APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS WITH

JG SUMMIT & SMC BETWEEN 2007 AND 2008

Ryan Negros

APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS

WITH JG SUMMIT & SMC BETWEEN 2007 AND 2008
Abstract
This study focuses on two important analyses in the context of business
operation. One, is the evaluative analysis on the failing and non-failing performance of
its operation within a period of two years as theorized by Altman in 1968 (the Altman Zscore Model) though its threshold of difference. Two is the capacitating ability of the
studied business in widening or increasing the returns of their investors so as to
attract more investment that is though the three categorical ratios of the Du Pont
Analysis.
It is the best interest of the proponent to study JG Summit and San Miguel
Corporation in its 2007 2008 facts of financial statements as the main bases of study.
It assures that the copy of addendum details pertaining their financial statements are
true to the best of the company identity as required by the Securities and Exchange
Commission under the Accounting Practices in the Philippine Setting.
It is only for purpose of applying such measures of studies we have taken in our
Financial Planning and Control.
Introduction
Both conglomerates represent the two big giant firms in the Philippines with
multiple products and contracting investment in Asia and the World. It speaks historical
boost significance because San Miguel Corporation represents a Spanish Filipino
founded corporate since the 1800s and the JG Summit Holdings, Inc. being a Chinese
Filipino founded incorporated after WWII.
It takes into account that as giant firms SMC include foods, beverage, packaging
and properties; while JG Summit include telecommunications, airlines, foods, property,
petrochemicals, banking and other businesses. Among their products and services are
summed as follows.
SMC beverage subsidiaries:
San Miguel Brewery Inc.
San Miguel Brewing International Ltd. and subsidiaries including:
San Miguel Brewery Hong Kong Limited and subsidiaries including
San Miguel Guangdong Brewery Limited
Guangzhou San Miguel Brewery Co. Ltd.
San Miguel (Baoding) Brewery Co. Ltd
San Miguel Brewery Vietnam Ltd
PT Delta Djakarta Tbk
SOUTHERN LEYTE STATE UNIVERSITY SAN JUAN
MM504 Financial Planning and Control
Second Semester, 2015 2016

APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS WITH

JG SUMMIT & SMC BETWEEN 2007 AND 2008
Ryan Negros

San Miguel Beer (Thailand) Ltd.

Ginebra San Miguel, Inc. and subsidiaries including:
Distileria Bago, Inc.
Ginebra San Miguel International Limited (BVI)
San Miguel (Thailand) Co. Ltd.
San Miguel (Guangdong) Foods & Beverages Co. Ltd.
San Miguel (Vietnam) Co Ltd.
PT San Miguel Marketing Indonesia
PT San Miguel Indonesia Foods & Beverages
San Miguel (Malaysia) Sdn Bhd

SMC food subsidiaries:

San Miguel Foods and Beverage International Limited and subsidiaries, including
San Miguel Pure Foods Investment (BVI) Limited including subsidiary,
San Miguel Pure Foods (Vn) Co. Ltd.
San Miguel Pure Foods Company, Inc. and subsidiaries including:
San Miguel Foods, Inc.
San Miguel Mills, Inc.
The Purefoods-Hormel Company, Inc.
Magnolia, Inc. and subsidiary
Sugarland Corporation
San Miguel Super Coffeemix Co., Inc.
P.T. San Miguel Purefoods Indonesia Ltd.
RealSnacks Mfg. Corp.
Monterey Foods Corporation
Star Dari, Inc.
SMC list of domestic and international packaging subsidiaries:
San Miguel Yamamura Packaging Corporation (formerly San Miguel Packaging
Specialists, Inc.) and subsidiary,
San Miguel Yamamura Fuso Molds Corporation (SYFMC)
San Miguel Yamamura Packaging International Limited (SMYPIL) (formerly San
Miguel
Packaging International Limited [SMPL])and subsidiaries including
San Miguel Yamamura Haiphong Glass [Co., Ltd. (SMYHG),
San Miguel Yamamura Phu Tho Packaging Company, Ltd.
Zhaoqing San Miguel Yamamura Glass Co., Ltd.,
Foshan San Miguel Yamamura Packaging Company, Ltd.
PT San Miguel Sampoerna Packaging Industries Ltd.
San Miguel Yamamura Packaging & Printing Sdn. Bhd.,
San Miguel Yamamura Woven Products Sdn. Bhd.,
SOUTHERN LEYTE STATE UNIVERSITY SAN JUAN
MM504 Financial Planning and Control
Second Semester, 2015 2016

APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS WITH

JG SUMMIT & SMC BETWEEN 2007 AND 2008
Ryan Negros

Packaging Research Center Sdn. Bhd.

San Miguel Yamamura Plastic Films Sdn. Bhd.
Mindanao Corrugated Fibreboard, Inc.
San Miguel Rengo Packaging Corporation
San Miguel Yamamura Asia Corporation

Properties
San Miguel Properties, Inc. (SMPI) was created in 1990 as an independent
developer. It is the Groups primary property subsidiary, currently owned 99.68% by
SMC. SMPI was created by a merger of San Miguel Properties Philippines, Inc. and
publicly-listed Monterey Farms Corporation on January 30, 1998, where Monterey
Farms Corporation emerged as the surviving entity. Upon the mergers effectivity,
Monterey Farms Corporation changed its name to San Miguel Properties, Inc. On
December 9, 2002, SMPI merged with another subsidiary, HOC Realty, Inc. (HRI), with
SMPI as the surviving entity. SMPI is presently engaged primarily in the development,
sale and lease of real
properties. It is the corporate real estate arm of the Group. SMPI also has a significant
interest in Bank of Commerce (BOC), which has been serving the Philippine banking
community for over 15 years.
Other SMC subsidiaries include the following:
SMC Shipping and Lighterage Corporation
Challenger Aero Air Corp.
San Miguel Distribution Co., Inc.
Anchor Insurance Brokerage Corporation
SMC Stock Transfer Service Corporation
ArchEn Technologies Inc.
SMITS, Inc. and subsidiary
SM Bulk Water Company Inc.
San Miguel Energy Corporation
Iconic Beverages, Inc.
Brewery Properties, Inc.
Pacific Central Properties, Inc.
Seaside Industrial Estate, Inc.
Philippine Breweries Corporation
San Miguel Holdings Corp (formerly San Miguel Logistics Asia Corporation) and
subsidiaries
San Miguel Kuok Food Security, Inc.
JG Summit Branded Consumer Food Group (Bcfg)
Snacks:
Jack n Jill Chiz Curls, Jack n Jill Chippy,
Jack n Jill Nova, Jack n Jill Piattos, Granny Goose
Kornets
SOUTHERN LEYTE STATE UNIVERSITY SAN JUAN
MM504 Financial Planning and Control
Second Semester, 2015 2016

APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS WITH

JG SUMMIT & SMC BETWEEN 2007 AND 2008
Ryan Negros
Candies:
Chocolates:
Biscuits:
Bakery:
Beverage:
Noodles:
Joint Ventures:
Donut Division:
URC Packaging:

Jack n Jill Maxx, Jack n Jill XO, Jack n Jill

Dynamite
Jack n Jill Cloud 9, Jack n Jill Nips
Jack n Jill Magic Flakes, Jack n Jill
Cream-O, Jack n Jill Dewberry, Jack n Jill Pretzels
Jack n Jill Quake
Great Taste, Blend 45, Refresh, C2 Green
Tea, Rush, Hidden Spring, Nestl Pure Life, Natures
Harvest Fab
Payless
Nissin, Hunts
Hot Loops
manufactures and sells bi-axially oriented polypropylene
(BOPP) films primarily used in the packaging industry

JG Summit Agro-Industrial Group (AIG)

Universal Corn Products (UCP):
produces and distributes animal feeds for fish,
hogs and poultry
Robina Farms:
breeds and grows hogs, broiler chicks and
layer chicks
Robichem:
manufactures animal health products
JG Summit Commodity Foods Group
URC Flour Division:
produces and distributes hard flour, soft flour and specialty
flour. It also manufactures and sells pasta products
URC Sugar Milling Corporation:
provides sugar cane milling and refining
services, trades raw sugar and sells refined
sugar and molasses
Robinsons Land Corporation (RLC) which boosts Robinsons Galleria Complex is
the countrys first ever mixed-use facility that creatively combined a mall, hotels, offices
and condominium residences within one development. As one of the first projects of
RLC, its success set the tone for the development of other mixed-use endeavors. This
continuous effort to provide consumers with world-class facilities and services has
earned RLC one of the top slots in the Philippine real estate industry. To date, RLC has
24 shopping malls,
26 residential projects,
6 office buildings,
33 housing developments,
and various hotels such as Holiday Inn Galleria Manila, Crowne Plaza Galleria
Manila, Cebu Midtown Hotel, and Summit Ridge Tagaytay Hotel.
DIGITEL makes it all possible for families and friends to stay connected, with just
a phone call, a text message, an email message, or a videoconference. Reliability,
SOUTHERN LEYTE STATE UNIVERSITY SAN JUAN
MM504 Financial Planning and Control
Second Semester, 2015 2016

APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS WITH

JG SUMMIT & SMC BETWEEN 2007 AND 2008
Ryan Negros
accessibility and resiliency translate into DIGITELs operations 24/7. Through BIDA -now known as DIGITEL DSL PLUS and DIGITEL BUSINESS DSL -- DIGITEL was first
to offer Landline and Asymmetric Digital Subscriber Line (ADSL) bundles Luzon-wide.
A wide variety of postpaid and prepaid products and services have also been
introduced to provide subscribers with best value choices tailored to fit each users
specific needs and wants. And in effect, Sun Cellular has created a paradigm shift in the
telecommunications industry with these products. In addition to the traditional telco
industry distribution outlets, customers nationwide have access to Sun Cellular products
and services through over 100 company-owned retail outlets, via Sun Shops nationwide
and Sun Shop Express presence in DIGITEL Customer Centers in Luzon.
Cebu Pacific (CEB) is the leading domestic airline in the Philippines and one of
the fastest growing low-cost carriers in the world. It has a unique low-fare, great-value
strategy that has allowed travelers to enjoy affordable flights to various local and
international destinations. It offers industry affordable budget fares through year-round
all-inclusive fares, which makes use of a tiered-pricing system. This unique product
provides ultra-low fares through advanced bookings, making air travel a truly viable
option for the Filipino, because Cebu Pacific believes that its time every Juan flies.
JG Summit Petrochemical Corporation (JGSPC) is the pre-eminent world-class
manufacturer and supplier of polyolefin products in the Philippines. It started
commercial operations in 1998, and is the first and only integrated Polyethylene and
Polypropylene resin manufacturer in the country, producing the Evalene brand of High
Density Polyethylene (HDPE), Linear Low Density Polyethylene (LLDPE) and
Polypropylene (PP).
Robinsons Savings Bank has become an attractive alternative in the banking
industry as one of the countrys largest thrift banks, with its 46 and continuously
expanding branch network nationwide.

SOUTHERN LEYTE STATE UNIVERSITY SAN JUAN

MM504 Financial Planning and Control
Second Semester, 2015 2016

APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS WITH

JG SUMMIT & SMC BETWEEN 2007 AND 2008
Ryan Negros

Method
The Altman Z-score in short determines the bankruptcy statuses of San Miguel
Corporation and JG Summit within the 2007 2008 observation. The DuPont Analysis
predicts interests of investment by computing the three ratios defining Return of Equity - net profit margin; total asset turnover and financial leverage.
The Altman's Z-Score Model (1968)
This model is consistent of independent variable five common business ratios
namely, earnings before interest and tax (debit)/total assets ratio, sales/total assets
ratio, market value of equity/market value of total liabilities, working capital/total asset
ratio and retained earnings/total assets (Edward, 1968). The original Altmans Z-score
formula was as follows:
Z = 0.012X1 + 0.014 X2 + 0.033X3 + 0.006X4 + 0.010 X5
Where;
Working Capital
__________________
Total Assets
Measures liquid assets in relation to the size of the company
Retained Earnings
X2 =
____________________
Total Assets
Measures profitability that reflects the company's age and earning power
X1 =

Earnings before interest taxes

X3 =
____________________
Total Assets
Measures operating efficiency apart from tax and leveraging factors, it
recognizes operating earnings as being important to long-term viability
Market value equity
____________________
Book Value of total debt
Adds market dimension that can show up security price fluctuation as a possible
red flag
X4 =

Sales
X5 =
____________________
Total Assets
For sales turnover (It measures revenue generating ability of a companys
assets)
SOUTHERN LEYTE STATE UNIVERSITY SAN JUAN
MM504 Financial Planning and Control
Second Semester, 2015 2016

APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS WITH

JG SUMMIT & SMC BETWEEN 2007 AND 2008
Ryan Negros
Z = Overall Index
Edward Altman (1968) use this multivariate formula to analyze the ratios of
various bankrupt and non bankrupt groups and to look at the effect of using different
combinations of financial ratios to predict business failures (Mohamed, 1997). Altmans
model uses two years continuous financial results to assess a company's failure.
Accordance to Cowen and Hoffer (1982), Courtis (1978), Mohammed (1997), Ali (2008)
and Edward (1968) the threshold for financial failure and non financial failure in
measuring the financial performance is quantitatively given in the table below
Table 1: Threshold differentiating a Financial Failure and a Non-Financial Failure
Company by using Altman Z-score.
Financial Performance
Failure of Company
Non Failure of Company

Altman Z Score
<1.81
>2.99

DuPont Analysis
The Dupont analysis is a financial ratio based on the return on equity ratio such
as profit margin, total asset turnover and financial leverage that measures to raise its
ROE by maintaining a high profit margin, increasing asset turnover, or leveraging assets
more effectively.
The Dupont Corporation developed this analysis in the 1920s. The name has
stuck with it ever since.

Formula
The Dupont Model equates ROE to profit margin, asset turnover, and financial
leverage. The basic formula looks like this.

Profit Margin x Total Asset Turnover x Financial Leverage

Return on Equity = Net Income
Net Sales

Net Sales
Average Total Assets

Total Assets
Total Equity

This model was developed to analyze ROE and the effects different business
performance measures have on this ratio. So investors are not looking for large or small
SOUTHERN LEYTE STATE UNIVERSITY SAN JUAN
MM504 Financial Planning and Control
Second Semester, 2015 2016

APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS WITH

JG SUMMIT & SMC BETWEEN 2007 AND 2008
Ryan Negros
output numbers from this model. Instead, they are looking to analyze what is causing
the current ROE. For instance, if investors are unsatisfied with a low ROE, the
management can use this formula to pinpoint the problem area whether it is a lower
profit margin, asset turnover, or poor financial leveraging.
Once the problem area is found, management can attempt to correct it or
address it with shareholders. Some normal operations lower ROE naturally and are not
a reason for investors to be alarmed. For instance, accelerated depreciation artificially
lowers ROE in the beginning periods. This paper entry can be pointed out with the
Dupont analysis and shouldn't sway an investor's opinion of the company.

Results and Discussion

Table A. Altman Z scores of JG Summit and SMC 2007 - 2008
Altman Z test Factors

Liquid Assets in relation to the

Size of the Company
(X1 )
Profitability that reflects the
company's age and earning
power (X2 )
Operating efficiency apart
from tax and leveraging
factors (operating earnings as
being important to long-term
viability)
(X3 )
Adds market dimension that
can show up security price
fluctuation as a possible red
flag (X4 )
Sales turnover (It measures
revenue generating ability of a
companys assets) (X5 )
Overall Z index (Z = 0.012X1 +

.012

JG Summit
2007 - 2008
Year 2
Year 1
39.67%
37.94%

SMC
2007 2008
Year 2
Year 1
20.32%
24.19%

.014

3.44%

5.86%

4.58%

3.20%

.033

12.19%

6.69%

4.65%

4.42%

.006

25.14%

13.87%

23.82%

18.08%

.010

31.83%

39.84%

63.90%

67.05%

Altman
Coefficient

SOUTHERN LEYTE STATE UNIVERSITY SAN JUAN

MM504 Financial Planning and Control
Second Semester, 2015 2016

APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS WITH

JG SUMMIT & SMC BETWEEN 2007 AND 2008
Ryan Negros
0.014 X2 + 0.033X3 + 0.006X4
+ 0.010 X5)

13.95

11.16

12.43

15.99

It is evident in the table above that though JG Summit during this two year
business performance projects liquid assets in relation to company is greater than that
of SMC owing that SMC has already had for century justifiable size of company assets
and JG Summit is in dire need to invest more.
This is supported by the mere facts that operating efficiency apart from tax and
leveraging factors is work more closely with a younger JG Summit and a hon of sales
turnover of SMC with an established market route.

Table B. JG Summit and SMC 2007 2008 Results on DuPont Analysis

DuPont Ratios
Profit Margin
Total Asset Turnover
Financial Leverage
Return on Equity (ROE)

JG Summit
Year 2
Year 1
65.73%
95.08%
6.51%
5.63%
200.09%
171.50%
0.09
0.09

SMC
Year 2
105.70%
4.89%
319.89%
0.17

Year 1
88.70%
3.63%
298.90%
0.10d

Both of the two companies have correlating total asset turnover though SMC has
comparable higher profit margin and financial leverage resulting to earn higher ROE
index. For investors to contain, it is more worthwhile to invest or buy stock of share with
SMC compares to JG Summit.

SOUTHERN LEYTE STATE UNIVERSITY SAN JUAN

MM504 Financial Planning and Control
Second Semester, 2015 2016

APPLICATION OF ALTMAN Z-TEST & DUPONT ANALYSIS WITH

JG SUMMIT & SMC BETWEEN 2007 AND 2008
Ryan Negros

SOUTHERN LEYTE STATE UNIVERSITY SAN JUAN

MM504 Financial Planning and Control
Second Semester, 2015 2016