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SELECTING THE MOST SUITABLE COMPANY TO INVEST IN THROUGH THE

USE OF FUNDAMENTAL AND TECHNICAL ANALYSIS

(PSEi LISTED COMPANIES FROM PROPERTY INDUSTRY)

A Research Study Presented to the Faculty of the Business and Accountancy

Department

University of Cebu in Lapu-Lapu and Mandaue

Mandaue City

In Partial Fulfillment of the Requirements in Research Methods

By

Canales, Lara Jeane C.

De los Santos, Iona Gabrielle P.

Ludivese, Regen M.

Olbinado, John Patrick A.

March 2017
ACKNOWLEDGEMENT

The researchers would like to express their deepest gratitude to our Dean Ms.

Jessica A. Selisana, CPA, PhD, Ed, for her full support, expert guidance,

understanding and encouragement throughout the study and research. Without her

incredible patience and timely wisdom and council, their work would have been a

frustrating and overwhelming pursuit.

They would also like to thank their family for everlasting love, inspirational

advice and financial support. To their beloved classmates who share their ideas and

opinions and made this research enjoyable and memorable.

Finally, they would like to thank the Almighty God who protected their venue

every meeting, who provides them wisdom, and good health to their team to finish

the project.
ABSTRACT

The research focuses on the relationship between ratings of the companies

(Ayala Land Inc., Mega world, and Robinsons Land) under the study and its volatility

and financial ratios from the year 2011 up to the present to identify the most

suitable stock to invest in. The researchers found a clear relationship between risk

factor beta and PSE index. For every 1-percent increase in the PSE index, the stock

will go up by the percentage of the beta of the particular stock on the average.

Similarly, if the PSE index declines by 1 percent, the stock will also fall by the same

beta percentage. Results from the study also showed that higher return companies

in aggregate had better ratings. There was a strong negative correlation between

ratings and stock volatility, and this relationship was stronger when market volatility

was higher. This implies that investors can get diversification benefits by choosing

better stocks and this diversification benefit strengthens when markets are more

volatile. The researchers also found that due to the inadequacy of assets or due to

the critical level of assets that would be used in meeting future debts, the company

using more long-term debt is more financially leveraged and has higher financial

risk or the uncertainty of not meeting future obligations as they mature. The

findings are from the tested factors in the stock market. This was done by creating

fundamental analysis, technical analysis and risk-rate comparisons.

Investors can therefore utilize the association between stock ratings,

volatility, and financial ratios, and actively use this information to enhance their

stock-selection and portfolio construction ability. Investors can create better

portfolios by using Fundamental Analysis and Technical Analysis.


TABLE OF CONTENTS

TITLE PAGE i

ACKNOWLEDGEMENT

ii

ABSTRACT iii

TABLE OF CONTENTS

iv

LIST OF TABLES v

LIST OF FIGURES vi

Chapter Title Page

Chapter I THE PROBLEM AND ITS SCOPE

Introduction

Rationale of the Study

Theoretical Background

Significance of the Study

Research Methodology

Research Environment
Research Methods and Procedures

Definition of Terms

Chapter II PRESENTATION, ANALYSIS AND

INTERPRETATION OF DATA

Company Profile

Financial Highlights

Fundamental Analysis

Trend Analysis

Vertical Analysis

Financial Ratios

Evaluation of Risk and Return

Technical Analysis

Risk Management

Chapter III SUMMARY, FINDINGS, CONCLUSIONS

AND RECOMMENDATIONS

Summary of Findings

Conclusions
Recommendations

BIBLIOGRAPHY

Book

Website
LIST OF TABLES

No. Description Page

1.1 ALI-Financial Highlights from 2011-2015

1.2 MEG- Financial Highlights from 2011-2015

1.3 RLC- Financial Highlights from 2011-2015

2.1 ALI- Income Statement Highlights

2.2 MEG-Income Statement Highlights

2.3 RLC- Income Statement Highlights

3.1 ALI-Financial Position Highlights

3.2 MEG-Financial Position Highlights

3.3 RLC-Financial Position Highlights

4.1 Comparative Statement of Profit or Loss

5.1 Comparative Statement of Financial Position

6.1 ALI- Financial Ratios

6.2 MEG- Financial Ratios

6.3 RLC- Financial Ratios

7.1 Beta of each Companys Stock


LIST OF FIGURES

No. Description Page

1.1 Graphical Representation of ALI- Income Statement

Highlights

1.2 Graphical Representation of MEG-Income Statement

Highlights

1.3 Graphical Representation of RLC-Income Statement

Highlights

2.1 Graphical Representation of ALI- Balance Sheet

Highlights

2.2 Graphical Representation of MEG- Balance Sheet

Highlights

2.3 Graphical Representation of RLC- Balance Sheet

Highlights

3.1 Graphical Representation of Comparative Statement of

Profit or Loss

4.1 Graphical Representation of Each Companys Total

Equity

5.1 Candlestick Formation

6.1 Diagram Showing Bullish vs. Bearish Position

7.1 The Support Line


8.1 The Resistance Line

9.1 Basic Five Wave Pattern of Elliott

9.2 One Complete Cycle of Elliott Wave Theory

9.3 Larger Cycle of Elliott Wave Theory

9.4 Complete Market Cycle

10.1 Ayala Land Inc. Elliott Waves (Candle sticks on

month time frame as of March 2017)

10.2 Robinsons Land Corporation Elliott Waves (Candle

sticks on month time frame as of March

2017)

10.3 Megaworld Corporation Elliott Waves (Candle sticks on

month time frame as of March 2017)

11.1 Ayala Land Calendar Trend

11.2 Robinsons Land Calendar Trend

11.3 Megaworld Calendar Trend

12.1 Basic Support

13.1 Non Systematic Risk

14.1 Systematic Risk

15.1 Determining Entry and Exit price using Support and

Resistance
CHAPTER I

THE PROBLEM AND ITS SCOPE

INTRODUCTION

Rationale of the Study

The Duterte administration brought a lot of change indeed to the lives of the

Filipino majority. Not only did it modify certain customary practices but it also stirred

up some conflicts and controversies both nationally and globally. Apparently, it was

also a game changer for the business industry. The mining industry, for instance,

suffered drastically and some were even forced to shut down completely. The

property industry; nonetheless, got the best of both worlds.

From a multitude of companies belonging to the property industry listed in

the Philippine Stock Exchange, we have chosen Ayala Land Inc., Megaworld

Corporation and Robinson Land Corporation. This is for the reason that these

companies manifested positive growth in terms of financial performance for the

past 5 years. Furthermore, they are the leading public companies in the industry.

This research aims to obtain an analytical and comparative presentation for

three major companies in the field of property. This should be done through the

application of various financial ratios and the use of technical analysis. By the end

of this research, we should be able to have a clear and concise understanding of the
study and be able to judge for ourselves which among the chosen companies is the

best to invest in.

Theoretical Background

Investment decisions are made by investors and investment managers.

Investors commonly perform investment analysis by making use of fundamental

analysis, technical analysis and judgment. Investment decisions are often supported

by decision tools. It is assumed that information structure and the factors in the

market systematically influence individuals investment decisions as well as market

outcomes.

In conventional financial theory, investors are assumed to be rational wealth-

maximizers, following basic financial rules and basing their investment strategies

purely on the risk-return consideration. It is generally believed that investment

decisions are a function of several factors such as market characteristics and

individual risk profiles, in addition to accounting information. The disposition error

shows that regardless of accounting information, investors are influenced by sunk

cost considerations and asymmetrical risk preferences for gain/loss situations. The

research findings by Nagy and Obenberger, (1994) which examined factors

influencing investor behavior, suggested that classical wealth maximization

criteria are important to investors, even though investors employ diverse criteria

when choosing stocks. Contemporary concerns such as local or international

operations, environmental track record and the firms ethical posture appear to be

given only cursory consideration. Many individual investors discount the benefits of

valuation models when evaluating stocks. Dimitrios I. M, (2007) conducted a study


on investors behavior and found that professional investors rely more on

fundamental and technical analysis and less on portfolio analysis.

Few people seem to have much financial knowledge. Moreover, acquiring

such knowledge is likely to come at a cost. In the past, individual devoted very little

attention to financial literacy. Today, by contrast, since saving and investment in

stock market are occurring increasingly it would be better to evaluate where the

theory can be enriched, and how more profitable stocks can be better targeted.

Though there is a substantial theoretical and empirical body of work on the

economics education, far less attention has been devoted to the question of how

people acquire and deploy financial literacy. In the last few years, however, a few

papers have been released about an older review of saving, see Browning and

Lusardi (1996); recent surveys are provided by Skinner (2007) and Attanasio and

Weber (2010). A very partial list of the literature discussing new theoretical

advances includes Cagetti (2003); Chai et al. (2011); De Nardi, French, and Jones

(2010); French (2005); French (2008); Gourinchas and Parker (2002); Aguiar and

Hurst (2005, 2007); and Scholz, Seshadri, and Khitatrakun (2006). Glewwe (2002)

and Hanushek and Woessmann (2008) reviewed the economic impacts of schooling

and cognitive development and they examined the factors that would make an

individual want to acquire financial literacy. A study has also been made about the

links between financial knowledge, saving, and investment behavior (Delavande,

Rohwedder, and Willis 2008; Jappelli and Padula 2013; Hsu 2011; and Lusardi,

Michaud, and Mitchell 2013). Delavande, Rohwedder, and Willis (2008) present a

simple two-period model of saving and portfolio allocation across safe bonds and

risky stocks, allowing for the acquisition of human capital in the form of financial

knowledge ( la BenPorath 1967, and Becker 1975). That work posits that
individuals will optimally elect to invest in financial knowledge to gain access to

higher-return assets. This training helps them identify better-performing assets and/

or hire financial advisers who can reduce investment expenses. Journal of Economic

Literature, Vol. LII (March 2014) represents a useful theoretical advancement,

namely borrowing constraints, mortality risk, demographic factors, stock market

returns, and earnings and health shocks. The recent work by Lusardi, Michaud, and

Mitchell (2011, 2013), calibrates and simulates a multi-period dynamic life cycle

model where individuals not only select capital market investments, but also

undertake investments in financial knowledge.

These studies offer insights into how to invest wisely through having

substantial financial knowledge.


SIGNIFICANCE OF THE STUDY

Financial education is increasingly important, and not just for investors. It is

becoming essential for everyone trying to decide in which to invest. For one thing,

the growing sophistication of financial markets means consumers are not just

choosing between rates on two different stocks, but are rather being offered a

variety of stocks in which to invest. At the same time, the responsibility and risk for

financial decisions will have a major impact on an individuals future life. Individuals

will not be able to choose the right investments and may be at risk, if they are not

financially literate. But if individuals do become financially educated and know the

pillars of investing which is fundamental analysis, technical analysis and risks, they

will be more likely be making an informed decision in investing.

This section will provide a brief description on the significance of the research

conducted:

To the students- that the researchers believed that this study will influence

the students to be more interested in financial education and investing

To the teachers - this action research will somehow become a reference for

the teachers discussion in financial education


To the future investors - the researchers believed that this study will help

them make an informed decision in investing

To the future researchers - that they may make an effective and efficient

study to help individuals gain more knowledge and better understanding in

investing through this research.

Furthermore, the research will also serve as a guide for individuals involved in

the stock market.


RESEARCH METHODOLOGY

Research Environment

The study was made through the online use of the Philippine Stock Exchange

Market. Our research subjects were the following: Ayala land, Inc., Megaworld

Corporation, and Robinsons Land Corporation. This study focused on these three

major companies because they belong in the Philippine Stock Exchange Index which

indicates the general level of prices and its changes by taking a basket of 30 stocks

that is representative of the property industry in the Philippines.

Research Methods and Procedures

To accomplish our objectives for this research, initially, the researchers had

gathered financial data for the past 5 years from the three companies namely: Ayala

Land Inc, Megaworld Corporation and Robinson Land Corporation. The researchers

performed trend analysis to trace the performance of the said companies within a

reasonable period of time. A vertical analysis was also executed to show a

comparison of the financial data for the three companies.

The researchers then extracted the necessary and pertinent financial ratios in

order to present a fundamental analysis of the three companies. These ratios are

grouped accordingly to their liquidity, solvency, profitability, leverage, and growth.

Afterwards, an evaluation of risk and return was also conducted by the researchers
with the aid of Capital Asset Pricing Model (CAPM) to determine which company is

the most exposed to systematic risk as well as to identify which among the three

has the highest expected rate of return.

Furthermore, the researchers analyzed the individual stock prices using

Candle Stick Charts and some theories applicable in the market like Elliott Wave

Theory and how candle sticks are formed in order to predict the likelihood of future

price actions.

Thereafter, the researchers consolidated and evaluated their gathered data

to draw a reasonable inference about the chosen study. Finally, the researchers

made the rest of the research study.


DEFINITION OF TERMS

To acquire substantial understanding about the research Selecting the Most

Suitable Company to invest in through the use of Fundamental and Technical

Analysis, definitions of terms are vital to aid in the further comprehension of the

study. All these are defined operationally.

Accounts Payable Turnover (Net Credit Purchases / Ave. Accounts

Payable) represents the number of times a company pays its accounts payable

during a period.

Beta is a measure of the volatility, or systematic risk, of a security or a

portfolio in comparison to the market as a whole.

Book Value per Share (Common SHE / Average Common Shares)

indicates the value of stock based.

Capital Asset Pricing Model is a model which calculates the expected

return of an asset based on its beta and expected market returns. It describes the

relationship between risk and expected return, and it serves as a model for the

pricing of risky securities.

Current Ratio (Current Assets / Current Liabilities) evaluates the ability

of a company to pay short-term obligations using current assets (cash, marketable

securities, current receivables, inventory, and prepayments).


Days Inventory Outstanding (360 Days / Inventory Turnover) also

known as "inventory turnover in days". It represents the number of days inventory

sits in the warehouse. In other words, it measures the number of days from

purchase of inventory to the sale of the same.

Days Payable Outstanding (360 Days / Accounts Payable Turnover)

also known as "accounts payable turnover in days", "payment period". It measures

the average number of days spent before paying obligations to suppliers.

Days Sales Outstanding (360 Days / Receivable Turnover) also known

as "receivable turnover in days", "collection period". It measures the average

number of days it takes a company to collect a receivable.

Debt-Equity Ratio (Total Liabilities / Total Equity) evaluates the capital

structure of a company.

Debt Ratio (Total Liabilities / Total Assets) measures the portion of

company assets that is financed by debt (obligations to third parties).

Diversification is the process of allocating capital in a way that reduces the

exposure to any one particular asset or risk. A common path towards diversification

is to reduce risk or volatility by investing in a variety of assets.

Dividend Pay-out Ratio (Dividend per Share / Earnings per Share)

determines the portion of net income that is distributed to owners.

Dividend Yield Ratio (Dividend per Share / Market Price per Share)

measures the percentage of return through dividends when compared to the price

paid for the stock.

Earnings per Share (Net Income - Preferred Dividends) / Average

Common Shares Outstanding EPS shows the rate of earnings per share of

common stock.
Equity Ratio (Total Equity / Total Assets) determines the portion of total

assets provided by equity (i.e. owners' contributions and the company's

accumulated profits).

Fluctuation is a change to a price or interest rates over time.

Gross Profit Rate (Gross Profit / Net Sales) evaluates how much gross

profit is generated from sales. Gross profit is equal to net sales (sales minus sales

returns, discounts, and allowances) minus cost of sales.

Inventory Turnover (Cost of Sales / Average Inventory) represents the

number of times inventory is sold and replaced.

Net Working Capital (Current Assets - Current Liabilities) determines if

a company can meet its current obligations with its current assets; and how much

excess or deficiency there is.

Operating Cycle (Days Inventory Outstanding + Days Sales

Outstanding) measures the number of days a company makes 1 complete

operating cycle, i.e. purchase merchandise, sell them, and collect the amount due.

Portfolio is a grouping of financial assets such as stocks, bonds and cash

equivalents, as well as their funds counterparts, including mutual, exchange-traded

and closed funds. Portfolios are held directly by investors and/or managed by

financial professionals.

Philippine Stock Exchange Composite Index (PSEi), formerly called

Phisix, is a fixed basket of thirty (30) common stocks of listed companies, carefully

selected to represent the general movement of the stock market. In other words, it

is the benchmark measuring the performance of the Philippine stock market.

Price-Earnings Ratio (Market Price per Share / Earnings per Share)

used to evaluate if a stock is over- or under-priced.


Receivable Turnover (Net Credit Sales / Average Accounts

Receivable) measures the efficiency of extending credit and collecting the same. It

indicates the average number of times in a year a company collects its open

accounts.

Return on Assets (Net Income / Average Total Assets) it is the measure

of the return on investment. ROA is used in evaluating management's efficiency in

using assets to generate income

Return on Sales (Net Income / Net Sales) also known as "net profit

margin" or "net profit rate", it measures the percentage of income derived from

dollar sales.

Return on Stockholders' Equity (Net Income / Average Stockholders'

Equity) measures the percentage of income derived for every dollar of owners'

equity.

Reward is the amount of money you expect to profit when entering the

trade. This is usually shown as the price target you expect the stock to reach while

you are in the trade.

Risk is the amount of money you are willing to risk losing in order to be in the

trade. This is usually shown as the price at which you pre-set your exit point when

entering a trade.

Systematic Risks are risks that affect the entire market system.

Total Asset Turnover (Net Sales / Average Total Assets) measures

overall efficiency of a company in generating sales using its assets. The formula is

similar to ROA, except that net sales are used instead of net income.
Times Interest Earned (EBIT / Interest Expense) measures the number

of times interest expense is converted to income, and if the company can pay its

interest expense using the profits generated.

Unsystematic Risks are risks that affect the price of an individual stock

without impacting the overall market.

Volatility is a statistical measure of the dispersion of returns for a given

security or market index.

Chapter II

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA

Company Profiles

Company Name: Ayala Land, Inc. Status: Active

End of Fiscal Year: December 31, 2015 ISIN: PHY0488F1004

Auditor: SyCip Gorres Velayo & Co. Year Established: 1988

Company Sector Name: Real Estate Trading Currency: PHP


Industry Name: Real Estate Services Place of

Incorporation:Philippines

Industry Group Name: Real Estate Services Doing Business in:

Philippines

Address: 31st Floor Tower One and Exchange Plaza Tel: +63 27506974

Ayala Triangle, Ayala Avenue, 1226 Fax: +63 27506790

City/ Country: Makati City, Philippines

Web Address: http://www.ayalaland.com.ph

Company Description: Ayala Land Inc. develops, manages, sells and acquires real

estate properties. It operates in residential development, corporate business,

shopping centers, hotels and resorts, strategic land bank, among others.

Company Name: Megaworld Corporation Status: Active

End of Fiscal Year: December 31, 2015 ISIN: PHY594811127

Auditor: Punongbayan & Araullo Year Established: 1989

Company Sector Name: Real Estate Trading Currency: PHP

Industry Name: Real Estate-General Place of

Incorporation:Philippines
Industry Group Name: Real Estate Services Doing Business in:

Philippines

Address: 330 Sen. Gil Puyat Avenue Tel: +63 28678826

28th Floor, The World Centre 1227

City/ Country: Makati City, Philippines

Web Address: http://www.megaworldcorp.com

Company Description: Megaworld Corporation is a property development

company. It is engaged in the development of large-scale mixed-use planned

communities, or community townships, that integrate residential, commercial,

educational/training, leisure and entertainment components.

Company Name: Robinsons Land Corporation Status: Active

End of Fiscal Year: September 30, 2015 ISIN: PHY731961264

Auditor: SyCip Gorres Velayo & Co. Year Established: 1980

Company Sector Name: Real Estate Trading Currency: PHP

Industry Name: Real Estate Services Place of

Incorporation:Philippines
Industry Group Name: Real Estate Services Doing Business in:

Philippines

Address: EDSA corner Ortigas Avenue Tel: +63 23971888

Level 2, Galleria Corporate Center, 1100

City/ Country: Quezon City, Philippines

Web Address: http://www.robinsonsland.com

Company Description: Robinsons Land Corporation is engaged in development

and operation of shopping malls and hotels, and development of mixed-use

properties, office and residential buildings. It is also involved in land and residential

housing development projects.

Financial Highlights

FINANCIAL HIGHLIGHTS
ALI - Ayala Land, Inc.

2015 2014 2013 2012 2011


In Billions
Earnings Summary
Net Income Excl. 17.63 14.8 11.74 9.04 7.14
Nonrecurring Items
Net Income 17.63 14.8 11.74 9.04 7.14
EBITDA 39.33 34.21 29.97 20.53 16.6
EBIT 34.26 29.22 23.08 17.81 13.69
EBT 27.75 23.86 18.96 14.55 11.6
Cash 19.09 28.68 29.97 32.12 24.6
Trade Receivables 73.07 57.9 37.71 30.82 18.92
165.6 147.3 111.0
Current Assets 166.2 3 1 6 75.32
442.3 388.9 324.4 254.1 154.5
Total Assets 4 4 7 2 4
Accounts Payable 73 59.21 47.07 31.55 23.44
146.1 101.6
Current Liabilities 3 134.6 2 78.67 45.63
Short-term Borrowings 19.29 21.37 15.95 16.37 6.2
Long-term Borrowings 111.7 103.3 85.95 58.41 28.26
124.6
Total Borrowings 131 7 101.9 74.78 34.45
Forex Liabilities 3.29 7.08 7.59 6.53 -
266.9 213.3 158.5
Total Liabilities 292.5 5 8 8 82.5
133.7 106.9
Shareholders' Funds 3 4 98.47 81.99 62.36
Real Estate Sales - - - - -
107.1
Total Revenues 8 95.2 81.52 59.93 47.67
Operating Expenses 6.59 6.2 5.93 4.73 3.76
Depreciation 5.07 4.99 3.9 2.71 2.9
Interest Expense 6.51 5.37 4.12 3.26 2.1
Taxes Paid 6.85 6.14 4.66 3.47 3.01
Capital Expenditures 6.84 3.25 5.12 5.52 2.31
Cash Flow from
Operations 20.18 35.16 27.24 8.42 9.91
End Cash 19.09 28.68 27.97 32.12 27.29
Net Working Capital 20.07 31.03 45.5 32.38 29.69
111.9
Net Debt (Net Cash) 1 95.99 73.94 42.66 9.85
618.7 591.8 438.0 431.8 232.8
Enterprise Value 6 1 7 1 9

Table 1.1. ALI-Financial Highlights from 2011-2015

FINANCIAL HIGHLIGHTS
MEG - Megaworld Corporation

2015 2014 2013 2012 2011


In Billions
Earnings Summary
Net Income Excl.
Nonrecurring Items 10.21 21.29 8.96 7.3 8.05
Net Income 10.22 21.22 8.97 7.3 8.03
EBITDA 16.69 27.46 13.87 11.33 11.58
EBIT 15.35 26.16 12.92 10.58 11.01
EBT 13.86 24.74 11.6 9.66 10.17
Cash 22.76 25.14 31.75 26.83 30.32
Trade Receivables 22.32 20.57 17.58 13.23 15.41
131.1 122.0
Current Assets 8 9 98.46 81.73 77.66
251.6 221.0 173.8 142.7
Total Assets 8 4 8 2 129
Accounts Payable 8.66 7.47 5.39 5.08 5.24
Current Liabilities 36.48 38.88 25.9 25.76 23.16
Short-term Borrowings 4.24 7.63 1.56 1.59 1.95
Long-term Borrowings 48.36 25.91 27.06 18.47 19.53
Total Borrowings 52.6 33.54 28.63 20.05 21.48
Forex Liabilities - - - - 54.04
117.2
Total Liabilities 7 92.24 71.93 61.5 56.22
116.6
Shareholders' Funds 9 110.8 91.93 71.35 60.96
Real Estate Sales - - - - -
Total Revenues 45 53.13 36.24 30.6 28.63
Operating Expenses 7.99 7.49 5.66 4.9 4.09
956.7 752.5 566.6
Depreciation 1.35 1.3 7 8 4
917.3 838.7
Interest Expense 1.49 1.42 1.32 2 3
Taxes Paid 3.28 3.12 2.57 2.25 2
255.5
Capital Expenditures 4.57 4.29 1.97 4 2.89
Cash Flow from
Operations 1.65 1.73 1.85 1.98 7
End Cash 22.76 25.14 31.75 26.83 30.32
Net Working Capital 94.7 83.21 72.65 55.97 54.51
Net Debt (Net Cash) 29.84 8.39 -3.31 -6.77 -8.84
166.8 159.2 101.3
Enterprise Value 6 8 3 82.53 45.96
Table 1.2. MEG-Financial Highlights from 2011-2015

FINANCIAL HIGHLIGHTS
RLC - Robinson Land Corporation

2015 2014 2013 2012 2011


In Billions
Earnings Summary
Net Income Excl.
Nonrecurring Items 5.7 4.74 4.48 4.24 3.97
Net Income 5.7 4.74 4.48 4.24 3.97
EBITDA 10.74 8.99 8.46 7.73 7.14
EBIT 7.59 6.26 6.01 5.65 5.03
EBT 7.59 6.26 5.99 5.6 4.85
Cash 1.19 1.05 1.08 5.88 9.05
Trade Receivables 7.36 6.34 4.96 4.31 3.25
Current Assets 25.64 23.37 18.92 22.37 21.18
Total Assets 99.07 85.37 74.89 70.65 64.97
Accounts Payable 3.3 3.36 2.42 2.69 1.48
Current Liabilities 12.96 16.59 20.02 8.76 8.96
Short-term Borrowings 3.05 8.10B 12.68 2 3
Long-term Borrowings 21.83 9.92B - 10 12
Total Borrowings 24.88 18.02 12.68 12 15
Forex Liabilities - - - - -
Total Liabilities 42.27 32.8 25.58 24.14 25.93
Shareholders' Funds 56.66 52.44 49.17 46.28 38.81
Real Estate Sales - - - - -
Total Revenues 19.77 17.07 16.02 14.01 13.31
Operating Expenses 3.05 2.57 2.2 1.9 1.77
Depreciation 3.15 2.73 2.46 2.08 2.11
177.7
Interest Expense 5.29 - 14.4 44.43 1
881.6
Taxes Paid 1.89 1.52 1.51 1.36 4
635.1 673.5 372.6 491.3
Capital Expenditures 2 587.1 7 8 6
Cash Flow from
Operations 9.58 6.59 5.69 4.27 3.46
End Cash 1.19 1.05 1.08 5.88 9.05
Net Working Capital 12.68 6.78 -1.1 13.61 12.21
Net Debt (Net Cash) 23.69 16.97 11.6 6.12 5.95
140.1 116.6
Enterprise Value 6 5 95.93 84.07 52.21

Table 1.3. RLC-Financial Highlights from 2011-2015

FUNDAMENTAL ANALYSIS

Trend Analysis

ALI - Ayala Land, Inc.


Income Statement Highlights
Trend Analysis (Base Year: 2011)
December 31, 2011-2015
Php in Billions

Percentage (%) Increase


(Decrease)
201 201 201 201 201 201 201 201 201
2015
4 3 2 1 5 4 3 2 1

Earnings Summary
Total 107. 81.5 59.9 47.6 125 100
Revenues 18 95.2 2 3 7 % % 71% 26% 0%
17.6 11.7 147 107
Net Income 3 14.8 4 9.04 7.14 % % 64% 27% 0%
39.3 34.2 26.9 20.5 137 106
EBITDA 3 1 7 3 16.6 % % 62% 24% 0%
34.2 29.2 23.0 17.8 13.6 150 113
EBIT 6 2 8 1 9 % % 69% 30% 0%
27.7 23.8 18.9 14.5 139 106
EBT 5 6 6 5 11.6 % % 63% 25% 0%

Table 2.1. ALI-Income Statement Highlights


Gross Revenues (Php in Billions) Net Income (Php in Billions)
17.63
107.18
95.2 14.8
81.52 11.74
59.93 9.04
1 2 47.67 1 2 3 4 7.145
3 4 5

1 2 1 2
3 4 3 4
5 5

Figure1.1. Graphical Representation of ALI-Income Statement Highlights

The figures showed the results of operations of Ayala Land, Inc. for the past

five years. This shows that Ayala Land, Inc. has a continuous increase in total

revenues and net income since 2011 up to 2015. Within these years of operation,

the company was able to generate a 125% increase in total revenues and 147%

increase in net income. This only shows that Ayala Land, Inc. has better

management when it comes to its resources and was able to control and minimize

its costs of operating its business effectively and efficiently.


MEG - Megaworld Corporation
Income Statement Highlights
Trend Analysis (Base Year: 2011)
December 31, 2011-2015
Php in Billions

Percentage (%) Increase


(Decrease)
201 201 201 201 201 201 201 201 201 201
5 4 3 2 1 5 4 3 2 1

Earnings Summary
Total 53.1 36.2 28.6
Revenues 45 3 4 30.6 3 57% 86% 27% 7% 0%
10.2 21.2 164
Net Income 2 2 8.97 7.3 8.03 27% % 12% -9% 0%
16.6 27.4 13.8 11.3 11.5 137
EBITDA 9 6 7 3 8 44% % 20% -2% 0%
15.3 26.1 12.9 10.5 11.0 138
EBIT 5 6 2 8 1 39% % 17% -4% 0%
13.8 24.7 10.1 143
EBT 6 4 11.6 9.66 7 36% % 14% -5% 0%

Table 2.2. MEG- Income Statement Highlights


Gross Revenues ( Php in Billions) Net Income (Php in Billions)
53.13 21.22
45
36.24
30.6 10.22
28.63 8.97
1 2 1 2 3 7.34 8.035
3 4 5

1 2 1 2
3 4 3 4
5 5

Figure 1.2. Graphical Representation of MEG- Income Statement

Highlights

This data depicts the performance of Megaworld Corporation from the year

2011 to 2015.From this extracted information, the company was unable to maintain

the increasing growth of its total revenues and net income for the past five years.

During 2014 the company was able to generate the greatest increase in its total

revenues and net income with a percentage increase from 2011 of 86% and 164%

respectively but the firm fails to maintain this growth in 2015 that tallies only an

increase of 57% and 27% respectively. Although the company generated a positive

increase in total revenues from 2011 to 2015, it has a record of 9% decrease in its

net income for the year 2012. This only shows that Megaworld Corporation does not

have a strong operations strategy to market their products and to compete against

their competitors in the industry. The decrease in net income in 2012 also shows
that the company was not able to effectively manage its cost in running its

business.

RLC - Robinson Land Corporation


Income Statement Highlights
Trend Analysis (Base Year: 2011)
September 30, 2011-2015
Php in Billions

Percentage (%) Increase


(Decrease)
201 201 201 201 201 201
2015 2014 2013 2012
5 4 3 2 1 1

Earnings Summary
Total
Revenu 19.7 17.0 16.0 14.0 13.3
es 7 7 2 1 1 49% 28% 20% 5% 0%
Net 5.7 4.74 4.48 4.24 3.97 44% 19% 13% 7% 0%
Income
10.7
EBITDA 4 8.99 8.46 7.73 7.14 50% 26% 18% 8% 0%
EBIT 7.59 6.26 6.01 5.65 5.03 51% 24% 19% 12% 0%
EBT 7.59 6.26 5.99 5.6 4.85 56% 29% 24% 15% 0%

Table 3.2. RLC- Income Statement Highlights

Gross Revenues (Php in Billions) Net Income (Php in Billions)


19.77 5.7
17.07 5
16.02 4.74
4.48 4
14.01 4.24
13.31 3 3.97
2
1
1 2 3 4 5

1 2 1 2
3 4 3 4
5 5

Figure 3.2. Graphical Representation of RLC- Income Statement Highlights

During its five years of operations, Robinsons Land Corporation was able to

generate an increasing growth on its total revenues and net income. From 2011, the

company had accumulated a total increase in its total revenues and net income of

44% and 49% respectively. Though the amount of increase in each year was

minimal, but still Robinsons Land Corporation was able to maintain its current

position in the industry. Therefore, the company was still able to manage its

business effectively.
AYALA LAND, INC.
STATEMENT OF FINANCIAL POSITION (HIGHLIGHTS)
TREND ANALYSIS (Base Year: 2011)
DECEMBER 31, 2011 TO 2015
PHP IN BILLIONS

Percentage (%) Increae


(Decrease)
201 201 201 201
2015 2014 3 2012 1 2015 2014 2013 2 1
Assets:
27.9
Cash 19.09 28.68 7 32.12 24.6 -22% 17% 14% 31% 0%
Trade 38.7 18.9
Receivables 73.07 57.9 1 30.82 2 286% 206% 105% 63% 0%
Current 165.6 147. 111.0 75.3
Assets 166.2 3 1 6 2 121% 120% 95% 47% 0%
Total 442. 388. 325. 254. 154. 186 152 111
Assets 3 9 5 1 5 % % % 64% 0%

Liabilities:
Accounts 47.0 23.4
Payable 73 59.21 7 31.55 4 211% 153% 101% 35% 0%
Current 146.1 101. 45.6
Liabilities 3 134.6 6 78.67 3 220% 195% 123% 72% 0%
Short-term 15.9 164
Borrowings 19.29 21.37 5 16.37 6.2 211% 245% 157% % 0%
Long-term 85.9 28.2 107
Borrowings 111.7 103.3 5 58.41 6 295% 266% 204% % 0%
Total 124.6 101. 34.4 117
Borrowings 131 7 9 74.78 5 280% 262% 196% % 0%
Forex
Liabilities 3.39 7.08 7.59 6.53 - -48% 8% 16% 0%
Total 292. 213. 158. 255 224 159
Liabilities 5 267 4 6 82.5 % % % 92% 0%

Shareholde 133. 106. 98.4 81.9 62.3 114


rs' Funds 7 9 7 9 6 % 71% 58% 31% 0%

Enterprise 618. 591. 438. 431. 232. 166 154


Value 8 8 1 8 9 % % 88% 85% 0%

Table 3.1. ALI- Financial Position Highlights

Total Assets (Php in Billions) Total Liabilities (Php in Billions)


442.3 292.5
388.9 267
325.5 213.4
254.1 158.6

154.5
1 2 1 2 82.5
3 4 3 4
5 5

1 2 1 2
3 4 3 4
5 5
Shareholders' Fund (Php in Billions)
133.7

106.9
98.47
81.99
62.36
1 2 3 4 5

1 2 3 4 5

Figure 1.3. Graphical Representation of ALI- Financial Position Highlights

MEGAWORLD CORPORATION
STATEMENT OF FINANCIAL POSITION (HIGHLIGHTS)
TREND ANALYSIS (BASE YEAR: 2011)
DECEMBER 31, 2011 TO 2015
PHP IN BILLIONS

Percentage (%) Increase


(Decrease)
201 201 201 201 201 201 201 20
2015 2014 3 2 1 5 4 3 2 11
Assets:
22.7 25.1 31.7 26.8 30.3 - - -
Cash 6 4 5 3 2 25% 17% 5% 12% 0%
Trade 22.3 20.5 17.5 13.2 15.4 -
Receivables 2 7 8 3 1 45% 33% 14% 14% 0%
131. 122. 98.4 81.7 77.6
Current Assets 18 09 6 3 6 69% 57% 27% 5% 0%
251. 173. 142 95 71 35
Total Assets 7 221 9 .7 129 % % % 11% 0%

Liabilities:
Accounts -
Payable 8.66 7.47 4.39 5.08 5.24 65% 43% 16% -3% 0%
Current 36.4 38.8 25.7 23.1
Liabilities 8 8 25.9 6 6 58% 68% 12% 11% 0%
Short-term 117 291 - -
Borrowings 4.24 7.63 1.56 1.59 1.95 % % 20% 18% 0%
Long-term 48.3 25.9 27.0 18.4 19.5 148
Borrowings 6 1 6 7 3 % 33% 39% -5% 0%
Total 33.5 28.6 20.0 21.4 145
Borrowings 52.6 4 3 5 8 % 56% 33% -7% 0%
-
0.05 100
Forex Liabilities 0 0 0 0 4 % 0%
Total 117. 92.2 71.9 61. 56. 109 64 28
Liabilities 3 4 3 5 22 % % % 9% 0%

Shareholders' 116. 110. 91.9 71. 60. 91 82 51


Funds 7 8 3 35 96 % % % 17% 0%

Enterprise 166. 159. 101. 82. 45. 263 247 120


Value 9 3 3 53 96 % % % 80% 0%

Table 3.2. MEG- Financial Position Highlights


Total Assets (Php in Billions) Total Liabilities (Php in Billions)
117.3
251.7
221 92.24

173.9 71.93
142.7 61.5
129 56.22
1 2 1 2
3 4 3 4
5 5

1 2 1 2
3 4 3 4
5 5

Shareholders' Fund (Php in Billions)


116.7
110.8
91.93
71.35
60.96
1 2 3 4 5

1 2 3 4 5

Figure 2.3. Graphical Representation of MEG- Financial Position Highlights


ROBINSONS LAND, CORPORATION
STATEMENT OF FINANCIAL POSITION (HIGHLIGHTS)
TREND ANALYSIS (BASE YEAR: 2011)
SEPTEMBER 31, 2011 TO 2015
PHP IN BILLIONS

Percentage (%) Increase


(Decrease)
201 201 201 201 201 201 201 201 201 201
5 4 3 2 1 5 4 3 2 1

Assets:
- - - -
Cash 1.19 1.05 1.08 5.88 9.05 87% 88% 88% 35% 0%
Trade 126
Receivables 7.36 6.34 4.96 4.31 3.25 % 95% 53% 33% 0%
25.6 23.3 18.9 22.3 21.1 -
Current Assets 4 7 2 7 8 21% 10% 11% 6% 0%
99.0 85. 74. 70.6 64. 31
Total Assets 7 37 89 5 97 52% % 15% 9% 0%

Liabilities:
Accounts 123 127
Payable 3.3 3.36 2.42 2.69 1.48 % % 64% 82% 0%
Current 12.9 16.5 20.0 123
Liabilities 6 9 2 8.76 8.96 45% 85% % -2% 0%
Short-term 12.6 170 323 -
Borrowings 3.05 8.1 8 2 3 2% % % 33% 0%
-
Long-term 21.8 - 100 -
Borrowings 3 9.92 0 10 12 82% 17% % 17% 0%
24.8 18.0 12.6 - -
Total Borrowings 8 2 8 12 15 66% 20% 15% 20% 0%
Forex Liabilities - - - - -
42.2 32. 25. 24.1 25. 26
Total Liabilities 7 8 58 4 93 63% % -1% -7% 0%

Shareholders' 56.6 52. 49. 46.2 38. 35


Funds 6 44 17 8 81 46% % 27% 19% 0%

Enterprise 140. 116 95. 84.0 52. 168 123


Value 2 .7 93 7 21 % % 84% 61% 0%
Table 3.3. RLC- Financial Position Highlights

Total Assets (Php in Billions) Total Liabilities (Php in Billions)


99.07 42.27
85.37
74.89 32.8
70.65
64.97 25.58
24.14 25.93

1 2 1 2 3
3 4 4 5
5

1 2 1 2
3 4 3 4
5 5

Shareholders' Fund (Php in Billions)


56.66
52.44
49.17
46.28
38.81

1 2 3 4 5

1 2 3 4 5

Table 3.3. Graphical Representation of RLC- Financial Position Highlights


COMPARATIVE STATEMENT OF PROFIT OR LOSS (BASE ON TOTAL
REVENUES)
For the Year
2015
Php in Billions

AYALA LAND MEGAWORLD ROBINSONS LAND

Earnings
Summary
Total Revenues 107.18 45 19.77
Net Income 17.63 10.22 5.7
EBITDA 39.33 16.69 10.74
EBIT 34.26 15.35 7.59
EBT 27.75 13.86 7.59

Earnings
Summary
Total Revenues 100% 100% 100%
Net Income 16% 23% 29%
EBITDA 37% 37% 54%
EBIT 32% 34% 38%
EBT 26% 31% 38%
Table 4.1. Comparative Statement of Profit or Loss
Comparison of Company's Net Income (%)
100%
200%
300%

23% 29%
16%

1
2
3

Figure 3.1. Graphical Representation of Comparative Statement of Profit

or Loss

As of 2015, Robinsons Land Corporation has generated a higher net income

of 29% followed by Megaworld Corporation by 23% and Ayala Land, Inc. by 16%.

COMPARATIVE STATEMENT OF FINANCIAL POSITION (BASE ON TOTAL


ASSETS)
For the Year
2015
Php in
Billions

AYALA LAND MEGAWORLD ROBINSONS LAND


Assets
:
Cash 19.09 22.76 1.19
Trade
Receivables 73.07 22.32 7.36
Current Assets 166.2 131.18 25.64
Total Assets 442.3 251.7 99.07

Liabilities:
Accounts
Payable 73 8.66 3.3
Current 146.13 36.48 12.96
Liabilities
Short-term
Borrowings 19.29 4.24 3.05
Long-term
Borrowings 111.7 48.36 21.83
Total Borrowings 131 52.6 24.88
Forex Liabilities 3.39 0 -
Total Liabilities 292.5 117.3 42.27

Shareholders'
Funds 133.7 116.7 56.66

Asset
s:
Cash 4% 9% 1%
Trade Receivables 17% 9% 7%
Current Assets 38% 52% 26%
Total Assets 100% 100% 100%

Liabilities:
Accounts Payable 17% 3% 3%
Current Liabilities 33% 14% 13%
Short-term
Borrowings 4% 2% 3%
Long-term
Borrowings 25% 19% 22%
Total Borrowings 30% 21% 25%
Forex Liabilities 1% 0% -
Total Liabilities 66% 47% 43%
Shareholders'
Funds 30% 46% 57%
Table 5.1. Comparative Statement of Financial Position

Total Equity (%) Of Total Equity (%) of Megaworld


Ayala Land

31% 50% 50%

69%

Total Equity of Robinsons Land

43%
57%

Figure 4.1. Graphical Representation of Each Companys Total Equity

Figures above show the companys strategy of using creditors money in

financing the organizations investing and operating activities. Ayala Land gets a
bigger percentage of its capital from borrowings. Robinsons Land Corporation is

opposite to Ayala Land which gets more capital from issuance of shares rather than

borrowings. Megaworld Corporation finances its operating and investing activities

with an almost equal percentage from borrowing and issuance of its shares. This

situation shows that a company which uses more of its long-term debt is more

financially leveraged and has higher financial risk or the uncertainty of not meeting

future obligations as they mature due to the inadequacy of assets or due to the

critical level of assets that would be used in meeting future debts.

Financial Ratios
Ayala Land Inc.

Liquidity
Ratios 2015 2014 2013 2012 2011
Current Ratio 1.14 1.23 1.45 1.41 1.65
Acid-test Ratio
Cash Ratio 0.13 0.21 0.29 0.41 0.54
Net Working Capital 20.07 31.03 45.69 32.39 29.69

Activity Ratios
Inventory Turnover
Inventory Days
Receivable Turnover 1.47 1.45 1.71 1.75 1.92
248.8 251.0 214.0 208.6 190.4
Ave. collection period 4 7 4 9 2
Payable Turnover
Ave. payment period
Total Asset Turnover 0.24 0.24 0.25 0.24 0.31
Cash Coversion Cycle

Profitability Ratios
Gross Profit Margin 0.16 0.16 0.14 0.15 0.15
Return on Sales 0.16 0.16 0.14 0.15 0.15
Return on Assets 0.04 0.04 0.04 0.04 0.05
Return on Equity 0.12 0.12 0.11 0.09 0.10

Leverag Ratios
Debt Ratio 0.66 0.69 0.66 0.62 0.53
Equity Ratio 0.34 0.31 0.34 0.38 0.47
Debt-Equity Ratio 1.95 2.19 1.92 1.66 1.15
Times Interest Earned 5.26 5.44 5.60 5.46 6.52

Market Ratios
Earnings per share 1.20 1.04 0.82 0.65 0.54
Price-Earnings Ratio 28.82 32.44 30.03 40.45 27.93
Dividend Payout Ratio 0.34 0.39 0.35 0.33 0.27
Book value per share 9.10 7.54 6.95 5.96 4.78
Dividends per Share 0.41 0.41 0.29 0.21 0.15
Table: 6.1. ALI- Financial Ratios

The figures above represent Ayala Land Inc.s financial health. It also shows

which aspects are their strengths and weaknesses. For the past five years, Ayala
Land Inc. has been showing a decline in terms of liquidity and asset management.

Despite that, their financial leverage has been showing consistency and stability

while their economic growth has been outstandingly positive.

Megaworld Corporation

Liquidity
Ratios 2015 2014 2013 2012 2011
Current Ratio 3.60 3.14 3.80 3.17 3.35
Acid-test Ratio
Cash Ratio 0.62 0.65 1.23 1.04 1.31
Net Working Capital 94.7 83.21 72.56 55.97 54.5

Activity Ratios
Inventory Turnover
Inventory Days
Receivable Turnover 2.02 2.48 1.90 1.99 2.00
181.0 147.3 192.1 183.7 182.5
Ave. collection period 4 3 2 5 6
Payable Turnover
Ave. payment period
Total Asset Turnover 0.18 0.24 0.21 0.21 0.22
Cash Coversion Cycle

Profitability Ratios
Gross Profit Margin 0.23 0.40 0.25 0.24 0.28
Return on Sales 0.23 0.40 0.25 0.24 0.28
Return on Assets 0.04 0.10 0.05 0.05 0.06
Return on Equity 0.08 0.17 0.09 0.09 0.11

Leverag Ratios
Debt Ratio 0.47 0.42 0.41 0.43 0.44
Equity Ratio 0.53 0.58 0.59 0.57 0.56
Debt-Equity Ratio 0.87 0.72 0.71 0.76 0.77
Times Interest Earned 10.30 18.42 9.79 0.01 0.01

Market Ratios
Earnings per share 0.32 0.66 0.28 0.25 0.31
Price-Earnings Ratio 13.41 7.08 11.55 10.91 5.41
Dividend Payout Ratio 0.19 0.06 0.13 0.13 0.08
Book value per share 3.62 3.44 2.88 2.48 2.38
Dividends per Share 0.06 0.04 0.04 0.03 0.02

Table 6.2. MEG- Financial Ratios

As for Megaworld Corporation, the company has been experiencing frequent

ups and downs in terms of profitability as well as valuation and economic growth.
Moreover, they have been manifesting a positive trend in terms of net working

capital and leverage capabilities.

Robinsons Land Corporation

Liquidity 2015 2014 2013 2012 2011


Ratios
Current Ratio 1.98 1.41 0.95 2.55 2.36
Acid-test Ratio
Cash Ratio 0.09 0.06 0.05 0.67 1.01
Net Working Capital 12.68 6.78 -1.1 13.61 12.22

Activity Ratios
Inventory Turnover
Inventory Days
Receivable Turnover 2.69 2.49 2.84 3.02 3.52
135.8 146.4 128.7 120.7 103.6
Ave. collection period 8 7 3 5 6
Payable Turnover
Ave. payment period
Total Asset Turnover 0.20 0.20 0.21 0.20 0.20
Cash Coversion Cycle

Profitability Ratios
Gross Profit Margin 0.29 0.28 0.28 0.30 0.30
Return on Sales 0.29 0.28 0.28 0.30 0.30
Return on Assets 0.06 0.06 0.06 0.06 0.06
Return on Equity 0.10 0.09 0.09 0.09 0.10

Leverag Ratios
Debt Ratio 0.43 0.38 0.34 0.34 0.40
Equity Ratio 0.57 0.62 0.66 0.66 0.60
Debt-Equity Ratio 0.74 0.62 0.52 0.52 0.66
Times Interest Earned 1.43 - 0.42 0.13 0.03

Market Ratios
Earnings per share 1.39 1.16 1.09 1.04 0.97
Price-Earnings Ratio 20.43 21.04 18.83 18.38 11.64
Dividend Payout Ratio 0.26 0.31 0.33 0.35 0.37
Book value per share 13.84 12.81 12.01 11.30 9.48
Dividends per Share 0.36 0.36 0.36 0.36 0.36

Table 6.3. RLC- Financial Ratios


Robinson Land Corporation showed a rising trend in economic growth and

valuation aspects. The company showed a massive regression during the year 2013

but quickly recovered the year after and the next.

Based on the comparative analysis made on the chosen companies, though

all three has a larger proportion of asset value relative to the value of its liabilities,

Megaworld Corporation has the greatest current ratio. Therefore, it has the greatest

capability of paying currently maturing obligations. Moreover, Ayala Land Inc. is

demonstrating a decline in terms of net working capital whereas the other two,

Megaworld and Robinson Land manifested a positive trend.

In terms of Earnings per share, Ayala Land Inc. and Robinson Land

Corporation shown an increasing trend while Megaworld demonstrated a few

instabilities. However, this is for the reason that the computation of EPS is heavily

influenced by the outstanding shares, given Megaworld has the most out of the

three.
Measurement and Evaluation of Risk and Return

Risk Category

According to a related study made by CME Group in 2011, Capital Asset

Pricing Model represents a way of understanding how equity values fluctuate or

react to various economic forces driving the market. The model suggests that the

total risk associated with any particular stock may be categorized into systematic

risks and unsystematic risks.

Systematic risk is a reference to market risks, which happens beyond the

investors control and it affects the entire market system. Unsystematic risk or

firm-specific risks represent factors that affect the price of an individual stock

without impacting the overall market.

Beta of Stocks

According to Henry Ong, a Registered Financial Planner of RFP

Philippines, one generally measures risk through looking at the volatility of a

stock in relation to the general market called the beta. The higher the beta of

a stock, the higher the potential returns but the higher the risks too.

The researchers took note of the beta of the three stocks under this

study, particularly, Ayala Land Inc. Stocks (ALI.PS), Megaworld Corporations

Stocks (MEG.PS), and Robinsons Land Corporation Stocks (RLC.PS).


Beta of stocks under this study as of March 2, 2017:

Stock Ticker Beta


ALI.PS 1.31
MEG.PS 1.79
RLC.PS 0.97

Table 7.1. Beta of each Companys Stock

Beta in relation to PSE Index

As of March 2, 2017, the beta of Ayala Land Inc. is 1.31. This means that for

every 1-percent increase in the PSE index, the stock will go up by 1.31 percent on

the average. Similarly, if the PSE index declines by 1 percent, the stock will also fall

by 1.31 percent.

As of March 2, 2017, the beta of Megaworld is 1.79. This means that for every

1-percent increase in the PSE index, the stock will go up by 1.79 percent on the

average. Similarly, if the PSE index declines by 1 percent, the stock will also fall by

1.79 percent.

As of March 2, 2017, the beta of Robinsons Land Corporation is 0.97. This

means that for every 1-percent increase in the PSE index, the stock will go up by

0.97 percent on the average. Similarly, if the PSE index declines by 1 percent, the

stock will also fall by 0.97 percent.

Among these three companies, Megaworld Corporation has the highest beta

of 1.79 followed by Ayala Land, Inc. of 1.31 and lastly, Robinsons Land Corporation

of .97. This means that if the markets return moves (increase or decrease) by 1%,
then the return of the stocks in Megaworld Corporation will move in the same

direction by 1.79%. Beta of Ayala Land, Inc. and Robinsons Land Corporation show

that in every 1% movement of the return of the stock market, then, their return will

just move by 1.31% and .97% respectively. Therefore, Megaworld Corporation is the

most risky among the companies implying that it has the highest expected rate of

return (see computation of returns below) because it is more exposed to systematic

risk.

COMPUTATION OF EXPECTED RATE OF RETURN USING CAPITAL ASSET

PRICING MODEL:

Formula: E(R) = RFR + stock (Rmarket RFR)

Where:

E(R) = the required rate of return, or expected return

RFR = the risk free rate

stock = beta of the stock

Rmarket = return of the market as a whole

(Rmarket RFR) = the market risk premium, or the return above the risk-free

rate to accommodate additional unsystematic risk.


AYALA LAND MEGAWORLD ROBINSONS LAND
E(R) = RFR + E(R) = RFR + E(R) = RFR +

stock (Rmarket RFR) stock (Rmarket RFR) stock (Rmarket RFR)

= 5.08%* + = 5.08%* + 1.7 = 5.08%* + 1.0

1.3(13.21%* - (13.03%*-5.08%) (9.87%*- 5.08%)

5.08%)
= 5.08% + 1.7 (7.95%) = 5.08% + 1.0 (4.79%)

= 5.08% + 1.3 (8.13%)


E(R) = 18. 60% E(R)= 9.87%

E(R) = 15.65%

NOTE (*):

The risk-free rate of 5.08% is based on the current rate of 10-year Treasury

Bonds that is considered as a risk free asset.


The Beta used in this computation is based on the current beta established

by Philippine Stock Exchange.


The market return is computed based on the average 5-year performance of

the company starting 2011.


Technical Analysis

The Underlying Principle

What is technical analysis?

Technical analysis is the study of historical price and volume behaviour to

arrive at better investing & trading decisions. It roots from the fact that short-price

movement in the stock market is driven by the emotions and beliefs that influence

the decisions of the buyers and sellers. One of its main aspects is the study of

charts and the patterns that form within them in order to have a stronger gauge of

future price movement.

Three Underlying Assumptions of Technical Analysis

1. The market discounts everything.

This is one of the strong assumptions of TA. It assumes that at any given

time all available information such as news, fundamental information, political

events, global happenings, etc. will reflect on a stocks price as these information

are constantly assessed and acted upon the market participants.


When information is made available to the public or to a number of

participants, we expect that they would react on the information. Market

participants will buy and sell based on the information available to them. The

constant reaction to information will then reflect on the stocks price or in other

words, the news or information is priced-in already.

2. Prices move in trends.

Another assumption of technical analysis is that prices often lean towards a

certain trend of bias, and if the certain direction is already determined there is a

high probability that the market will continue to move in that direction.

Trends are one of the most profitable aspects of investing and trading. When

the market is able to sustain strong buying or strong selling in a particular stock,

then it will lead to trends. Usually these trends are triggered by a catalyst.

3.)History repeats itself.

Patterns form in the markets due to the nature of human beings to react

similarly to certain events and information. In general, we tend to react to the same

events in similar manners, thus the buying and selling behaviour of the market

participants becomes predictable at a certain degree. Since processes are

determined by the holistic interaction of the buyers and sellers, the psychology, the

emotions, and the actions of the market participants determines the price where the

asset trades.
Basic Candle Sticks

Formation

Figure 5.1. Candle Stick Formation

In order to create a candlestick

chart, we must have a data set that

contains open, high, low and close values

for each time period you want to display.

The hollow or filled portion of the

candlestick is called the body (also

referred to as the real body). The long

thin lines above and below the body

represent the high/low range and are

called shadows (also referred to as

wicks and tails). The high is marked by the top of the upper shadow and the low

by the bottom of the lower shadow. If the stock closes higher than its opening price,

a hollow candlestick is drawn with the bottom of the body represents the opening
price and the top of the body representing the closing price. If the stock closes

lower than its opening price, a filled candlestick is drawn with the top of the body

representing the opening price and the bottom of the body representing the closing

price.

Compared to traditional bar charts, many traders consider candlestick charts

more visually appealing and easier to interpret. Each candlestick provides an easy-

to-decipher picture of price action. Immediately a trader can compare the

relationship between the open and close as well as the high and low. The

relationship between the open and close is considered vital information and forms

the essence of candlesticks. Hollow candlesticks, where the close is greater than the

open, indicate buying pressure. Filled candlesticks, where the close is less than the

open, indicate selling pressure.

Brief History of Candlestick

The Japanese began using technical analysis to trade rice in the 17th

century. While this early version of technical analysis was different from the US

version initiated by Charles Dow around 1900, many of the guiding principles

were very similar:

The what (price action) is more important than the why (news, earnings,

and so on).

All known information is reflected in the price.

Buyers and sellers move markets based on expectations and emotions (fear

and greed).
Markets fluctuate.

The actual price may not reflect the underlying value.

According to Steve Nison, candlestick charting first appeared sometime

after 1850. Much of the credit for candlestick development and charting goes to

a legendary rice trader named Homma from the town of Sakata. It is likely that

his original ideas were modified and refined over many years of trading

eventually resulting in the system of candlestick charting that we use today.

Bulls vs. Bears

Figure 6.1. Diagram Showing Bullish vs. Bearish Position


1. Long white candlesticks indicate that the Bulls controlled the ball (trading)

for most of the game.

2. Long black candlesticks indicate that the Bears controlled the ball

(trading) for most of the game.

3. Small candlesticks indicate that neither team could move the ball and

prices finished about where they started.

4. A long lower shadow indicates that the Bears controlled the ball for part of

the game, but lost control by the end and the Bulls made an impressive

comeback.

5. A long upper shadow indicates that the Bulls controlled the ball for part of

the game, but lost control by the end and the Bears made an impressive

comeback.

6. A long upper and lower shadow indicates that the both the Bears and the

Bulls had their moments during the game, but neither could put the other away,

resulting in a standoff.

Basic Support and Resistance

Support and resistance represent key junctures where the forces of supply

and demand meet. In the financial markets, prices are driven by excessive supply

(down) and demand (up). Supply is synonymous with bearish, bears and selling.

Demand is synonymous with bullish, bulls and buying. These terms are used

interchangeably. As demand increases, prices advance and as supply increases,

prices decline. When supply and demand are equal, prices move sideways as bulls
and bears slug it out for control. In other words the main reason of price movement

is the concept of law on supply and demand of economics.

What is Support?

Support is the price level at which demand is thought to be strong enough to

prevent the price from declining further. The logic dictates that as the price declines

towards support and gets cheaper, buyers become more inclined to buy and sellers

become less inclined to sell. By the time the price reaches the support level, it is

believed that demand will overcome supply and prevent the price from falling below

support.

Figure 7.1. The Support Line


Support does not always hold and a break below support signals that the

bears have won out over the bulls. A decline below support indicates a new

willingness to sell and/or a lack of incentive to buy. Support breaks and new lows

signal that sellers have reduced their expectations and are willing sell at even lower

prices. In addition, buyers could not be coerced into buying until prices declined

below support or below the previous low. Once support is broken, another support

level will have to be established at a lower level.

Where is Support Establish?

Support levels are usually below the current price, but it is not uncommon for

a security to trade at or near support. Technical analysis is not an exact science and

it is sometimes difficult to set exact support levels. In addition, price movements

can be volatile and dip below support briefly. Sometimes it does not seem logical to

consider a support level broken if the price closes 1/8 below the established support

level. For this reason, some traders and investors establish support zones.

What is Resistance?

Resistance is the price level at which selling is thought to be strong enough

to prevent the price from rising further. The logic dictates that as the price advances

towards resistance, sellers become more inclined to sell and buyers become less

inclined to buy. By the time the price reaches the resistance level, it is believed that

supply will overcome demand and prevent the price from rising above resistance
Figure 8.1. The Resistance Line

Resistance does not always hold and a break above resistance signals that

the bulls have won out over the bears. A break above resistance shows a new

willingness to buy and/or a lack of incentive to sell. Resistance breaks and new

highs indicate buyers have increased their expectations and are willing to buy at

even higher prices. In addition, sellers could not be coerced into selling until prices

rose above resistance or above the previous high. Once resistance is broken,

another resistance level will have to be established at a higher level.

Where is Resistance Establish?

Resistance levels are usually above the current price, but it is not uncommon

for a security to trade at or near resistance. In addition, price movements can be

volatile and rise above resistance briefly. Sometimes it does not seem logical to

consider a resistance level broken if the price closes 1/8 above the established
resistance level. For this reason, some traders and investors establish resistance

zones.

The Elliott wave Theory

Basic Principle

Under the Wave Principle, every market decision is both produced by

meaningful information and produces meaningful information. Each transaction,

while at once an effect enters the fabric of the market and, by communicating

transactional data to investors, joins the chain of causes of others' behaviour. This

feedback loop is governed by man's social nature, and since he has such a nature,

the process generates forms. As the forms are repetitive, they have predictive

value.

Sometimes the market appears to reflect outside conditions and events, but

at other times it is entirely detached from what most people assume are causal

conditions. The reason is that the market has a law of its own. It is not propelled by

the linear causality to which one becomes accustomed in the everyday experiences

of life. Nor is the market the cyclically rhythmic machine that some declare it to be.

Nevertheless, its movement reflects a structured formal progression.

That progression unfolds in waves. Waves are patterns of directional

movement. More specifically, a wave is any one of the patterns that naturally occur

under the Wave Principle.

The Five Wave Pattern


In markets, progress ultimately takes the form of five waves of a specific

structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the

directional movement. They are separated by two countertrend interruptions, which

are labeled 2 and 4, as shown in Figure 9.1. The two interruptions are apparently a

requisite for overall directional movement to occur.

Figure 9.1. Basic Five Wave Pattern of Elliott

At any time, the market may be identified as being somewhere in the basic

five wave pattern at the largest degree of trend. Because the five wave pattern is

the overriding form of market progress, all other patterns are subsumed by it.

Wave Mode
There are two modes of wave development: motive and corrective. Motive

waves have a five-wave structure, while corrective waves have a three-wave

structure or a variation thereof. Motive mode is employed by both the five-wave

pattern of Figure 9.1. and its same-directional components, i.e., waves 1, 3 and 5.

Their structures are called "motive" because they powerfully impel the market.

Corrective mode is employed by all counter-trend interruptions, which include

waves 2 and 4 in Figure 9.1. Their structures are called "corrective" because each

one appears as a response to the preceding motive wave yet accomplishes only a

partial retracement, or "correction," of the progress it achieved. Thus, the two

modes are fundamentally different, both in their roles and in their construction.

The stock market unfolds according to a basic rhythm or pattern of five waves

up and three waves down to form a complete cycle of eight waves. The pattern of

five waves up followed by three waves down is depicted in Figure 9.2.

Figure 9.2. One Complete Cycle of Elliott Wave Theory


One complete cycle consisting of eight waves, then, is made up of two

distinct phases, the five-wave motive phase (also called a "five"), whose subwaves

are denoted by numbers, and the three-wave corrective phase (also called a

"three"), whose subwaves are denoted by letters. Just as wave 2 corrects wave 1 in

Figure 9.1., the sequence A, B, C corrects the sequence 1, 2, 3, 4, 5 in Figure 9.2.

When an initial eight-wave cycle such as shown in Figure 9.2 ends, a similar

cycle ensues, which is then followed by another five-wave movement. This entire

development produces a five-wave pattern of one degree (i.e., relative

size) larger than the waves of which it is composed. The result is shown in Figure 9.3

up to the peak labeled (5).

Figure 9.3. Larger Cycle of Elliott Wave Theory

This five-wave pattern of larger degree is then corrected by a three-wave

pattern of the same degree, completing a larger full cycle, depicted as Figure 9.3.
As Figure 9.3 illustrates, each same-direction component of a motive

wave (i.e., wave 1, 3 and 5), and each full-cycle component (i.e., waves 1 + 2, or

waves 3 + 4) of a cycle, is a smaller version of itself.

It is necessary to understand a crucial point: Figure 9.3 not only illustrates

a larger version of Figure 9.2, it also illustrates Figure 9.2 itself, in greater detail. In

Figure 9.2, each sub wave 1, 3 and 5 is a motive wave that must subdivide into a

"five," and each sub wave 2 and 4 is a corrective wave that must subdivide into a

"three." Waves (1) and (2) in Figure 9.3, if examined under a "microscope," would

take the same form as waves [1]* and [2]. Regardless of degree, the form is

constant. We can use Figure 9.3 to illustrate two waves, eight waves or thirty-four

waves, depending upon the degree to which we are referring.

Essential Concepts
Figure 9.4. Complete Market Cycle

The phenomena of form, degree and relative direction are carried one step

further in Figure 9.4. This illustration reflects the general principle that in any

market cycle, waves will subdivide as shown in the following table (see Wave

Numbers).

Wave Numbers
Number of Waves at Each Degree

Impulse + Correction = Cycle

Largest waves 1+1=2

Largest subdivisions 5+3=8

Next subdivisions 21+13=34

Next subdivisions 89+55=144

Number of Waves at Each Degree

Motive + Corrective = Cycle


(Impulse) (Zigzag)
Largest waves 1 1 2
Largest subdivisions 5 3 8
Next subdivisions 21 13 34
Next subdivisions 89 55 144

Figure 9.4 does not imply finality. As before, the termination of yet another

eight wave movement (five up and three down) completes a cycle that

automatically becomes two subdivisions of the wave of next higher degree. As long
as progress continues, the process of building to greater degrees continues. The

reverse process of subdividing into lesser degrees apparently continues indefinitely

as well. As far as we can determine, then, all waves both have and are component

waves.

Wave Degree

All waves may be categorized by relative size, or degree. Elliott discerned

nine degrees of waves, from the smallest wiggle on an hourly chart to the largest

wave he could assume existed from the data then available. He chose the names

listed below to label these degrees, from largest to smallest:

Grand Supercycle

Supercycle

Cycle

Primary

Intermediate

Minor

Minute

Minuette

Subminuette

Variation on the Basic Theme


The Wave Principle would be simple to apply if the basic theme described

above were the complete description of market behaviour. However, the real world,

fortunately or unfortunately, is not so simple.

Analyzing Individual stock using Technical Analysis

(PSEi; ALI, RLC, MEG)

Analyzing stocks through technical analysis is not an easy task. Well trained

eyes are needed to notice the crucial patterns in the candle sticks chart. In this

section of the research, the Company of Ayala land (ALI), Robinsons Land (RLC)

and Megaworld (MEG) will be analyzed using the actual price action in the market.

Since the focus of this investment is long term a one month time frame will be used

for technical analysis.

Now, to analyze if these three Corporation Stocks are following the five wave

pattern of Elliott Wave Theory, notice the following figures.


Figure 10.1. Ayala Land Inc. Elliott Waves (Candle sticks on month time frame

as of

March 2017)
Figure 10.2. Robinsons Land Corporation Elliott Waves (Candle sticks on

month time frame as of March 2017)

Figure 10.3. Megaworld Corporation Elliott Waves (Candle sticks on month

time frame as of March 2017)


After observing the behaviour of the candle sticks of these three listed

corporations these confirms the five wave pattern of the Elliott Wave theory. Notice

also that the first wave of these corporations happened during 2009 were after the

US Economy fall down on year 2007 and 2008 (the collapse of the investment bank

Lehman Brothers).

Currently, on what wave are these stocks?

Based on our observation of the charts the Ayala Land is on its First wave,

while the Robinsons land is on its corrective phase wave C. The Megaworld is on its

wave C also, however, it is now ready to accelerate on First wave.

What month/s are these three stocks usually bullish or uptrend?

Plotting the candle sticks like a calendar we observe the following trend

which is shown below:

Figure 11.1. Ayala Land Calendar Trend


Figure 11.2. Robinsons Land Calendar Trend

Figure 11.3. Megaworld Calendar Trend


As observed, Ayala Land is mostly bullish on the months of February and

March. In the case of Robinsons Land it is mostly bullish throughout January,

February and September, while the Megaworld Corporation is mostly bullish during

February, March and October. Thus, a short term investor may have a position

before the month which these stocks are usually bullish or in uptrend.

Recommendation Based on Technical analysis

Based on technical analysis we highly recommend investing either on Ayala

Land or Megaworld. As observed on the Candle stick chart using the five wave

pattern of Elliot Wave Theory the Ayala Land is probably on its first wave and

Megaworld is in the end on wave C and ready to accelerate to its first wave. Other

noticeable patterns are the support of these two stocks which are shown below:

Ayala Land Inc. Megaworld Corporation

Figure 12.1. Basic Support


The price of these stocks have been falling down to its support twice, this

strongly means that the buyers dont want the price to fall below the support and

now probably the Ayala land and Megaworld stocks are ready for long term

uptrend.
Risk Management

Basic Risk Management

(Try to avoid risk, Take Risk, Manage Risk)

When investors decide to put their money in the stock market, there is only

one rule that should be remembered: Always expect the unexpected. (Stock Market

Cash Flow by Andy Tanner)

Thats why investors should take the time to learn about the different

potential risks they might face when putting money into an investment. Most

people have no idea how risky it can be in the market. If they dont know how to

identify and neutralize those risks, it might be just a matter of time until they end

up losing all their investments in the market.

Non-Systematic Risk and Systematic Risk

Non-systematic risks are the things that can happen to affect the price of

an individual stock without impacting the overall market.

For example, the Megaworld decreased income from 21.29B in 2014 down to

10.21B during 2015. Megaworld stock price went down from 5.88 pesos on April

2015 until 3.27 pesos on January 2016. Notice also that the price fell down in the

month of April which is the usual releasing of Financial Statements.


Figure 13.1. Non Systematic Risk

Systematic Risk is the risk inherent to the entire market or an entire market

segment. Systematic risk, also known as undiversifiable risk, volatility or

market risk, affects the overall market, not just a particular stock or industry. This

type of risk is both unpredictable and impossible to avoid completely.

For example, the fall down of US Economy during the year 2007 to 2008 that

affects the global market including the Philippine Stock Market. As shown in the

charts of Ayala Land, Robinson Land, Megaworld and Philippine Stock market Index,

the behavior of their price actions are almost identical. The Prices of these stocks

fell down continuously from November 2007 until January 2016.

Ayala Land Robinsons Land


Megaworld PSE Index

Figure 14.1. Systematic Risk

What is diversification?
Diversification is the process of allocating capital in a way that reduces the

exposure to any one particular asset or risk. A common path towards

diversification is to reduce risk or volatility by investing in a variety of assets.

Can Diversification lessen the impact of the Risk?

Investors may protect their investment from non-systematic risk through

diversification, however, this strategy can actually be dangerous if systematic risk is

involved, because the overall market during this time is really bearish. Therefore,

the more investment on the market in different Industry the more losses by the

investor will be incurred.

Risk/Reward Ratio

According to the study of Andy Tanner in his book entitled Stock Market Cash

Flow, they learned a little about how to look at the price movements of a stock on

a chart to set a price target, an entry point, and an exit point. To help investors

evaluate the potential attractiveness of one trade over another investors so that

they can use these price targets, entry and exit points a way to measure each

trade. They call this measurement the risk/reward ratio. Shown in the figure are

the suggested entry and exit price of Ayala land and Megaworld.

Ayala Land Megaworld


Figure 15.1. Determining Entry and Exit price using Support and

Resistance

Ayala Land and Megaworld Risk/Reward Ratio

Ideally, the entry price of Ayala land and Megaworld should be at some price

near the support (the green line in figure) and the target price is at price near the

resistance (the blue line in figure). If the price breaks above resistance level then

the investor may establish another target price or take the reward to make profit.

However, if the price breaks below support level (the green line in figure)

after buying the stocks then the investors should exit or sell their shares to

minimize the losses. Most of the professional investors cut their losses at a

maximum of 2% net of all charges to protect their investment and to avoid huge

loss.
It should be noted that the entry and exit strategy of every investor mostly

varies accordingly to their rule and condition based on their experiences and

knowledge.
Chapter III

Summary, Findings, Conclusions and Recommendations


Bibliography

Book

Graham

Website

Related Studies

Barber-Odean (2011) The Behavior of Individual Investors 32 -34


CME Group (2011) Risk Management of Equity Asset Managers 3-4
Henry Ong (2013) How to Survive Stock Market Crash 1-2
OECD (2006) Importance of Financial Education 1-2
Jagongo (2014) A Survey of the Factors Influencing Investment Decisions 1
Curriculum Vitae