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Submitted by:
Mia Grace Ausmolo
Michelle Ann Mabao
Zaira Comodas
John Christian Abragan
Arbby Pamela Alcoran
Bea Carmella Filasol
Caryl Grace Altomera
Marchelette Maique
Dara Jay Macabinlar
Submitted to:
Mark Anthony Jamis
Limketkai Sons, Inc. (the Parent Company) was incorporated in the Philippines
and was registered with the Philippine Securities and Exchange Commission
(SEC) on March 25, 1966 to engage in the development, maintenance and
operation of commercial shopping centers and restaurants, and all business
related thereto such as operation of amusement centers and cinema theaters
and real estate sales and development. The Parent Companys registered
address, which is also its principal place of business, is at Limketkai Corporate
Office, Limketkai Center, Cagayan de Oro City.
Being a Parent Company, among its subsidiaries are: Limbros Enterprises, Inc.,
Limketkai Hotel and Resort Corporation, Limketkai Manufacturing Corporation,
Eastmin Food Chain Corporation, Westmin Food Chain Corporation, Southmin
Food Chain Corporation, Normi Food Chain Corporation, and Cenmin Food
Chain Corporation.
The analysis focuses on Limketkai Sons Inc., which is the parent company.
TIE Ratio
1.82
1.8
1.8
1.78
1.76
1.74
1.72
1.7
1.7
1.68
1.66
1.64
2010 2011
Regarding the liquidity ratio, we see that the company has a negative
working capital which was due to the borrowing of Loans Payable, but this is not
a problem since revenues generally came from investment in properties which
are the commercial properties held for lease by the company. They do not earn
much on their inventory of Real Estate as no sale incurred during the
comparative years. Moreover, as negative working capital occurs, long-term debt,
which was secured from local banks, were also used to finance these working
capital requirements.
Current Ratio
1.4 1.29
1.2
1 0.93
0.8
0.6
0.4
0.2
0
2010 2011
loan and had used the proceeds to pay the outstanding one (P265 million) and
the newly borrowed loan (P965 million) which would result, to a balance of P 430
million in the loans payable account in 2011. It was also this year where he had
availed a 15- year and a 2-year long-term debt for various improvements and
mall redevelopment projects. Only P 112, 952,197 was allocated for the payment
of long-term debt.
What the proponents mean concerning the issue is that the company had
been paying the Loans payable balance when he could have 1 st paid the
outstanding loans payable and used the proceeds to pay some of the long-term
debt since it bears greater interest. Interest comparisons are shown below:
INTEREST %
2011 2010
COMPARISON
Loans Payable 2.1-5.8% 4.0-6.8%
Long-term Debt
15 yr. loan 6.14%-6.27% 6.14%-6.27%
10 yr. loan 5.77%-6.40% 5.77%-6.40%
15 yr. loan 7.06% -
2 yr. loan 6% -
He should have prioritized the payment of debts bearing greater interest.
Furthermore, because he has the capacity to pay for some of the long-term
debts, he could have entered into a 1 year loan renewable agreement with the
bank concerning the conditions of his long-term debt. From the beginning, he
should have negotiated the long-term debts; that if he is capacitated, then he
may opt to pay for the principal, but the debt shall continue to be long term as
stretched resulting to no pre-termination penalties. The opportunity cost here
would be the difference in the interest rates that could have been versus the
rates that actually, it may be a small matter, but interest cost resulting from these
rates would be millions; it is an opportunity loss to the company.
VI. Recommendations
1) Prioritize debts with higher interest rates. (opt to pay them first)
..
2) Opt for a 1 year loan renewable agreement
Do not stretch to a long-term period those long-term loans with smaller
principal amounts. Instead, negotiate these to a bank and opt for restructuring. A
1 year loan renewable would mean lower rate of interest between 4.8%-5% as of
now, but never higher than a long-term loan. Amortized payment must be settled
in one year; after the term, excess of the balance thereof must be fully paid or
renewal of loan happens. 6 months before the term, payer must analyze if he is
capacitated to pay the loan, if he does not have enough funds, then he may
buffer to other banks and scout them to buyout the outstanding loan.