Financial Accounting 2 Reflection

According to Inquirer.com, food and plastics input manufacturing firm D&L Industries landed on Forbes Asia’s “Best Under A Billion” list for 2016, the only Philippine firm that made it to this roster of 200 leading public companies in the Asia-Pacific region. In this paper, I am going to talk about some of their current and noncurrent assets which are taken from their 2015 financial statement.

We Filipinos, whether in our native homeland or not, have a deep and passionate love for food and anything to do with it, we bond over food. We Filipinos also practice extreme cleanliness with respect to our bodies, our clothes and our personal environment. We are also known for being creative given the tools and technology they will come out with world class products and prove that they are globally-competitive. Which is the reason why I think D&L Industries has landed on Forbes Asia’s “Best Under A Billion”. This corporation caters to almost all the significant things we Filipinos need.

In this paper, I want to present to you a publicly listed corporation that has a principal business lines in food ingredients, aerosols, colorants, additives & engineered polymers, and oleo chemicals, resins and powder coatings and tell my insights as a potential investor of this company.

D&L Industries is a Filipino company engaged in product customization and specialization for the food, plastics, and aerosol industries. The company’s principal business activities include manufacturing of customized food ingredients, specialty raw materials for plastics, and oleochemicals for personal and home care use. Established in 1963, D&L has the largest market share in each of the industries it serves, as well as longstanding customer relationships with the Philippines’ leading consumer and chemical companies. It was listed on the Philippine Stock Exchange in December 2012.

One important thing to look in the financial statement of the corporation is its assets. Assets are the resources owned and controlled by business and are expected to benefit future operation. Assets may be classified into current and non-current, where Current Assets are ones that an entity expects to use within one-year time from the reporting date and Non Current Assets are those whose benefits are expected to last more than one year from the reporting date. In the financial statements, The individual current assets are usually listed in order of their liquidity, with the most liquid asset, “Cash” appearing first.

The breakdown of Cash and cash equivalents of the corporation can be seen in Note 3. Cash can be referred to as bills, coins, bank balances, money orders, and checks. Cash is used to acquire goods and services or to eliminate obligations. While Cash equivalents are assets that can be readily converted into cash. The Cash in bank as at December 31 2015 is P2, 895,969,030.00 which is higher than the cash in bank in the year 2014 which is P 1,744,607,296.00.

The note for Cash and Cash equivalents also show how much of cash are invested in short investments. Their short term investments are so much higher in the year 2015 than the year 2014. This is a good move by the company because they can earn interest through short term investments, instead of the cash being kept and idle. Since the cash in bank and short term investments went higher, naturally the cash in hand will go lower. This doesn’t mean that the company is losing money, it just means that it placed its cash in other bank and investments, instead of just keeping it.

        It is good for a company to have a self-insurance and have contingency plans in case of incidents. It can self-insure by maintaining a relatively high level of liquidity in the form of cash and cash equivalents to protect its business against other potential risks. And it is good to know that at the end of 2015, the cash and cash equivalents of D&L Industries Corporation were 18% of the company’s total assets.

Another current asset is the receivable of the company. Receivables are financial assets that represent a contractual right to receive cash or another financial asset from another entity. The receivables of the D&L industries corporation can be seen in Note 4 of the financial statements of the company. The trade receivables refer to claims arising from the ordinary course of business which is selling of foods and other products. The gross trade receivable of the company decreased in the year 2015, and also the allowance for impairment. This is a contra-asset account that reduces the total receivables reported to reflect only the accounts receivable expected to be collected. The movements of allowance for impairment are also shown in Note 4.

The trade receivables of the company went down by 17% from P3.9 billion in 2014 to P3.3 billion in 2015. We cannot conclude from this that the company did not perform as good as well in 2014 because according the company, there are lower commodity price in the year 2015 that is why the amount of trade receivables went down.

 The company makes an allowance for impairment based on their own provision. This provision is based on their past collection experiences and other factors that may affect the collectability of the accounts. An evaluation of the receivables is also performed on a continuous basis throughout the year, designed to identify potential charges to the provision.

Non-trade receivables are receivables arising from sources other than the sale of merchandise in the ordinary course of business. This includes advance to suppliers, advances to officers and employees, and other receivables. The non trade accounts receivable for the year 2015 is also lower than in the year 2014. But it doesn’t mean that the company is not performing well. It could mean that there are more cash sales than credit sales or some of the credit sales are already collected before year-end.

It could be seen in the Note that the company has written off some receivables, this is due to the fact that they are no longer collectible. And if this continues, it will have a relatively large negative impact on the company. So the company should continuously improve its collection efficiency by collecting the accounts when it is demandable as well as lowering the credit terms of the company.

Noncurrent assets are company long-term investments where the full value will not be realized within the accounting year. Noncurrent assets, unlike current assets, are generally not liquid, and their full values are not realized within one fiscal year. One common type of noncurrent assets is Plant, Property, and Equipment. The breakdown of Plant, Property, and Equipment can be seen in Note 5.The plant assets are often listed in order of their expected useful life with the assets with the longest expected useful life, “Land” appearing first. The company did not bought any land properties in the year 2015 seeing that the Land accounts is the same as the balance in the year 2014.