FISRT FARM CORPORATIONI. BACKGROUND OF THE STUDYFirst Farms Corporation was established by the Francisco, Joselito and ArturoEvangelista in the 1950s where they started a small animal feeds manufacturingplant in Caloocan with 15 employees. The company has expanded to otheragribusiness products and set up nationwide facilities. In 1995, FFC raised P1.1billion from its initial public offering. P500 million of the proceeds was used asworking capital (livestock inventories and raw materials), P476 million went toexpansion of operations and acquisition of properties while P69 million was usedto pay part of the corporation’s long term debt. In the same year, the Companyacquired exclusive rights to develop and operate California Chicken andGulliver’s Chicken restaurants in the Philippines. During the 1990s, 60 percent ofits revenues are coming from its chicken business and its main markets aresupermarkets, retailers and the hotel and restaurants industry. During the Execommeeting for the performance in the first half of 1996, the company faced aproblem in their cash flows and the proposed actions were to extend the 30 dayscredit term to 60 or 90 days and to offer a 5% discount to their customers who paywithin 10 days.Consolidated sales for the year still amounted to P5.7 billion which is 44% higher than the previous year. P3.508 billion or 62% of revenue was from chicken sales hence, taking over leadership in the business from Marigold Foods Inc. Moreover, FFC has outpaced the industry growth on chicken sales volume which is largely attributed to the company’s increased contract growing base. Net incomewas also up 89% amounting to P280 million despite the increasing costs of production.II. STATEMENT OF THE PROBLEM1. What action should Mr. Ricardo recommend for the next Execon meetingto improve their current states, strategies and financial position in thepoultry business?2. Is it recommended for the FFC to proceed with the expansion through theconstruction on new chicken dressing plants and new feed mills?III. OBJECTIVE/S1. To identify and present the action of FFC in the next Execon meeting andwith their valued customers.2. To plan weather there is a need of additional warehouse posed by theexpansion through the construction of chicken dressing plants and newfeed mills.IV. AREAS OF CONSIDERATIONA. SWOT ANALYSISa. Strengthi. The company is considered as a leading poultry integrator in thecountry and expanded with multiple product lines such as, freshfrozen chickens, processed meats, animal health products and feeds.ii. Fast-growing revenues by more than 20% annually and ROE withincreasing 50% annually in the 1990s.iii. A largest consumer of corn and other feed grains in the country whichallows it to buy raw materials at a lower cost compare with othercompetitors.iv. Considered as a leader of chicken industry in 1995 with a volumesales of 27% market shares.v. The first to introduce the aqua feed that floats to guarantee fishfarmers better feed hygiene and higher aqua farm productivity.b. Weaknesses i. With the present of poor forecasting with the market, resulting to ahigher production of chicken and offering good quality product at alower cost.ii. Feeds requirement increasing in every delayed harvestiii. Most of the company’s inputs or raw materials are prone to priceincrease which cause the increase in cost of production.iv. Production is constrained by the production capacity of the companyavailable facility and to require an expansion will also need largeinvestment.c. Opportunitiesi. Increasing demand for their new product line (aqua feeds)ii. New facility may encourage potential buyers due to accessibility ofplants and greater reliability of supply.iii. Lower tariff cost for exporting poultry would be an opportunity forthe businessd. Treatsi. Inefficiencies in corn production in the Philippines resulted to higher production costs for the local chicken producersii. With the lowering of import tariff of chickens, there is a high potentialthat there will be oversupply of chickens in the country hence decreasing its priceRelevant information/data for the analysis of the company’s performance- Offering a 5% discount for customers who pay within 10 days will result to reduction in the average collection time by 20%- The current credit term of the company with their suppliers is 30 days- Feeds accounts for only 30% of FFC’s current business and operating profit was positive at approximately 10% of sales o This information indicates that expanding its feed milling business (especially the new aqua feeds) is a good investment opportunity - Consolidated Balance Sheets (December 31 1993 – June 30 1996) will be usedfor computing financial ratios- Consolidated Statements of Income (December 31 1993 – June 30 1996) will be used for computing financial ratios- Details of Inventory Account (December 31 1993 – June 30 1996) shows that a big proportion (56% which includes the livestock and processed foods) of the company’s inventory is coming from its chicken business- Breakdown of revenues and volumes by major product category (1992-1995) shows that the company is intensively expanding its chicken and feed milling business- Revenues and costs by product category for the year 1995 shows that 61.71% of the company’s operating expenses is from the chicken businessV. ALTERNATIVE COURSE OF ACTIONProposed actions:1. Offer a 5% discount for customers who pay within 10 days2. Extend credit terms to 60 days3. Extend credit terms to 90 daysProposed Actions using Qualitative AnalysisTable 1. Advantages and disadvantages of the 3 proposed actionsProposed Action Advantages DisadvantagesOffer a 5% discount for customers who pay within 10 days- Collection period will decrease by 20%- Liquidity of the company will improve- Sales will improve- Lower revenues per unit ofoutputWith credit terms extended to 60 days- Financial risk will be reduced - Effective rate of interest will decrease- Possibility that the supplierwill not agree - Possibility that the supplierwill charge a higher interestWith credit terms extended to 90 days- Financial risk will be reduced- Effective rate of interest will decrease- Possibility that the supplierwill not agree - Possibility that the supplierwill charge a higher