Company

Profiling

Of

CEBU PACIFIC AIR

Presented
to:

MR. KARL IAN S. LAGNAODA, MICB, REB, MBA

Presented
by:

PAULA ANDREA M. ENRIQUEZ

ALLEN CLARK L. ESPARRAGO

 BIANCA MAE B. GUANGCO

CALVIN JESTIN

October 12,
2019
e
TABLE OF CONTENTS

I. COMPANY BACKGROUND

A. Company History 1

B. Industry Analysis 3

II. STRATEGY AND VISION

A. Vision Statement 5

B. Mission Statement 5

C.
Values

a. Service 5

b. Integrity 5

c. Trust 5

d. Courage 5

e. Best of Filipino Spirit 6

D. Business Goals 6

E. Business Strategies 6

III. PRODUCTS AND SERVICES

 A.
Products

a. Fun Café/ Fun Shop 7

B.
Services

a. Scheduled Flights 7

b. CEB
Cargo

1. CEB X 7

2. Blocked Space Arrangement 7

3. ATR Chapter 7

4. Transshipment 8

5. Cargo Interline 8

6. Packaging Services 8
c. CEB Travelsure 8

IV. MANAGEMENT AND OWNERSHIP

A. Directors 9

B. Top Investors/ Shareholders 13

V. CURRENT RATIO 14

VI. QUICK RATIO 15

VII PROFITABILITY RATIO

a. Gross Profit Margin 16

b. Net Profit Margin 17

VIII. RETURN ON ASSET 18

IX. CAPITALIZATION RATIO 19

X. INVENTORY CONVERSION PERIOD 20

XI. AVERAGE COLLECTION PERIOD 21

XII. PAYABLES DEFERRAL PERIOD 22

XIII. CASH CONVERSION CYCLE 23

XIV. CONCLUSION 24

XV. RECOMMENDATION 24

XVI. APPENDIX

A. Consolidated Financial Statements 25

XVII. REFERENCE 39
I. BACKGROUND

Company
History

Cebu Pacific Air was established in the city of Pasay at Metro Manila from the
Philippines during

late August, 1988. However, the airline company only commenced its operations from early
March, 1996,

over eight years

later.
 In the history of Cebu Pacific, a fatal accident occurred during the second day of
February, 1998.

The Cebu Pacific Flight 387 (Model DC-9-32) traveled from Manila to Cagayan de Oro but had
crashed on

the slopes of Mount Sumagaya and resulted from pilot error, causing the deaths of the
one-hundred-and-

four passengers and crew members on board. During this time, Cebu Pacific Air was grounded
by the

government of the Philippines, but continued its services from March onwards, after the aircraft
was

recertifie
d.

In the year 2001, during the last days of November, Cebu Pacific Air began operating
international

flights by flying to Hong-Kong twice per day. And starting from the first day of March, 2002,
Cebu Pacific

Air initiated flights to Seoul, thrice a week. The airline company continued to introduce new
destinations

for its customers and increased its frequency of visits on existing routes in the following years.
During late

May, 2008, Cebu Pacific received the honor of being named as the world’s leading airline
company in

terms of growth and placing fifth (in Asia) for passengers traveling on a budget (ranked
twenty-third in the

world). From the 22nd day of July, 2008, Cebu Pacific became the first airline company to use
the newly

constructed Terminal 3 at the Ninoy Aquino International Airport (NAIA) in Manila and
commenced

operating commercial flights from the terminal,

internationally.
 Cebu Pacific started a Twitter account in August of 2009 and became the first airline
carrier from

the Philippines to officially control its social media presence. Also, Cebu Pacific Air received an
upgraded

International Organization for Standardization (ISO) 9001:2008 Certificate on January 2010,

from an ISO

9001:2000 Certificate that was held from February 2003. The upgraded certificate guarantees
that Cebu

Pacific Air performs consistent procedures in business operations by covering all of its
significant processes

such as maintaining adequate records for all transactions, effective monitoring in processes,
and placing

mechanisms for perpetual betterment. Cebu Pacific became the Philippines’ largest airline by
total number

of passengers flown on domestic and international flights on June, 2010. From October of the
same year,

the company held a flight network of 33 domestic and 14 international destinations. Cebu
Pacific won the

1
'Budgie$ Friendliest LCC Award' on February of 2011 at the Low-Cost Airlines World
Asia-Pacific

Conference held that took place in

Singapore.

Cebu Pacific and Tigerair, two of the largest budget carriers based in the Philippines and
Singapore,

respectively, signed a strategic alliance on January of 2014 creating the biggest network of
flights involving

the Philippines. The alliance allows both airlines to leverage on each other’s extensive route
networks,

flight frequencies and customer service, providing customers an even wider range of travel
options at the
lowest fares possible. And during the next month (February, 2014), the company announced a
share

purchase agreement to acquire 100% of Tigerair Philippines, including a 40% stake in Tiger
Airways

Holdings Limited. To signify the relationship between Tigerair Philippines as a wholly owned
subsidiary

airline of Cebu Pacific Airlines, it was rebranded as CebGo by May of 2015. Exactly a year later
(May,

2016), Cebu Pacific became a founding member of Value Alliance, the world’s largest low-cost
carrier

alliance. Cebu Pacific is currently the only Philippine carrier to be a member of an airline
alliance.

Currently, Cebu Pacific Air is the largest carrier in the Philippine air transportation
industry,

offering low-cost services to more destinations and routes with higher flight frequency within the

Philippines than any other airline. The company currently offers flights to 37 Philippine and 26
international

destinations, spanning Asia, Australia, the Middle East, and

USA.
 2
INDUSTRY ANALYSIS
Buyer Power
•Number of customers
•Accessibility of ​Information
•Switching cost
Threat of Substitute ​Number of substitute ​products available Price
​ performance of ​substitute Travel
​ Time
Threat of New Entrants
•Brand loyalty
•Capital Requirements
•Cumulative Experience
•Access to distribution ​Supplier Power
•Fuel supplier

channels

Cebu Pacific ​Airline •Aircrafts

​ supply ​Competitors Philippine
​ Airlines Air Asia
One of the most competitive industry is the airline industry. An airline is a company that provides
air transport services for travelling passengers and freight along a scheduled route. It has made
travelling
to different places more easy for the people. With these, they play a big role in trade and
tourism. For years,
this industry has been consistent on expanding its routes domestically and globally. The airline
industry is
categorized into four different operations; International that takes the passengers anywhere in
the world,
National, Regional and Cargo, airline that focuses on carrying goods.
As an example, one of the most knowable airline companies in the world is the American
Airlines.
It is the world’s largest airlines in terms of fleet size, revenue, scheduled passengers carried,
scheduled
passenger- kilometers flown and number of destination served. Up to this date, they continue to
be
aggressive in expanding their track of route, innovation, and improvement of customer
experiences with
the help of technology, fair pricing and comfort. Since airlines are expensive and takes long time
to produce,
American Airlines have multiple different plane types varying in shape, size, comfort level,
capacity and
speed. The information technology also takes part on the success of an airline company. Any
malfunction
can cause big problems such as canceled and delayed flights.
One of the booming business in the Philippines is the airline industry. Travelling by air can be
substituted by other modes of transportation such as private cars, bus, ferry and etc. These
kinds of
transportation could also have a lower cost compared to what the airline could offer. But there
are those
3
people who also want to get into their destination as fast they can due to the lack of time. There
personal

preference and convenience must also be considered. ​Thus, the threat of substitution is low
to medium​.

According to the Civil Aviation Authority of the Philippines, the country has 70 airports. Out of
those

airports, 11 can handle international flight, 32 can accommodate domestic travel and 27 are
used primarily

for general navigation. There are hundreds of planes coming in and out of the airport and one of
the most

well-known one is the Ninoy Aquino International

Airport.

Currently, there are four major commercial airlines in the country: Cebu Pacific, Air Asia,
Philippine Airlines and Skyjet. They carry international and domestic flights in the country. They
fly to the

same places in the same airports. The services they offer are most likely the same. Airlines are
constantly

threatened by the thought of losing passengers to their competitors. With the help of some ticket
agencies,

they can now compare rates and pick a better deal with just simple click. Cebu Pacific Airlines
manages

these threats by offering prices that are affordable for those people who are strict on budgeting.
The threat

of competition is medium to
high.

For Cebu Pacific, customers who cancel their flights are fined, and penalties are given to
those who

make changes in their flight information or flight bookings. Therefore, switching costs for Cebu
Pacific

customers are high and ​thus the bargaining power of buyers is low​. Prices from the different
airlines are

accessible in the internet. Customers can compare prices among airlines and choose what fits
their budget.

This high level of accessibility gives customers high bargaining power due to airlines competing
among

themselves, driving down the prices. In conclusion, bargaining power of buyers of Cebu Pacific
is medium

to high because although switching cost is high, it is offset by the high accessibility of
information.

The supplier power is low to medium. ​The price of the fuel directly impacts the
earning of

airlines. Phoenix Petroleum has been Cebu Pacific Airline’s partner for 15 years now. They
cannot easily

stop supplying fuel for Cebu Pacific since Cebu Pacific was one of the very first prominent
brands that
trusted them, and they want to keep that relationship for a very long time that is why they
extended their

partnership again. In terms of aircrafts, there are only two major suppliers existing: Boeing and
Airbus.

Majority of Cebu Pacific aircrafts are from Airbus confirming its strong relationship with the
supplier.

Due to the growing assistance and access to bank and credit loan, Cebu Pacific is less
likely to face

new entrants ​thus the threat to new entrants is low ​since the requirements or qualifications in
starting up

this kind of business are not easy to attain such as licenses, insurances and distribution
channels. It can be

expected that existing players such as Cebu Pacific has already set up a cumulative experience
over the

year
s.

4
II. STRATEGY AND VISION

Cebu Pacific Air’s Vision

Statement:

Cebu Pacific Air vision for 2018 is to connect nations, cultures, communities and people
together. Open

opportunities and make every experience possible for

everyone.

“We envision stronger nations where cultures and communities are connected,
meaningful

relationships are built, and lives are enriched by opportunities and experiences we make
possible.”
Cebu Pacific Air’s Mission
Statement:

Cebu Pacific Air mission statement: ​"Why everyone

flies.”

“Cebu Pacific brings people together through safe, affordable, reliable, and fun-filled
air travel.

We are committed to innovation and excellence in everything

we do.

We are an employer of choice providing opportunities for professional and personal

growth.

We have a deep sense of family values throughout our

airline.

We enhance the quality of life of the communities we serve and are an active partner in
our nation's

progress. ​We offer our shareholders a fair return on their

investments.”

Cebu Pacific Air’s Core

Values

SERVICE

We put people at the heart of

service.

INTEGRITY

We do what is
right.

TRUST

We cultivate trust and commit to

collaboration.

COURAGE

We relentlessly pursue new ideas and better

solutions.

5
BEST OF FILIPINO SPIRIT

We live the best of Filipino spirit at all

times.

Business Goals and

Objectives:

Cebu Pacific Air target markets are the leisure and business travelers, who want to fly
out on low

cost airlines with fun service. Cebu Pacific Air is a low cost airline who can offer many routes
and has the

youngest fleet. Cebu Pacific Air wants to make sure that they can cater to their target
market well.

Business
Strategies:

Cebu Pacific Air pioneered the “low fare, great value” strategy. They offer low-cost flights
to

destinations and routes with higher flight frequency for everyone. Cebu Pacific Air is the only
carrier to

offer fun in the skies with their “Fun Games” on board. They also have unbundled fare strategy,
which

means the passenger will only have to pay for what service they want to avail during
the flight.

Cebu Pacific Air is able to offer low cost flight due to their strategies of “unbundled
fares”, and
cutting out frills, for example the flight food service. Cebu Pacific Air is the largest carrier in the
Philippines

to offer low-cost flight and is currently offering flights to 37 Philippine and international
destinations,

across Asia, Australia, the Middle East, and

USA.

6
III. PRODUCTS AND SERVICES

Products: Fun Cafe/Fun Shop

These are in-flight or duty-free food, beverages, airline merchandise,

branded

merchandise, and entertainment provided by Cebu Pacific Air such as: 'Hot
Meals', 'Hearty

Meals', 'Savory Snacks', 'Sweet Treats', 'Quick Bites', 'Cold Drinks', 'Hot Drinks',
 'Alcoholic Drinks', 'Stuffed Toy', 'Lagu Beach Bag', and many
others.

Services: a. Scheduled Flights

The airline currently offers flights to 37 Philippine and 26 international

destinations, spanning Asia, Australia, the Middle East, and USA. Cebu Pacific
Air

operates a 66-strong fleet of 48 Airbus (4 A321ceo, 36 A320 and 8 A330) and 18

ATR (8

ATR 72-500 and 10 ATR 72-600) aircraft, one of the most modern aircraft fleets
in the

world. It began long-haul services in the 3rd quarter of

2013.

b. CEB
Cargo

Cebu Pacific Cargo provides competitive, fast, flexible, and

straightforward air

cargo service to individual shippers and cargo agents locally and overseas in the
form of

the
following:

• CEB X

This service provides the fastest and most effective way of getting
cargo to its

destinatio
n.

• Blocked Space
Arrangement

This service is offered to cargo customers who require a fixed and

guaranteed
 space with CEB
Cargo.

• ATR Charter

This offers chartered services using the ATR 72-500 aircraft. It has an
average

capacity of 5,500kg loose cargo with a maximum gross weight of 50kg

per piece.

7
• Transshipments

This service provides inter-island connections via Cebu Pacific's four

major

hubs: Manila, Cebu, Clark and

Davao.

• Cargo Interline

The service features intercontinental services involving Europe,

Africa and

the
America.

• Packaging Services

Services such as: plastic jack wrap services, plastic sheets, bubble
wrap, and

styro boxes are offered to protect cargo from unfavorable conditions

during flights.

c. CEB
Travelsure
 This service by Cebu Pacific Air provides an emergency medical
treatment in case

of an incident or sickness during travel and personal accident insurance up to

PHP

1,000,00
0.

8
IV. MANAGEMENT AND OWNERSHIP

Cebu Air, Inc.’s Board of

Directors

CHAIRMAN

Mr. James L. Go ​is the Chairman of the Board of

 Directors of

JGSHI. He had been Chairman and Chief Executive

Officer of

JGSHI since January 1, 2002. He is also the Chairman

and Chief

Executive Officer of Oriental Petroleum and Minerals

Corporation and Chairman of Cebu Air, Inc. He is

Chairman

Emeritus of Universal Robina Corporation, Robinsons

Land

Corporation, JG Summit Petrochemical Corporation,

and JG

Summit Olefins Corporation. He is the Vice Chairman of

Robinsons Retail Holdings, Inc. and a director of Marina

Center

Holdings, Private Limited, United Industrial Corporation

Limited, and Hotel Marina City Private Limited. He is

also the

President and Trustee of the Gokongwei Brothers

Foundation,

Inc. He has been a director of the Philippine Long

Distance

Telephone Company (PLDT) since November 3, 2011. He is a member of the Technology

Strategy

Committee and Advisor of the Audit Committee of the Board of Directors of PLDT. He was
elected a director

of Manila Electric Company on December 16, 2013. Mr. Go received his Bachelor of Science
degree and

Master of Science degree in Chemical Engineering

from

Massachusetts Institute of Technology,

USA.
DIRECTOR

Mr. John L. Gokongwei, Jr. ​is the founder and

Chairman

Emeritus of JG Summit Holdings, Inc. (JGSHI). He is

a

member of the Board of Directors of JGSHI and

certain of its

subsidiaries. He is currently the Chairman of the

Gokongwei

Brothers Foundation, Inc., Deputy Chairman and

Director of

United Industrial Corporation Limited, and a director of

Cebu

Air, Inc., Robinsons Retail Holdings, Inc. and Oriental

Petroleum and Minerals Corporation. Mr. Gokongwei

9
received a master’s degree in business administration from the De La Salle University and
attended the

Advanced Management Program at Harvard Business

School.

Jose F. Buenaventura ​is the President and Director

of

Consolidated Coconut Corporation. He is also a

member of

the Board of Directors of BOO Unibank, BOO

Securities

Corporation, Cebu Air, Inc., GROW, Inc., Grow

Holdings,

Inc., Hicap Properties Corporation, Himap Properties

Corporation, La Concha Land Investment Corp.,

 Melco

Crown (Philippines) Resorts Corp., Peter Paul

Philippines

Corp., Philippine First Insurance Co., Inc., Philplans

First,

Inc., Techzone Philippines, Inc., and The Country.

Jose

graduated from Ateneo de Manila University with a

degree

of Bachelor of Laws. He finished his Master of Law at

Georgetown University Law Center Washington,

D.C.

Mr. Lance Y. Gokongwei​is the President and Chief

Executive

Officer of JGSHI. He had been President and Chief

Operating

Officer of JGSHI since January 1, 2002. He is the

Chairman of

Robinsons Retail Holdings, Inc. He is also the

Chairman of

Universal Robina Corporation, Robinsons Land

Corporation,

JG Summit Petrochemical Corporation, JG Summit

Olefins

Corporation, and Robinsons Bank Corporation. He is

the

President and Chief Executive Officer of Cebu Air, Inc.

He is a

director of Oriental Petroleum and Minerals Corporation

and

United Industrial Corporation Limited. He is a director

and
Vice Chairman of Manila Electric Company. He is a
trustee and

secretary of the Gokongwei Brothers Foundation, Inc.

He

received a Bachelor of Science degree in Finance and

a

Bachelor of Science degree in Applied Science from the University of

Pennsylvania.

1
0
Ms. Robina Y. Gokongwei-Pe ​has been a director
of

JGSHI since April 15, 2009. She is also a director of

Robinsons Land Corporation, Cebu Air, Inc., and

Robinsons Bank Corporation. She is currently the

President

and Chief Executive Officer of Robinsons Retail

Holdings,

Inc., consisting of Robinsons Supermarket,

Robinsons

Department Store, Handyman, True Value,

Robinsons

Builders, Robinsons Specialty Stores, Robinsons

Appliances, Toys R Us, Daiso Japan, Ministop and

South

Star Drug, and The Generics Pharmacy. She is a

Trustee of

the Gokongwei Brothers Foundation, Inc. and the

 Immaculate Conception Academy Scholarship
Fund. She

was also a member of the University of the

Philippines

Centennial Commission and was a former Trustee of the Ramon Magsaysay Awards
Foundation. She

obtained her Bachelor of Arts degree in Journalism from the New York
University.

Frederick D. Go ​is a Philippine businessperson who

has

been at the helm of 9 different companies. Presently,

Mr. Go

occupies the position of Chairman for Philippine

Retailers

Association, Group General Manager at Taicang

Ding Feng

Real Estate Development Co., Ltd., Group General

Manager

at Chengdu Ding Feng Real Estate Development

Co., Ltd.,

Group General Manager at Xiamen Pacific Estate

Investment Co., Ltd., Group General Manager at

Shanghai

Ding Feng Real Estate Development Co., Ltd.,

President &

Chief Operating Officer at Robinsons Recreation

Corp.,

Group General Manager at Chengdu Dingyuan Real

Estate

Co. Ltd., Group General Manager at Chongqing

Robinsons

Land Real Estate Co., Ltd. and President, Chief

Operating

Officer & Director at Robinsons Land Corp. Mr. Go is also on the board of 18 other companies.
Frederick D.

Go received an undergraduate degree from the University of Ateneo

de Manila.

1
1
INDEPENDENT DIRECTOR

Mr. Antonio L. Go ​was elected as an independent

director

of JGSHI on May 28, 2018. He is a Director and the

President of Equitable Computer Services, Inc. and

is the

Chairman of Equicom Savings Bank and ALGO

Leasing

and Finance, Inc. He is also a director of Medilink

Network,

Inc., Maxicare Healthcare Corporation, Oriental

Petroleum

and Minerals Corporation, Pin-An Holdings, Inc.,

Equicom

Information Technology, Cebu Air, Inc., Robinsons

Retail

Holdings, Inc., and Steel Asia Manufacturing

Corporation.

He is also a Trustee of Go Kim Pah Foundation,

Equitable

Foundation, Inc., and Gokongwei Brothers

Foundation, Inc.
 He graduated from Youngstown University, United
States

with a Bachelor Science degree in Business

Administration.

He attended the International Advanced Management program at the International Management

Institute,

Geneva, Switzerland as well as the Financial Planning/Control program at the ABA National
School of

Bankcard Management, Northwestern University, United

States.

Mr. Wee Khoon Oh ​is a Managing Director at

Sobono

Energy Pte Ltd. He is on the Board of Directors at

Cebu

Air, Inc. and Singapore Workforce Development

Agency. Mr. Oh was previously employed as Vice

Chairman by Sustainable Energy Association of

Singapore. He received his undergraduate degree

from

the University of Manchester Institute of Science &

Technology and an MBA from National University

of

Singapor
e.

1
 2
Mr. Cornelio T. Peralta ​is an Independent Director at
Cebu Air, Inc., a Chairman at ZIPP Cargo Corp., an
Independent Director at Securities Clearing Corp. of The
Philippines, an Independent Director at JG Summit
Holdings, Inc. and a Chairman at Pacific East Asia Cargo
Airlines, Inc. He is on the Board of Directors at Cebu
Air, Inc., Capital Markets Integrity Corp., Securities
Clearing Corp. of The Philippines, Grow Holdings
Philippines, Inc., Wan Hai Lines (Phils), Inc., JG
Summit Holdings, Inc., Makati Commercial Estate
Association, Inc., UERM Memorial Medical Center and
University of the East. Mr. Peralta was previously
employed as an Independent Director by Philippine
Stock Exchange, Inc., a President by PT Kimsari Paper Indonesia, and a Chairman, President &
Chief
Executive Officer by Kimberly-Clark Philippines, Inc. He received his undergraduate degree
from the
University of the Philippines and a graduate degree from the University of the Philippines.
Cebu Air, Inc.’s Top Investors/ Shareholders
Number of
Name of Investors Investor Description ​
Percentage
Shares ​
CPAir Holdings, Inc.
CPAir Holdings Inc. is an
enterprise, with the main office
located in Pasig. It operates in the
real estate industry.
400,816,841 66.70%
PCD Nominee
Corporation (Filipino)
A wholly owned subsidiary of the
Philippine Central Deposit, a
corporation established to
improve operations in securities
transactions and to provide fast,
safe and highly efficient system
for securities settlement in the
Philipines.
114,345,988 16.71%
PCD Nominee
Corporation (Non-
Filipino)
83,707,449 16.26%
13
V. CURRENT RATIO

The current ratio is considered as a part of the liquidity ratios. The ratio is used to
measure an organization’s capability in paying its short-term obligations.

In order to get the current ratio of the current year, divide the current asset by the current
liabilities.

The table below is the summary of Cebu Pacific’s current ratio from 2016
to 2018.

Current Assets Current Liabilities ​Current Ratio ​Industry Average

2016 15,151,137,743 27,827,484,688 ​0.54 0

​ .68

2017 21,691,072,624 29,245,857,666 ​0.74 0

​ .66

2018 25,944,665,488 34,702,883,709 ​0.75 0

​ .82

Based in the information

above:

• In 2016, the company has P0.54 of current asset for each P1.00 of its current
liabilities.

• In 2017, the company has P0.74 of current asset for each P1.00 of its current
liabilities.

• In 2018, the company has P0.75 of current asset for each P1.00 of its current
liabilities.

As you can see, Cebu Pacific’s Current Liabilities is greater than the current asset for the
past 3

years. Thus, the current ratio is less than 1. This means that the company does not have
enough funds to

pay for its short- term

obligation.
 1
4
VI. QUICK RATIO

It is used to measure the airline’s short-term liquidity and cash flow. This reveals
whether a

company can cover its short-term debt obligation with its liquid asset or cash. This is almost
identical with

current ratio, but quick ratio is a more reliable indicator of a company’s short-term financial
strength,

because inventories can be difficult to

liquidate.

In order to get quick ratio of the current year, deduct the inventories from the current
asset and

divide it by the current liabilities. The table below is the summary of Cebu Pacific’s quick ratio
from 2016

to
2018.
 Current Assets Current Liabilities Inventories ​Quick Ratio ​Industry

Averag
e

2016 15,151,137,743 27,827,484,688 1,190,056,987 ​0.50 ​0.45

2017 21,691,072,624 29,245,857,666 1,613,690,533 ​0.69 ​0.49

2018 25,944,665,488 34,702,883,709 2,010,145,500 ​0.69 ​0.52

Based from the information

above:

• In 2016, the quick ratio is 0.50:1, it is relatively low. It means that for every ₱1 of current
liability,

the company has₱ 0.50 quick assets to pay

for it.

• In 2017, the quick ratio is 0.69:1, it increased by 1.37% from 2016. The company pays
₱0.69 quick

assets for every ₱1 of current

liability.

• In 2018, the quick ratio is 0.69:1, it increased by 1% from 2017. For every ₱1 current
liability, the

company pays ₱ 0.69 quick

assets.

The figures above show that the Quick Ratio from year 2016-2018 is below 1.00, this means
that Cebu

Pacific is less liquid when the inventory is excluded. The analysis above shows that for the past
3 years, the

inventories of Cebu Pacific is at an average of 7.7% of the total asset. This can be a huge
amount to consider

in paying debts. Despite this, Cebu Pacific is showing progress as its quick ration is increasing
every year.
 1
5
VII. PROFITABILITY RATIO

This formula is used to understand and value a company's capability in countering its
expenses with their income for performance analysis.

A. Gross Profit Margin

This margin is found by subtracting a company's direct expenses or cost of goods sold
(COGS) from its revenue. The COGS includes the raw material and the labor expense incurred
towards the production. It is expressed in a percentage format.

In order to get the gross profit margin of the current year, deduct cost of good sold from
the revenue

and divide it by the revenue and multiply it by 100. The table below is the summary of Cebu
Pacific’s gross

profit margin from 2016 to

2018.
above:
Gross
Profit
Revenue Cost of Goods Sold
Margin
(COG Industry
S) Average
Industry
Average

Based on the information

 • In 2016, Cebu Pacific can pay 19.79% of its net sales to its operating
expenses.
• In 2017, Cebu Pacific can pay 14.90% of its net sales to its operating
expenses.
• In 2018, Cebu Pacific can pay 3.23% of its net sales to its operating
expenses.

As you can see, the Gross Profit Margin of Cebu Pacific is high compared to the industry
average. This shows that the company is managing well its cost of sales.
2016 61,899,278,892 49,648,080,706 ​19.79% 1 ​ 0.87%

2017 68,029,131,426 57,894,853,404 ​14.90% 5

​ .80%

2018 74,113,776,885 67,063,891,425 ​9.51% ​3.23%

 1
6
B. Net Profit Margin
The net profit is also called the profit after tax (PAT) and can be found by subtracting a
company's direct and indirect expenses from its sales revenue. It is also expressed in a
percentage format.
In order to get the net profit margin of the current year, divide the profit after tax by revenue and
multiply it by 100. The table below is the summary of Cebu Pacific’s net profit margin from 2016
to 2018.
Based on the information above:
• In 2016, the company earns P0.15 in net profit for P1.00 of revenue.
• In 2017, the company earns P0.11 in net profit for P1.00 of revenue.
• In 2018, the company earns P0.5 in net profit for P1.00 of revenue.
As you can see, Cebu Pacific has higher net profit margin compared to the industry average.
This shows that the company is generating high revenue. A high percentage means that the
company did well in managing its expenses. It is also useful to compare it to a benchmark, such
as industry average or past performance, to determine the company's standing.
Revenue Profit After Tax
Net Profit Margin ​Industry Average (PAT)
2016 61,899,278,892 9,761,984,023 ​15.77% ​10.87%
2017 68,029,131,426 7,946,678,505 ​11.68% ​5.80%
2018 74,113,776,885 3,929,651,955 ​5.30% ​3.23%
17
VIII. RETURN ON ASSET

It is a profitability ratio that provides how much profit a company is able to generate from
its assets.

In other words, return on assets (ROA) measures how efficient a company's management is in
generating

earnings from their economic resources or assets on their

balance sheet.

In order to get the return on asset of the current year, divide the net income by the
average total

asset. The table below is the summary of Cebu Pacific’s return on asset from
2016 to 2018.

Net Income Average Total Asset ​Return on Asset ​Industry

Averag
e

2016 9,754,136,196 100,514,342,283 ​9.70% ​6.57%

2017 7,907,846,625 109,076,668,278 ​7.25% ​3.54%

2018 3,922,744,538 129,391,482,516 ​3.03% ​3.55%

Based on the information

above:

• In 2016, the ROA is 9.70% this means that for every ₱1 in asset, the company earns ₱9.7
in profit.

• In 2017, the ROA has decreased by 0.74%. The company earns ₱7.25 in
profit.

• In 2018, the ROA has decreased by 1.19%. For every ₱1, the company earns ₱3.03 in
profit.

The figures above show that the Return on Asset of Cebu Pacific Air is decreasing. This
means that the

company is not making enough income from the use of its asset. As seen in the table, the net
income is

slowly decreasing in year 2016 and 2017. And in 2018, the company’s net income has
decreased by 3.9

billion. According to them, the decline of their net income is due to high fuel prices, a volatile
Philippine

peso, rising interest rates, increased competition, the six-months closure of Boracay, and
operational

limitations in the country’s key

airports.

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8
IX. CAPITALIZATION RATIO

The ratio shows the weight that a company puts on its operations, using equity. It may
also be called

as the financial leverage ratio and helps assess the risk involved with investing in a company.
Companies

that have a high capitalization ratio would usually be classified as risky with regard to insolvency
in failing

their debt payments. A high capitalization ratio may also imply that financial institutions would
not desire

to lend cash for such companies. However, a high capitalization ratio may increase the return
on a

shareholder’s investment because of certain tax advantages associated with the borrowings.
The formula is
as follows: ​Capitalization Ratio = Long-Term Debt / (Long-Term Debt +

Shareholder’s Equity).

Long-Term Debt Shareholder's Equity ​Capitalization Ratio ​Industry

Averag
e

2016 35,770,184,170 33,505,272,519 ​51.63% 5

​ 6.33%

2017 35,012,953,128 39,785,579,366 ​46.81% 5

​ 6.67%

2018 47,182,350,614 40,102,133,279 ​54.05% 5

​ 0.67%

Based on the information

above:

• The company had an average capitalization ratio with its debt being at 51.63% of its total
capital

in
2016.

• In the range of years presented above, Cebu Pacific had the lowest dependency on debt
during 2017

with 46.81%, meaning that the company had relied more on equity and was in a
relatively

comfortable
position.

• While in 2018, the company had the highest dependency on debt related capital at
54.05%,

indicating a relatively average ratio, but less comfortable than in the two years that
came before.

The figures above show that Capitalization Ratio of Cebu Pacific Air is unstable. It was high
during 2016
and decreased in 2017 but in 2018 it increased by 1.15%. This makes them riskier with regards
to insolvency

in failing their debt

payments.

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X. INVENTORY CONVERSION PERIOD

The inventory ratio shows how effectively the company managed its inventory by
comparing cost

of goods sold with its inventory. It measures how many times the company has sold and
replaced its

inventory during a period of time. If large amounts of inventory are purchased during the year, to
improve

the turnover, the company needs to sell large amounts of inventory. If the company can’t sell
the large

inventory, it will incur storage cost and holding

cost.

To calculate for the Inventory Turnover, divide cost of goods sold using the inventory
then divide

by 365. Thus, below is the summary of the Inventory Turnover of Cebu Pacific for 2016
to 2018.

Inventory Cost of Goods sold ​Inventory Turnover ​Industry Average

2016 1,190,056,987 49,648,080,706 ​8.75 ​8.20

2017 1,613,690,533 57,894,853,404 ​10.17 ​8.28

2018 2,010,145,500 67,063,891,425 ​10.94 ​9.28

Based on the information given

above:
 • In 2016, the company takes roughly 42 days for their inventory to be
sold.

• In 2017, the company improved, and it now takes only roughly 36 days for their inventory
to be

sold
.

• In 2018, the company improved much further by lowering the days to 33 days for their
inventory

to be
sold.

Inventory turnover shows how efficient a company is in controlling its merchandise. A

low turnover

means that the company is efficient in selling their inventory, it shows how fast an inventory is
sold.

Generally, a low inventory turnover is ideal, but it is important to mention that the average
inventory differs

from one industry to

another.

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0
XI. AVERAGE RECEIVABLE COLLECTION PERIOD
This measurement expresses the average number of days that accounts receivables are
outstanding
and to determine the effectiveness of a company in collecting their receivables.
In order to get the average receivable collection period of the current year, divide the annual
sales
by 365 days then divide the result into average receivable.
Average Accounts
Annual Sales
Receivable ​
Average
Industry
Receivable
Average
Collection Period
2016 2,126,793,862 61,899,278,892 ​12.54 ​13.93
2017 1,900,482,578 68,029,131,426 ​10.19 ​14.37
2018 2,607,900,691 74,113,776,885 ​12.84 ​16.50
Based on the information above:
• In 2016, the company took 12.54 days to turn its receivable into cash.
• In 2017, the collection period decreased by 2.35.
• In 2018, it took 12.84 days before the company collected their receivables into cash.
The figures above show that Cebu Pacific Air had an increase on Average Receivable
Collection Period
in 2018. This might be due to a reduced collection efforts of the management or a looser credit
policy in
order to increase their sales since their sales has decreased due to high fuel prices, a volatile
Philippine
peso, rising interest rates, increased competition, and the six-months closure of Boracay.
21
XII. PAYABLES DEFERRAL PERIOD
The accounts payable days measures the number of days the company takes to pay it
suppliers. A
high number of days indicates that the company is paying its supplier more slowly. A low
number indicates
that the company is paying its supplier much faster. But a change in the number if days may
also indicate
that there are altered payments with the supplier, though the impact is low on the number of
days, since the
terms must be modified for many suppliers to get the ratio to a meaningful amount.
To calculate Accounts Payable Days, divide accounts payable by the cost of goods sold divided
by
365. The table below summarizes the Accounts Payable days of Cebu Pacific for 2016 to 2018.
Accounts Payable
Accounts Payable Cost of Goods Sold ​
Days
Industry
Average
2016 12,583,636,942 49,648,080,706 ​92.51 5
​ 5.97
2017 14,182,785,839 57,894,853,404 ​89.41 4 ​ 7.00
2018 16,341,313,165 67,063,891,425 ​88.93 5 ​ 1.77
Based on the information above:
• In 2016, Cebu Pacific takes roughly 93 days to pay their suppliers.
• In 2017, Cebu Pacific takes roughly 89 days to pay their suppliers.
• In 2018, Cebu Pacific takes roughly 89 days to pay their suppliers.
Generally, a high number of days is favored. It is because the company should pay their
suppliers
until their deadline to further maximize the available cash. But a high number of days has a lot
of
indications, it can also mean that the company is struggling financially and has trouble paying
their
suppliers. Or the company pays their suppliers slowly to maximize their money, it means the
company has
the opportunity to fully utilize its available cash and maximize the benefits before paying it to
suppliers. A
low number of days may indicate that the company pays in advance.
22
XIII. CASH CONVERSION CYCLE

It is a metric that shows the amount of time it takes a company to convert its investment
in inventory

to cash. It also accesses how well the company manages its working capital. Inventory
conversion period

is the number of days a company can turn its inventory into sales. Average collection period is
the number

of days a company can collect its payment after a sale. Payable Deferral Period is the number
of days a

company can pay back its

payables.

In order to get the cash conversion cycle of the current year, add Inventory Conversion
Period and

Average Collection Period then subtract it by the Payables Deferral

Period.

Conversio
Inventor n
y
 e
Perio
Averag
d
e
Averag
Averag
e
e
Collectio Cas
h
Cas
Perio h
d Cas
Payabl h
e Cas
Payabl h
e
Conversi
Deferra on
l Conversi
Deferra on
l Conversi
Perio on
d Conversi
Perio on
d Cycl
Industr e
y Cycl
Industr e
y Cycl
Industr e
y

Averag

2016 41.71 12.54 92.51 ​-38.26 ​-22.86

2017 35.87 10.19 89.41 ​-43.35 ​-15.78

2018 33.36 12.84 88.93 ​-42.73 ​-18.52

Based on the information

above:

• In 2016, the cash conversion cycle of the company is -38.26

days.

• In 2017, the cash conversion cycle of the company is -43.35

 days.

• In 2018, the cash conversion cycle of the company is -42.73

days.

The figures above show that Cebu Pacific Air has a negative Cash Conversion Cycle for
the past 3

years. This means that the company needs less time to sell its inventory and receive cash from
its customers

compared to time in which it has to pay its supplier if the inventory. One reason could be that is
because

the customers will have to pay first in order to have their ticket
early.

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3
CONCLUSION

Cebu Pacific was affected by different events that happened in our country such as the
high price hike of fuels, the 6- month closure of Boracay and the volatility of Philippine Peso.
The effects were reflected on their financial statements. One of the most worrying effects on its
financial statement is the rapid decrease of their net income and also their high current
liabilities. This shows that the airline industry is a risky investment since there are unforeseeable
events that could happen.

RECOMMENDATION

Cebu Pacific’s Current Ratio is less than 1 and its Quick Ratio is below the industry
average. This means that they do not have enough funds to pay for its short-term obligation.
They should improve their current ratio and quick ration by paying its current liabilities. The
Payables of Deferral Period showed that the company takes too long to pay its supplier that’s
why its current liabilities is slowly increasing. Cebu Pacific should pay its current liabilities as
early as possible. Cebu Pacific also showed a rapid decrease on their net income. They can
improve this by increasing their sales revenue. They should find more ways to entice people to
buy their offered products and services. Decreasing your prices or running sales to attract more
customers. A reduced price might put your items at a better price point for more people,
encouraging more long-term revenue. Sales encourage impulse buys and pull in people who
want to try your product or service before paying full price. Even though you might reduce your
prices or spend more on advertising, you can still increase your net profit. As long as you sell
more, you might be able to cover the loss and still increase revenue.

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Alfelor, J. (n.d.). ​Strategic Marketing Plan of Cebu Pacific Air.​ Retrieved on July 12, 2019, from

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trip/add-ons/travels
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https://cebupacificaircorporate.com/pages/annual-report
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Cebu Pacific buys 31 new aircraft.​ (n.d.). Retrieved on July 21, 2019 from

https://cnnphilippines.com/business/2019/6/19/Cebu-Pacific-buys-plan
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Phoenix, Cebu Pacific renew deal, celebrate 15-year partnership. ​(n.d.). Retrieved on July 21,
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history/
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