COMPARATIVE ANALYSIS:

San Miguel Corporation and DMCI Holdings Incorporated

In Partial Fulfillment of the Requirement in

FM 11-3 Financial Management
by

Aliyah Sanders
Camille Joyce Corona
Jane Sanchez
Luiz Cruz
Carlo Samaniego

March 2016

PAYBACK PERIOD
San Miguel Corporation
Year 2010-2014
Base year: 2009

Initial Outlay

Total Capital:

P240,938

Year
2010
2011
2012
2013
2014

Annual cash flow

P125,188
P128,975
P125,507
P191,613
P258,606

Payback period= 1.90 year

DMCI Holdings Incorporated

Base year: 2009

Initial Outlay

Total Capital:

P23,393,839

Year
2010
2011
2012
2013
2014
Payback Period: 1.90 year

Annual cash flow

P9,946,666
P15,065,748
P9,717,042
P24,774,495
P15,229,768

San Miguel Corp

Year
1
2
3
4
5

FCF
P125,188
P128,975
P125,507
P191,613
P258,606
P829,889

PVIF
.847
.718
.608
.515
.437

PV
106 , 034.236
92,604.05
76,308.256
98,680.695
113,010.822
486,638.059
240,938
NPV 245,700.059 Accept

PI = 486,638.059
240,938
= 2.01% Accept
DMCI Holdings
Year
1
2
3
4
5

FCF
P9,946,666
P15,065,748
P9,717,042
P24,774,495
P15,229,768
P74,733,719

PVIF
.876
.766
.671
.587
.514

PV
8,713,279.416
11,540,362.97
6,520,135.182
1,628, 628.565
7,828,100.752
36,230,506.89
23,393,839
NPV 12,836,667.89 Accept

PI= 1.549 Accept

San Miguel Corp

The weighted average cost of capital (WACC) is the rate that a company is expected to
pay on average to all its security holders to finance its assets. The WACC is commonly
referred to as the firm's cost of capital. Generally speaking, a company's assets are
financed by debt and equity. WACC is the average of the costs of these sources of
financing, each of which is weighted by its respective use in the given situation. By
taking a weighted average, we can see how much interest the company has to pay for
every dollar it finances.
WACC = E /

(E +
D)

Cost of
Equity

+ D /

(E +
D)

Cost of
Debt

* (1 - Tax Rate)

1. Weights:
Generally speaking, a company's assets are financed by debt and equity. We need to
calculate the weight of equity and the weight of debt.
The market value of equity (E) is also called "Market Cap". As of today, San Miguel
Corp's market capitalization (E) is $3893.650 Mil.
The market value of debt is typically difficult to calculate, therefore, GuruFocus uses
book value of debt (D) to do the calculation. It is simplified by adding the latest two-year
average Short-Term Debt and Long-Term Debttogether. As of Sep. 2015, San Miguel
Corp's latest two-year average Short-Term Debt was $4714.70322726 Mil and its latest
two-year average Long-Term Debt was $10125.6037012 Mil. The total Book Value of
Debt (D) is $14840.3069285 Mil.
a) weight of equity = E / (E + D) = 3893.650 / (3893.650 + 14840.3069285) = 0.2078
b) weight of debt = D / (E + D) = 14840.3069285 / (3893.650 + 14840.3069285) =
0.7922
2. Cost of Equity:
GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of
return. The formula is:
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the
Market - Risk-Free Rate of Return)
a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is
updated daily. The current risk-free rate is 1.91%. Please go to Economic
Indicators page for more information.
b) Beta is the sensitivity of the expected excess asset returns to the expected excess
market returns. San Miguel Corp's beta is -0.55.
c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market
premium. GuruFocus requires market premium to be 7.5%.
Cost of Equity = 1.91% + -0.55 * 7.5% = -2.215%
3. Cost of Debt:
GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year

average debt to get the simplified cost of debt.

As of Dec. 2014, San Miguel Corp's interest expense (positive number) was
$599.54863462 Mil. Its total Book Value of Debt (D) is $14840.3069285 Mil.
Cost of Debt = 599.54863462 / 14840.3069285 = 4.04%.
4. Multiply by one minus Average Tax Rate:
GuruFocus uses the latest two-year average tax rate to do the calculation.
The latest Two-year Average Tax Rate is 16.785%.
San Miguel Corp's Weighted Average Cost Of Capital (WACC) for Today is calculated
as:
WACC = E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)
= 0.2078
= 2.2%

* -2.215%

+ 0.7922

* 4.04%

* (1 - 16.785%)

DMCI Holdings Inc

Definition
The weighted average cost of capital (WACC) is the rate that a company is expected to
pay on average to all its security holders to finance its assets. The WACC is commonly
referred to as the firm's cost of capital. Generally speaking, a company's assets are
financed by debt and equity. WACC is the average of the costs of these sources of
financing, each of which is weighted by its respective use in the given situation. By
taking a weighted average, we can see how much interest the company has to pay for
every dollar it finances.
WACC = E /

(E +
D)

Cost of
Equity

+ D /

(E +
D)

Cost of
Debt

* (1 - Tax Rate)

1. Weights:
Generally speaking, a company's assets are financed by debt and equity. We need to
calculate the weight of equity and the weight of debt.
The market value of equity (E) is also called "Market Cap". As of today, DMCI Holdings
Inc's market capitalization (E) is $9454.950 Mil.
The market value of debt is typically difficult to calculate, therefore, GuruFocus uses
book value of debt (D) to do the together. As of Sep. 2015, DMCI Holdings Inc's latest
two-year average Short-Term Debt was $1204.2927443 Mil and its latest two-year
average Long-Term Debt was $2478.91650869 Mil. The total Book Value of Debt (D) is
$3683.20925299 Mil.
a) weight of equity = E / (E + D) = 9454.950 / (9454.950 + 3683.20925299) = 0.7197
b) weight of debt = D / (E + D) = 3683.20925299 / (9454.950 + 3683.20925299) =
0.2803
2. Cost of Equity:
GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of
return. The formula is:
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the
Market - Risk-Free Rate of Return)
a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is
updated daily. The current risk-free rate is 1.91%. Please go to Economic
Indicators page for more information.
b) Beta is the sensitivity of the expected excess asset returns to the expected excess
market returns. DMCI Holdings Inc's beta is 0.84.
c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market
premium. GuruFocus requires market premium to be 7.5%.
Cost of Equity = 1.91% + 0.84 * 7.5% = 8.21%
3. Cost of Debt:
GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year

average debt to get the simplified cost of debt.

As of Dec. 2014, DMCI Holdings Inc's interest expense (positive number) was $0 Mil. Its
total Book Value of Debt (D) is $3683.20925299 Mil.
Cost of Debt = 0 / 3683.20925299 = 0%.
4. Multiply by one minus Average Tax Rate:
GuruFocus uses the latest two-year average tax rate to do the calculation.
The latest Two-year Average Tax Rate is 15.04%.
DMCI Inc's Weighted Average Cost Of Capital (WACC) for Today is calculated as:
WACC = E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)
= 0.7197
= 5.91%

* 8.21%

+ 0.2803

* 0%

* (1 - 15.04%)

KEY FINANCIAL RATIOS

DMCI holdings INc
Profitability

2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12

TTM

Tax Rate %

11.94

25.07

13.81

25.45

10.16

10.30

9.87

10.52

8.64

7.31 14.95

Net Margin %

35.80

13.05

22.82

7.98

15.76

18.09

20.07

18.92

33.83

19.05 23.25

0.59

0.46

0.50

0.65

0.64

0.67

0.62

0.58

0.51

0.43 0.40

21.08

6.04

11.44

5.21

10.03

12.21

12.34

10.91

17.29

8.26 9.31

1.92

2.10

1.93

2.17

2.82

2.64

2.48

2.35

2.41

2.44 2.39

Return on Equity %

40.54

12.17

22.82

10.69

25.33

33.18

31.54

26.32

41.25

20.05 22.59

Return on Invested Capital %

30.45

8.60

17.38

7.90

14.12

21.29

18.14

15.93

23.80

11.89 13.23

7.33

Asset Turnover (Average)

Return on Assets %
Financial Leverage (Average)

Interest Coverage

Liquidity/Financial Health

2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 Latest Qtr

Current Ratio

1.24

1.24

2.60

2.35

3.17

1.57

1.61

1.39

1.46

1.52

1.38

Quick Ratio

0.71

0.70

2.09

1.93

2.75

1.13

1.12

0.92

1.07

1.11

0.92

Financial Leverage

2.45

2.67

2.14

2.26

2.10

3.93

3.97

4.29

5.14

5.29

5.47

Debt/Equity

0.68

0.65

0.41

0.27

0.34

1.68

1.71

1.66

1.95

1.97

2.15

San Miguel Corporation

Profitability
Tax Rate %

2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12

TTM

21.31

33.36

35.87

29.36

5.76

32.23

22.94

18.58

6.80

26.77 37.22

Net Margin %

3.96

4.23

5.57

11.95

33.18

8.16

3.27

3.95

4.27

1.10 0.16

Asset Turnover (Average)

0.79

0.73

0.49

0.54

0.45

0.39

0.62

0.72

0.68

0.66 0.56

Return on Assets %

3.13

3.07

2.71

6.40

14.86

3.17

2.04

2.86

2.89

0.72 0.09

Financial Leverage (Average)

2.45

2.67

2.14

2.26

2.10

3.93

3.97

4.29

5.14

5.29 5.47

Return on Equity %

7.26

7.86

6.50

14.11

32.21

9.56

8.04

11.82

13.61

3.75 0.47

Return on Invested Capital %

7.26

5.81

4.71

8.14

22.12

4.75

2.98

3.46

3.40

2.83 1.81

Interest Coverage

Liquidity/Financial Health

2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 Latest Qtr

Current Ratio

2.69

2.43

1.96

1.97

1.26

1.78

2.04

1.83

2.47

2.12

2.00

Quick Ratio

1.76

1.23

0.78

0.99

0.48

0.94

1.06

0.80

1.38

0.95

0.83

Financial Leverage

1.92

2.10

1.93

2.17

2.82

2.64

2.48

2.35

2.41

2.44

2.39

Debt/Equity

0.25

0.35

0.13

0.29

0.70

0.62

0.52

0.45

0.61

0.58

0.50

CONCLUSION

Based on analysis, the proponents chose to invest their 1 million pesos to San Miguel
Corporation. It was found out that the San Miguel Corp has a lower WACC and as a rule
the lower the better. The proponents also did a financial ratio analysis of the two
companies and San Miguel Corporation is better than DMCI Holdings in almost all
aspects.