ideal
therefore for Ayala Land the results of the ratio are unfavorable. As for the
long-term debt-equity ratio Ayala Land’s ratio equals 7% which is significantly
less than its long-term debt ratio hence better results. However, this is still too
high and a lower ratio would be preferable.

5. Liquidity Ratios
- Total Assets Ratio, Current Ratio, Quick Ratio, and Cash Ratio
 Figure 5.25 Ayala Land Liquidity Ratios

To measure the liquidity of Ayala Land net working capital to total assets
ratio is used first and it shows a .20 ratio. While the current ratio amounted to
1.78 hence proving its ability to cover its short-term liabilities using its short-term
assets. As for the Acid test ratio, Ayala Land has a .56 ratio which is less than 1.
Consequently this results in the conclusion that the current immediate assets are
inadequate to cover the short-term liabilities. This is expected as the current ratio
is barely higher than the minimum of 1. To further assess its liquidity cash ratio is
used and the computed result is .06 which is unfavorable as it shows that cash and
its equivalents are not enough to cover short-term obligations.

6. Accounting Rates of Return

- Return on Capital, Return on Assets, and Return on Equity

Figure 5.26 Ayala Land Rates of Returns

Moreover in regards to Return on capital Ayala has a ratio of 6.3% which

is greater than 5%, hence relatively good profitability. While the Return of Assets
 of Ayala amounts to 4.1% which is less than 5%, thus a less than ideal level of
efficiency in consideration of asset management. Lastly, the Return on equity of
Ayala results in a 7.7% ratio which is insufficient as it does not reach the
minimum of 20%.

Ayala Land has a Return on Capital amounting to only 0.063 or 6.30%

which is considered low. The 6.30% ROC of Ayala Land was due to its low net
income and high amount of long-term debt. The Return on Assets of Ayala Land
amounted to 0.041 or 4.10% which is considered low as well. The low net income
of Ayala Land is also the reason why its ROA is below the standard of 5%. Ayala
Land has a higher amount of assets than DMCI but they fail to maximize its use, a
reason why their net income became low. Lastly, the Return on Equity of Ayala
Land amounted to 0.077 or 7.70% due to the high amount of shareholders' equity
and low amount of net income, this means that Ayala Land does not use its capital
effectively to generate profits or dividends for its shareholders.

DuPont Analysis

Figure 5.27 DuPont Analysis

DuPont Analysis is used as a tool to break down the return on Equity into several parts. By
breaking it down into several parts, the company would be able to see in which aspect should
they improve. For 2022, all aspects in the DuPont Analysis were dominated by DMCI against
Ayala Land. Overall, the DuPont ROE of DMCI is 0.365 against Ayala Land’s 0.077 which is a
good indicator that DMCI is doing better than its competitor Ayala Land.
VI. Financial Planning

Figure 6.1 Financial Plan Panel A

DMCI Holdings Inc. is poised for a substantial 32% annual revenue growth from 2022 to
2027 in the dynamic real estate industry. To sustain this momentum, they're strategically
expanding their market presence, diversifying projects, and fostering industry partnerships.

Panel A highlights the critical role costs play, representing 43% of projected sales
revenue. DMCI employs a nuanced cost management approach, optimizing operations,
negotiating favorable contracts, and integrating technologies. With growing net fixed assets,
meticulous capital expenditure planning aligns investments with strategic objectives and adopts
sustainable technologies to mitigate depreciation impact.

Forecasts reveal a notable increase in Earnings Before Interest and Taxes (EBIT). DMCI
focuses on diversifying revenue streams, exploring new markets, and optimizing existing
segments for operational efficiency. As profits burgeon, tax planning becomes pivotal, optimized
through collaboration with financial experts. Projected Net Income After Tax (NIAT) growth is
strategically leveraged for investments and potential dividends, with a focus on essential
operating cash flow for future investments, positioning DMCI for expansion in the competitive
real estate sector.

Figure 6.2 Financial Plan Panel B

 Now, turning to Panel B, its financial prowess lies in net income plus depreciation,
growing steadily from 96.8 in 2021 to a robust 221.6 in 2026. Judicious allocation of this capital
is crucial, with a strategic focus on net working capital and gross fixed assets, emphasizing a
commitment to long-term growth. Balancing growth with shareholder value, Panel B
consistently allocates earnings to dividends, starting at 46.8 in 2021 and reaching 102.1 in 2026,
showcasing dedication to investor rewards.

The aggregate of capital outflows, encompassing working capital, fixed assets, and
dividends, highlights the expanding scale of Panel B's operations. The need for external capital
mirrors this growth, indicating additional funding for ambitious expansion plans. In conclusion,
Panel B's financial planning aligns sources and uses of capital for sustained success and thriving
in a competitive landscape.

Figure 6.3 Financial Plan Panel C

Moving to the balance sheet, Panel C, positive net working capital ensures short-term
financial health, while net fixed assets reflect strategic long-term investments. Total assets
underscore DMCI's commitment to expansion, with dynamic fluctuations in long-term debt
indicating a strategic approach, potentially toward positive equity. Shareholders' equity growth
signifies sustained profitability, emphasizing DMCI's commitment to a balanced capital structure
for continued growth and financial health.

Figure 6.4 Financial Plan Sustainable Growth

Lastly for the sustainable growth of DMCI for the next years, the group multiplied the playback
ratio to return on equity. In the next coming years, DMCI will incur a slower growth as the years
progresses. This means that DMCI must ramp up its performance more in the coming years.
VII. CONCLUSIONS AND FINDINGS/RECOMMENDATIONS

Conclusion:
The detailed financial analysis of DMCI Holdings Inc. and Ayala Land Inc. sheds light on
their financial performance from 2020 to 2022. The comparison of key financial ratios not only
reveals their standings in the Philippines' real estate industry but also gives insights into their
efficiency, leverage, and liquidity.

The study delves into crucial financial concepts like the cost of capital, accounting rate of
return, diversification, and pricing models such as the Capital Asset Pricing Model (CAPM) and
Arbitrage Pricing Theory (APT). These concepts underline the importance of smart financial
decision-making, effective risk management, and careful evaluation of investment opportunities
in a dynamic market.

The Philippine real estate industry, valued at around 536 billion pesos in 2022, has shown
steady growth post-COVID-19, fueled by factors like a growing middle class, foreign
investments, and support from Overseas Filipino Workers. The competitive landscape, with
major players like SM Prime Holdings, Ayala Land, and Megaworld Corporation, reflects the
challenging yet thriving nature of the sector.

Analyzing DMCI Holdings Inc.'s financial performance across various sectors, including
civil engineering, construction, mining, real estate, and power generation, reveals substantial
growth in both their balance sheet and income statement. Ayala Land Inc., a significant property
developer, also shows positive trends in its financial statements. Both companies contribute
significantly to the overall growth of the real estate sector. A detailed ratio analysis underscores
DMCI Holdings' strong market position, profitability, and operational efficiency. The declining
Market to Book ratio suggests potential shifts in investor sentiment. Ayala Land's ratios, while
pointing to lower profitability and efficiency, highlight its market value and operational
capabilities. The DuPont Analysis confirms DMCI Holdings Inc.'s outperformance over Ayala
Land Inc. in key financial metrics, showcasing effective capital utilization and resulting in higher
profitability and returns for shareholders. The consistent comparison of ratios against Ayala Land
as a benchmark positions DMCI as a more efficient and profitable player in the real estate
industry.

In essence, this comprehensive analysis not only provides valuable insights for investors,
stakeholders, and industry participants but also underscores the need for ongoing strategic
decision-making and an unwavering commitment to operational excellence. These principles are
crucial for navigating the intricacies of the competitive real estate market and ensuring long-term
prosperity for both DMCI Holdings Inc. and Ayala Land Inc.
 Recommendation:
In light of the thorough financial analysis, it is recommended that DMCI Holdings Inc.
continues its strategic investment approach by carefully assessing opportunities that align with its
core competencies and respond to market demand. This involves adopting a proactive stance in
identifying emerging trends and potential growth areas within the real estate industry.
Additionally, both DMCI Holdings Inc. and Ayala Land Inc. should intensify efforts to improve
operational efficiency by incorporating advanced technologies and streamlining processes to
optimize asset utilization. In the competitive real estate landscape, the ability to efficiently
manage resources becomes a critical determinant of success. Moreover, as both companies delve
into diversification strategies, it is crucial to strike a delicate balance, considering the law of
diminishing marginal utility. This approach ensures that diversified investments are thoughtfully
chosen, minimizing the risk of concentrated losses while maximizing the overall effectiveness of
risk management practices.

The cultivation of profitability ratios should be a central focus for Ayala Land, leveraging
enhanced operational efficiency to attract heightened investor confidence. Both entities must
diligently maintain a strong financial position, closely monitoring liquidity and leverage ratios to
ensure sustained and resilient growth in an ever-evolving market. In conclusion, the analysis not
only furnishes valuable insights for investors, stakeholders, and industry participants but also
emphasizes the necessity for ongoing strategic decision-making and an unwavering commitment
to operational excellence. These principles are paramount for navigating the complexities of the
competitive real estate market and ensuring long-term prosperity.

VIII. BENCHMARKING
1. Market Value Ratios (DMCI vs Ayala Land)
 Figure 8.1 and 8.2 Benchmarking of MV Ratios

The performance measures: Market-to-book ratio, Return on Capital, Return on

Assets, and Return on Equity were used to analyze the performance of both companies’
net income relative to the accounts they would be compared. Ayala Land got a much
higher Market-to-book ratio due to the higher market capitalization of Ayala Land.
However, in terms of Return on Capital, Return on Assets, and Return on Equity, DMCI
Holdings performs much better than Ayala Land in the operations of real estate
industries. It can be seen that even though the market values Ayala Land more, DMCI has
a much better financial performance due to their high net income which contributed to a
better ROC, ROA, and ROE.

DMCI is in a much better position than its competitor Ayala Land. In the Balance
Sheets of DMCI and Ayala Land, it can be seen that Ayala Land is in a much better
standing due to its higher amount of assets. Both are in the real estate industry, so having
a bigger amount of assets equates to more properties that can be sold. However, this is
not the case because DMCI performed much better due to its higher net income
 amounting to 48,475,975 compared to Ayala Land’s 22,524,253. The low net income of
Ayala Land is the reason why their ROC, ROA, and ROE are below standard and need
improvement. On the other hand, DMCI must be consistent in reaching good
performance targets so that they can spearhead the real estate industry considering their
performance in 2022.

2. Efficiency Ratios (DMCI vs Ayala Land)

Figure 8.3 and 8.4 Benchmarking of Efficiency ratios

In all efficiency measures used, it is shown that DMCI outperformed Ayala Land.
First, the Asset turnover of DMCI is 0.592 compared to Ayala Land’s 0.149. DMCI has a
much better Asset Turnover which means that DMCI is much more efficient in using its
assets to generate revenues. The number of days in inventory and Inventory turnover of
DMCI is also much better than Ayala Land because Ayala Land takes a lot more time to
hold their properties to be sold in inventory. The Average collection period and
Receivable turnover of DMCI are also much more efficient compared to Ayala Land
because it only takes 67 days for DMCI to collect payments from its debtors than Ayala
 Land’s 316 days. In fact regarding the leverage ratios which should ideally be lower as it
is the basis of the debt contribution towards assets. DMCI Holdings generally display
superior result in contrast to Ayala Land.

3. Profitability Ratios (DMCI vs Ayala Land)

Figure 8.5 Benchmarking of Profitability Ratios

In terms of Net Profit Margin, Operating Profit Margin, and Gross Profit Margin,
DMCI also outperformed Ayala Land. The bad performance of Ayala Land in these
measures was due to their low net income. In comparison using Ayala Land as a
benchmark for DMCI Holdings the performance measures mainly suggest that the
market-to-book ratio shows a lower ratio. However, return on capital, return on assets,
and return on equity show higher ratios. Since the higher the ratio the more ideal it is safe
to conclude that DMCI Holdings is profitable. This is further supported by the following
efficiency measures such as; asset, inventory, and receivables turnover ratios are higher
than Ayala Land’s ratios. In addition to a resulting greater ratio of DMCI Holdings in
consideration of profit margins in contrast with Ayala Land. Ultimately showcasing the
efficiency of sales and providing investors and other stakeholders with confidence. The
profitability ratios also show that DMCI is much better in handling its expenses than
Ayala Land.

4. Leverage Ratios (DMCI vs Ayala Land)

 Figure 8.6 Benchmarking of Leverage Ratios

For Leverage measures, DMCI also has a much better performance compared to
Ayala Land. The Long-Term Debt Ratio of DMCI is much lower than Ayala Land. This
means that 25.20% of DMCI’s assets are financed by long-term debt compared to Ayala
Land with over 41.70% of their assets financed by debt. The Total Debt Ratio of DMCI is
much lower than Ayala Land’s Total debt ratio. This means that 44.90% of DMCI’s total
assets are financed by debt (short-term and long-term) while Ayala Land’s 62.30% of
their total assets are financed by debt (short-term and long-term). For times interest
earned (TIE) and cash coverage ratio, DMCI also does much better because for 2022 they
did not incur any interest expense. In detail the long-term debt ratio, total debt ratio,
times-interest-earned, and cash coverage ratio is lower compared to Ayala land ratios.
However, it is important to note that DMCI has zero interest expenses hence the unclear
ratio for Times-interest-earned and cash coverage.

5. Liquidity Ratios (DMCI vs Ayala Land)

 Figure 8.6 Benchmarking of Liquidity Ratios

In terms of liquidity, DMCI is also much more liquid compared to Ayala Land as
shown in the graph above. This means that DMCI has much more capacity to pay for its
current liabilities using its assets compared to Ayala Land.
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