04 Big City Trust Company

Graduate School of Business College of Business Financial Management FCN535M RCBC Plaza Room No. 525

“Big City Trust Company” Case Analysis & Corporate Strategy

Individual Report of Danica V. Pabalan MBA-JD 11193050

Submitted on: November 6, 2014 Submitted to: Dean Atty. Joe-Santos Balagtas Bisquera

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MBA Professor

Pabalan, Danica V.

The O. M. Scott & Sons Co.

27 November 2014

Case Analysis

Executive Summary Big City Trust Company is a trust company which administers financial assets of other companies on their behalf. In legal terms, Big City Trust is the trustor while the company that benefits from its administration is the trustee. The functions of the trustee include management of investments, keeping of records, management of assets and many more – all of which depends on the nature of the trust agreement. The officers of Big City Trust Company find the “Auto-Drive” – an automatic pilot for cars – to be a product worth purchasing and investing into. As of the time of the case, the “auto-drive” still needs to be tested and there is no assurance that it’s promising results will indeed be realized. Big City Trust then evaluates the financial implications of acquiring the “auto-drive” by assessing the financial movement of Xerox and Polaroid.

Problem Institutional Should Big City Trust Company use its funds in order to acquire the “Auto-drive”? Operational What are the measures that Big City Trust must take in order to ensure profitability in case of its acquisition of the “auto-drive”?

Pabalan, Danica V.

The O. M. Scott & Sons Co.

27 November 2014

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1. To analyze the current situation of Big City Trust through the given financial statements 2. To provide options or strategies that address the question of

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Corporate Objective

Big City Trust 3. To provide a recommendation on Big City Trust’s decision and next steps

Areas of Consideration Environmental Opportunities & Threats Macro-Economic Indicators Political During the 1960’s, John Fitzgerald Kennedy was elected as the first Catholic president. He launched economic programs that brought about USA’s longest sustained expansion since World War II. He laid plans for the eradication of privation and poverty and he strongly supported the civil rights movement – which pushed for greater reforms. He envisioned America with a strong national culture and treated arts as a vital part of society. Economic “The U.S. economy entered the decade of the 1960s with high levels of unemployment and excess capacity. The millions of unemployed workers and idle plants and machines meant that industrial production could increase rapidly in response to rising demand. Since supply was increasing almost as fast as demand, prices rose very slowly. At least according to the official U.S. producer price index, prices hardly changed between 1960 and 1964.”1

The U.S. Economy in the Wake of the Economic Crisis of 1957-61. Retrieved on November 2, 2014 from http://critiqueofcrisistheory.wordpress.com/the-five-industrial-cycles-since-1945/the-u-s-economy-in-thewake-of-the-economic-crisis-of-1957-61/ Pabalan, Danica V.

The O. M. Scott & Sons Co.

27 November 2014

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Long-term interest rates rose very slowly. Slowly but surely long-term interest rates were eating into the profit of enterprise. During most of the early 1960s, the U.S. economy was passing through the phase of average

prosperity that precedes the boom. But starting in 1965, the industrial cycle entered the boom phase proper. In the mid-1960s, this transition was helped along by government economic policies. Demographic It was this time - the baby boom years, between 1946 and 1964, when the birth rate doubled for third children and tripled for fourth children. “From 2.49 fertility rate in 1945 to 2.94 in 1946, a rise of 0.45 children therefore beginning the baby boom, this continued to rise throughout the 1940s to reach 3.10 in 1950 with a peak of 3.77 in 1957. Declining slowly thereafter to 3.65 in 1960 and finally a steep from decline after 1964, therefore ending the baby boom.”2 Socio-Cultural In the 1960s, students across America rose up to demand reform. They demanded desegregation, unrestricted free speech, and withdrawal from the war in Vietnam. Highly idealistic and inspired by periodic successes, the students believed they were creating a new America.

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Eventually, young Americans challenged conventional lifestyles and institutions. They protested the materialism, consumerism, and mania for success that drove American society. They urged people to explore alternative patterns of work and domesticity. They challenged traditions surrounding sex and marriage.

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Demographic History of the US. Retrieved on November 2, 2014 from http://en.wikipedia.org/wiki/Demographic_history_of_the_United_States Pabalan, Danica V.

The O. M. Scott & Sons Co.

27 November 2014

Market Profile & Outlook The “auto-drive” is an all together new product, an innovation that stemmed from the need for physical security during transportation. Since this is a new product, it’s demand is still not established and this has to be tested in order to ensure that the budget for research and development is very well compensated by the sales of this product. There are plenty of things that has to be discovered to look at the market profile of the “auto-drive” but this shall begin with existing car owners/users. Competition Since the product is a break-through, competition might not be as tight in the beginning. Ofcourse, when the market receives it warmly, there is a possibility that other companies will copy the said prototype. Competition may be invited by the strength of the product. Technology There is need for further testing to ensure that the “auto-drive” indeed works as it aspires. This will entail further costs. Resources Corporate Franchise The Big City Trust Company is one that simply facilitates the assets of others for administrative purposes. It is unique in that it’s very product is the service of administration. Shareholders & Key Officers Senior Trust Officer – Samuel Cooper

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Analyst – Mr. Richard Brainard

Pabalan, Danica V.

The O. M. Scott & Sons Co.

27 November 2014

Marketing Profile Product The “auto-drive” is an all together new product, an innovation that stemmed from the need for physical security during transportation. It is an automatic pilot for cars. Price Pricing will still have to be determined based upon other competing products (although different but sharing the same value proposition). Possible competitors must also be assessed in order to have a reasonable and competitive introductory price for this product. Place & Distribution Distribution shall be easy considering the wide network of Big City Trust and especially that car owners are situated everywhere. Promotion and Advertising Advertisements can be used upon the introduction of product – benchmarking on its functionality that ensures safety of car passengers Financial Profile Profitability

Big City Trust’s advantage is that it can reallocate Pabalan, Danica V.

The O. M. Scott & Sons Co.

27 November 2014

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Financial Leverage

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Profitability of the “auto-drive” still has to be tested although its value proposition (secured transportation) is theoretically enticing and much needed.

funds from another source in order to fund the further R&D needed to complete the “auto-drive”. Competitive Advantage Since the product is a break-through, competition might not be as tight in the beginning. Ofcourse, when the market receives it warmly, there is a possibility that other companies will copy the said prototype. Competition may be invited by the strength of the product. Alternative Strategies A. Yes, Big City Trust should use the pension funds to acquire the “auto-drive” B. No, Big City Trust should not use the pension funds to acquire the “auto-drive” C. Big City Trust should just offer the administration of the “auto-drive” but not all together acquire it. Conclusion & Strategic Decision Big City Trust should just aim to administer the completion of the “auto-drive” project instead of purchasing it at its current developmental state. Looking at the income statements of both Xerox and Polaroid, it is worthy to note that although the revenues reached around 300 to 400 thousand dollars, their expenses are also very high, resulting to a net income below $50,000. This can be the case for auto-drive, if not a net loss. Grand Design & Execution

Pabalan, Danica V.

The O. M. Scott & Sons Co.

27 November 2014

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1. Assess how it can help in the administration of the “auto-drive project” and give their recommendations through a proposal. 2. Closely monitor the developments of the R&D project. 3. Evaluate a tie-up sales strategy once prototype is proven to function.

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Big City Trust must undergo the follow steps:

Attachments Financial Outlook Cash Flow Statements Income Statement Balance Sheet Financial Ratios

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Other relevant Financials

Pabalan, Danica V.

The O. M. Scott & Sons Co.

27 November 2014