First Farms Corporation started as a small animal feeds manufacturing in 1950s. The company has expanded to other agribusiness products and set up nationwide facilities. Though the company has performed well, it has a dilemma – a huge deficit in the operating cash flows of Php 719 million despite increasing revenues. Also, return on equity (ROE) is decreasing.
In analyzing the case, the group is taking the point of view of the Vice President for Finance – addressing the main issue of the source of the decrease in ROE. To determine the causes of the decrease, we looked into the different financial ratios and did trending using common size analysis.
Discussion of relevant issues revealed that the decrease in ROE is caused by the decreased efficiency in the utilization of current assets – especially accounts receivable. The group therefore recommends the further investigation of the increase in accounts receivable and inventory.
I. Point of View
This group is on the point of view of a Vice President – Finance
II. Case Context
The First Farms Corporation (FFC) started as a small animal feeds manufacturing plant in the 1950s. Since then, the company’s operation has expanded into fresh and frozen chicken, processed meat, and animal health product and feeds. FFC went public in February 1995. Proceeds were used to expand operations, additional working capital and to retire part of the corporation’s long-term debt.
In 1995, FFC posted a 44% increase in sales, and an 89% increase in net income, wresting industry leadership from Marigold. New product lines – like feeds contributed to the profitability of the company. The year also marked its entry into the fast-food business. With these developments, the company is proposing expansion in its chicken dressing plants, with the ultimate goal of doubling the capacity. This proposal of expansion is to be financed by short-term notes. The industry is currently facing...