Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Department
Mandaue City
By
Ludivese, Regen M.
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
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
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
(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
volatility, and financial ratios, and actively use this information to enhance their
TITLE PAGE i
ACKNOWLEDGEMENT
ii
ABSTRACT iii
TABLE OF CONTENTS
iv
LIST OF TABLES v
LIST OF FIGURES vi
Introduction
Theoretical Background
Research Methodology
Research Environment
Research Methods and Procedures
Definition of Terms
INTERPRETATION OF DATA
Company Profile
Financial Highlights
Fundamental Analysis
Trend Analysis
Vertical Analysis
Financial Ratios
Technical Analysis
Risk Management
AND RECOMMENDATIONS
Summary of Findings
Conclusions
Recommendations
BIBLIOGRAPHY
Book
Website
LIST OF TABLES
Highlights
Highlights
Highlights
Highlights
Highlights
Highlights
Profit or Loss
Equity
2017)
Resistance
CHAPTER I
INTRODUCTION
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
the Philippine Stock Exchange, we have chosen Ayala Land Inc., Megaworld
Corporation and Robinson Land Corporation. This is for the reason that these
past 5 years. Furthermore, they are the leading public companies in the industry.
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
Theoretical Background
analysis, technical analysis and judgment. Investment decisions are often supported
by decision tools. It is assumed that information structure and the factors in the
outcomes.
maximizers, following basic financial rules and basing their investment strategies
cost considerations and asymmetrical risk preferences for gain/loss situations. The
criteria are important to investors, even though investors employ diverse criteria
operations, environmental track record and the firms ethical posture appear to be
given only cursory consideration. Many individual investors discount the benefits of
such knowledge is likely to come at a cost. In the past, individual devoted very little
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.
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
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
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
These studies offer insights into how to invest wisely through having
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
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
To the teachers - this action research will somehow become a reference for
To the future researchers - that they may make an effective and efficient
Furthermore, the research will also serve as a guide for individuals involved in
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
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
The researchers then extracted the necessary and pertinent financial ratios in
order to present a fundamental analysis of the three companies. These ratios are
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
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.
to draw a reasonable inference about the chosen study. Finally, the researchers
Analysis, definitions of terms are vital to aid in the further comprehension of the
Payable) represents the number of times a company pays its accounts payable
during a period.
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
sits in the warehouse. In other words, it measures the number of days from
structure of a company.
exposure to any one particular asset or risk. A common path towards diversification
Dividend Yield Ratio (Dividend per Share / Market Price per Share)
measures the percentage of return through dividends when compared to the price
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
accumulated profits).
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
a company can meet its current obligations with its current assets; and how much
operating cycle, i.e. purchase merchandise, sell them, and collect the amount due.
and closed funds. Portfolios are held directly by investors and/or managed by
financial professionals.
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
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 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.
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
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.
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
Unsystematic Risks are risks that affect the price of an individual stock
Chapter II
Company Profiles
Incorporation:Philippines
Philippines
Address: 31st Floor Tower One and Exchange Plaza Tel: +63 27506974
Company Description: Ayala Land Inc. develops, manages, sells and acquires real
shopping centers, hotels and resorts, strategic land bank, among others.
Incorporation:Philippines
Industry Group Name: Real Estate Services Doing Business in:
Philippines
Incorporation:Philippines
Industry Group Name: Real Estate Services Doing Business in:
Philippines
properties, office and residential buildings. It is also involved in land and residential
Financial Highlights
FINANCIAL HIGHLIGHTS
ALI - Ayala Land, Inc.
FINANCIAL HIGHLIGHTS
MEG - Megaworld Corporation
FINANCIAL HIGHLIGHTS
RLC - Robinson Land Corporation
FUNDAMENTAL ANALYSIS
Trend Analysis
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%
1 2 1 2
3 4 3 4
5 5
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
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%
1 2 1 2
3 4 3 4
5 5
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.
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%
1 2 1 2
3 4 3 4
5 5
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
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%
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
MEGAWORLD CORPORATION
STATEMENT OF FINANCIAL POSITION (HIGHLIGHTS)
TREND ANALYSIS (BASE YEAR: 2011)
DECEMBER 31, 2011 TO 2015
PHP IN BILLIONS
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%
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
1 2 3 4 5
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%
1 2 1 2 3
3 4 4 5
5
1 2 1 2
3 4 3 4
5 5
1 2 3 4 5
1 2 3 4 5
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
or Loss
of 29% followed by Megaworld Corporation by 23% and Ayala Land, Inc. by 16%.
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
69%
43%
57%
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
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
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
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
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
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
valuation aspects. The company showed a massive regression during the year 2013
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
demonstrating a decline in terms of net working capital whereas the other two,
In terms of Earnings per share, Ayala Land Inc. and Robinson Land
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
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
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
Beta of Stocks
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
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.
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
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
risk.
PRICING MODEL:
Where:
(Rmarket RFR) = the market risk premium, or the return above the risk-free
5.08%)
= 5.08% + 1.7 (7.95%) = 5.08% + 1.0 (4.79%)
E(R) = 15.65%
NOTE (*):
The risk-free rate of 5.08% is based on the current rate of 10-year Treasury
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
This is one of the strong assumptions of TA. It assumes that at any given
events, global happenings, etc. will reflect on a stocks price as these information
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
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.
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
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
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.
more visually appealing and easier to interpret. Each candlestick provides an easy-
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
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
The what (price action) is more important than the why (news, earnings,
and so on).
Buyers and sellers move markets based on expectations and emotions (fear
and greed).
Markets fluctuate.
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
2. Long black candlesticks indicate that the Bears controlled the ball
3. Small candlesticks indicate that neither team could move the ball and
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.
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
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
What is Support?
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.
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
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
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?
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,
Resistance levels are usually above the current price, but it is not uncommon
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.
Basic Principle
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.
movement. More specifically, a wave is any one of the patterns that naturally occur
structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the
are labeled 2 and 4, as shown in Figure 9.1. The two interruptions are apparently a
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
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.
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
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
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
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
size) larger than the waves of which it is composed. The result is shown in Figure 9.3
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
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
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
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
as well. As far as we can determine, then, all waves both have and are component
waves.
Wave Degree
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
Grand Supercycle
Supercycle
Cycle
Primary
Intermediate
Minor
Minute
Minuette
Subminuette
above were the complete description of market behaviour. However, the real world,
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
Now, to analyze if these three Corporation Stocks are following the five wave
as of
March 2017)
Figure 10.2. Robinsons Land Corporation Elliott Waves (Candle sticks on
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).
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
Plotting the candle sticks like a calendar we observe the following trend
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.
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:
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
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
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
Non-systematic risks are the things that can happen to affect the price of
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
Systematic Risk is the risk inherent to the entire market or an entire market
market risk, affects the overall market, not just a particular stock or industry. This
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
What is diversification?
Diversification is the process of allocating capital in a way that reduces the
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
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.
Resistance
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
Book
Graham
Website
Related Studies