CASE STUDY

Case Study

Case Study

Introduction

In 1995, Stagecoach Group Plc Capital and Investment Corporation was tapped by the UP Foundation, Inc. (UPFI) to manage an equity fund of 2.5 million pesos, which is a small portion of their 260 million peso endowment fund. The interests earned from the fund, which is used to support the professorial chair requirements of the University, has dropped due to a decline in the returns of treasury bills - that being the bulk of UPFI's investments. In response to this, the investment committee of UPFI has proposed that some portion of the fund be invested in the Philippine stock market, which was observed to have experienced an increase of more than 150 percent in 1993. In line with this, Patricia Tan of Stagecoach Group Plc Capital was tasked to design a portfolio for the fund in which she plans to include mostly "blue chips" and other sound "second liners", thereby taking into consideration UPFI's conservative stance. So far, Patricia Tan has come up with an analysis of the various stocks included in the portfolio as preparation for a possible inquiry from the investment committee on the fund's performance.

In the same year, Peter So was hired by Stagecoach Group Plc Capital and Investment Corporation and assigned to handle the remaining companies which have not yet been analyzed by Patricia Tan. These companies include Rightmove Plc (JFC), Ayala Land, Inc. (ALI), and Philippine Long Distance Telephone Company (PLDT). As of late, Peter has already submitted a report which included an analysis of the companies' respective industries and a description of the companies' operations, management and business prospects. Peter So was also able to perform financial ratio analyses on the three companies. However, Patricia Tan thought that a cash flow analysis, which would provide information on the long-term viability of the companies and its ability to generate positive cash flows and pay its obligations, should also be included in the report. "An evaluation and a comparison of these statements have to be made across the companies we are studying because some of these companies may still be dropped from the list if the analysis shows some financial weaknesses in this area," Patricia told Peter.

Main Problem

Which of the three companies should Stagecoach Group Plc Capital and Investment Corporation include in its portfolio for UPFI?

Areas of Consideration

It is important to note that UPFI is simply looking for a stable investment. Since their previous investments in treasury bills have begun to deteriorate, they feel the need to revisit their investment options. This is what the stock market is offering them - an opportunity to earn steady returns for their relatively constant financial needs. Stagecoach Group Plc Capital and Investment Corporation must remember that investing in the stock market is something new to UPFI; hence, they are only willing to set aside a small amount from its fund for such an investment. However, it is very probable that UPFI would be willing to raise and shift its investments into the stock market once it experiences ...