UNIVERSIDAD RICARDO PALMA

GLOBAL BUSINESS ADMINISTRATION

“ADVANCED PROJECT”

Members:

● Valeria Barrientos Mejia

● Celeste Contreras Torres
● Lucero Tataje Cortez
● Alexander Ramírez Trebejo

Profesor:​ Carlos Taranco

ÍNDICE

1. Introduction……………………………………………………….
2. Problem Statement………………………………………………..
3. Formulation of the Problem……………………………………...
4. Justification of the theme…………………………………………
5. Theoretical Framework…………………………………………..
6. Objectives………………………………………………………….
7. Conclusions………………………………………………………..

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 INTRODUCTION

This research work aims to analyze the company "Laive SA" to make a diagnosis with the
help of financial instruments studied throughout the cycle that will serve as a basis to know
the situation in which that company is and, for therefore, be able to propose measures in the
medium and long term. The analysis was carried out in the financial statement for the year
2015-2016-2017-2018 available in the Portal of the Superintendence of Securities Market
(SMV)

To carry out the aforementioned analysis, we have considered present, previously,

information about the activity of the company and the main external and internal variables
that affect the company to take into account the results of the analysis for the aforementioned
years.

Laive is a company that is dedicated to the manufacture, sale, import and export of different
types of basic consumer products, highlighting its dairy products. In addition, Laive has its
own brands such as Hacienda Bazo Velarde, Watts.
The joint-stock company is jointly owned by Valor Agro (Peru) and Santa Carolina (Chile).
Currently, Laive S.A has 9,425,879 shares outstanding on the Peruvian stock exchange with a
nominal value of s / 1.

This analysis will allow us to determine if the company Laive has the capacity to generate
value for the shareholder in the future, in the midst of a context in which it has to compete
with their direct competitors in the case of Lacteos is Gloria, which currently has a greater
part of the Peruvian market. Laive currently has a percentage of preference of 15% of the
Peruvian market.

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2. PROBLEM STATEMENT

The problem that Laive has is liquidity the company does not guarantee its growth in the
short term, this did not generate confidence in a creditor, we can see it reflected in the acidity
ratio.

If the company currently liquidates its cash it is not enough to cover its liabilities, and it
would have to sell inventories or other assets.

Another problem that we can identify is that the cost of short and long term debt is very high.

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 Financial Information:

The most relevant items in current assets, for the 4 years, are constituted by inventories and
accounts by charge commercials, which represent 26% of total assets for 2015, 28% for 2016,
25% for 2017 and 24% for 2018 respectively. It is important to mention that current assets
are
increased by S /.25923 (in thousands of nuevos soles) since 2015 to 2018 .
As we can appreciate in the balance sheets extracted from the SMV, the assets of Laive
increased from 2015 to 2018 wit a value of S/.47, 588 ,000 , however since then they have
increased through the years. On the other hand, the liabilities had a different variation, they
increased from 2015 to 2018 (10618)
We carried out the financial analysis of Laive S.A based on the Statement of financial
position and statement of comprehensive income. In this way, you can have a better
understanding of financing and investment made by the company, and how they have
evolved between the years 201015, 2016, 2017 and 2018.

The company has liabilities in 2016 ,2017, 2018

The four main financial institutions, the main financing products are:

2015 2016 2017 2018

loans 43009 69% 32 55% 29424 64% 42052 67%

leasing 17647 28% 20.3 35% 16618 36% 21130 33%

overdrafts 1413 2% 6 10% 0 0% 0 0%

62069 58.3 46042 63182

The average annual interest rate you pay is 6.44%, the maturity is until 2025 for the fours
years and the currency of origin of the debt is in soles. Below, we show the main sources of
financing by companies in the financial system.

We see the company had more loans in 2015 than previous years , with respect to leasing had
small variations but 2017 was the year that had more , in 2016 had a big overdrafts in their
liabilities.

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LOANS LEASING OVERDRAFTS

5
Income Statements General Analysis

In the income statements shown, we can appreciate that the net income of this corporation has
significantly grown from the year 2016 to the year 2017 from 9,676 to 19,950. Due to the
growth from the income, we can also see an increase in the value of the stock.

3. FORMULATION OF THE PROBLEM

The company Laive present problems in its liquidity does not guarantee a sustained growth in
the short term, this can be observed through the years analyzed in the acidity ratio, it means
that the company would not have how to assure its creditors its growth, this ratio It shows
that if the company is liquidated at this time the cash they have would not be enough to cover
their debts and they should sell inventories or other assets.

4. JUSTIFICATION OF THE THEME

The importance of the analysis goes beyond that it is an essential basis for the financial
decision-making process. With economic analysis it is possible to study in depth the
economic processes, which allows objectively evaluate the work of the organization,
determining the possibilities of development and improvement of services and management
styles.

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5. THEORICAL FRAMEWORK

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6. RATIOS AND ANALYSIS ABOUT 4 LAST YEARS

LIQUIDITY RATIOS

● CURRENT RATIO

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

2015 2016 2017 2018

1,28 1.22 1.38 1.43

158,571/123,416 169, 835/139,298 163,959/118,449 184,494/128,701

The four years they don’t represent a remarkable variation .Laive has a current ratio of 1.43
in 2018, which means that company has improved their capacity of payment in that year it
can easily settle every dollar on loan. The ratio is more than 1, which means that the company
has a good capacity payment and ability to cover their short-term debts.

● ACID TEST

ACID TEST = (CURRENT ASSETS - INVENTORIES) / CURRENT LIABILITIES

2015 2016 2017 2018

0.50 0.44 0.57 0.65

158,571 - 97,225/ 169,835 - 109,149/ 163,959 - 96,524/ 184,494 - 100,314/

123,416 139,298 118,449 128,701

For each S / .1 that owe the company , it has 0.65 cents to pay, in conclusion it is not in
condition in any of the 4 years to pay all of its short-term liabilities without selling its
merchandise .The company in each year does not even reach 1 could mean that it depends on

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inventory or other assets to pay its liabilities in the short term. It is convenient that you sell
part of your actions soon to be able to face your short term. Debts without complications.

● CASH RATIO

CASH RATIO = (CASH AND CASH EQUIVALENTS/ CURRENT LIABILITIES)

2015 2016 2017 2018

0.018 0.012 0.04 0.08

2,177/123,416 1,673/139,298 4,454/118,449 10,729/128,701

The figure indicates that Company in the four years 2015,2016,2017 and 2018 no
possesses enough cash and cash equivalents to pay its current liabilities. The
company is highly liquid and can't easily fund its debt.

● OPERATING CASH FLOW

OPERATING CASH FLOW = (OPERATING CASH FLOW/ CURRENT

LIABILITIES)

2015 2016 2017 2018

0.16 0.17 0.26 0.22

19,990/123,416 23,975/ 139,298 30,710/118,449 28,362/128,701

Therefore, the company in 2017 earns $0.26 from operating activities per dollar of current
liabilities. Alternatively, it can be viewed that Company can’t cover its current liabilities and
indicates short-term cash flow problems , even didn’t improve in 2018 .

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LEVERAGE FINANCIAL RATIOS

● DEBT EQUITY RATIO

DEBT EQUITY RATIO = TOTAL LIABILITIES / SHAREHOLDERS EQUITY

2015 2016 2017 2018

1.07 1.10 0.89 0.93

193,259/181,364 204,619/185,921 181,196/202,948 203,877/218,334

In 2018 as per the balance sheet, the total debt of a business is worth $203,877 and the total
equity is worth $218,334 then debt-equity is 0.93. Although it is lower than 2015 and 2016,
this means that the volume of debts is excessive and the company is losing financial
autonomy to third parties.

The optimal value that the company should reach is between 0.4 or 0.6 so that it does not
have problems.

● DEBT RATIO

DEBT RATIO= TOTAL LIABILITIES / TOTAL ASSETS

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 2015 2016 2017 2018

0.52 0.52 0.47 0.48

193,259/374,623 204,619/390,540 181,196/384,144 203,877/422,211

Therefore, the figure indicates that in 2015 and 2016 , 52% of the company’s assets are
funded via debt .It means the company owns more assets than liabilities compared previous
years and can meet its obligations by selling its assets if needed. The lower the debt to asset
ratio, the less risky the company.

● DEBT TO EQUITY RATIO

DEBT TO EQUITY RATIO = (TOTAL LIABILITIES / SHAREHOLDERS

EQUITY)

2015 2016 2017 2018

1.07 1.10 0.89 0.93

193,259/181,364 204,619/185,921 181,196/202,948 203,877/218,334

This means that in 2016 for every dollar in equity, the firm has 1.10 cents in leverage.
A ratio of 1 would imply that creditors and investors are on equal footing in the
company’s assets.

● INTEREST COVERAGE RATIO

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 INTEREST COVERAGE RATIO = (OPERATING INCOME/ INTEREST
EXPENSES)

2015 2016 2017 2018

2.38 3.08 4.51 5.62

20,717/8701 22,858/7413 35,722/ 38,639/

8762-1443+601 6821-1200+1256
8701=(6,692-1,166 7413=(8,746-1,419
+3,175) +86)

Company in 2018 can pay its interest payments 6 times with its operating profit , but
compared to previous year the company has improved .

● DEBT SERVICE COVERAGE RATIO

DEBT SERVICE COVERAGE RATIO = (OPERATING INCOME / TOTAL DEBT

SERVICE)

2015 2016 2017 2018

3.10 2.61 4.08 5.66

20,717/6,692 22,858/8,746 35,722/8,762 38,639/6,821

The debt service coverage ratio of 5.66 in 2018 indicates that the company’s net operating
income is enough to cover only 94.34% of its annual debt payments and makes it easier to
obtain a loan.

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EFFICIENCY RATIO

● ASSET TURNOVER RATIO

ASSET TURNOVER RATIO = ( NET SALES / TOTAL ASSETS)

2015 2016 2017 2018

1.32 1.35 1.50 1.59

495,043/374,623 526,124/390,540 586,774/390,540 612,275/384,144

Comparing the three assets turnover ratios in the four years , in 2018 the ratio is 1.59
is generating 1 dollar of sales for every dollar invested in assets and is more efficient
in using its assets to generate revenue than previous years.

● INVENTORY TURNOVER RATIO

INVENTORY TURNOVER RATIO = (COST OF GOODS SOLD / AVERAGE

INVENTORY)

2015 2016 2017 2018

3.97 3.76 4.64 4.64

385,508/97,225 410,306/109,149 447,494/96,524 465,146/100,314

In 2018, the inventory turnover is rated 5 times a year compared to previous years just
increased a little bit. It's a signal of inefficiency, reflect a inventory buildup in the case of
material shortages or in anticipation of rapidly rising prices.

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 ● RECEIVABLES TURNOVER RATIO

RECEIVABLES TURNOVER RATIO = (NET CREDIT SALES / AVERAGE

ACCOUNTS RECEIVABLES)

2015 2016 2017 2018

0.05 0.08 0.03 0.02

2,411/51,799 4,464/53,481 2,048/58,571 1,431/67,922

On average, the company collects its receivables 1 time a year , The lower ratio is in 2018
the longer receivables are being held and the risk to not be collected increased . Implies that
the company should re-assess its credit policies in order to ensure the timely collection of
credit sales that is not earning interest for the firm.

● DAYS SALES INVENTORY RATIO

DAYS SALES INVENTORY RATIO = (365 / INVENTORY TURNOVER RATIO)

2015 2016 2017 2018

91.94 97.10 78.73 78.72

365/3.97 365/3.76 365/4.64 365/4.64

For the year-end 2016 financial statements, Laive . reported an ending inventory of $109 ,149
and a cost of sales of $410,306 . Given the figures, the days sales inventory for the year is
91.94 days, meaning it takes approximately 92 days for the company to sell their stocks but
compared to 2018 takes 79 days to sell it .

PROFITABILITY RATIO

● RETURN ON EQUITY

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 RETURN ON EQUITY = (NET INCOME / EQUITY)

2015 2016 2017 2018

0.050 0.052 0.11 0.11

9,055/181,364 9676/185,921 19,950/185,921 21,378/202,948

● GROSS MARGIN

GROSS MARGIN = (GROSS PROFIT / NET SALES)

2015 2016 2017 2018

0.22 0.22 0.24 0.24

115,818/526,124 139,280/586,774 147,129/612,275

As we can see, In 2017 has a ratio of 24 percent. in 2017 and 2018 This is a low ratio . This
means that after Laive pays off his inventory costs, he still has 24 percent of his sales revenue
to cover his operating costs, just increased 2% than previous years.

● OPERATING MARGIN RATIO

OPERATING MARGIN RATIO = (OPERATING INCOME / NET SALES)

2015 2016 2017 2018

0.042 0.043 0.06 0.06

20717/495043 22858/526124 35,722/586,774 38,639/612,275

This company makes $0.06 cents in 2017 and 2018 before interest and taxes for every dollar
of sales , it’s used to pay for variable costs

● RETURN ON ASSETS RATIO

RETURN ON ASSETS RATIO = (NET INCOME / TOTAL ASSETS)

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 2015 2016 2017 2018

0.02 0.03 0.05 0.05

9,055 / 374,620 9,676/390,540 19,950/384,144 21,378/422,211

For every dollar of assets the company in 2017 and 2018 invests in, it returns 50 cents in net
profit per year.

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7. WACC (2018)

As can be seen, the company has financed its assets ($ 422,211) with a mixture of debt and
equity ($ 218,334 ). Suppose, also, that the cost of these sources of financing is 6.80% for the
liability (interest rate) and 4.80 % for the capital.
Development: The capital structure of the company "LAIVE" is conformed by 48.29% of
debt, 17.15% of common shares, 0.04% of investment shares and 51.71% of profits.

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 Balance Sheet
Assets 422,211 Debt 203,877

Equity 218,334
Total Assets 422,211 Total Liabilities 422,211

Debt ratio 203,877 x 422,211 0.48

equity ratio 218,334 x 422,211 0.52

WACC= 203,877 x 0.28 + 218,334 x 0.01

422,211 422,211

WACC= 0.1352 + 0.0052

WACC= 0.1404
WACC= 14.04 %

The company finds it difficult to finance 5,77% combining financing with third parties and
financing with equity.

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WITH TAX

WACC
= (1-0.18) x 203,877 x 0.28 + 218,334 x 0.01
422,211 422,211

WACC
= 0.82 x 0.1352 + 0.0052
WACC 0.005
= 0.1109 + 2
WACC
= 0.1160
WACC
= 11.60 %

8. CAPM (2018)

Re = ROA + D/V (ROA - Rd)

● ROA = Net Income / Total Assets

ROA = 21,378 / 42,2211
ROA = 0.05

● Rd = Net Income / Long Term Debts

Rd = 21,378 / 65,321
Rd = 0.28 or 28%

● Debt = 75,176

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 ● V = 422,211

Re = 0.05 + 75,176 / 422,211 ( 0.05 - 0.28)

Re = 1 %

Although the estimated yield is positive, 1%, it is very low. This is because the cost of
long-term debt is very high.

9. OBJECTIVES

● GENERAL OBJECTIVE:

The purpose of this project is to analyze and interpret the statuses of the LAIVE
company in the periods from 2015 to 2018 to determine if the decisions taken were
the most accurate.

● SPECIFIC OBJECTIVE:

❖ Examine the balance sheet and the income statement, according to the
information available on the website of the Banco de Valores de Lima.
❖ Apply the tools and techniques of traditional financial analysis with its proper
interpretation.
❖ Evaluate the financial decisions that have been made in the company in
accordance with the results revealed for the periods analyzed.

10. METHOD

The present research work was carried out through qualitative and correlational methods.

The analysis was carried out with the financial statements of the years 2015-2018 obtained
from the BVL and information on the activity of the company has been considered to take
into account the results of the analysis of the aforementioned years.

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CONCLUSIONS

The company has a good strategy to maintain its market and keep innovating in products and
growing gradually . However, its history, its ratios can be better exploited, strengthen it to
gain market to its competitors.

Another important point that we can see that Laive presents liquidity problems, this doesn’t
guarantee a sustained growth in the short term, therefore this can generate a problem for the
company, since we see that although it grows in its sales, it has a high cost of Long-term
debts, in other words, non-current liabilities, and this is a risk.

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REFERENCES:

Laive S.A. (2017,2018 ). Estados Financieros anuales e Información financiera adicional.

Retrieved from ​http://www.smv.gob.pe/ConsultasP8/temp/Laive%2031.12.18-17.pdf

Laive S.A. (2015,2016 ). Estados Financieros anuales e Información financiera adicional.

Retrieved from ​http://www.smv.gob.pe/ConsultasP8/temp/Laive%2031.12.16-15.pdf

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