C0HAPTER II

COMPANY PROFILE

This chapter intends to supply material information about Drake Personnel Phils., Inc.

concerning its history, organizational structure, business scheme, as well as its financial

highlights. This chapter also includes a financial analysis done on its financial statements.

A. History of the Company

Members of the Drake International Group of Companies are global specialists in the

field of human resources, performance improvement, consultative management, permanent

and temporary staffing and technology solutions. Established in Canada in 1951, Drake

operates in 10 countries around the world. In the Philippines, Drake is strategically located

in the Business District of Makati. The Philippine group of companies under Drake

International is herein referred to as Drake Philippines. It has several business entities under

its wings, namely, ASC Global Recruitment, Drake Business Services Asia, and Drake

Services, Inc. Drake Philippines is headed by Cristina P. Castaneda, who is the Chairman of

the Board of Directors, President, and Country Manager all at the same time.

Drake Personnel Phils. Inc. (also referred to in this study as DPP or Drake Personnel)

was incorporated in the Philippines and registered with the Philippine Securities and

Exchange Commission on October 17, 2008. Its primary purpose is to engage in business of

providing or furnishing any and all forms of services and facilities relating to local

recruitment and placement or employment.

Drake Personnel works with numerous multinational firms in the Philippines belonging

to different industries such as construction, business process outsourcing, fast-moving

consumer goods, and manufacturing to name a few.

 The company’s registered office and principal place of business is at 18th Floor, Trident

Tower, No. 312 Sen. Gil Puyat Avenue, Makati City, Metro Manila.

B. Organizational Structure

1. Organizational Chart

According to Investopedia.com, an organizational chart is a diagram that outlines the

internal structure of a company. It is the most common visual depiction of how an

organization is structured. It outlines the roles, responsibilities and relationships between

individuals within an organization. The organizational chart of Drake Personnel Phils., Inc.

can be seen in Figure 1.

 Figure 1

Country Manager

Quality
Management
Representative

OPERATIONS SUPPORT

BUSINESS RECRUITMENT FINANCE AND

DEVELOPMENT OPERATIONS ACCOUNTING

Business
Operations MARKETING AND
Development
Manager ADMINISTRATION
Officer

Business
HUMAN
Development Operations Officer
RESOURCES
Executive

Business
Managing INFORMATION
Development
Consultant TECHNOLOGY
Specialist

Senior
Recruitment
Specialist

Senior
Recruitment
Specialist

Recruitment
Specialist

2. Functions

Board of Directors

The Board of Directors (BOD) determines the company’s vision and mission to guide

and set the pace for its current operations and future development. They also determine the

values to be promoted throughout the company, review company goals, and company
policies. They review and evaluate present and future opportunities, threats and risks in the

external environment, and current and future strengths, weaknesses, and risks relating to the

company.

Country Manager

The Country Manager implements the company policy, directs strategy towards the

profitable growth and operation of the company, puts in place adequate operational planning

and financial control systems, and closely monitors the operating and financial results

against plans and budgets. She also approves and monitors the company’s strategies and

policies, annual budgets and business plans, evaluates the performance of the company, and

supervises the management of the firm.

Quality Management Representative

The Quality Management Representative monitors the internal operations of the

company and reviews whether or not the internal controls and governance policies that the

company has put into place are followed. At the same time, the Quality Management

Representative is also the Operations Manager in ASC Global Recruitment.

Support

The Support Team is a shared services unit of Drake International’s Group of

Companies in the Philippines. Under Support are the Finance and Accounting, Marketing

and Administration, Human Resource, and Information Technology departments.

Accounting Manager

The Accounting Manager heads the Finance and Accounting Department. This

department manages the finances and resources of the company as well as the contracts with
clients, particularly matters regarding payment and collection. The Accounting Manager

supervises the accounting process and financial reporting of the company.

Senior Administrative Specialist

The Senior Administrative Specialist is the head of Marketing and Administration. This

department is in charge of the physical arrangements, procurement, and general maintenance

of the place of business of the company.

Human Resource Officer

The Human Resource Officer heads the HR Department. This department is associated

with the management of the organization’s human resources by continuously evaluating and

enhancing employee relations and human resource policies, programs, and practices. This

involves sustaining the work structure by updating job requirements and job descriptions for

all positions.

Senior IT Specialist

The Senior IT Specialist heads the Information Technology Department. This

department is responsible for system troubleshooting, safekeeping of technical equipments,

and procurement of systems and equipments that they deem suitable for the operations of the

company.

Operations Manager

The Operations Manager’s functions are, but not limited to, researching and reporting on

external opportunities, developing marketing strategies and plans, management of the

marketing mix, and managing budgets. The Operations Manager generally heads both the

Business Development Team and Recruitment Operations Team.

Business Development Manager

The Business Development Manager heads the Business Development Team, which is

responsible for market research and client prospecting and recruitment.

C. Business Scheme

1. Operational Characteristics

The purpose of operating a business is to earn profit by providing a valuable service.

Drake Personnel Phils. Inc.’s operations include training and assessing personnel,

performing services related to human resource management and development, providing

human resource technologies to various enterprises/institutions, and maintaining and

operating an information centre for the collection and dissemination of employment

information. Drake Personnel is both a recruitment and placement firm. It is recognized as a

recruitment firm as it provides services to other Drake Companies abroad. On the other

hand, it is also recognized as a placement firm as it provides services to outside, non-related

parties locally.

2. Financial Highlight

This part covers and illustrates the charts and figure of DPP’s distribution of assets,

sourcing of assets and nature and sources of revenues and expenses. Moreover, analysis of

the company’s financial condition is also highlighted in this section. Different financial

ratios were used to aid in the study.

2.1.Distribution of Assets

Assets illustrate the resources controlled by the entity which benefits are expected to

flow to the entity. This section highlights how assets are allotted for the year 2014-2015.
 TABLE I
Distribution of Assets

DISTRIBUTION OF 2015 2014 2013 AVERAGE %

ASSETS
Cash ₱3,000,802 ₱2,847,774 ₱3,513,253 ₱3,120,610 16.39%
Receivables 7,876,299 6,934,608 6,709,978 7,405,454 38.90%
Due from related 7,146,077 5,460,369 5,715,977 6,303,223 33.11%
parties
Prepayments and other 1,604,263 1,215,654 893,400 1,409,959 7.41%
current assets
Property and equipment 392,891 763,857 1,102,206 578,374 3.04%
– net
Intangible asset 115,817 247,234 10,646 181,526 0.95%
Other assets 50,000 25,000 25,000 37,500 0.20%
Total Assets ₱20,186,149 ₱17,494,496 ₱17,970,460 ₱19,036,644 100%

The company imposes an Imprest System of cash management but does not apply a

Petty Cash System. All cash are in bank, stated in face value, and earn interest at the

prevailing deposit interest rates. On the average, cash makes up 16.39% of the total assets.

In 2014, cash and cash equivalents decreased significantly due to its poor collection policy

while the usual operations of the company continue. Cash, being the most liquid asset,

should generally be higher than any other asset.

The largest component of assets is the company’s receivables, which are generally

collectible within a 30 to 60 day period. This item is composed of receivables from trade

that are not yet due as of balance sheet date, excess mobile usage, SSS maternity benefits,

and other medical premiums advanced by the company to its employees through check or

direct payment and later on deducted from their salaries.

In the normal course of business, the company enters into various significant

transactions with related parties. Dues from related parties make up 33.11% of Total Assets,

almost as much as the receivables. This is because company normally advances funds to

other Drake Philippines companies for working capital support. The amounts are generally
payable on demand and bear no interest but are offset with Dues to related parties that are of

the same account.

Prepayments and other current assets include input VAT, prepaid insurance, prepaid

advertising, prepaid office supplies, advances to employees, and creditable withholding

taxes. Prepayments are expenses not yet incurred but already paid for. Input VAT is

recognized as the revenue of the company is bigger compared to its expenses. Advances to

employees pertain to non-interest bearing advances which are payable upon demand,

through liquidation or through salary deduction. Creditable withholding tax represents taxes

withheld by the company’s customers in accordance with the tax regulations, which

remained unutilized as of the end of the reporting period. These can be utilized by the

company as a deduction from future tax obligations. Prepayments and other current assets

are classified as noncurrent when it is not probable to be incurred within one (1) year from

the end of financial reporting date or the company’s normal operating cycle, whichever is

longer. Prepayments and other current take up only 7.41% of the pie.

Property and equipment significantly decreased from 2013 to 2015. Based on the

assessment performed, there were no assets found impaired or whose carrying values may

not be recoverable. What comprise most of the property and equipment account are the

computers as they are the medium used by the company’s employees in their operations.
 Distribution of Assets
Cash
Receivables
Due from Related Parties
Prepayments and Other CA
Property and Equipment
Intangible Asset
Other Assets

2.2.Source of Assets

Drake Personnel Phils., Inc.’s source of assets consists of its equity and liabilities.

Liabilities are economic obligations of the firm that are recognized and measured in

conformity with generally accepted accounting principles. Liabilities also include certain

deferred credits that are not obligations but recognized and measured in conformity with

generally accepted accounting principles. Equity, on the other hand, is the residual interest

of the company. It is in excess of the agency’s assets over liabilities.

TABLE II
Source of Asset

SOURCES OF ASSET 2015 2014 2013 AVERAGE %

Accounts payable and ₱3,625,473 ₱2,142,943 ₱1,762,471 ₱2,510,296 13.53%
accrued expenses
Due to related parties 10,972,258 9,350,304 12,279,899 10,867,482 58.58%
Deferred tax liability - 961 - 320 0.002%
Share capital 3,000,000 3,000,000 1,000,000 2,333,333 12.58%
Retained earnings 2,588,418 3,000,288 2,928,090 2,838,932 15.30%
Total Liabilities and ₱20,186,149 ₱17,494,496 ₱17,970,460 ₱18,550,368 100%
Equity

Accounts payable and accrued expenses consist of: Payables for goods and services that

have been acquired in the ordinary course of business from suppliers; Dues to government

agencies such as BIR, SSS, HDMF and PHIC; Accrued expenses of rent, dues and
subscriptions, repairs and maintenance, communication, light and water, and professional

fees; and, Output VAT. This liability account makes up 13.53% of the sources of asset and

provides means to operate on a daily basis.

Dues to related parties largely source the assets of the company as it takes up 58.58% of

the pie. The account represents transfer of funds from a related party to the company for

working capital support.

Without the dues to related parties, the company depends mostly on its equity. Common

shares (Ordinary Shares) have a par value of Php 10.00 while 92,300 shares were authorized

by the company. Of the authorized shares, 69,300 shares are issued and outstanding as of

December 31, 2015. Preferred shares (Preference Shares), on the other hand, are valued at

Php 100.00 each. 30,770 shares were authorized where 23,070 are issued and outstanding as

of December 31, 2015. On October 31, 2013, the BOD recommended the declaration of

200% stock dividends to stockholders of record as of December 31, 2013 resulting in the

reclassification of retained earnings amounting to Php 2 Million in capital stock. As a result

of such declaration, 15,380 preferred shares and 46,200 common shares were issued.

Appropriated Retained Earnings showed a consistent amount from 2013-2014. On

December 16, 2013, the BOD approved the appropriation amounting to Php 2 Million for an

impending expansion/investment project in a new outsourcing business in 2014. Considering

that the account remains untouched, it is deemed that the investment has not been made yet.

On the other hand, the Unappropriated Retained Earnings showed vital changes as it slightly

increased in 2014 then significantly decreased to almost half of its amount in 2015. The

somewhat increase in 2014 may be inferred from the significant increase in net income,
which was balanced by the amount of stock dividends issued. The significantly huge decline

in 2015 is caused by the net loss that the company has suffered.

Sources of Asset
Accounts Payable and
Accrued Expenses
Due to related Parties

Deferred Tax Liability

Share Capital

2.3.Nature and Sources of Revenue

Revenue is recognized when it is probable that the economic benefits associated with the

transaction will flow to the company and the amount of the revenue can be measured

reliably.

TABLE III
Nature and Sources of Income

NATURE & SOURCE 2015 2014 2013 AVERAGE %

OF INCOME
Revenues ₱51,565,421 ₱47,447,846 ₱55,813,338 ₱35,792,920 99.94%
Interest Income 5,528 8,232 9,285 4,938 0.01%
Miscellaneous Income 6,427 476,134 43,550 16,659 0.05%
Total Source of ₱51,577,376 ₱47,932,212 ₱55,866,173 ₱18,550,368 100%
Income

The Revenue line item in the Statement of Comprehensive Income arises from rendering

recruitment (Management Fee) and placement (Placement Fee) services and, until 2013,

temporary staffing services. Revenue has significantly varied over three years.

Interest income from bank deposits is recognized on a time proportion basis that reflects

effective yield on the asset and is presented net of final tax, while; miscellaneous income is

recognized when earned and when the related costs can be measured reliably.
 2.4.Nature of Cost and Expenses

Being a service-oriented business, the expenses of Drake Personnel Phils., Inc. are

mainly for cost of services and operating expenses. Cost of services are expenses incurred

that are associated with the services rendered, while Operating expenses are costs

attributable to administrative and other business activities of the company.

TABLE IV
Nature of Costs and Expenses

NATURE OF COSTS 2015 2014 2013 AVERAGE %

& EXPENSES
Costs of Services ₱43.622.055 ₱37,696,512 ₱48,086,434 ₱30,569,496 86.24%
Operating Expenses 8,107,444 6,994,951 6,313,324 4,806,923 13.56%
Bank charges 97,407 57,102 28,961 42,123 0.12%
Foreign exchange loss – 4,140 220,463 81,788 28,643 0.08%
net
Total Costs and ₱51,831,046 ₱44,969,028 ₱54,510,507 ₱35,447,184 100%
Expenses

TABLE V
Breakdown of Cost of Services

COSTS OF SERVICES 2015 2014 2013 AVERAGE %

Salaries and wages ₱35,769,797 ₱29,004,617 ₱35,894,347 ₱33,556,254 77.79%
Transportation and 3,449,350 3,351,915 8,178,581 4,993,282 11.58%
travel
Rent 1,701,234 1,165,898 631,439 1,166,190 2.70%
Communication, light 1,094,315 1,418,805 1,478,793 1,330,638 3.08%
and water
Depreciation and 665,892 1,135,423 1,067,941 956,419 2.22%
amortization
Building dues 406,697 406,810 563,369 458,959 1.06%
Office supplies 349,582 350,002 13,614 237,733 0.55%
Training and seminars 102,198 814,216 258,350 391,588 0.91%
Others 82,990 48,826 - 43,939 0.10%
Total Cost of Services ₱43,622,055 ₱37,696,512 ₱48,086,434 ₱43,135,000 100%
 TABLE VI
Breakdown of Operating Expenses

OPERATING 2015 2014 2013 AVERAGE %

EXPENSES
Salaries and wages ₱3,907,277 ₱2,341,700 ₱1,200,730 ₱2,483,236 34.79%
Communication 1,031,526 787,729 678,958 832,738 11.67%
Employee benefits 797,056 643,971 1,302,067 914,365 12.81%
Advertising 544,024 1,066,319 563,380 724,574 10.15%
Professional fees 468,695 711,700 1,362,512 847,636 11.87%
Taxes and licenses 401,062 472,650 362,629 412,114 5.77%
Representation expense 283,163 449,077 97,134 276,458 3.87%
Insurance 173,298 137,950 545,547 285,598 4.00%
Repairs and 91,399 62,880 93,773 82,684 1.16%
maintenance
Membership fees 50,801 17,000 - 22,600 0.32%
Transportation and 31,841 22,705 48,299 34,282 0.48%
travel
Miscellaneous expense 327,302 281,200 58,295 222,266 3.11%
Total Operating ₱8,107,444 ₱6,944,881 ₱6,313,324 ₱7,138,550 100%
Expenses

Tables IV,V and VI show that costs of services largely exceed the operating expenses of

the company which implies that a larger amount of resources of the company are allocated

more for activities related to placement services. On the average, cost of services make up

86% of the average total cost and expenses while operating expenses make up only 13.56%.

3. Financial Analysis

Financial amounts are to be evaluated to aid the company in making wise economic

decisions concerning the business. Methods of analysis to be used with the financial

statements information of Drake Personnel Phils., Inc. include the horizontal, trend

percentages, common-size or vertical, and ratio analyses.

3.1.Peculiar Terms and Accounts

The business operations of Drake Personnel Phils. Inc. is just like any other service-

oriented business. It does not have any peculiar accounts particular to its industry.
 3.2.Vertical Analysis

Common-size financial statements were prepared in presenting a vertical analysis where

accounts are shown as percentages of a total. Using common-size financial statements help

investors to spot trends that a raw financial statement may not uncover.

The Common-size Statement of Comprehensive Income for the years ended December

31, 2013 to 2015 is shown at Table VII below.

TABLE VII
Common-size Statement of Comprehensive Income

2015 2014 2013

REVENUES 100% 100% 100%
COST OF SERVICES 84.60% 79.45% 86.16%
GROSS PROFIT 15.40% 20.55% 13.84%
OPERATING 15.72% 14.74% 11.31%
EXPENSES
INCOME (LOSS) -0.32% 5.81% 2.53%
FROM OPERATIONS
OTHER (INCOME)
EXPENSES
Interest Income 0.01% 0.02% 0.02%
Bank charges 0.19% 0.12% 0.05%
Foreign exchange loss 0.01% 0.46% 0.15%
– net
Miscellaneous Income 0.01% 1.00% 0.08%
INCOME BEFORE -0.49% 6.25% 2.43%
INCOME TAX
INCOME TAX 0.31% 1.88% 0.74%
EXPENSE
NET INCOME -0.80% 4.37% 1.69%

Vertical Analysis-Statement of Comprehensive Income 2013-2015

Revenue from rendering of services, the main, and almost, the only, source of income,

continues to dominate revenues.

The total cost of services decreased from 86.16% in 2013 to 79.45% in 2014, but

subsequently increased in 2015 to 84.60%. The decrease was caused by the decline in

transportation and travel and salaries and wages in 2014, while the increase was followed by

the subsequent hiring of talents in 2015. Meanwhile, total operating expenses increased from
11.31% in 2013 to 14.74% in 2014 and to 15.72% in 2015. The increase was caused by the

constant hiring of professionals who make the operations of Drake Personnel effective and

efficient for its recruiters.

3.3.Horizontal Analysis

Horizontal Analysis, according to Investopedia, is a procedure in which an analyst

compares ratios or line items in a company’s financial statements over a certain period of

time. The analyst will use his or her discretion when choosing a particular timeline.

Trend Analysis

Trend Analysis, a type of Horizontal Analysis, shows past information over a certain

period of time using the earliest year presented as base year which enables an analyst to

predict the movement or result in the future.

Horizontal Analysis – Statement of Financial Position 2013-2014

Cash decreased by 19% in 2014. This could be attributed to the simultaneous decrease in

revenue in 2014 as the company ended its temporary staffing services and focused on

permanent executive placement as a source of its revenue.

Receivables constantly increase throughout the years though it remains to be reported at

a huge amount at the end of the year. It may be inferred that services were rendered near the

end of the year. On another point of view, collection of receivables may be too relaxed.

The company normally advances funds to other Drake Philippines companies for

working capital support. A minimal decrease of 4.47% occurred in 2014 as the account was

offset by an advancement of funds to Drake Personnel from the same Drake Philippines

Company it previously transferred amounts to.

 TABLE VIII
Comparative Statement of Financial Position
For the Year Ended December 31, 2013 and 2014

For the Year Ended Dec 31 2014-2013

2014 2013 Inc(Dec) %
ASSETS
Current Assets
Cash ₱2,847,774 ₱3,513,253 ₱(665,479) (18.94%)
Receivables 6,934,608 6,709,978 224,630 3.35%
Due from related parties 5,460,369 5,715,977 (255,608) (4.47%)
Prepayments and other current 1,215,654 893,400 322,254 36.07%
assets
Total Current Assets ₱16,458,405 ₱16,832,608 (374,203) (2.22%)
Non-current Assets
Property and equipment – net 763,857 1,102,206 (338,349) (30.70%)
Intangible asset 247,234 10,646 236,588 2,222.32%
Other assets 25,000 25,000 - 0.00%
Total Non-current Assets ₱1,036,091 ₱1,137,852 (101,761) (8.94%)
TOTAL ASSETS ₱17,494,496 ₱17,970,460 (475,964) (2.65%)
LIABILITIES AND
EQUITY
Current Liabilities
Accounts payable and accrued 2,142,943 1,762,471 380,472 21.59%
expenses
Due to related parties 9,350,304 12,279,899 (2,929,595) (23.86%)
Total Current Liabilities ₱11,493,247 ₱14,042,370 (2,549,123) (18.15%)
Non-current Liability
Deferred tax liability 961 - 961 0.00%
Total Liabilities ₱11,494,208 ₱14,042,370 (2,548,162) (18.15%)
Equity
Share Capital 3,000,000 1,000,000 2,000,000 200.00%
Retained Earnings 3,000,288 2,928,090 72,198 2.47%
Total Equity 6,000,288 3,928,090 2,072,198 52.75%
TOTAL LIABILITIES AND ₱17,494,496 ₱17,970,460 (475,964) (2.65%)
EQUITY

Prepayments increased by ₱322,254 in 2014 because of the significant increase in Input

Value Added Tax resulting from purchases from VAT-able companies. Input VAT is net of

Output VAT amounting to ₱972,549 in 2014.

Property and equipment decreased to ₱763,857 by 30.70% in 2014. This account

includes office equipment, computers, furniture and fixtures, and leasehold improvements.
The significant decrease can tell that, although there is increase in acquisition, depreciation

and amortization still play vital roles in the valuation of PPE.

In 2014, the company acquired through purchase accounting software which caused the

Intangible Asset account to significantly increase to ₱247,234 from ₱10,646. Amortization

significantly increased as well because of the acquisition.

Accounts payable and accrued expenses significantly increased by ₱380,472 in 2014.

This increase was mostly due to the increase in trade payables and dues to government

agencies from employee benefits.

The amount due to related parties from 2013 significantly decreased in 2014 by 23.86%

because the company paid off some of its dues and did not incur any other dues to

stockholders. Drake Personnel, however, continues to incur additional dues to related

parties.

An isolated case of deferred tax liability was recorded in 2014 for the amount of ₱961.

The share capital account increased in 2014 as the Board of Directors declared on

October 31, 2014 the distribution of 200% stock dividends to stockholders of record on

December 31, 2014.

 TABLE VIX
Comparative Statement of Financial Position
For the Year Ended December 31, 2014 and 2015

For the Year Ended Dec 31 2015-2014

2015 2014 Inc(Dec) %
ASSETS
Current Assets
Cash ₱3,000,802 ₱2,847,774 ₱153,028 5.37%
Receivables 7,876,299 6,934,608 941,691 13.58%
Due from related parties 7,146,077 5,460,369 1,685,708 30.87%
Prepayments and other current 1,604,263 1,215,654 388,609 31.97%
assets
Total Current Assets ₱19,627,441 ₱16,458,405 3,169,036 19.25%
Non-current Assets
Property and equipment – net 392,891 763,857 (370,966) (48.56%)
Intangible asset 115,817 247,234 (131,417) (53.15%)
Other asset 50,000 25,000 25,000 100.00%
Total Non-current Assets ₱558,708 ₱1,036,091 (477,383) (46.08%)
TOTAL ASSETS ₱20,186,149 ₱17,494,496 2,691,653 15.39%
LIABILITIES AND
EQUITY
Current Liabilities
Accounts payable and accrued 3,625,473 2,142,943 1,482,530 69.18%
expenses
Due to related parties 10,972,258 9,350,304 1,621,954 17.35%
Total Current Liabilities ₱14,597,731 ₱11,493,247 3,104,484 27.01%
Non-current Liability
Deferred tax liability - 961 (961) (100%)
Total Liabilities ₱14,597,731 ₱11,494,208 3,103,523 27.00%
Equity
Share Capital 3,000,000 3,000,000 - 0.00%
Retained Earnings 2,588,418 3,000,288 (411,870) (13.73%)
Total Equity 5,588,418 6,000,288 (411,870) (6.86%)
TOTAL LIABILITIES AND ₱20,186,149 ₱17,494,496 2,691,653 15.39%
EQUITY

Horizontal Analysis – Statement of Financial Position 2014-2015

Cash increased by 5.37% in 2015. Despite the net loss that the company suffered in

2015, the amount of cash still increased which may be attributable to collections made all

throughout the year.

 Dues from related parties increased by 35.34% in 2015 as a new Drake Philippines

company emerged and needed working capital support.

Prepayments increased significantly by ₱388,609 because of a huge increase in the

amount advanced to employees worth ₱417,800.

Property and equipment decreased by 48.56%, equivalent to ₱370,966, from 2014’s

₱763,857. The company continues to acquire property and equipment in 2015 and there

were no impairments. However, depreciation and amortization still play vital roles in the

valuation of PPE which caused the significant decrease.

The intangible assets account decreased by 53.15% because of the on-going amortization

for the accounting software acquired through purchase in 2014.

Accounts payable and accrued expenses significantly increased by 69.18% worth

₱1,482,530 in 2015 as trade payables more than doubled last year’s account due to

increasing demand in purchases and government dues.

The amount due to related parties slightly increased in 2015 because of the continuous

advancement of funds of related parties in order to cater to the company’s working capital

needs.

The isolated case of deferred tax liability recorded in 2014 for the amount of ₱961 was

eliminated in 2015 as the Company gained a Deferred Tax Asset instead. However, the

Deferred Tax Asset amounting to ₱228,640 have not been recognized as at December 31,

2015 because it is not probable that future taxable profit will be available against which the

company can utilize the benefits there from.

 The appropriated retained earnings did not change in the last three years while the

unappropriated retained earnings decreased because of the net loss incurred by the company

at the end of 2015.

TABLE X
Comparative Statement of Comprehensive Income
For the Year Ended December 31, 2013 and 2014

For the Year Ended Dec 31 2014-2013

2014 2013 Inc(Dec) %
REVENUES ₱47447846 ₱55813338 (8365492) (14.99%)
COST OF SERVICES 37696512 48086434 (10389922) (21.61%)
GROSS PROFIT ₱9751334 ₱7726904 2024430 26.20%
OPERATING EXPENSES 6994951 6313324 681627 10.80%
INCOME (LOSS) FROM ₱2756383 ₱1413580 1342803 94.99%
OPERATIONS
OTHER INCOME (EXPENSES) –
NET
Interest Income 8232 9285 (1053) (11.34%)
Bank Charges 57102 28961 28141 97.17%
Foreign exchange loss – net 220463 81788 138675 169.55%
Miscellaneous income 476134 43550 432584 993.30%
₱206801 (₱57914) 264715 457.08%
INCOME (LOSS) BEFORE ₱2963184 ₱1355666 1607518 118.58%
INCOME TAX
INCOME TAX EXPENSE 890986 411146 479840 116.71%
NET INCOME (LOSS) ₱2072198 ₱944520 1127678 119.39%

Horizontal Analysis-Statement of Comprehensive Income 2013-2014

Revenue has significantly changed over the last two years due to the elimination of

temporary staffing in 2014. The change brought an almost fifteen percent (15%) decrease in

the company’s revenue in the same year.

Parallel to the changes in revenue are the changes in cost of services. Because the

company focused on providing permanent executive search services, the directly attributable

costs have dipped by 21.61%. It may also be gathered that the costs have been declining

when compared to revenue, which is economically a good thing so that there may be enough
resources left for the operations of the company. The costs of placing a candidate dropped

from 86.16% to 79.45% of its revenue. The company should find a way to continuously

drop its costs without compromising the quality of its service.

The increase in foreign exchange loss of ₱138,675 in 2014 may be attributed to the

changes in the value of Peso in comparison to the various foreign currencies held by the

Company. It can also be inferred that the company earned more revenue from foreign

transactions in 2014 than in 2013.

The total comprehensive income of Drake Personnel significantly increased in 2014 as

compared from 2013’s despite dropping its temporary staffing services. This is

advantageous for the company as more resources may be available for its continuous

operations.

TABLE XI
Comparative Statement of Comprehensive Income
For the Year Ended December 31, 2014 and 2015

For the Year Ended Dec 31 2015-2014

2015 2014 Inc(Dec) %
REVENUES ₱51565421 ₱47447846 4117575 8.68%
COST OF SERVICES 43622055 37696512 5925543 15.72%
GROSS PROFIT ₱7943366 ₱9751334 (1807968) (18.54%)
OPERATING EXPENSES 8107444 6994951 1112493 15.90%
INCOME (LOSS) FROM (₱164078) ₱2756383 (2920461) (105.95%)
OPERATIONS
OTHER INCOME (EXPENSES) –
NET
Interest Income 5528 8232 (2704) (32.85%)
Bank Charges 97407 57102 40305 70.58%
Foreign exchange loss – net 4140 220463 (216323) (98.12%)
Miscellaneous income 6427 476134 (469707) (98.65%)
(₱89592) ₱206801 (296393) (143.32%)
INCOME (LOSS) BEFORE (₱253670) ₱2963184 (3216854) (108.56%)
INCOME TAX
INCOME TAX EXPENSE 158200 890986 (732786) (82.24%)
NET INCOME (LOSS) ₱411870 ₱2072198 (2484068) (119.88%)
Horizontal Analysis-Statement of Comprehensive Income 2014-2015

Because of the change in the company’s source of income in 2014, it had to adjust for a

while but nevertheless rose again. This consequent increase in 2015 is advantageous to the

company because revenue from operations contribute cash that the company requires to

maintain its business operations.

As always, parallel to the changes in revenue are the changes in cost of services.

However, variable as it is, it has increased from 2013’s 79.45% to 84.60% in 2014. This

might mean that the costs directly attributable to rendering a service may have increased or

that the company failed to control its expenses.

Operating expenses increased to ₱8 Million in 2015 when the company has maintained

the expenses to ₱6 Million for 2 years. The increase is attributable to the increase in shared

services’ employees, dramatically affecting salaries and wages, communication, and

employee benefits.

The foreign exchange loss account significantly decreased by 98.12% in 2015. This may

be because the company rendered less foreign transactions in 2015 than in 2014. Another

reason may be that the foreign currencies’ value decreased at the end of 2015.

Income from operations suffered a negative ₱164,078 and the total comprehensive

income a negative ₱411,870, which means that not enough resources are left to be able for

the company to continue its operations effectively.

Trend Percentages-Statement of Comprehensive Income 2013-2015

Revenue in 2014 was only 85% of 2013’s while 2015’s was 109% of 2014. The

company being able to bounce back to its benchmark revenue is favourable because the

revenue of its services is the lifeline of the entity. In order to support its operations, Drake
Personnel must be able to continuously generate revenues but at the same time minimize the

costs it comes with. The Costs of Services and Operating Expenses both increased by 116%

in 2015.

The highly significant increase in income from operations and total comprehensive

income in 2014 is followed by a disappointing significant decrease in 2015, which resulted

to a negative in amount. This is disadvantageous to the growth of the company and must

therefore be taken into action.

TABLE XII
Statement of Comprehensive Income
Trend Percentages

For the year ended December 31

2015 2014 2013
Revenues 109% 85% 100%
Cost of Services 116% 78% 100%
Gross Profit 81% 126% 100%
Operating Expenses 116% 111% 100%
Income (Loss) from Operations -6% 195% 100%
Other Income (Expenses) – Net
Interest income 67% 89% 100%
Bank charges 171% 197% 100%
Foreign exchange loss – net 2% 270% 100%
Miscellaneous income 1% 1093% 100%
-43% -357% 100%
Income (Loss) Before Income -9% 219% 100%
Tax
Income Tax Expense 18% 217% 100%
Net Income (Loss) -20% 219% 100%

3.4.Ratio Analysis

3.4.1. Liquidity Ratios

Liquidity ratios give information about the ability of a firm to satisfy its short-term

financial obligations. It shows the ability of a firm to convert its short-term assets to cash
when the need to fulfill short-term obligations presents itself. Table XIII presents the

liquidity ratios of Drake Personnel Phils. Inc. for the years 2013, 2014, and 2015.

TABLE XIII
Liquidity Ratios

Liquidity Ratios Formula 2015 2014 2013

Current Ratio Current Assets / 1.34:1 1.43:1 1.20:1
Current Liabilities
Quick Ratio (Cash + Accounts 0.75:1 0.85:1 0.73:1
Receivable) /
Current Liabilities
Working Capital Current Assets – ₱5,029,710 ₱4,965,158 ₱2,790,238
Current Liabilities

The current ratio tests the liquidity of a firm by dividing its current assets over its current

liabilities. This measures the ability of the company to pay its obligations when they come

due. In the 3 years, Drake Personnel was able to develop its current ratio from 1.20 to 1.43

to 1.34 because of the escalation in its cash, receivables, due from related parties, and

prepayments. Ideally, current ratios should at least be 2:1 or simply 2. However, current

ratios may also depend on the industry of a company. According to Bizminer Industry

Financial Report released on December 2016, executive search firms’ current ratio

benchmark is at 1.95:1 on the average. In DPP’s case, although the current ratio has been

constantly improving, it has yet to reach the ideal number. The company is still susceptible

to being insolvent during a worst case scenario.

The quick ratio is used to measure whether the company is liquid enough to pay its

short-term dues or not. The company’s quick ratio did not reach 1:1 signifying that the quick

assets of the company are not capable of paying for its current liabilities.

As seen in table XIII, the working capital for 2013 and 2014 are both positive, which

means current assets are more than current liabilities.

 3.4.2. Debt Ratios

Solvency ratios, or debt ratios, measure a firm’s ability to meet its long-term obligations

while remaining solvent. The table below shows the solvency ratios of Drake Personnel

Phils., Inc.

TABLE XIV
Solvency Ratios

Solvency Ratios Formula 2015 2014 2013

Debt Ratio Total Liabilities 0.72 0.66 0.78
/ Total Assets
Debt to Equity Ratio Total Liabilities 2.61 1.92 3.57
/ Total Equity
Equity Ratio Total Equity / 0.28 0.34 0.22
Total Assets

Throughout the three years, the total liabilities of the company exceeded its total equity.

The solvency ratios show that the assets of the company are heavily financed by debt. If

no additional investments are to be made, the company must then devise a way to increase

the net income that increases the retained earnings of the company.

3.4.3. Profitability Ratios

Profitability ratios indicate a firm’s operating efficiency. Included here is the ability to

generate income and cash flows.

The increase in service revenue is not enough to conclude that the company is profitable.

Certain factors must be taken into consideration such as how much of the revenue is left

after all costs and expenses are accounted for. The return on assets and equity must also be

studied. Table XV shows the profitability ratios of Drake Personnel Phils., Inc.
 TABLE XV
Profitability Ratios

Profitability Ratios Formula 2015 2014 2013

Gross Profit Margin Gross Profit / Service 0.15 0.21 0.14
Revenue
Operating Profit Operating Profit / Service -0.003 0.06 0.03
Margin Revenue
Return on Assets NI After Tax / Total Assets -0.02 0.12 0.05
Return on Equity NI After Tax / Total Equity -0.07 0.35 0.24
DuPont Analysis GP Margin x Return on -1.14% 7.10% 3.33%
Asset x Financial Leverage*
*Financial Leverage Total Assets / Total Equity 3.61 2.92 4.57

Gross profit margin measures the residual profit after deducting the cost of services.

Among the years included in the analysis, 2015 gross profit margin declined from 0.21 to

0.15. The service revenue increased in 2015. Accordingly, the cost of services also

increased.

The operating profit refers to the residual profit after the cost of the services and

operating expenses are deducted from the service revenue. Like the gross profit margin, the

operating profit margin kept on decreasing from a ratio of 0.03 in 2013 to 0.06 in 2014 until

it resulted to a -0.003.

Return on assets indicates how efficient management is at utilizing its assets in

generating income. Return on equity reveals how much profit a company generates with the

money shareholders have invested. The return on asset and return on equity are measured by

comparing the total residual profit after tax has been deducted from the operating profit to

the total assets or equity of an entity. Same as operating profit margin, the return on asset

and return on equity shot up in 2014 but declined and resulted to a negative in 2015.

DuPont Analysis measures a company’s performance by analysing the following which

composes the Return on Equity (ROE): profit margin, total asset turnover, and financial
leverage. It can be inferred that Drake Personnel is selling its services at a small margin as

evidenced by its profit margin, is having a difficult time turning over large amount of sales

as evidenced by its asset turnover, and is not dependent on debt as a means of financing its

assets as evidenced by its average financial leverage. The higher the financial leverage, the

more the company is dependent on sourcing its assets through debts.

3.4.4 Performance Ratios

Performance ratios indicate a firm’s efficiency in collecting its accounts receivable,

paying its accounts payable, and maintaining its inventory. However, because Drake

Personnel Phils. Inc. is a service-oriented entity, other performance ratios such as fixed asset

turnover, payable turnover, and inventory turnover are not applicable to the company. Table

XVI below shows the performance ratios of DPP for the years 2014 and 2015.

TABLE XVI
Performance Ratios

Performance Ratios Formula 2015 2014 2013

Receivable Turnover Sales / 6.55 6.84 8.32
Accounts
Receivable
Days’ Sales in AR 360 / 55 53 43
Receivable
Turnover
Total Asset Turnover Sales / Total 2.55 2.71 3.11
Assets

Receivable turnover ratio measures the entity’s effectiveness in extending credits and in

collecting those credits. It helps users know how efficient the company is in collecting

funds. Generally, a higher ratio means the company has a good collection policy in making

its customers pay. However, a very high ratio might mean that the company is too tight on

its policy which might lead to earning low revenue. DPP’s receivable turnover proves to be

on the average with 6.55.

 Days’ sales in accounts receivable ratio measures the average number of days it takes for

an accounts receivable to be collected. Drake Personnel’s collection of accounts receivable

takes 50 days on the average.

Total asset turnover measures how well the company utilizes its assets to generate sales.

A high asset turnover ratio means that the company is using its assets efficiently in order to

generate high revenue. In comparing the company’s historical ratio, it can be found that it

has been decreasing each year which means that the company has not been generating more

revenue per value of asset.

4. Strengths and Weaknesses

In the Review of Related Literature in Chapter 1, it was stated that, in order for a

recruitment agency to keep pace in the changing demands of the market and continuous

innovation of technology, it must seek and create new opportunities and solutions to offer

the global and local market. With what can be gathered from the Operational Characteristics

description of the company, Drake Personnel has already been providing a number of

“added-value services” that Human Resource Management professionals and employers

would need in the coming years, more than the outsourcing of the recruitment process. With

the proper development and advertising of these services, Drake Personnel would not only

be able to keep their place in the recruitment and placement industry, but might as well

surpass those who are currently at the top of the game.

It can be observed that the largest component of the Assets section is the Receivables.

Because the company’s revenue is of a huge amount, brought by its nature of business, the

size of its receivables is acceptable. However, although this asset can easily be converted to

cash especially when it falls due and demandable, it would still be better if the account
would be maintained at a minimum. When a company holds a huge amount of receivables

and maintains a lax collection policy, the conversion of receivables to cash would cost the

company the amount that they could have invested if they had the cash on hand already.

Also, the amount of cash that should have been turned around from the receivables could

have been used in providing for the other operational needs of the company.