Philippine E-Journals

Profitability, Liquidity, and Solvency of Twoselected Concrete Ready-Mix Companies in Cavite: A Comparative Study

Kenneth Paolo A. Sanchez | Elzaide N. Esguerra | Kristalyn Y. Bagarino

 

Abstract:

Establishing and maintaining an enterprise is not an easy task, specifically when it comes to financial matters. Proprietors have to take a closer look on the profitability, liquidity and solvency of their firms. These are usually the factors that stakeholders, investors, and financial managers look into in assessing a company’s stability. In this study, two concrete ready-mix enterprises were assessed by taking into consideration the three factors mentioned. In particular, the study aimed to determine the profitability rate of the said firms in terms of capital outlay, operational expenses, sales, and profit; and liquidity and solvency rate in terms of sales and receivables. Using a descriptive-comparative research design, the study was anchored on the DuPont System of financial analysis that would identify the strengths and weaknesses of an enterprise. The findings were the following: Company 2 (gross profit margin-13.7% and 13.2%; operating profit margin-4% and 4.2%; net profit margin-1.9% and 8.6%; return total assets-1.5% and 1.9%; and return-on-equity-3% and 4%) outperformed company 1(gross profit margin-7% and 6.1%; operating profit margin-2.2% and .09%; net profit margin-1.5% and .5%; return on total assets-4.4% and 1.4%; and return-on-equity-4% and 1%) with respect to profitability ratio. On the liquidity ratio, company 1 (current ratio-2.05 and 1.53%; quick acid test ratio-1.5 and 1.05%) has better liquidity ratio than company 2 (current ratio- .91% and .88%; quick acid test ratio-.87% and .84%). In terms of solvency, company 2 (debt ratio-.55% and .52%; and time interest earned ratio-24.2% and 30.2%) has better solvency ratio than company 1 (debt ratio-.28% and .26%; and time interest earned ratio-6.5% and 6.9%). Comparatively, the performance of company 1 is much better than company 2 based on the three aspects of performance. Hence, it is recommended that company 2 should benchmark the liquidity performance of company 1.