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Case Analysis

Kuok Philippine Properties, Inc.

Carmel De la Paz, Vice-president of the account


management department of Oriental Bank, was at
her desk reviewing an account. She was to present
a strategic marketing to the Executive Committee
of Oriental Bank which told her to study the
financial performance of top new corporations in
real estate industry. The bank was planning to
aggressively penetrate this market with its credit
products. De la Paz selected for her analysis Kuok
Philippine Properties, Inc. (KPPI), a new company
that had gained prominence in the industry.

Case Analysis
Kuok Philippine Properties, Inc.

By analyzing KPPIs financial ratios, De la Paz


sought to examine the financial characteristics
of companies at the higher end of the real estate
development industry. Since Oriental Bank was a
newcomer to the industry, it was concerned
about losing the ground to its competitors when
the Philippines economy grows in the second half
of the 1990s. Top management thus wanted an
assessment of the credit opportunities and risks
in the industry, and De la Paz was to come up
with this evaluation.

Case Analysis
Kuok Philippine Properties, Inc.

KPPI, Key Financial data


In millions
1992

1993

Revenue

125.60

395.20

Expenses

57.10

133.00

Income before income tax

68.60

292.20

Net income

68.30

259.50

Key Results data

Key Balance sheet data

Quick asset

128.90

112.50

Current asset

132.30

134.40

2,523.20

2,711.70

130.50

62.30

Long term liabilities

30.70

1.10

Stockholder's equity

2,362.00

2,648.30

Total asset
Current liabilities

Case Analysis
Kuok Philippine Properties, Inc.

Guide Questions No. 1.


Calculate the Financial ratios of KPPI for
1992 and 1993?

Case Analysis
Kuok Philippine Properties, Inc.
Liquidity Ratios

Years
Current Ratio

1992
1.01

1993

2.16

Current Ratio :

Current assets
Current liabilities

134.4

2.16

62.3

In 1992, the firms ability to cover its current liabilities with its current assets
was 1.01. In 1993, the ratio goes up to 2.16 as compared to 1992, which
means that the company has the ability to pay its liabilities, as the definition
says that higher the ratio, greater the ability of the firm to pay its bills. This
tells that KPPI is improving their liquidity and efficiency, because their current
ratio is improving.

Case Analysis
Kuok Philippine Properties, Inc.
Liquidity Ratios

Years
Qucik Ratio

Quick Ratio :

Quick Assets
Current liabilities

1992
0.99
112.5

1993

1.81

1.81

62.3

According to the definition of Acid Test Ratio, the company


should have the ability to pay its liabilities through its most
liquid assets. The table shows that in 1992, the firm has the
ratio 0.99 cents compare to 1993 has the ratio of 1.81. KPPI is
very high liquid company to pay its current maturing
obligation.

Case Analysis
Kuok Philippine Properties, Inc.
Current Assets Turnover Ratio

Years

1992

1993

CA Turnover Ratio

0.95

2.94

CA Turnover Ratio =

Net Revenue =
CA Assets

395.2

2.94

134.4

Current Assets Turnover Ratio indicates that the current assets are
turned over in the form of sales more number of times. KPPI CA ratio
although improving but not enough to tell the company capacity to
achieve maximum sale with minimum investment in currents assets

Case Analysis
Kuok Philippine Properties, Inc.
Asset Turnover Ratio

Years

1992
0.05

Asset Turnover Ratio

Asset Turnover Ratio

Net Revenue
Total Assets

395.2
2711.7

1993

.15

0.15

This ratio measures how efficiently a firm uses its assets


to generate sales, so a higher ratio is always more
favorable. KPPI has ratio in 1992 of .05 cents dollar of
sales for every 1 invested asset compare to 1993 ratio
of .15 cents. This means the company isn't using its
assets efficiently.

Case Analysis
Kuok Philippine Properties, Inc.
Financial Leverage Ratio

Years

Debt to Equity Ratio

1992
0.07

1993

0.02

Debt to Equity ratio = Total liabilities =


Total Equity

63.4
2648.3

0.02

The debt to equity ratio shows the percentage of company financing


that comes from creditors and investors. KPPI Debt to equity ratio
implies the company are more financially stable organization.

Case Analysis
Kuok Philippine Properties, Inc.
Financial Leverage Ratio

Years

Debt Ratio

Total liabilities
Total Assets

1992
0.06

Debt Ratio

63.4
2711.7

1993

0.02

0.02

Debt ratio is asolvency ratiothat measures a firm's total liabilities as


a percentage of its total assets. KPPI with low levels of liabilities
compared with assets are considered low leveraged and low risk for
lenders. KPPI is high suitable to lend money.

Case Analysis
Kuok Philippine Properties, Inc.
Financial Leverage Ratio

Years

Equity Ratio

Equity Ratio

This

Total Equity
Total Assets

1992
0.94
=

2648.3
2711.7

1993

0.98

0.98

ratio measures the amount of assets that are financed by


owners' investments by comparing the total equity in the
company to the total assets. KPPI shows potential creditors
that the company is more sustainable and less risky to lend
future loan.

Case Analysis
Kuok Philippine Properties, Inc.
Profitability Ratios

Years

Return on Sales

1992

1993

54.38%

65.66%

Return on Sales Net Income


=
=
Net Sales

259.5
395.2

= 65.66%

Measures profit percentage per pesos sales. KPPI is a


high profitable Company.

Case Analysis
Kuok Philippine Properties, Inc.
Profitability Ratios

Years

1992

1993

Return on Investment

2.71%

9.57%

ROI =

Net Income
Total Asset

259.5
2711.7

9.57%

Calculates the profits of an investment as a


percentage of the Investment/Total asset cost. KPPI
has a lower rate of return although with great
improvement for the two years comparative.

Case Analysis
Kuok Philippine Properties, Inc.
Profitability Ratios

Years

Return on Equity

Return on Equity =

Net Income
Total Equity

1992
2.89%
=

259.5
2648.3

1993

9.80%

9.80%

Measures the ability of a firm to generate profits from


the shareholders investment.

Ratio Analysis Summary


RATIO ANALYSIS
Liquidity ratios

1992

1993

Current ratio

1.01

2.16

Acid test ratio

0.99

1.81

Asset turnover

0.05

0.15

Current asset turn over

0.95

2.94

Financial leverage ratios

Debt to equity ratio

0.07

0.02

Debt ratio

0.06

0.02

Equity to asset ratio

0.94

0.98

Times interest earned

4.26

12.14

15.64

42.77

Profitability ratios

Return on sales

54.38%

65.66%

Return on investment

2.71%

9.57%

Return on equity

2.89%

9.80%

Asset to Liabilities ratio

Case Analysis
Kuok Philippine Properties, Inc.

GUIDE QUESTION NUMBER 2.


What strengths and weakness of KPPI were revealed by the
financial ratios? Did the ratios adequately answer the
questions raised by VP De la Paz?
Strengths

KPPI high liquid company can pay immediately their


maturing obligation and high financially stable company as
well profitable.

Weakness

KPPI has low return of Investment and return on equity.

Case Analysis
Kuok Philippine Properties, Inc.

Guide questions No. 3

What conclusions can be drawn the real estate


development industry based only on the performance
of KPPI?

After applying all the ratios we got an idea that the


KPPI Company is a profitable firm. Because throughout
the analysis of two years, we found that the company is
getting profitable return on sales even not well on
Investment and equity rate of return, their profit
margin has been increased as well and they are in the
position to pay their debts with in their resources.

Case Analysis
Kuok Philippine Properties, Inc.

I.

Time Context

.The

case Happened on the year


1994.

Case Analysis
Kuok Philippine Properties, Inc.

II. View Point


Top

Management, Executive
Committee of the Oriental
Bank.

Case Analysis
Kuok Philippine Properties, Inc.

III. Central Problem


How will Oriental Bank able to present an
effective marketing strategy to aggressively
penetrate the industry and achieve high
competitiveness in the market?

Case Analysis
Kuok Philippine Properties, Inc.

IV. Objectives
Must Objective

To create a plan by differentiating from the


competitors.

Want Objective

To build better community relationships by


attracting consistent stream high-end clients in
Banking industry.

V. Areas of consideration
Internal Environment
Strength

Having available strategic marketing plan to


present to clients, they are able to convince and
penetrates the market.

Weakness

Banking preferences among clients for already


established names and clients loyalty.

New player in banking industry.

V. Areas of consideration
External Environment
Opportunity

It may create goodwill among the new clients


that avail the credit products facilities. This may
create customer referrals.

Market penetration strategy.

Treats

Their competitors are already established and


known to the market.

VI. Alternative Courses of Action


ACA No. I- Create new Marketing plan based
on the specifications and needs of their
credit products clients.
Advantages

The company will be able to meet the expectation


and needs of their clients.

Tailored made marketing plan to attract more


clients in the market.

Disadvantages

It will take longer time to achieve the right


marketing strategy.

VI. Alternative Courses of Action


ACA No. II- Oriental Bank must be more
committed in giving clients service before,
during and after the credits products.
Advantages

Clients loyalty to Oriental bank will be much


stronger

The number of clients avail the credits product


will increase

Disadvantages

There will be added cost to the company

VI. Alternative Courses of Action


ACA No. III- Developing Research and
Development Programs
Advantages

Investment in research will give Oriental bank


better ideas and guidelines in the current trends.

Market positioning.

Disadvantages

R and D programs are too expensive.

VII. Recommendation

Considering that the target market are the high


end real estate development industry, it is
recommended the adoption of alternative
Course No. I (ACA No. I) - Create new Marketing
plan based on the specifications and needs of
their credit products clients. Oriental Bank
would be able to meet the expectation of their
clients since the marketing strategy is based on
their specific requirements. With satisfied
clients, the customer value of the company will
surely increase through referrals and other
means.

VIII- Action Plan


Nature of Activity

Responsible Person

Duration

Warmed list Clients Financial Staff analysts


statements analysis.

3 Hours

Marketing plan presentation Carmel De la Paz


to the Top management.

1-2 Hours

Marketing plan approval

CEO/President

Immediately

Present the Marketing plan to the


high end real estate clients.

Carmel De la Paz/Marketing
Officer

After the approval of


the Top Management