Financial Management

Chapter 1 Part 2 Individual Assignment Online Presentation 3

Submitted by: Almario G. Parco Jr., CPA

MBA 104
Financial Planning
• The strategies are typically, dynamic & flexible, adaptable to changes according to
the prevalent business & economic scenario.
1. Diversification of assets - As the old saying goes; it is never wise to put ‘all your eggs in
one basket.’ Adequately diversified into different sectors.
2. Revving up the total cash reserves
a. In case of liquidity problems, sell off excess inventory equipments
b. Additional inventories should be procured, only up to the minimum necessary levels.
This would help your company to cut back on excess expenses.
c. The money saved in this way can be used to clear off unpaid bills &
other debt items.
3. Quality of Products - When the economic conditions are not favorable, produce a
superior- quality product, compared to rival business. The higher the quality of the
product &/or service would help to maintain the viability of the company in the eyes of
the customers, & help the former to survive business crises.
4. Employment of Part-time Workers - Corporate financial planning strategies state that, it
is not advisable to hire a large number of full-time, permanent employees, if the company
is facing a potential survival problem.
Instead, more part-time workers (who work as freelancers) should be hire (many software
companies same as Microsoft are actually doing this strategy).
These workers, unlike the permanent workers, need not be paid healthcare benefits &
several other business amenities. Hence, a significant amount from the company funds
can be saved.

Financial Planning (con’t)

• 5. Using Employee Opinions & Cheaper Materials - The financial plan should be
suitably complemented with all useful ideas that the existing employees of the
company can come up with (especially with a software company like Microsoft
as the employees are the main user of the product). Saving money on the
normally used expensive raw materials, & switching over to cheaper, good-
quality ingredients or partnership with other software companies for better
integration will always be an option.

Financial Planning (con’t)

 • A firm must at all times maintain overall
financial resources adequate to ensure that
there is no significant risk that its liabilities
cannot be met as they fall due. For the purpose
of determining the adequacy of its overall
financial resources, a firm must estimate the
Contingency financial resources it would need in each of the
circumstances and events considered in
Planning carrying out its stress testing and scenario
analysis in order to meet its liabilities as they
fall due.
• Having a credible contingency funding plan will
help the company to forecast the liquidity in
various worst-case scenarios.
Advantages
• A contingency fund estimate will help to relieve
of the company of financial problems in times
of difficulty.
• A contingency fund estimate will help prevent Contingency
the liquidation.
Planning
Disadvantages (con’t)
• The FCP may seem unnecessary when no
liquidation is planned.
What is the plan is for;
• The contingency fund plan will be for use during a liquidity crisis to enable the to survive.
It is recognized that all businesses face crises at certain points and it is their response to
these issues that determines their long term success, rather more than their results
during good times, which are often due to rising asset prices or when riding a wave of
short term demand.

Contingency
• If you have bigger organization you need to define who is involve on the planning and do
the monitoring.
• The crisis happen internal or external is both short and long term

A Short Term Crisis – by its nature, a short term crisis would not be one that would typically
Planning
cut the company off from its normal funding on an individual basis but rather could lead to
systemic risk that affects us along with the market in general. the plan of these kinds of
situations would be to replenish the funding through the most likely sources that could exist
in this situation.
(con’t)
• At this time, you can visualize several short term scenarios that would revolve around
events like Weather Related issues – Hurricanes, Tornados, Floods -, Acts of War, and PR
situations that could reflect badly on our institution leading to withdrawal of funding
sources and serious loss of business.
Longer Term Crisis – unlike the former situation, this kind of
event could cut off from several normal funding sources. all
funding sources, the raising of tier one share capital or
subordinated debt are the most credit sensitive but not to
think that these facilities would be entirely unavailable in this
event due to the single shareholder situation.
• Longer term events are seen as ones that severely impact on
the institution and could lead to failure. By the nature of this
Contingency
event, the situation as one involving significant losses
brought on by improper controls. To guard against the latter, Planning
in addition to our systems and controls, our investment
policy for own funds limits the amount of risk we can take
without Board approval, and with proper analyzation.
(con’t)
• In your contingency plan you need to set a priority level and
type of risk that can assess the priority of funding, and you
need to define the left over capital on how you can use on
the next project or next year operations.
 AYALA LAND, INC.
PROJECTED STATEMENTS OF COMPREHENSIVE INCOME

Current Year 2nd Year Proj 3rd Year Proj 4th Year Proj

31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21

INCOME

Projected Revenue from contracts w ith customers

Rental income
129,414,974

33,581,920
135,885,723

35,261,016
142,680,009

37,024,067
149,814,009

38,875,270

Opex TOTAL INCOME

EXPENSES
162,996,894 171,146,739 179,704,076 188,689,279

Costs and Expenses and Other Charges

Cost of real estate sales 67,784,088 71,173,292 74,731,957 78,468,555

Depreciation and amortization 5,044,758 5,296,996 5,561,846 5,839,938

Manpow er costs 1,800,424 1,890,445 1,984,967 2,084,216

Direct operating expenses 26,449,860 27,772,353 29,160,971 30,619,019

Costs and Expenses and Other Charges 101,079,130 106,133,087 111,439,741 117,011,728
 Projected
Opex (con’t)
Financial
Statements
 BALANCE SHEET

AYALA LAND, INC. AYALA LAND, INC. AYALA LAND, INC.

STATEMENTS OF FINANCIAL POSITION COMMON SIZE STATEMENTS OF FINANCIAL POSITION INDEXED STATEMENTS OF FINANCIAL POSITION
(in thousand pesos)
2018 2017 2016 2018 2017 2016 2018 2017 2016
Assets Assets Assets

Cash And Cash Cash And Cash Cash And Cash

23,996,570 20,998,089 20,904,330 4% 4% 4%
Equivalents Equivalents Equivalents 115% 100% 100%
Short Term Short Term Short Term
3,561,618 5,280,340 2,172,211 1% 1% 0% 164% 243% 100%
Investments Investments Investments
Net Net Net
78,245,866 98,311,499 97,467,753 12% 17% 18% 80% 101% 100%
Receivables Receivables Receivables
Inventory 105,030,974 62,739,359 67,270,406 Inventory 16% 11% 13% Inventory 156% 93% 100%
Other Current Other Current Other Current
2,196,930 1,514,932 483,642 0% 0% 0% 454% 313% 100%
Assets Assets Assets
Total Current Assets 302,829,898 218,560,955 211,012,113 Total Current Assets 45% 38% 39% Total Current Assets 144% 104% 100%

Property Plant and Property Plant and Property Plant and

39,829,028 32,987,950 30,124,467 6% 6% 6%
Equipment Equipment Equipment 132% 110% 100%
Intangible Assets 49,157 4,463,862 3,620,081 Intangible Assets 0% 1% 1% Intangible Assets 1% 123% 100%
Other long term Other long term Other long term
770,690 175,092 386,351 0% 0% 0%
assets assets assets 199% 45% 100%
Total Non-current Total Non-current Total Non-current
365,990,584 355,431,379 325,420,882 55% 62% 61% 112% 109% 100%
Assets Assets Assets
Total Assets 668,820,482 573,992,334 536,432,995 Total Assets 100% 100% 100% Total Assets 125% 107% 100%
 BALANCE SHEET (con’t)

Liabilities Liabilities Liabilities

Accounts Accounts Accounts
101,055,160 76,977,468 84,689,671 15% 13% 16% 119% 91% 100%
Payable Payable Payable
Short/Current Short/Current Short/Current
37,651,890 24,217,125 29,431,461 6% 4% 5%
Long Term Debt Long Term Debt Long Term Debt 128% 82% 100%
Other Current Other Current Other Current
6,669,865 7,056,421 7,682,618 1% 1% 1% 87% 92% 100%
Liabilities Liabilities Liabilities
Total Current Total Current Total Current
240,784,527 184,623,237 188,203,171 36% 32% 35% 128% 98% 100%
Liabilities Liabilities Liabilities

Long Term Debt 149,446,949 150,168,631 130,369,877 Long Term Debt 22% 26% 24% Long Term Debt 115% 115% 100%
Other Liabilities 1,018,769 1,590,415 773,648 Other Liabilities 0% 0% 0% Other Liabilities 132% 206% 100%
Deferred Long Term Deferred Long Term Deferred Long Term
7,818,459 3,543,791 4,356,530 1% 1% 1%
Liability Charges Liability Charges Liability Charges 179% 81% 100%
Deferred Revenue 27,474,581 20,406,315 19,542,253 Deferred Revenue 4% 4% 4% Deferred Revenue 141% 104% 100%
Total Non-current Total Non-current Total Non-current
207,814,758 197,105,739 175,546,637 31% 34% 33% 118% 112% 100%
Liabilities Liabilities Liabilities
Total Liabilities 448,599,285 381,728,976 363,749,808 Total Liabilities 67% 67% 68% Total Liabilities 123% 105% 100%

Stockholders' Equity Stockholders' Equity Stockholders' Equity

Common Stock 16,041,530 16,031,596 61,562,170 Common Stock 2% 3% 11% Common Stock 26% 26% 100%
Retained Earnings 132,090,020 109,976,450 91,798,555 Retained Earnings 20% 19% 17% Retained Earnings 144% 120% 100%

Total Stockholder Total Stockholder Total Stockholder

187,299,852 166,754,611 147,705,095 28% 29% 28% 127% 113% 100%
Equity Equity Equity

Total Liabilities and Total Liabilities and Total Liabilities and

668,820,482 573,992,334 536,432,995 100% 100% 100% 125% 107% 100%
Stockholder Equity Stockholder Equity Stockholder Equity
 AYALA LAND, INC. AYALA LAND, INC.
STATEMENTS OF COMPREHENSIVE INCOME INDEXED STATEMENTS OF COMPREHENSIVE INCOME
(in thousand pesos)

2018 2017 2016 2018 2017 2016

Total Revenue 162,996,894 138,507,775 117,700,488 Total Revenue 138% 118% 100%
Cost of Revenue 101,079,130 87,921,064 76,566,404 Cost of Revenue 132% 115% 100%

Gross Profit 61,917,764 50,586,711 41,134,084 Gross Profit 151% 123% 100%

Operating Expenses Operating Expenses

Selling Selling
General and 2,457,071 2,056,439 1,835,706 General and 134% 112% 100%
Administrative Adm inistrative
Other Other
6,389,774 4,816,168 5,052,671 126% 95% 100%
Expenses Expenses

Total Total
Operating 8,846,845 6,872,607 6,888,377 Operating 128% 100% 100%
Expenses Expenses
Operating Income or Operating Income or
53,070,919 43,714,104 34,245,707 22% 128% 100%

INCOME
Loss Loss
Income from Continuing Operations Income from Continuing Operations
Interest Interest
8,927,458 7,730,454 6,952,183 128% 111% 100%
Expense Expense

STATEMENT
Incom e Income
45,201,029 37,990,640 32,663,447 138% 116% 100%
Before Tax Before Tax
Incom e Tax Income Tax
11,984,440 9,824,981 8,231,662 146% 119% 100%
Expense Expense

Net Incom e Net Income

From From
33,216,589 28,165,659 24,431,785 136% 115% 100%
Continuing Continuing
Ops Ops

Net Income 29,240,880 25,304,965 20,908,011 Net Income 140% 121% 100%
Net Income Applicable Net Income Applicable
29,240,880 25,304,965 20,908,011 140% 121% 100%
To Common Shares To Common Shares

Basic EPS 1.98 1.71 1.43 Basic EPS 138% 120% 100%

Diluted EPS 1.98 1.71 1.43 Diluted EPS 138% 120% 100%

Basic Average Shares 14,730,049 14,721,881 14,588,347 Basic Average Shares 101% 101% 100%

Diluted Average Shares 14,731,015 14,788,878 14,589,543 Diluted Average Shares 101% 101% 100%

EBITDA 60,447,416 50,900,886 45,490,190 EBITDA 133% 112% 100%

Summary of Ratio Analysis
 Ratio 2018 2017 2016
L
i
Current Ratio (Ayala Land, Inc.) 0.68 0.57 0.58
q
u
Current Ratio (Industry) 1.04 1.26 0.8
i
Quick Ratio (Ayala Land, Inc.) 0.44 0.67 0.64
d
i Quick Ratio (Industry) 1.06 0.64 0.41
t
y Cash Ratio (Ayala Land, Inc.) 0.10 0.11 0.11
Cash Ratio (Industry) 0.48 0.45 0.24

Summary
Debt Ratio (Ayala Land, Inc.) 0.67 0.67 0.68
S
o Debt Ratio (Industry) 0.57 0.56 0.64
l
v Interest coverage ratio (Ayala Land, Inc.) 6.77 6.58 6.54

Financial
e
n
Interest coverage ratio (Industry) 0.57 0.56 0.64
c
y
Debt-to-equity ratio (Ayala Land, Inc.) 2.40 2.29 2.46
P Debt-to-equity ratio (Industry) 1.1 1.29 0.79

Ratio
r
o
Profit margin (Ayala Land, Inc.) 17.94% 18.27% 17.76%
f
i
Profit margin (Industry) 2.10% 7% 3.80%
t ROE (Ayala Land, Inc.) 15.61% 15.17% 14.16%
a
b ROE (Industry) -3.70% -2.10% -7.90%
i
l Gross margin (Ayala Land, Inc.) 37.99% 36.52% 34.95%
i
t
Gross margin (Industry) 0.20% 1.70% 0.30%
y
Asset turnover (days) (Ayala Land, Inc.) 1,498 1,513 1,664
A
c Asset turnover (days) (Industry) 3091 2717 2697
t
i Receivables turnover (days) (Ayala Land, Inc.) 175 259 302
v
i
Receivables turnover (days) (Industry) 34 38 12
t
y
Inventory turnover (days) (Ayala Land, Inc.) 379 260 321
Inventory turnover (days) (Industry) 16 10 24
Liquidity Ratio
• As shown in the chart, Ayala Land, Inc.
(ALI) exhibited a strong growth over
the past three years in its current
ratio. Current Ratio shows how the
company’s current assets cover its
current short-term liabilities. Typically,
a ratio higher than 1 is advised for it
implies that the current assets of the
company are enough to pay for its
short-term obligations as they fall due.
Clearly, ALI has shown that except in
2016 where the ratio is valued at 0.80.
However, obtaining a close to one
value has a positive implication. Ratio
is stronger than the industry average.
Liquidity Ratio

• ALI maintained to be above

industry average, in terms of its
quick ratio. Quick ratio includes
in its analysis only the quick
assets of the company, or those
that can be easily converted to
cash. It means that even though
the company may have due and
demandable current liabilities, it
can survive because it has a lot
of assets that are liquid and can
be easily converted to cash
when all else fails.
Solvency Ratio

• Evidently, ALI’s Debt-to-Equity

values are below standard and
has maintained a steady trend
over the past years. Debt to total
equity ratio is used to assess on
what proportion of debt and
equity a company is using to
finance its assets. Thus, it is
expected that a lower ratio is
associated with lower risks for
the creditors and means a strong
and long term financial security
for ALI.
Solvency Ratio
• Interest Coverage Ratio measures
the company’s ability to meet
interest payments. It is preferred
to have higher number which
suggests that the company can
meet easily its interest obligations
thus can possibly make additional
debt for funding. In this particular
ratio, EBIT is used as this is the
income amount that is available
to cover payments for interest
expenses. Ratio is reported higher
than industry average.
Solvency Ratio
• Interest Coverage Ratio measures
the company’s ability to meet
interest payments. It is preferred
to have higher number which
suggests that the company can
meet easily its interest obligations
thus can possibly make additional
debt for funding. In this particular
ratio, EBIT is used as this is the
income amount that is available
to cover payments for interest
expenses. Ratio is reported higher
than industry average.
Solvency Ratio

• Clearly, ALI’s ability to meet its

long-term obligations are at a
good health. Based on the
figure, ALI’s solvency ratios are
performing good as evidenced
by an upward trend in most of
its solvency ratios.
Profitability Ratio
• If were to compare ALI’s profitability
ratios as compared to industry
averages, we can conclude that ALI is
doing well financially and way above
industry averages. Despite the
economic downturns reported by the
industry average in 2016 to 2018, ALI
still managed to maintain its Profit
Margin at an average of 36% for the
past three years.
Activity Ratio
• Activity ratios measure how well the
company employed its asset base in profit
maximization. It gives us a snapshot of how
many times each asset-peso is converted to
profit-peso. The figure connotes that ALI
employed its resources at an advantage that
translates to earnings. Although inventory
turnover experienced decline during 2017,
while receivable turnover reported a
downward trend that indicates the ALI
employed a new credit policy of collecting
cash from its customers and asset turnover
ratios remained increasing .
Thank You