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Saint Louis University School of Accountancy and Business Management Maryheights, Bakakeng, Baguio City

Financial Statement Analysis of Mining Corporations

(Philex Mining Corporation vs. Atlas Consolidated Mining and Development Corporation)

Submitted to:

Maam Joyce Castillo

Submitted by: Banganan, Guia Dorothea Cayat, Desiree Ann Fang-asan, Vyan Tantanee Mata-ag, Marlene Paatan, Ivory Schedule: Accounting 404a Daily 1:30-3:00 (D605)

Company Background and Nature of Business I. II. Atlas Consolidated Mining and Development Corporation Philex Mining Corporation

Financial Statement Analysis I. Ratio Analysis PHILEX MINING RATIOS PROFITABILITY 1 2 3 4 5 Profit Margin Return on Assets Return on Working Capital Return on Equity Earnings Per Share 37.24% 20.09% 103.62% 24.26% P 1.171 3.16% 32.94% -1.60% 57.28% P 10.76 CORPORATION ATLAS MINING CORPORATION

LIQUIDITY 6 7 8 Current Ratio Quick Ratio Working Capital to Total Assets 3.23x 2.15x 17.73% 0.29x 0.13x -20.57%

RESOURCE MANAGEMENT 9 10 11 12 13 14 15 16 17 Asset Turnover Fixed Asset Turnover Capital Intensity Ratio Inventory Turnover Average Age of Inventory Accounts Receivables Turnover Average Age of Receivables Working Capital Turnover Operating Cycle 0.53x 2.97x 1.87x 6.47x 55.66 days 8.25x 43.64 days 2.78x 117.66 days 5.88x 0.66x 9.59x 5.58x 64.52 days 5.88x 61.27 days -0.51x 125.79 days

FINANCIAL LEVERAGE 18 19 20 21 Debt to Assets Debt to Equity Equity to Assets Times Interest Earned 16.65% 19.97% 83.35% 161.39x 42.49% 73.90% 57.51% 64.64x

II.

Interpretation

Profitability

Philex Mining Corporation has higher profit margin than that of Atlas Consolidated Mining and Development Corporation which indicates that Philex has higher profitability based on sales and has adequate gross profit to cover operating expenses and provide desired profit for its stockholders.

For the return on assets, it is shown that Philex has a lower ratio than that of Atlas. It may indicate that Atlas has been managing their resources more efficiently than Atlas. The return on working capital ratio shows that Atlas needs to improve their working capital management compared to Philex which has a good working capital. Atlas has higher return on equity ratio which attributed to the higher asset turnover ratio and higher debt to equity ratio which means that Atlas has been operating closer to its capacity than that of Philex and takes more advantage of financial leverage.

The earnings per share of P1.17 for Philex and P10.76 for Atlas indicates that in the stand point of the stockholders it may be more beneficial to invest in the stocks of Atlas than that of Philex for Atlas is shown to be more profitable for its stockholders.

Liquidity

The current ratio is calculated by dividing the total current assets by the total current liabilities. In the year 2011, Philex Mining Corporation has P8,331,626,000 in current assets and P2,575,925,000 in current liabilities resulting to a current ratio of 3.23 times. The firm can pay its current liabilities from its current assets 3.23 times over. It can meet its short-term debt obligations with no stress. Meanwhile, Atlas Mining Corporation has P3,868,779,000 in current assets and P13,291,491,000 in current liabilities resulting to a current ratio of 0.29 times. It can only pay its current liabilities

from its current assets 0.29 times over. Atlas will have a hard time covering its shortterm debts. The quick ratio is calculated by dividing the firms quick assets , which cover cash and cash equivalents, accounts receivables and marketable securities, by the current liabilities. Philex has P5,542,924,000 in its quick assets, thereby, having a 2.15 times quick ratio. The firm is able to pay short-term debts immediately from its liquid assets 2.15 times over. As for Atlas, an amount of P1,782,274,000 of quick assets resulted to a 0.13 times quick ratio. It follows that Atlas is only able to pay its current liabilities immediately from its liquid assets 0.13 times over. The net working capital to assets ratio is calculated by dividing the firms net working capital by its total assets. Philex has P5,755,701,000 working capital and P34,454,228,000 total assets resulting to a 17.73% net working capital to assets ratio. The firm is able to pay off its short-term liabilities and might be able to expand its operations. Atlas has P9,422,712,000 negative working capital and P45,812,122,000 total assets leading to a negative 20.57% net working capital to assets ratio. With a negative value, Atlas is unable to meet its short-term liabilities with its current assets. It should increase its sales or add capital into the company to continue with its operations.

In terms of current ratio, Philex is more liquid since it can meet its current liabilities thrice from its current assets, whereas, Atlas has a current ratio lower than one. Even in terms of quick ratio, Philex is more liquid because it can pay short-term obligations immediately from its current assets twice as compared to Atlas where its quick ratio is below one. Also with net working capital to assets ratio, Philex is more liquid since it has greater ratio than Atlas which has a negative ratio. Thus, it appears that Philex is in a much stronger financial position to meet its current obligations as compared to Atlas. Also, Philex is less leveraged than Atlas.

Resource Management

Philex is using its fixed assets more than Atlas. By comparing the inventory turnover of both corporations, Philex has been generating most of its sales from utilization of its fixed assets than in its inventory. Meanwhile, Atlas has been generating more of its sales from its inventories rather than its fixed assets.

From the data provided, Atlas has higher capital intensity ratio compared to Philex. Atlas has been utilizing more of its assets to generate sales while Philex uses less of its assets to generate sales. Philex has better efficiency in generating sales since it has only used fewer assets and yet it can generate the same amount of sales like Atlas.

Philex has a higher inventory turnover than Atlas. This means that Philex has been selling its inventories more frequently. As a result, there is lesser liquidity risk for Philex and the corporations profitability will benefit more from the increased turnover of product. Since Philex has a higher turnover, it has also the lower time that inventory is stocked.

Philex has a higher accounts receivable turnover compared to Atlas which then leads to its shorter collection period. This indicates that Philex has a more lenient credit policy as compared to Atlas.

Philex has a positive working capital turnover while Atlas has a negative working capital. Philex uses his working capital with positive liquidity that can generate sales. This may mean that Philex is more liquid than Atlas. Philex can invest already ahead its cash collections resulting to additional profit. Atlas may have a longer operating cycle, it may have investments that could become more profitable from it fixed assets if it would be handling its assets more efficiently.

Financial Leverage

The debt to assets of Philex is 25.84% lower than the ratio of Atlas. From this, we can say that the risk borne by creditors in relation with borrowings is much higher for Atlas than Philex. Much of Atlas assets are financed by liability accounts. This also means higher interest payments, thus another additional cost for the company. Philex has 16.65% debt to asset ratio and 161.39 times over times-interest earned ratio while for Atlas, it has 42.49% and 64.64 times over respectively. Philex is much better in terms of its credit standing because it has lower debt to asset ratio and higher timesinterest earned, meaning it can pay its long term debts together with the interest. As for Atlas, with its high debt ratio and low times-interest earned ratio, investors will be discouraged. Atlas will discover that it would be difficult to obtain loans for new projects because of its risky credit standing.

Equity to assets ratio of Philex is 25.85% higher than the ratio of Atlas which is 57.51%. This indicates that most of the assets of Philex is financed by owners contribution. It also indicates that Philex has better solvency position. As for Atlas, it is prone to having higher risk to creditors.

III.

Conclusion

IV.

Appendix

A. Given (all amounts in thousands) B. Supporting Computation RATIOS PROFITABILITY 1 2 3 4 5 Profit Margin Return on Assets Return on Working Capital Return on Equity Earnings Per Share 5,799,889/15,573,717 5,836,050/29,053,474 5,799,889/5,597,486 5,799,889/23,904,718.5 GIVEN 37.24% 20.09% 103.62% 24.26% P 1.171 PHILEX MINING CORPORATION

LIQUIDITY 6 7 8 Current Ratio Quick Ratio Working Capital to Total Assets 8,331,626/2,575,925 5,542,924/2,575,925 5,755,701/34,454,228 0.29x 0.13x -20.57%

RESOURCE MANAGEMENT 9 Asset Turnover 15,573,717/29,053,474 15,573,717/5,247,372.5 29,053,474/15,573,717 7,154,422/1,106,151.5 360/6.47 15,573,711/1,888,030.5 360/8.25 15,573,711/5,597,486 73.32+44.34 5.88x 0.66x 9.59x 5.58x 64.52 days 5.88x 61.27 days -0.51x 125.79 days

10 Fixed Asset Turnover 11 Capital Intensity Ratio 12 Inventory Turnover 13 Average Age of Inventory 14 Accounts Receivables Turnover 15 Average Age of Receivables 16 Working Capital Turnover 17 Operating Cycle FINANCIAL LEVERAGE 18 Debt to Assets 19 Debt to Equity 20 Equity to Assets 21 Times Interest Earned

5,402,761/32,454,228 5,402,761/27,051,467 27,051,467/32,454,228 5,836,050/36,161

42.49% 73.90% 57.51% 64.64x