Royal Printing and Packaging Company

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Date Submitted: 08/30/2011 12:43 AM

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In May, 1989, Mr. Ricardo Baltazar, 68, turned over the management of the royal Printing Packaging Company to his son, Jose, who just graduated from a business school in Metro Manila a month ago. Mr. Baltazar had managed the company since 1962 when he started business with only P2000

In the beginning, the company accepted all kinds of printing jobs which were mostly small job orders. Later, Mr. Baltazar was able to establish connections with a few multinational drug companies and a large Commercial Bank. With these institution clients, the small job orders were dropped. Recently, the company lost its client bank and depended solely on the drug companies.

Mr. Baltazar proudly discussed the company resources with his son, Jose. Son, you are lucky to take over a company without substantial liabilities to worry about” Mr. Baltazar told Jose (see Exhibits A and B). “All the printing machineries were bought first hand and are still in good running condition. These German brands of machineries last forever. I bought some of these when the exchange rate was P6 to $1. Now the rate of exchange is roughly P20 to #1. The market value of that Heidelberg Offset Kord alone is P1.2M. I acquired that for P380.000 only in 1977,” Mr. Baltazal continued to explain (see exhibit C).

The following day, Jose reported to work. He read the company financial statements and noticed that company sales not even P1 million after being in the business for more than 25 years! He looked at the Net Income for 1987 and computed the Net Margin (Net Income +Sales). He was disappointed that Net Margin was only about 10% compared to the interest rate of 16% if he sold the assets and invested in Treasury bills. On the same day, Jose discussed this with his father. “On that Heidelberg machine alone, we should at least generate a net income of P192, 000,” Jose told his father. Mr. Baltazar answered back “I don’t care what targets you set. I’m just telling you now that selling these assets is riot an...