Use Interest Rates to Your Advantage: The Money Movement Strategy

While browsing for books in Book Sale, I came across a book by Charles J. Givens called "Wealth Without Risk"

What caught my attention was the page about the MONEY MOVEMENT STRATEGY:

I think all of us have an intuitive idea of how the prevailing interest rates in the economy affect our wealth and finances. All of us have heard about time deposit rates, how much interest is on your car, your home amortization, credit card and personal loans.

But interest rates can be used to your advantage too.

The MONEY MOVEMENT STRATEGY tells us that when general interest rates are: 

LOW - the economy is usually on a roll, invest in stocks or equities. The author, Mr. Givens, claims that the greatest bull markets in history have occurred on low interest rate environments. And this is not hard to believe since low interest in the economy stimulates people to buy products and take out loans. Profits roll in and there is much liquidity in the system for that can be used for expansion.

When interest rates are: 

HIGH - Invest in debt-instruments or bonds and money-market. In other words, lending your money when interest rates are high. This makes perfect sense, since this is the main principle in bond or debt investing. The higher interest rate coupons you have on your bond, the higher interest you receive from it. When prevailing interest rates go down, the value of your bond with a higher rate goes up because all the other bonds have lower rates. 

Money-market are bank the time-deposits and other highly liquid "cash equivalents". Invest in these when the interest rates are high.

According to the strategy you have to set a decision line for the interest rate. This is highly a personal or arbitrary choice.

The main interest rates in the Philippine economy that I watch out for are:

The BSP Policy Rates: Overnight Lending / Borrowing Rates

[http://www.bsp.gov.ph/monetary/monetary.asp]

and the Bellwether Interest Rates

[http://www.bsp.gov.ph/statistics/sdds/tbillsdds.htm]

You may also check:

[http://www.tradingeconomics.com/philippines/indicators]

As we speak, interest rates are at record low levels, following a stable inflation rate and other factors such as the recent investment grade ratings upgrades in the first half  of this year 2013.

Is Your Bank Really Secure?

Recently, I have been contemplating whether to put my money in this rural bank. I will not specify the name of the bank for privacy purposes.

I have been attracted to this rural bank because of the higher interest rates on time deposit, especially those with terms of greater than 5 years.

Rural banks, and smaller banks in general offer a much higher interest rate than bigger established banks whose deposit products are often so low, your money will be eaten up by inflation.

Personal time deposit products with terms greater than 5 years are still exempted from 20% withholding tax, unlike retail treasury bonds for example which have recently been removed from the exemption of 20% withholding tax for terms 5 years and above.

I have been studying financial statements and balance sheets of listed companies, but I have yet to analyze a bank financial statement.

Before "investing" my money in this rural bank, like most investments, I have to check the soundness of the institution by doing a little bit of homework. On my list are forums, customer experiences, and balance sheet.

I encountered the term NPL or Non-Performing Loan Ratio which seems to be very important metric for a creditor or lending institution.

 

Photos: Mike Gonzalez (wikipedia.org/wiki/User:TheCoffee)

As you know, the main business of banks is money lending. If they lend money and do not get them back nor paid interest they lose money. That is what the NPL (Non-Performing Loan) ratio measures.

Investopedia.com defines Non-Performing Loan Ratio as:

"A sum of borrowed money upon which the debtor has not made his or her scheduled payments for at least 90 days. A nonperforming loan is either in default or close to being in default. Once a loan is nonperforming, the odds that it will be repaid in full are considered to be substantially lower. If the debtor starts making payments again on a nonperforming loan, it becomes a reperforming loan, even if the debtor has not caught up on all the missed payments."

Basically, Non-Performing Loans are loans that are on default or near default; the debtor has not paid his due payments and are beyond due.

In the Philippines, there are many rural banks that close every year. According to BanksPhilippines.com there were 24 banks that closed in 2012 alone.

The trend in most established banks today have a Non-Performing Loan ratio of below 3% of gross loans.

Bank of the Philippine Islands or BPI for example had a NPL ratio of 2.1% in the first half of 2013. [source info.bpiexpressonline.com]

This rural bank that I'm looking at has 15% non-performing loan ratio. That is a whopping 7.5x the industry norm of non-performing loans. I also noticed an increase of this ratio from 14% of the previous year to 15% this year.

Although, this bank's depositors are insured by the PDIC up to P500,000, being the conservative investor that I am, I will pass up on this opportunity.

How Much Do You Value Your Time?

Time ---- do you know what is the equivalent of time in this world?

When you work for a job, what do you lose? What do you gain?

Do you know why people who live from paycheck to paycheck stay at the same place throughout their lives? Why don't they get rich?


Why?


In order to answer the first question, we must look answer the second. We all know that each one of us has limited time here on earth.
When we work, do you know what you lose?

----Time.

And when you work, what do you get?

----Money.

It follows that our employers give you MONEY in exchange for your TIME.

Then what do people who live from paycheck to paycheck do with their money?

Spend them.

The answer to the question why people who live from paycheck to paycheck stay at the same place is:

They waste their time!! How? Because the TIME they gave in exchange of MONEY all went out of their pockets.

They have nothing left for themselves: neither TIME nor MONEY. Both have been LOST.

In Capitalism: Time = Money..... and vice versa.

To go from point A to point B you can either take the train which costs a little less. But spending more on a plane ticket can get you there faster and save a little more time.


If you want to get somewhere, do not live from paycheck to paycheck. Use 2 of your most important assets in this material world: TIME and MONEY... WISELY.

Because definitely, money could buy us more time, but time that is lost is lost forever.

Although this is the capitalistic point of view that time equals money, the author wants to remind you that time should not always about money ...or your job..

Time should be spent on living your life, doing the things you want to do, with the people you love, helping other people through charity, building your nation, and most of all, offering your life to God.

Time and money are at your disposal. Use them wisely.

Fundamental Stock Valuation: "CDC" Cityland Development Corporation

Disclaimer: Brand names, logos and sources of information are property of their respective owners.

Inset: "In God We Trust."  is inscribed in most of their buildings all over Metro Manila.

Corporate Name: Cityland Development Corporation

Nature of Business: Organized in January 31, 1978, publicly listed in March 1983. The Company's primary purpose is to acquire and develop suitable land sites for residential, office, commercial, institutional, and industrial uses.

Its projects include medium to high-rise office, commercial, and residential condominiums located in cities of Makati, Mandaluyong, Manila and Pasig; and residential subdivisions and farmlots in Bulacan and Cavite.

Book Value Figures:

Capitalization Structure:

Capitalization Structure	2012	2011	2010
Debt	1,839,294,867	1,566,460,772	1,949,712,998
*Market Value of Preferred Stock	-	-	-
*Market Value of Common Stock	3,790,631,449
Total Capitalization	5,629,926,316

* based on average price

*Market Value of Preferred/Common Stock non-retroactive

** update as of 4th quarter 2013, one billion four hundred million worth of commercial papers / bonds / debt have been registered by the company

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-8427_CDC.pdf

Debt to Equity Ratio:

YEAR	DEBT	EQUITY	RATIO	PERCENTAGE
2012	1,839,294,867	4,920,844,343	0.37	37% debt
2011	1,566,460,772	4,601,113,985	0.34	34% debt
2010	1,949,712,998	4,276,898,289	0.46	46% debt

Common Stock:

Outstanding Shares: 3,401,848,735

END OF YEAR	OUTSTANDING SHARES	AVE. PRICE
2013	3,401,848,735
2012	3,239,855,939	1.17

Stockholders:

-Directors (24.15%)

-Officers (0.34%)

-Public (24.91%)

-Cityland, Inc. (50.42%)

-Cityplans, Inc. (0.06%)

-IITC as Trustee of Cityland Group Retirement Fund (0.13%)

Book Value Per Share (cash actually invested in the business):

YEAR	Book Value	Book Value Per Share (in Php)	Percentage Growth
2012	4,920,844,343	1.45	7%
2011	4,601,113,985	1.35	7%
2010	4,276,898,289	1.26

*Per Share data retroactive to stock dividends (Divide all previous Book Value figures by the latest year’s number of shares outstanding to adjust entire Per Share column.)

*Book Value attributable to the holders of the parent

Current-Asset Value/Liquidating Value Per Share (Cash, inventories, receivables net of total liabilities):

YEAR	Net Current-Asset Value	Net Current-Asset Value Per Share (in Php)
2012	3,465,501,016	1.02
2011	3,050,749,578	0.90
2010	2,708,937,495	0.80

*Including “Real Estate Properties for Sale” considered as inventory

*Per Share data retroactive to stock dividends (Divide all previous Net Current-Asset Value figures by the latest year’s number of shares outstanding to adjust entire Per Share column.)

Cash-Asset Value Per Share (Cash net of total liabilities):

YEAR	Net Cash-Asset Value	Net Cash-Asset Value Per Share (in Php)
2012	-323,590,733	-0.10
2011	-1,248,722,736	-0.37
2010	-2,396,592,445	-0.70

*Per Share data retroactive to stock dividends (Divide all previous Net Cash-Asset figures by the latest year’s number of shares outstanding to adjust entire Per Share column.)

Market Price Per Share (Average of previous year):

YEAR	Earned per share (as reported)	HIGH	LOW	AVERAGE
2012	0.12	1.36	0.97	1.17
2011	0.14	1.38	1.00	1.19
2010	0.14	1.88	0.75	1.32

* Per Share data retroactive to stock dividends

*Market prices take into account stock dividends for the previous years

Net Working Capital/Current Ratio (at least 2 current assets : 1  current liabilities):

YEAR	Current Ratio (assets for every liability)	REMARKS
2012	2.27	PASSED
2011	2.14	PASSED
2010	1.91	FAILED

>2 = passed

Acid Test (Current assets less inventories at least equal to current liabilities. ):

YEAR	ACID TEST	REMARKS
2012	1.73	PASSED
2011	1.54	PASSED
2010	1.35	PASSED

>1 = passed

Earnings Figures:

P/E ratio:

YEAR	AVE. PRICE	EPS	P/E
2012	1.17	0.12	9.75
2011	1.19	0.14	8.5
2010	1.32	0.14	9.43

* Per Share data retroactive to stock dividends

*Market prices take into account stock dividends for the year

Earnings per share:

YEAR	NET EARNINGS*	Earnings Per Share
2012	400,532,990	0.12
2011	441,337,900	0.14
2010	447,868,346	0.14
2009	513,099,506	0.16

*Per Share data retroactive to stock dividends (Divide all previous net earnings figures by the latest year’s number of shares outstanding to adjust entire EPS column.)

*Net Earnings attributable to holders of the parent

Earnings per share as a percentage of average market price (E/P):

YEAR	EPS	AVE. PRICE	Earnings as Percentage of Price
2012	0.12	1.17	10.26%
2011	0.14	1.19	11.76%
2010	0.14	1.32	10.60%

* Per Share data retroactive to stock dividends

*Market prices take into account stock dividends for the year

5-Year Average of Earnings per share:

5-Year low EPS:

5-Year high EPS:

Cash flow from operating activities:

YEAR	Cash flow from operating activities	Capital Expenditures	Free Cash Flow	Free Cash Flow Per Share
2012	691,262,168	6,331,288	684,930,880	0.20
2011	717,774,249	6,800,632	710,973,617	0.21
2010	839,916,810	2,136,562	837,780,248	0.25

*Capital Expenditures selected from “Cash flows from Investing Activities”

*Per share data retroactive to stock dividends (Divide all previous Free Cash Flow figures by latest year’s number of shares outstanding to adjust entire per share column.)

Sales as a Percentage of Inventories

YEAR	*INVENTORIES	*SALES	INVENTORY SALES
2012	1,470,772,832	1,421,385,193	96.6% sold
2011	1,591,546,671	1,574,293,008	98.9% sold
2010	1,669,928,812	1,454,122,153	87.1% sold

*Inventories for CDC are “Real Estate Properties for Sale” in the balance sheet

*Sales from “Sales of Real Estate Properties” from the Income Statement only

Net Profit Margin:

YEAR	REVENUES	NET INCOME	NET PROFIT MARGIN
2012	1,913,008,632	529,787,157	27.7%
2011	2,097,580,254	601,834,373	28.7%
2010	1,454,122,153	582,352,213	40.1%
2009	1,880,570,472	579,816,925	30.9%

Return on Equity:

YEAR	EQUITY	NET INCOME	RETURN ON EQUITY
2012	4,920,844,343	529,787,157	10.8%
2011	4,601,113,985	601,834,373	13%
2010	4,276,898,289	582,352,213	13.6%

Cash Dividends:

YEAR	EARNINGS PER SHARE	AVE. PRICE	DIVIDEND RATE	DIVIDEND YIELD*	DIVIDEND AS PERCENTAGE OF EARNINGS	DIVIDEND AS PERCENTAGE OF FREE CASHFLOW
2012	0.12	1.17	0.03	2.56% + 5% stock	25%	15%
2011	0.15	1.19	0.05	4.20% + 20% stock	33%	24%
2010	0.15	1.32	0.06	4.55% + 20% stock	40%	24%

*Dividend Yield based on average price

*Dividend yield and EPS non-retroactive to latest year’s number of shares outstanding. (no longer needs updating of entire EPS column)

QUARTERLY REPORTS

QUARTER             EQUITY (YTD)              REVENUES (Q)      NET INCOME (Q)     EPS (YTD) 

2013 Q3           P 5,188,446,343          P 377,922,964     P 105,154,649          P 0.104