FINANCIAL

ANALYSIS
METRO PACIFIC INVESTMENT CORPORATION

2018

Daarol, Joshua A.

Garcia, Ma. Andrea Romea O.

Go, Anna Bianca C.

Gono, Maria Louella S.

Hernandez, Nisha G.

Hicalde, Trixie B.

Inocencio, Aryela Ivonne

Javier, Luis Philippe P

TABLE OF CONTENTS

I. Problem Statement ----------------------------------------------------------------- 3

II. Statement of the objective ------------------------------------------------------- 3

III. Areas -------------------------------------------------------------------------------- 4

IV. Assumptions ---------------------------------------------------------------------- 5

V. Alternative Courses of Action ------------------------------------------------- 5

VI. Analysis ---------------------------------------------------------------------------- 6

VII. Conclusion ----------------------------------------------------------------------- 7

VIII. Plan of Action ------------------------------------------------------------------- 8

Proforma Income Statement ------------------------------------------------ 11

Proforma Balance Sheet ------------------------------------------------------ 16

 Cash Budget ------------------------------------------------------------------------ 21

IX. Ratios --------------------------------------------------------------------------------

X. Supporting Computations ------------------------------------------------------

Viewpoint:

The Financial Manager’s viewpoint was used in this case since he/she has the
capability to project the approximate future financial performances of Metro
Pacific Investment Corporation through analysis of past information.

Time Context: Present- day

I. PROBLEM STATEMENT

Considering Metro Pacific Investment Corporation’s application of

conservative working capital financing policy wherein it uses primarily long-
term investments, large amount of idle cash upsurged on 2017 resulting to
inefficient utilization of liquid assets.

II. STATEMENT OF THE OBJECTIVE

The ultimate goal of this case analysis is to determine the most efficient way of
utilizing large amount of idle cash.

Specifically, the financial manager aims to provide facilitative financial advice

to Metro Pacific Investment Corporation in line with the reduction of excessive
cash and subsequently, seek for the best treatment of idle cash out from those
alternative courses of action as mentioned in the following section.

The target portion of cash balance subject to alternative course of action is

48.04%* of the total balance of cash item which seems idle.

*supporting computations are on the last part of this analysis

III. AREAS OF CONSIDERATION

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STRENGTHS

 Large quantity of subsidiaries under wide range of industries

 Experienced management team

 Commitment to innovation and ability to take risks

WEAKNESSES

 Increasing cost of acquisition and expansions due to Build Build

Build program

 Dependence of subsidiaries on uncontrollable natural resources

that faces possibility of shortage

 Upsurge in amount of debts to finance increasing need on

products and services the company’s subsidiaries offer

OPPORTUNITIES

 Offers products and services that is necessary for human

sustainability

 Absence of competitors in monopolistic subsidiaries

 Acquisition and expansions due to Build Build Build program

THREATS

 Exposing of vulnerable information to public cause risk of

data breaches

 Government intervention to monopolistic subsidiaries.

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IV. ASSUMPTIONS

The following points are assumed throughout the case to establish

restrictions upon the presentation of the financial analysis:

1. That the firm will continue to incur debts due to its new toll road projects.

2. That the firm will not be able to meet the continuing demand of rise in

power due to minimal progress for new generation projects.

3. That the firm will continue to expand and extend the service coverage of its

hospitals for establishing new service centers for local communities in

ensuring the possibility of having access to world class medical care for
Filipinos.

4. Country’s continuous exposure to climate change and global warming

increases possibility of shortage in natural resources that the company’s

subsidiaries need to produce its products.

V. ALTERNATIVE COURSE OF ACTION:

ACA#1- Transfer of cash on hand to short term deposit to convert unutilized

cash into interest earning asset in short period of time.

ACA#2- Utilize unused cash to redeem and repurchase outstanding shares that
were originally sold to external investors.

ACA#3- Use idle cash as prepayments for executory costs such as insurance,
maintenance, lease payments, etc.

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VI. ANALYSIS

ACA#1

Advantages Disadvantages
 Decreases idle cash  Uses variable rates rather the

 Earn interest fixed rate

 Shorter Maturity compared to Low risk results to lower rates

long term investments
compared to long term investments
 Can cover sudden decrease of
short-term deposits

ACA#2

Advantages Disadvantages
 Decreases idle cash  Such action could cause long term
changes
 Raise in stock price pleases the
shareholders  It takes a lot of negotiation to

 Lower possibility of ownership buy back desired number of shares

 Utilization of cash is questionable

ACA#3

Advantages Disadvantages

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  Decreases idle cash  Fund used for prepayments is
considered as sunk cost
 Future payments would not be a
problem anymore  Possibility of insurance to expire
without being utilized
 Amount of current assets is
equitably distributed.

VII. CONCLUSION

Criteria ACA#1 ACA#2 ACA#3

Reduction Idle Cash 50% 3 1 2
Time frame 25% 3 1 2
Soundness in terms of risk 25% 1 3 2
100
Total 7 5 6
%
Weighted Average 2.5 1.5 2.0
*In a scale of 1-3. 3 being the highest and 1 being the lowest

The three alternative courses of action were evaluated one by one in terms of
how the action will reduce idle cash to efficiently utilize liquid assets, how the
action can take place immediately and how the company wouldn’t be at risk in
taking the action.

The best option for the company to take based on the total scale per alternative
course of action is to transfer of cash on hand to short term deposit to convert
unutilized cash into interest earning asset in short period of time being mostly

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able to reduce idle cash at shortest period of time despite its riskiness compare to
other alternative course of action.

Since the short term deposit massively decreased the same time that the cash
on hand immensely went up, the financial management team have decided that
the best way to cover the declining amount of short term deposit is to utilize the
cash on hand, in that way, both problems of the working capital can be resolved
simultaneously.

VIII. PLAN OF ACTION

After systematic conduct of financial analysis with the use of past data from
previous consolidated financial statements, the financial manager was able to
provide accurate and concise ACA’s after considering the strengths, weaknesses,
opportunities and threats of MPIC. As a result, significant plan of action is hereby
recommended.

Week 1
Responsible Success Criteria /
Activity Proposed Action
Person Objective
 The problems regarding To understand the
excessive amount of idle problem of the
cash should be discussed. company and come up
 Chief
 Present the proposed with an idea on how to
Meeting Executive
Alternative Course of resolve it.
Officer (CEO)
Action which is to invest
portion of idle cash into
short- term deposits.
To inform the
 Finance
appropriate
 The decisions made by the Department
department or
Communicating top management should  Chief
personnel regarding the
be disseminated. Financial
decision made by the
Officer (CFO)
top management.
Verification  Finalize the analysis and  Finance To clarify the conduct of
other procedures taken in Department analysis with regards to
relation to chosen idle cash including

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 computations and
Alternative Course of possible events that
Action (ACA) affect the outcome of
the analysis.
Week 2 - 13
 Carry out the chosen ACA. To execute the
Invest the estimated idle investment of
 Personnel
cash based from the estimated idle cash to
under
computation amounting marketable securities to
Treasury and
Implementation to P22,389,180 to Unit utilize it properly
Fund
Investment Trust Fund therefore, increases the
Management
(UITF), money market value of cash through
Department
security and time interest income upon
deposits. maturity.
Week 14
 Identifying, recording To reflect the
and analyzing effectiveness of the ACA
accountable events for to the financial
the quarter ended. statements by looking
 Summarize all the at equity accounts that
amounts posted to the might be influence by
general ledger into the expected increase
Preparation of financial statements  Accounting of net income brought
Financial such as Statement of Department by interest income
Statements Income, Statement of  Controller generated from short-
Comprehensive term investment.
Income, Statement of
Financial Position,
Statement of Changes
in Shareholder’s
Equity and Statement
of Cash Flows.
Communication  Transform Financial  Chief
and Statements into Financial
Presentation meaningful and Officer
understandable (CFO)
financial reports to be
presented to the top
management and
become basis of
external stakeholders
like creditors,
investors and the

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 public.
Week 15
 Review the previous To assess the
discussion about the implication of the
firm’s problem in terms carrying out the chosen
of idle cash. ACA to the performance
 Evaluate the outcome of of MPIC.
the implemented chosen
 Finance
ACA to observe the To come up with a final
Department
Meeting growth expected by the decision regarding the
 Accounting
firm. policy initially adapted.
Department
 Review whether the
policy should be
continued or the
management will adapt
another ACA cited from
Case Analysis.

PRO FORMA FINANCIAL STATEMENTS

2019-2023

PRO FORMA INCOME STATEMENT

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 METRO PACIFIC INVESTMENT CORPORATION

FOR THE YEAR ENDED DECEMBER 31, 2019

Sales ₱98,059,258.68

Less: Cost of Goods Sold (51%) 50,010,221.92

Gross Profit ₱48,049,036.75

Less: Operating Expenses (18%) 17,650,666.56

Operating Profit ₱30,398,370.19

Less: Interest Expense (13%) 12,747,703.63

Net Profit Before Tax ₱17,650,666.56

Less: Taxes (30%) 5,295,199.97

Net Profit After Tax ₱12,355,466.59

supporting computations are on the last part of this analysis

PRO FORMA INCOME STATEMENT

METRO PACIFIC INVESTMENT CORPORATION

FOR THE YEAR ENDED DECEMBER 31, 2020

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Sales ₱120,081,919.86

Less: Cost of Goods Sold (51%) 61,241,779.13

Gross Profit ₱58,840,140.73

Less: Operating Expenses (18%) 21,614,745.58

Operating Profit ₱37,225,395.16

Less: Interest Expense (13%) 15,610,649.58

Net Profit Before Tax ₱21,614,745.58

Less: Taxes (30%) 6,484,423.67

Net Profit After Tax ₱15,130,321.90

supporting computations are on the last part of this analysis

PRO FORMA INCOME STATEMENT

METRO PACIFIC INVESTMENT CORPORATION

FOR THE YEAR ENDED DECEMBER 31, 2021

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Sales ₱149,099,669.04

Less: Cost of Goods Sold (51%) 76,040,831.21

Gross Profit ₱73,058,837.83

Less: Operating Expenses (18%) 26,837,940.43

Operating Profit ₱46,220,897.40

Less: Interest Expense (13%) 19,382,956.98

Net Profit Before Tax ₱26,837,940.43

Less: Taxes (30%) 8,051,382.13

Net Profit After Tax ₱18,786,558.30

supporting computations are on the last part of this analysis

PRO FORMA INCOME STATEMENT

METRO PACIFIC INVESTMENT CORPORATION

FOR THE YEAR ENDED DECEMBER 31, 2022

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Sales ₱188,823,691.72

Less: Cost of Goods Sold (51%) 96,300,082.78

Gross Profit ₱92,523,608.94

Less: Operating Expenses (18%) 33,988,264.51

Operating Profit ₱58,535,344.43

Less: Interest Expense (13%) 24,547,079.92

Net Profit Before Tax ₱33,988,264.51

Less: Taxes (30%) 10,196,479.35

Net Profit After Tax ₱23,791,785.16

supporting computations are on the last part of this analysis

PRO FORMA INCOME STATEMENT

METRO PACIFIC INVESTMENT CORPORATION

FOR THE YEAR ENDED DECEMBER 31, 2023

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Sales ₱240,569,031.47

Less: Cost of Goods Sold (51%) 122,690,206.05

Gross Profit ₱117,878,825.42

Less: Operating Expenses (18%) 43,302,425.67

Operating Profit ₱74,576,399.76

Less: Interest Expense (13%) 31,273,974.09

Net Profit Before Tax ₱43,302,425.67

Less: Taxes (30%) 12,990,727.70

Net Profit After Tax ₱30,311,697.97

supporting computations are on the last part of this analysis

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 SUPPORTING COMPUTATIONS

A. Estimated minimum cash balance

APPENDIX E

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B. Income Statement

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