Well follow the concepts of value investing, the style of a renowned

investor, and one of the richest people in the world, Warren Buffett, for
the analysis of the financial statements of the following companies:
1. Universal Robina Corporation (URC)
2. Metro Retail Stores Group, Inc. (MRSGI) and
3. First Gen Corporation (FGEN)s
We will use 7 income statement ratios for the analysis of its
profitability, namely the following:
Gross Profit Margin
o Gross Profit is the money made by a company after all the
costs of raw goods and materials are subtracted from
the Revenue. If you divide it by the Revenue, we get
the Gross Profit Margin; a ratio that tells us how much
Gross Profit is made for every one peso of Revenue.
Operating Profit Margin
o Operating Profit is Gross Profit minus the Operating
Expenses. If divided by the Revenue, we get the Operating
Profit Margin which tells us how much Operating Profit is
made for every one peso of Revenue.
Net Profit Margin
o Net Profit Margin is a financial ratio that tells us how much
income is made for every one peso of Revenue. By looking
at this ratio, we can quickly tell how much the company
earned within the year.
Selling, General & Administration to Gross Profit
o The importance of getting this ratio is to know how
much SG&A Costs the company is spending relative to
their Gross Profit. Normally, we want a business with low
SG&A costs to maximize profits. Thats the purpose of this
ratio.
Depreciation to Gross Profit
o According to Warren Buffett, depreciation is a real expense
because any equipment will eventually wear out within its
life span and be replaced. Thats the reason why we should
learn to understand its effects on a companys profitability.
Research & Development to Gross Profit and
o Warren Buffett mentions that the threat of a newer
technology tends to put the long-term economics of a
company at a risk. Its for this reason that a company will
spend high on R&D Expenses to maintain its competitive
advantage. But if it fails, a companys product or service
may end up obsolete overnight. The importance of this
ratio is to know exactly how much R&D Expenses is spent
relative to Gross Profit.
Interest Expense to Operating Profit
 o Companies borrow money for a number of reasons. One
reason is to fund capital expenditures. The other is when a
company buys another company through a leveraged
buyout.
o The debt that the company carries on its books incurs
interest which is then paid during the year. The logic is
simple; more debt equals more interests to pay.
o This ratio will tell us how much Interest a company pays in
relation to its Operating Profits.

And 2 balance sheet ratios for the analysis of its financial health:
Current Ratio
o This ratio is about the current assets in relation to its
current liabilities.
o The Current Ratio is a very important financial indicator
because it can give you an overview of a companys ability
to pay off short-term liabilities.
Debt To Equity Ratio
o The whole point of this ratio is to determine how much
debt a company has for every one peso of equity. So that
we can know if a company can pay its debts.

Using these ratios, we will determine the profitability of a company,

how wealthy the company is, and which company is worth investing in.