II- Analysis of the Financial Statement

In the 2015 audited financial statement of the Apex Mining Company Inc., it
shows total asset of P11B and total liabilities of P6.4B. In its total liabilities, the portion
of debt that comes from outside creditor is P3.4B that bears 4.00% interest. In the year
2015, the company decided not to declare dividends because it does not have free cash
for this year for they want their retained earnings to be used for capital expansion,
however, these retained earnings has opportunity cost which is calculated as rate of
return required by shareholder on a firms common stock. The risk free rate is 1.894%
which came from the average Treasury bill rates in 2015; the risk market premium is
2.94% which is based on the Philippine market in 2015. The beta risk of the firm is
1.4820. Risk is the possibility of that the future earnings and free cash flows will be
significantly lower than we expect. Given this rates, we can calculate rate of return the
investor want in the companys common stock, which is 6.251%.
The companys capital structure for 2015 has been identified which compose of
27.05% of debt and 72.95% coming from investor. With this, we can extract the
weighted average cost of capital of 5.26% versus the industry average of 8.4% in 2015;
however, this does not mean that the company is not risky at all. Factors affecting the
riskiness of the business are that the environmental laws in the Philippines have been
strengthened and their long term debt are now due less than a year (it became current
in 2015). In effect, the investor is unwilling to invest more in the company because of
the fact that when it comes to bankruptcy, the debtor has priority over the shareholders.
In addition, the free cash flow of the company in the year is P-3.19B causing their
intrinsic value to zero. The companys return of equity is 2.65% versus the industry
average of -4.33%. The return of asset also is standing better at 1.11% than the industry
performance of -2.76%. Moreover, the basic earnings per share is P0.01 while the
industry is P0.06. The price of their stock is currently trading at a price of P2.90/share.

Conclusion:
The researchers can conclude that the fluctuating performance of companies
from time to time in mining industry affects the stock price of the company that resulted
to over/under valuation of company significantly as compared to their intrinsic value.

Recommendation:
Base on the data collected, APEX Mining Incorporateds intrinsic value is P0.00
as they did not declared dividends for 10 years. The researchers recommend the
company for investors who think investment in a long run and would look into stock
price from time to time. As of the moment, APEXs stock price is an over valuated
compared to its intrinsic value. For retail buyers, those investors who buy and sell
stocks from time to time, it is not recommendable. In times of selling such stocks, the
fluctuating impact of the industry makes the company unattractive. It is highly
recommendable to sell these stocks to those people willing to wait for the better APEX
and can wait for it to declare a dividend.

IV. References
Apex
Mining
Co
Inc.
Retrieved
from:
https://markets.ft.com/data/equities/tearsheet/historical?s=APX:PHS, December 4, 2016
Apex Mining Co. Inc. Retrieved from: http://quotes.wsj.com/PH/APX/financials,
December 3, 2016
Apex
Mining
Co
Inc
(APX).
Retrieved
http://www.investing.com/equities/apex-mining-a-ratios, December 4, 2016

from:

Apex
Mining
Company,
Inc.
Financial
Data.
Retrieved
http://fm.advfn.com/stock-market/PSE/APX/financials, December 3, 2016

from:

Brigham, E. F. & Houston, J. F. (2014). Fundamentals of Financial Management,

13 Edition. Singapore. Cengage Learning Asia Pte Ltd
th

Fuhrmann, R. C. December 30, 2015. How do you calculate return on equity

(ROE)?. Retrieved from http://www.investopedia.com/ask/answers/070914/how-do-youcalculate-return-equity-roe.asp
SEC
FORM
17-a.
Retrieved
from:
http://www.apexmines.com/wpcontent/uploads/2016/05/SECFORM-17A_2015_FINAL.pdf, December 4, 2016

V. APPENDICES
1. Stock Price and Valuation Ratio

2. Valuation Ratios

3. Profitability

4. Per Share Data

5. Management Effectivness

6. Semi-annual Ratios 2016

7. Beta of the firm

8. Computation of the WACC

Cost of Debt= Interest in their loan 4.00%
Cost of Equity/Retained Earnings= rrf+RPM(b)
= 1.894% + 2.94%(1.4820)
=6.251%.

Capital Structure for 2015

Weight of debt= Total Debt/Capital Invested = P3,432,305,747/12,688,722,321 =27.05%
Weight of Equity= Total Equity/Capital Invested =P9,254,917,467/12,688,722,321 =
72.95%
WACC= (Cost of Debt)(Weight of Debt)(1-TR) + (Cost of Equity)(Weight of Equity)
WACC= (4.00%)(27.05%)(.70)+(6.251%)(72.95%)
WACC= 5.26%

http://qu

otes.wsj.com/PH/XPHS/APX/financials/annual/cash-flow

Free Cash
Flow (2015)

P-3.19 B

Cost of Debt
(2015)

4.00% or
3.9647%

Cost of
Equity

6.2511%
RPM
Beta
RRF
WACC
Capital StructureDebt
Capital StructureRetained
Earnings/Equity
Return on
Investment

2.94%
1.4820
1.894
5.26%
27.05
%

72.95%

2.32%