Dijamco, Grace

Lagarteja, Regrine
Rodriguez, Nicko

Centro Escolar Integrated School, Inc.

Company Introduction

Centro Escolar Integrated School, Inc. (CEIS) was incorporated in the Philippines on July 24, 2013. It is a subsidiary of
Centro Escolar University, with its Main Campus in Mendiola, and satellite campuses San Miguel, City of Malolos,
Bulacan, Makati City, and Las Piñas City in Metropolitan Manila. The School is presently engaged in providing
educational services covering pre- elementary, elementary and secondary education. It offers complete K-12 Program or
the Enhanced Basic Education of the Department of Education (DepEd) from Preschool (Nursery, Pre-Kindergarten &
Kindergarten), Grade School (Grades 1 to 6), Junior High (Grades 7 to 10) and Senior High School (Grades 11 to 12:
ABM, HUMSS, & STEM Academic Strands).

CEIS, Inc. is a private non-sectarian educational institution with Government Recognition and Government Permit to
Operate under the supervision of DepEd District 10 of the City Schools Division of Malolos, Bulacan, Region III,
Philippines and an active member school of the Malolos City Private Schools Association (MACIPRISA) and People
Management Association of the Philippines (PMAP) Bulacan Chapter.

Last March 17, 2016 the School was granted by a provisional permit to operate the Senior High School Program effective
school year 2016-2017 which will cover academic subjects such as Accounting, Business and Management (ABM),
Science, Technology, Engineering and Mathematics (STEM) and Humanities and Social Sciences (HUMSS).

For the school year 2016-2017 Senior High School students in CEIS which were covered by voucher program of CHED
totaled 456 and 449 for the 1st semester and 2nd semester respectively. The School is considered new entrants in the field
of providing primary and secondary education in Malolos wherein it is surrounded by established schools such as Holy
Spirit Academy of Malolos, Montessori School of Malolos, Immaculate Conception School of Malolos, International
Montessori Center among others.

The registered office, which is also its principal place of business, is located at KM 44 MacArthur Highway, Longos,
Malolos City, Bulacan.

Case Presentation and Discussion

Last AY 2017-2018, CEIS was able to admit 900 incoming senior high students. These students were funded mostly by
CHED vouchers, which meant a guaranteed payment for enrollment. This influx of students, if remained constant, would
mean consistent income for CEIS.
Given that there is a consistent and potentially growing influx of these students, CEIS is faced with the problem of inabilit y
to admit more students because of limited capacity of its current building, which currently houses 30 classrooms. It is
expected that for the coming academic year, around 900 students (around the same increase as the previous academic
year) will be applying as senior high school students at CEIS. This is an lost opportunity for CEIS to generate more
income since there are other schools in Malolos that offer senior high school and accepts CHED vouchers as means of
paying tuition fees.
The current teacher to student ratio for CEIS is at 1:30, which is still acceptable as per CHED standards (1:40). Even
though CEIS decides to increase its student ratio to 1:40, it would only be able to admit additional 300 senior high school
students for the upcoming academic year, and would mean that 600 potential students will be lost to CEIS.
Given this problem, CEIS is planning to put up an annex building which can accommodate an additional 1000 students,
given the 1:30 teacher to student ratio. The construction of the building will be largely funded by the CEU Main Campus.

3. Analysis including how the case situation is affecting the financial condition or operations of the firm
The influx of students caused a congestion in the operations of the school. Due to this steady increase in the number of
enrollees, the school has been unable to keep up in terms of facilities and buildings. There is a steady demand but they
have the inability to accept more students due to the limited capacity. They had a noticeable increase in finances as the
years progressed however, operations started to suffer. Their revenue is most likely to plateau when the school has
reached its maximum student capacity. With regards to this, the school is planning to set up a new building annex to
accommodate the influx of students. This however, would entail resources from the school and it would also require some
time before the building is able to accommodate students.

Aside from this, there are students who drop out in the middle of the school year and are unable to continue for the next
semester. This affects the finances of the school in such a way that the school will not be able to collect again for the
student for the next semester because the student already dropped out. The continuity of the influx of money from CHED
is therefore halted. The vouchers from CHED also become uncollectible afterwards. Since the school is relatively new,
this issue is not of major priority.

Moreover, CEIS being a subsidiary of CEU in Mendiola, shares the same Chief Finance Officer with the parent campus.
This lead to certain inconsistencies, and significant accounting and auditing issues. Moreover, monitoring of the finances
has been a problem since the CFO is only a visiting authority. This means that there are no regular employees situated in
CEIS that oversee the financial activities in the school in situ. The problems then remain unidentified and unaddressed
most of the time.

Proposed Recommendation
Given that the construction of an annex building would take around 1-2 years, we propose to temporarily increase the
student to teacher ratio to 1:40 to accommodate additional 300 students for the succeeding academic years as the annex
building is undergoing construction.

Table 1. Estimated Cost- Benefit Analysis of Increasing Student to Teacher- Ratio for CEIS for the Next Academic Year
(AY 2018-2019)
Number of Units Cost Per Unit Total
Tuition Fee For Additional 300 Students 300 25,000 7,500,000
Less: Additional Chairs and Tables to accommodate additional 300 1,000 300,000
300 students
Benefit/ Loss 7,200, 000
Note: cost-benefit analysis exclude tax and other payables. Units are in PHP

The current cost for creating one classroom is at PHP 1.1 M , according to current CHED standards (2012). Creating an
annex building which can accomodate 1000 students, would cost PHP 374 M, which is shouldered by CEU Main. CEIS
will pay CEU Main PHP 75,000 per classroom as rent upon creation of the annex building.
Expanding the capacity of CEIS would also mean hiring new teachers. The current salary for teachers is around PHP
20,000. One teacher can handle a maximum of 5 classes per subject. Additional 34 classrooms for CEIS would mean
additional 34 teachers for CEIS (7 teachers for each subject, multiplied by an average of 5 subjects per senior high school
track). The total cost for opening of Annex Building is PHP 5.076 M.
If the annex building will be at its full capacity at the moment of its opening, it would mean an influx of PHP 25,000,000 for
the school. Opening the CEIS Annex, deducting all the expenses, would mean an increase of PHP 19.924 M for the
school upon its opening.

Table 2. Cost-Benefit of Opening CEIS Annex Building (In PHP)

Cost Per Number of Total Notes
Unit Units
Tuition Fee 25,000 1000 25,000,000 Based on current tuition fee posted by CEIS, and assuming
there is no planned tuition fee increase
Expenses
Rental of Classrooms 75,000 34 2,550,000 Based on current rental fee paid by CEIS to CEU
Hiring of New Teachers 20, 000 34 680, 000 Based on CHED guideline on salary grade of school
teachers (salary grade 10-12)
Tables and Chairs 1,000 1000 1,000,000 Estimated from average market value of plastic armchairs
Other Expenses 846,000 Other expenses is computed as 20% of the total cost, to
account for future expenses or expenses that were not
accounted, which include but are not limited to
administration expense, maintenance expense, and
contingency fund.
Total Cost of Opening CEIS Annex 5,076,000
Total Benefit/Loss 19,924,000
Note: cost-benefit analysis exclude tax and other payables

Given these, we recommend to increase the teacher to student ratio to 1:40 during the construction of the annex building,
and to approve the construction of the annex building.

Financial Projections

Table 3: Financial Projection of Balance Sheet for CEIS

Centro Escolar Integrated School, Inc
KM 44, MacArthur Highway, Malolos City, Bulacan
TIN: 008-581-351
STATEMENT OF FINANCIAL POSITION
As at December 31
Projected Actual
2020 2019 2018 2017 2016 2015
ASSETS
Current Assets
Cash and Cash Equivalents 39,351,643 41,942,685 40,653,795 42,663,211 22,983,918 8,796,222
Marketable Securities 25,165,611 24,392,277 25,597,927 - - -
Trade and Other Receivables-Net 11,236,039 10,700,989 7,009,117 19,893,326 5,005,496 263,962
Inventories 1,858,860 1,689,873 1,536,248 1,396,589 540,474 1,088,893
Other Current Assets 3,222,621 2,929,656 2,663,323 2,421,203 2,430,278 3,604,540
TOTAL CURRENT ASSETS 80,834,774 81,655,480 77,460,410 66,374,329 30,960,166 13,753,617
Non-Current Assets
Property and Equipment-Net 377,637 343,306 312,096 283,724 - -
Available for Assets 50,000,000 25,000,000 5,000,000 - - -
Other Assets 50,933 46,303 42,094 38,267 17,925 73,657
TOTAL NON-CURRENT ASSETS 50,428,570 25,389,609 5,354,190 321,991 17,925 73,657
131,263,344 107,045,089 82,814,600 66,696,320 30,978,091 13,827,274
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable and Other Liabilities 38,697,487 35,179,534 31,981,395 29,073,995 15,920,465 1,831,137
TOTAL CURRENT LIABILITIES 38,697,487 35,179,534 31,981,395 29,073,995 15,920,465 1,831,137
SHAREHOLDERS' EQUITY
Share Capital 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000
Retained Earnings (Deficit) 79,458,357 59,365,555 38,333,206 25,122,325 2,557,626 (503,863)
TOTAL SHAREHOLDERS' EQUITY 91,958,357 71,865,555 50,833,206 37,622,325 15,057,626 11,996,137
130,655,844 107,045,089 82,814,600 66,696,320 30,978,091 13,827,274
Table 4. Projected Income Statement
REVENUES
Tuition and Other School Fees 84,066,429 80,063,266 52,441,205 42,801,148 15,934,156 4,019,474 62,754,778 100.00%
Income from Sales of School-Related Items 1,059,949 1,009,476 661,204 321,157 221,619 248,466 791,242 1.26%
Interest Income 7,534,732 7,247,935 5,269,021 2,271,246 2,072,758 151,907 4,495,911 7.16%
Other Income 3,062,271 2,916,449 1,910,265 1,087,764 1,027,399 170,793 2,285,956 3.64%
TOTAL REVENUES 95,723,381 91,237,125 60,281,695 46,481,315 19,255,931 4,590,640 70,327,886
OPERATING EXPENSES
Salaries and employee benefits 32,949,386 31,380,368 20,554,049 15,069,223 6,760,832 2,766,344 24,596,399 39.19%
Rentals 18,773,599 17,326,047 10,120,390 3,917,944 7,512,816 680,000 12,110,760 19.30%
Taxes and licenses 827,199 787,808 516,012 317,726 242,358 57,412 617,496 0.98%
Professional fee 583,776 555,977 364,163 278,960 94,471 62,352 435,783 0.69%
ID Processing 425,605 405,338 265,495 232,330 71,045 14,335 317,710 0.51%
Culminating expense 521,263 496,441 325,168 228,661 65,689 94,768 389,118 0.62%
Provision for credit losses 490,545 467,186 306,005 203,437 162,750 - 366,187 0.58%
Instructional, academic and classroom expenses 331,158 315,388 206,578 191,092 33,223 22,891 247,206 0.39%
Sports Development 380,397 362,283 237,294 167,593 108,823 7,547 283,963 0.45%
Stationeries, printing & office expense 479,202 456,383 298,930 146,052 153,525 58,143 357,720 0.57%
Repairs and maintenance 246,952 235,192 154,050 119,391 53,868 11,088 184,347 0.29%
Management information expense 225,117 214,398 140,430 110,159 24,347 33,542 168,048 0.27%
Computer laboratory expense 138,508 131,913 86,402 103,395 - - 103,395 0.16%
Student development 200,098 190,569 124,822 71,399 46,298 31,674 149,371 0.24%
Health services 94,382 89,887 58,876 59,642 10,813 - 70,455 0.11%
Testing materials 94,159 89,676 58,737 53,456 16,833 - 70,289 0.11%
Academic development 155,300 147,905 96,877 44,745 45,129 26,056 115,930 0.18%
Recruitment/promotion/advertisement 88,024 83,832 54,910 35,854 9,230 20,625 65,709 0.10%
Cultural development 129,544 123,375 80,810 27,585 60,181 8,937 96,703 0.15%
Utilities 16,038 15,274 10,004 11,972 - - 11,972 0.02%
Library expense 13,621 12,972 8,497 10,168 - - 10,168 0.02%
Enrichment class 365,076 347,692 227,737 8,959 259,817 3,750 272,526 0.43%
Faculty development 136,369 129,875 85,068 8,789 80,709 12,300 101,798 0.16%
Depreciation expense 9,746 9,282 6,079 7,275 - - 7,275 0.01%
Transportation and travel 45,021 42,877 28,085 7,206 11,527 14,875 33,608 0.05%
Student Personal Accident Insurance 18,172 17,306 11,336 3,340 370 9,855 13,565 0.02%
Staff Development 5,621 5,353 3,506 2,450 1,000 746 4,196 0.01%
Administrative Development 13,279 12,647 8,284 2,175 2,488 5,250 9,913 0.02%
Postage, telephone and communications 2,691 2,563 1,679 500 425 1,084 2,009 0.00%
Bank charges 11,448 10,903 7,141 300 5,246 3,000 8,546 0.01%
Foreign students 10,154 9,671 6,334 - 7,580 - 7,580 0.01%
Student handbook 1,665 1,586 1,039 - 1,243 - 1,243 0.00%
Student activity pictures 32,914 31,347 20,532 - 24,570 24,570 0.04%
Miscellaneous expense 10,710 10,200 6,681 - 5,300 2,695 7,995 0.01%
Other charges 15,751 15,001 9,826 3,000 5,758 3,000 11,758 0.02%
TOTAL OPERATING EXPENSES 57,842,491 54,534,515 34,491,829 21,444,778 15,878,264 3,952,269 41,275,311
NET PROFIT (LOSS) BEFORE TAX 37,880,890 36,702,610 25,789,866 25,036,537 3,377,667 638,371 29,052,575
PROVISION FOR INCOME TAX
Current 3,788,089 3,670,261 2,578,987 2,492,182 332,456 48,946
Deffered - - - (20,344) (16,275) -
INCOME TAX 3,788,089 3,670,261 2,578,987 2,471,838 316,181 48,946
NET PROFIT (LOSS) AFTER TAX 34,092,801 33,032,349 23,210,880 22,564,699 3,061,486 589,425
OTHER COMPREHENSIVE INCOME - - - - - -
TOTAL COMPREHENSIVE INCOME (LOSS) 34,092,801 33,032,349 23,210,880 22,564,699 3,061,486 589,425
Table 5. Statement of Changes in Shareholder’s Equity
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Year Ended December 31
Projected Actual
2020 2019 2018 2017 2016 2015
PAID UP CAPITAL 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000
RETAINED EARNINGS
Balance at the Beginning of the Year 59,365,555 38,333,206 25,122,325 2,557,626 (503,863) (1,093,288)
Net Income (Loss) During the Period 34,092,801 33,032,349 23,210,880 22,564,699 3,061,486 589,425
Dividends (14,000,000) (12,000,000) (10,000,000)
Balance at the End of the Year 79,458,357 59,365,555 38,333,206 25,122,325 2,557,626 (503,863)
TOTAL SHAREHOLDERS' EQUITY 91,958,357 71,865,555 50,833,206 37,622,325 15,057,626 11,996,137

Assumptions of the financial projections

 Additional 300 students will be accommodated in 2018 and additional 1,000 students will be accommodated in 2019
and 2020. This is based on the following: Estimated no. of students in 2017 at 42M (revenues) / 25K (average
tuition fee/student) = 1,680 students
 Demand for services will continue to increase at expected rate
 Effect of inflation is insignificant
 Cost of annex is at P1M (per DepEd) /classroom * 34 classrooms = 34M. Cost of annex will be shouldered by its
parent company and will be carried in its books, CEIS will be charged an annual rental fee by its parent company at
75K (rental fee/classroom) * 25 (new classrooms) = 2.550 M. This is based on the following: Annual current rental
fee of 4M / 56 (classrooms) = ~ 75K (rounded off). This rental fee will commence after construction of annex and will
be fixed during the next 5 years
 Construction of annex will commence in January 2018 and will be finished in a year, after which, it will be fully
operational
 Allowable tuition fee increase of 5% per annum will be taken advantage once annex is operational so that such
increase can be justified to its customers and to CHED
 A 10% increase in all other assets and liabilities will be considered unless otherwise specified to simplify calculations
 Expenses will be at the same percentage of revenue in the previous 3 years unless otherwise specified. Calculation is
shown in the projected financial statements.
 Being an educational institution, its net income is subject to 10%
 There are no deferred taxes