IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
INTRODUCTION
Since the growth of the mining industries often regulates the resource acquisition
potential and economic growth of countries, it is one of the most prominent earning sources of
many different countries. The mining industry refers to a set of activities including the
extraction, management, and processing of naturally occurring solid minerals from the earth's
surface. Different commercially useful items, such as coal, diamonds, metals ores, oil, and so on,
can be obtained because of mining. Mineral processing, surface mining, mining equipment
markets, and other aspects of the mining business are also included (Hussain et al., 2022).
On December 19, 2017, in Malacañang, President Rodrigo Roa Duterte signed Republic
Act No. 10963, also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Act, the
first package of the Comprehensive Tax Reform Program (Department of Finance, 2017).
TRAIN intends to make the Philippine tax system more simple, fair, and efficient in order to
encourage investment, job creation, and poverty reduction. Mining businesses that extract
metallic or non-metallic minerals face a 4% excise tax on the value of their production under the
new tax system, which is double the previous rate (Lassourd Thomas & Zaplan, 2018).
Today, the mining business is subject to a variety of taxes and fees, including excise tax,
royalty tax, corporate income tax, and others. An excise tax of 4% is imposed on extracted or
produced minerals or quarry resources under the National Internal Revenue Code (NIRC) of
1997 (RA 8424), based on the real market value of the gross output of these items at the time of
removal. Mining companies must pay an excise tax of 2% of sales under the Mining Act of 1995
(RA 7942). Despite the presence of numerous other taxes, fees, royalties, mandated
contributions, and mandatory community expenditures, this has been deemed "too low" for many
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
years and decades (Oplas, 2018). So, the mining excise tax has been raised from 2% to 4% under
the new law Tax Reform for Acceleration and Inclusion (TRAIN), RA 10963, coal and coke are
subject to a P50-P150 excise tax per metric ton, up from the previous rate of P10 per metric ton,
and gold and chromite increased from 2% to 4%. One of the mining industries affected is the
Philex Mining Corporation (National Tax Research Center, 2018).
Higher taxes under TRAIN pushed more Filipinos into poverty (De Vera, 2019).
Secretary Lopez of the Department of Trade and Industry (DTI) stated that TRAIN has a minor
influence on the cost of basic and core commodities. There is considerable debate about the
transition of the tax system, with concerns raised about the impact of the TRAIN Law on the
country's economic performance, poverty levels, personal income, and consumption. Excise
taxes influence consumer spending, but little is spoken about the consequences on businesses or
the perspectives of manufacturers and distributors, such as Philex Mining Corporation
(Crismundo, 2018). The question is whether the constantly changing excise tax laws have an
impact on their sales, profits, or net income. Philex Mining Corp.'s bottom line has been eroded
by increasing mining excise taxes as a result of the TRAIN law and other factors. From a two
percent excise tax mandated by the Mining Act of 1995 to four percent of sales under President
Rodrigo Duterte's tax reform law, this study attempts to determine whether the TRAIN law is
helpful or not to energy and mining firms.
This study will offer new insights to the community and businesses on how to increase
public revenue, improve service delivery of essential services and, in the long run, improve
social and economic outcomes. Also, it will receive insight into how policy reform will affect the
well-being of the country's weaker segments, and it will be able to take into account the findings'
influence on the emission reduction targets that the Philippines must meet. The internal and
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
external environments of PhilEx Mining Corporation will also benefit because they will be able
to study the effects of rising taxes on minerals in the country while enhancing energy utilization.
Students, future researchers, policymakers, business owners, shareholders, and every member of
the household may see the lens of income and expenditure in an economy through a different
lens as a result of the influence of the TRAIN Law's Increasing Excise Tax because company
production affects demand for firm elements, such as labor, impacting employment and
household finances incomes, which has an impact on the demand for commodities
The study is new and original since it intends to provide and offer new insights into the
topic. The study is particularly valuable since it has the potential to benefit both the mining
industry and the general public. Given the paucity of research on the subject, learning and
understanding more about the impact of the TRAIN law's increased excise tax may provide
context for how this affects the mining company's financial performance
RA 10963 increases the tax rates on petroleum products in three (3) tranches beginning
January 1, 2018 to January 1, 2020 as follows:
Table 1.1
Changes on Excise Tax on Petroleum Products under RA10963 or the Train Law
Petroleum Products
Lubricating oils and greases
Processed Gas
Waxes and Petrolatum
Denatured alcohol used for motive
power
Naphtha and regular gasoline
Leaded gasoline
Unleaded gasoline
Aviation turbo jet fuel
Rates per Liter/Kg
Old Tax
New Tax
2018
2019
2020
P 4.50
P 8.00 P 9.00 P 10.00
P 0.05
P 8.00 P 9.00 P 10.00
P 3.50
P 8.00 P 9.00 P 10.00
P 0.05
P 8.00
P 9.00
P 10.00
P 4.35
P5.35
P 4.35
P 3.67
P 7.00
N/A
P 7.00
P 4.00
P 9.00
N/A
P 9.00
P 4.00
P 10.00
N/A
P 10.00
P 4.00
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Kerosene
Diesel fuel oil
Liquefied petroleum gas (LPG)
Asphalts
Bunker Fuel Oil
Petroleum coke
P 0.00
P 0.00
P 0.00
P 0.56
P 0.00
N/A
P 3.00
P 2.50
P 1.00
P 8.00
P 2.50
P 2.50
P 4.00
P 4.50
P 2.00
P 9.00
P 4.50
P 4.50
P 5.00
P 6.00
P 3.00
P 10.00
P 6.00
P 6.00
RA 10963 increases the excise tax rate on domestic or imported coal and coke in three (3)
tranches beginning January 1, 2018 to January 1, 2020 as follows:
Table 1.2
Changes on Excise Tax on Coal and Coke under Train Law
Coal and Coke (Per Metric Ton)
Old Tax Rate
New Tax Rate
2018
2019
2020
P 10.00
P 50.00
P 100.00
P 150.00
RA 10963 also increases the excise tax rate on other mineral products as follows:
Table 1.3
Changes on other mineral products under Train Law
Mineral Products
All metallic minerals and quarry resources
Copper and other metallic minerals
Gold and chromite
Indigenous Petroleum
Old Tax Rate
2%
2%
2%
3%
New Tax Rate
4%
4%
4%
6%
** Based on the actual market value of the gross output at the time of removal. In the case of
those locally extracted/produced, or the value used by the Bureau of Customs in determining
tariff and customs duties, net of excise tax and VAT in the case of importation.
** Based on the fair international market price.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
RESEARCH QUESTIONS AND HYPOTHESES
It is only appropriate that studies are conducted to anticipate the effects of potential
changes in law policies as the business is directly affected by legal factors in its external
environment. With almost 20 years of non-adjustment, it is the objective of this study to provide
a foundation for the impact of such legal powers on an entity, particularly PhilEx Mining
Company. The study also aims to answer the following questions:
1. How may the financial performance of PhilEx Mining Corporation be described for
the year 2014-2020 based on the following ratios?
a. Net Profit Ratio
e. Asset Utilization.
b. Return on Assets
f. Leverage; and,
c. Return on Equity
g. Profit Margin;
d. Liquidity;
2. What can be considered the effects of the increased excise tax on TRAIN Law on the
business operations of PhilEx Mining Corporation?
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Figure 1.
Operational Research Framework
Note: Figure 1 is the operational framework employed in the study that starts before and
after the implementation of the Tax Reform for Acceleration and Inclusion Law, otherwise
known as the TRAIN Law or Republic Act 10963. One of the impositions of this law includes
the increased excise tax for mining products, affecting companies in the industry, specifically
PhilEx Mining Corporation. This study will use the financial information from the annual
financial statements of the said corporation, specifically, the Statement of Financial Position,
Statement of Profit and Loss, and Statement of Comprehensive Income for the years 2014-2020
as well as their corresponding Notes to Financial Statements for the years 2014-2020. The
financial data will be analyzed through trend analysis, financial ratio analysis, and descriptive
analysis to produce an output that can determine the impact of TRAIN Law on PhilEx Mining
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Corporation. This study also heavily relies on secondary data and the information to be gathered
is only limited to what is available on the internet.
Scope and Limitation of the Study
The study will cover only the Statement of Financial Position, Statement of Profit and
Loss, and Statement of Comprehensive Income for the years 2014-2020 of PhilEx Mining
Corporation and corresponding Notes to Financial Statements officially released by the said
corporation on their website for the years 2014-2020. With the restrictions of the pandemic, the
researchers can only use secondary data provided by official sources to supplement the study.
Furthermore, the study will only consider the financial data in the financial statements as a
reflection of the corporation’s operations in the years 2014-2020 and will not be taking into
consideration any other external data, transactions, or events that may have been excluded in the
financial statements. In addition, the researchers will be using the audited consolidated financial
statement which includes PhilEx Mining Company and its subsidiaries. Also, the data to be
collected will be analyzed as a whole and not only products and/or materials affected by the
TRAIN Law. This is because such allocation data is unavailable, and the company operations are
regarded holistically. In addition, excise tax in this study will be defined as per the definition
stated in PhilEx Mining Corporation’s SEC 17A submission, wherein it states that “Excise taxes
pertain to the taxes paid or accrued by the Parent Company for its legal obligation arising from
the production of copper concentrates. Also, the Parent Company is paying for royalties which
are due to the claim owners of the land where the mine site operations were located. These
excise taxes and royalties are expensed as incurred.”
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Financial information from the said financial statements will be analyzed through trend
analysis, vertical analysis, descriptive analysis, financial ratio analysis, and analysis on the notes
to the financial statement. This is to understand the impact of whether the condition of the
corporation’s operations is doing well amidst the implementation of TRAIN Law.
Definition of Terms
Production Costs. Production costs, which include all direct materials, power, and labor costs,
handling, hauling and storage, and other costs related to the mining and milling operations, and
all direct expenses incurred for logistics and storeroom costs for mine and mining inventories,
are expensed as incurred.
Mining and Milling Costs. Mining and milling costs, which include all direct materials, power,
and labor costs and other costs related to the mining and milling operations, are expensed as
incurred.
Excise Taxes and Royalties. Excise taxes pertain to the taxes paid or accrued by the Parent
Company for its legal obligation arising from the production of copper concentrates. Also, the
Parent Company is paying for royalties which are due to the claim of the owners of the land
where the mine site operations were located. These excise taxes and royalties are expensed as
incurred.
Petroleum Production Costs. Petroleum production costs, which include all direct materials and
labor costs, depletion of oil and gas properties, and other costs related to the oil and gas
operations, are expensed when incurred based on the Group’s participating revenue interest in
the respective service contracts.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Handling, hauling, and storage expenses. Include all direct expenses incurred for logistics and
storeroom costs for mine and mining inventories. Handling, hauling, and storage costs are
recognized by the Group when incurred.
Cost of Coal Sales. Cost of coal sales includes costs of purchased coal and all direct materials
and labor costs and other costs related to the coal production. Cost of coal sales is recognized by
the group when sales are made to customers.
General and administrative expenses. General and administrative expenses constitute the costs
of administering the business and are expensed as incurred.
Smelting Charges. Contract terms on the sale of copper, gold, and silver include smelting
charges deducted on the invoice price. Under PAS 18, revenue is presented at gross amounts and
the related smelting charges are also presented separately in the consolidated statements of
income. Under PFRS 15, smelting charges are deducted from revenue to arrive at revenue from
contracts with customers since smelting charges are considered as consideration payable to a
customer in order to transform the unprocessed ore concentrates into its marketable form.
Current Income Tax. Current income tax assets and liabilities for the current and prior periods
are measured at the amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws are used to compute the amount are those that are enacted or substantively
enacted at the consolidated statement of financial position date.
Deferred Income Tax. Deferred income tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes at the reporting date.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Review of Related Literature
Mining Industry in the Philippines
Haddaway, et al. (2019) stated that mining may have both beneficial and harmful
consequences for humans and societies. Human health and living standards are among the
negative consequences. Mining is also known to have an impact on the traditional practices of
Indigenous peoples living in surrounding villages, and land-use conflicts are common. Mining is
frequently a source of local employment and may contribute to local and regional economies.
The Philippines is the world's fifth-most mineralized country, having an estimated US$1
trillion in undiscovered copper, gold, nickel, zinc, and silver deposits. Despite this, figures from
the Philippine Mines and Geosciences Bureau (MGB) show that there are just 50 active mines as
of 2017. The preliminary gross output value for large-scale metallic mining in the Philippines for
the same year has been estimated at 107.7 billion pesos by the Philippine Department of
Environment and Natural Resources (DENR) (Cruz, et al., 2018)
In the report of Clemente (2019), the Philippine Mining Act is founded on the principle
that all mineral lands are held by the state but are available to contractors on a revenue-sharing
basis. While it has already provided the regulatory framework for putting in rules and regulations
to carry the policies ahead, many difficulties concerning mining in the Philippines continue to
exist. Audits are done in 2016 by the Department of Environment and Natural Resources, for
example discovered that several mine locations lacked sufficient environmental planning, with
denuded forests and silted waterways as evidence of such uncontrolled deterioration.
Despite the problems created by the COVID-19 pandemic, the Philippine mining industry
contributed 102.3 billion to GDP in 2020, according to a report by the Department of
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Environment and Natural Resources Mines and Geosciences Bureau (2021). The DENR-MGB
evaluated the value of gold, nickel ore, mixed nickel-cobalt sulfide, scandium oxalate, chromite,
and iron at 132.69 billion in the report. In the previous year, the total value of minerals, mineral
products, and non-metallic mineral production shipped was US$5.2 billion. In the meantime, the
mining industry provided around $25.52 billion in national and municipal taxes, fees, and
royalties.
President Rodrigo Duterte has reversed a prohibition on issuing new mining licenses in
the Philippines, overturning a prior anti-mining position in which he banned open-pit mining in
2017 and closed or suspended 26 mining enterprises for environmental offenses. According to
the government, the industry, which generated 0.76 percent of the country's GDP in 2020, is
critical in reviving an economy slowed by the COVID-19 epidemic by creating income and
employment and contributing to Duterte's centerpiece infrastructure initiative. Duterte's shift in
favor of mining dates back to 2019 when the government permitted suspended mining
corporations to resume operations and pushed for the rehabilitation of government-owned mines,
notably nickel mines, to meet Chinese nickel demand.
Train Law Impacts on the Market
Despite the government's reform attempts, several depressing descriptors have been
linked with the Philippine tax system over the years, and several chronic problems remain. In
December 2017, a new bill must bring about change in the Filipino people's lives. The Duterte
government has offered a series of reform packages to the Senate, each focusing on different tax
policies. The House of Representatives endorsed a traded-off bill, House Bill No. 5636, named
"Tax Reform for Acceleration and Inclusion" or TRAIN, in May 2017. (Manasan, 2017).
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
According to a survey done by the University of Mindanao Institute of Popular Opinion (UMIPO), over half of Davaoeños oppose the Tax Reform for Acceleration and Inclusion (TRAIN)
law. 9 out of 15 Davaoñeos have already felt the impact of the TRAIN law due to price increases
in products, particularly soda and sugary beverages, as well as a 3 centavo rise in the first year of
the law's implementation by Davao Light and Power Company for every kilowatt-hour (kWh)
(DLPC). As they experience the increase in the price of the goods, they have not thought that the
TRAIN would be beneficial in the long run, (Vega, 2018).
In 2018, The Tax Reform for Acceleration and Inclusion (TRAIN) law was passed in the
Philippines. Workers with a yearly income of P250,000 are one of the law's key beneficiaries.
They will be excused from paying income tax under the new law. The new legislation benefits
small firms as well. The tax threshold for micro, small, and medium companies (MSMEs) has
been raised from P1.5 million to P3 million as a result of the TRAIN law. The tax cost for the
store will be reduced to P25,000 under the new rules if the lower income tax is used, or to
P20,000 if flat tax is used. MSMEs with gross sales below the threshold can pay an 8% flat rate
rather than the usual income tax. For example, under the prior laws, a sari-sari store with gross
sales of P500,000 would have to pay P52,500 in taxes. Also, MSMEs who do not have the time
or money to retain accountants to review their records are likely to benefit from the simplified
tax procedures. The TRAIN law reduces income tax returns from 12 to four pages. Meanwhile,
anyone earning more than P8 million per year will face a personal income tax of 35 percent, up
from the current 30 percent (Dela Cruz, 2018).
Research by Layug (2018) points to the fact that since the implementation of the TRAIN
Law signed by President Duterte, a lot of sectors believed that this law is a ‘burden’ for poor
people. Wherein, TINDIG PILIPINAS said that the TRAIN wreck had caused untold suffering to
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
the poor due to the higher inflation that affects the rice, fish, and all the Bahay Kubo vegetables
where it increases the prices radically.
The TRAIN law, according to the IBON Foundation (2018), a nonprofit development
organization, would be a major blow to the country's poorest families, saying that poor people
will face the burden of increasing prices on basic commodities and services without receiving
any income tax deductions. IBON also stated that the "largest gainers" from the TRAIN law will
be the country's rich, "particularly when income taxes are substantially reduced in 2023."
Purpose of Train Law / Excise Tax
The Tax Reform and Inclusion (TRAIN) law includes legislative changes to the personal
income tax (PIT), estate tax, donor tax, value-added tax (VAT), documentary stamp tax (DST),
an excise tax of petroleum products, automobiles, sweetened beverages, cosmetic surgery, and
aesthetic procedures, coal, and tobacco and excludes the tax exemption for Lotto and other
PCSO winnings exceeding P10,000 (Gialogo, 2018). Accordingly, the said reform exempted all
minimum wage earners from personal income taxes and reduced tax rates for most individual
taxpayers. Excise taxes on petroleum were hiked, and excise taxes on sugar-sweetened beverages
were implemented. Jonas (2018) highlights that minimum wage earners earning less than
P250,000.00 per year are exempted from paying personal income tax (PIT), while those earning
more than P250,000.00 are subject to a set of PIT rates.
As noted by Bonghanoy et al. (2019), described TRAIN Law is skillfully structured,
according to one of the law's leading proponents in Congress since it taxes the rich more while
providing social mitigation measures to protect the poor from the law's temporary inflationary
impact. Thus, the fundamental purpose of this program is to establish a more just, simple, and
effective tax collecting system in accordance with the constitution, in which the rich contribute
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
more and the poor benefit more from government programs and services. The law made it more
difficult for the salaries of the rich people while making it easier on the wages of the poor, this will
eradicate extreme poverty and reduce income inequality.
As highlighted by Bonghanoy et al. (2019), the TRAIN Law was enacted to help fund the
Duterte administration's "Build, Build, Build" program. The Comprehensive Tax Reform Program
and massive infrastructure projects under the Duterte administration's "Build, Build, Build"
program will create an insurgency in the country's financial improvement and raise per-capita
income to the level of high-center pay economies by 2022. As a result, a surge in government
spending could raise the country's GDP, and the outcome of these projects could generate many
employment and business opportunities for people. President Duterte believes that the
infrastructure project would act as an instrument to improve the country's unemployment and
poverty rates by addressing the issue of unemployment and poverty caused by the country's poor
infrastructure (Bases Conversion and Development Authority, 2018). Consequently, this program
is the government's solution to the Philippines' infrastructure inadequacies, which, if addressed,
would significantly increase the country's economic growth.
Bernardo (2019) highlights that TRAIN is the first of the five major tax reform measures
of the Comprehensive Tax Reform Program. Other bills address corporate income taxation and
updating fiscal incentives; long-term financing for Universal Health Care through increasing sin
taxes on cigarettes and alcohol; repairing the dysfunctional property valuation system and
restructuring capital income taxation. The government has always positioned the program as a
mechanism to make the tax system one in which everyone pays their fair part in infrastructure
investments and human development. All packages aim to make the system fairer, simpler, and
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
more efficient, but only two are revenue-generating, TRAIN, and the sin tax package for longterm funding of Universal Health Care.
Pursuant to the Declaration of Policy (2017), the TRAIN aims to improve the
progressivity of the tax system through the rationalization of the internal revenue tax system of
the Philippines, thereby promoting sustainable and inclusive economic growth; to providing
equitable relief to a greater number of taxpayers and their families to improve levels of
disposable income and increase economic activity; and to ensure that the government can meet
the needs of individuals under its control and care by improving infrastructure, health, education,
jobs, and social protection for the people.
Taxes finance the projects for the development of a country, and this is the same with the
purpose of the TRAIN law. It aims to establish an effective and efficient collection of taxes to
finance various expenditures of the Philippine government and to support the country’s economy
through increased economic growth and employment, diminishing poverty rate, and inequality
among households (Dizon, 2021). Duran (n.d.) stated that with TRAIN, Filipinos will be able to
spend more due to the higher take-home pay. More money in the pockets equates to more
spending that in turn should stimulate the country’s economy. On the other hand, in covering the
loss of government revenue from the income taxes adjustments, TRAIN put in added excise
taxes for several products. Additionally, to aid small businesses, TRAIN raised the threshold for
tax exemption from Php1.5 million to Php3 million. TRAIN 2 and the larger tax package are
crucial to the tax system's strengthening in the country. The passage of this vital legislation will
indicate Congress's and the country's commitment to the reforms required to drive development,
decrease poverty and inequality, and reach upper-middle-income status. It would also provide the
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
groundwork for more robust and shared prosperity for the next generation of Filipinos. (Sawada,
2018).
Financial Analysis
Financial statements are written records of the company that contains its financial
information based on their business activities, prepared regularly (PricewaterCoopers, 2020).
Financial statements used in assessing the financial health of a company include a statement of
financial position, statement of operations, and statement of cash flows. They are accordingly
analyzed through financial statement analysis which is defined in the National Council of
Education Research and Training (NCERT) (2021) as the study of the relationship among
financial facts and figures in financial statements and provides an interpretation with regards to
the operational efficiency and profitability of the company. It allows the strengths and the
weaknesses of the firm to be identified and addressed. In addition, it gives an idea of the past and
present financial position of the company and how it may affect its future condition. Hence, it
can help in the decision-making process of the firm. This is supported by dos Santos, Fernandes,
and Pires (2018) who highlighted the importance of financial information because it helps
support the decisions of the management, to decipher the financial impacts of operations, and is a
necessary tool in compliance with tax obligations and requirements.
Zions Business Resource Center (n.d.) reveals that statement of financial position,
commonly known as balance sheets, contain financial data classified into assets, liabilities, and
net worth, regardless of the nature and size of the business. According to Stice and Stice (2014),
assets are defined as company properties that were obtained through past transactions that could
produce an economic benefit for the company. Assets are arranged depending on how easily they
are converted into cash, which is referred to as liquidity. Liabilities, on the other hand, are
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
described as possible economic benefits used as sacrifices due to the obligation to transfer assets
or impart services because of past transactions. Equity is then, the residual interest resulting in
the difference between company assets and its liabilities. Accordingly, statements of financial
position are analyzed through financial rations which are quantitative measures used to assess the
financial health of the business and create a basis for future business decisions (Corporate
Finance Institute, 2015). Financial ratios are sub-divided into four categories namely: liquidity
ratios, leverage ratios, efficiency ratios, and profitability ratios.
Liquidity ratios as defined by Durrah, Ghafeer, Jamil, and Rahman (2016) as the
indicator of the ability of the company to fulfill its short-term obligations and are achieved
through the effective management and use of assets. It allows the assessment of the availability
of cash to provide for the company’s day-to-day operations. Under liquidity ratios include the
current ratio which demonstrates the relationship between current assets and current liabilities as
shown by the formula: Current Ratio = Current Assets / Current Liabilities. It is an indicator that
a company can pay current obligations when they are due. The second ratio is the quick ratio,
which is similar to the current ratio except that inventory is deducted from the current assets
because it is not as easy to be liquidated as the others (Durrah, et al., 2016). Hence, the formula
is Quick Ratio = Current Assets – Inventory / Current Liabilities.
Another category of financial ratios is profitability ratios, which refer to the ability of the
company to generate profits for every peso of investment. This category includes gross profit
margin which is centered on the company’s potential in generating gross profit where high sales
refer to having a competitive advantage (Durrah, et al., 2016). In addition, it is a measure of
production efficiencies and helps determine at what point the company can break even. Hence,
determining the gross profit margin aids in knowing what the designated selling price should be
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
to avoid incurring minimal profit. Net profit margin, on the other hand, is a measure of how
much net profit is generated from sales. Since it is based on net profit, it allows investors to
evaluate whether the company can sustain and manage its operating and other costs such as
interest and taxes. Another measure of profitability is the return on assets which is a unit to
determine how efficiently a company uses its assets in creating profit for the company (Birken &
Curry, 2021). Hence, it can help measure how well the financial performance of the company is
based on whether it can maximize the economic potential of each of its assets or is spending too
much investment on assets that do not yield any profit. Return on equity, a similar concept,
measures how the company efficiently uses the investment of its shareholders in generating
profit. However, it is important to note that it is not sufficient to base overall financial health and
performance on any of these two measures alone. It is recommendable to use them hand-in-hand
with other financial ratios for a more extensive analysis (Birken & Curry, 2021). Last but not the
least, the earnings per share is a financial measure that identifies how great the company’s
profitability is by how much profit is allocated to every individual stock (International Financial
Reporting Standards, 2014). Thus, if the company has profits to distribute to its shareholders,
then it is proof that the company is doing well.
The last set of ratios is solvency or leverage ratios and by definition, solvency is the
ability of the company to meet its long-term financial obligations and correspondingly represents
its financial structure (Rahman, 2017). The Debt-to-equity ratio refers to how much of the
company’s debts are attributed to equity and their proportion. Whereas, the debt to asset ratio
indicates how much of the company’s debts are used to finance company assets. In turn, the
higher both debt to equity and debt to asset ratios indicate that the company is a great financial
risk.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Financial analysis uses financial ratios in conjunction; hence, it is not sufficient to use
them individually to measure financial performance. It allows the evaluation of how well the
company operations are doing so the management can address weaknesses and improve their
strengths. Furthermore, it helps in the decision-making process of the management, to help direct
company efforts towards maximizing profits and shareholder value. In this study, financial ratios
will help review the impact of TRAIN Law’s altered tax rates on the overall financial health of
the company. In addition, it identifies the current position of the company and aids in creating
projections for the future (NCERT, 2021).
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
METHODS
This chapter outlines the research methods and research techniques that was used in
performing this study and achieving its objectives. Furthermore, the research design, sample and
settings, research instruments, data collection procedures, data analysis, and ethical
considerations that was employed to complete this research were all discussed in this chapter.
Research Design
According to Apuke (2017), quantitative research is a methodology that deals with the
use and analysis of numerical variables through the utilization of statistical tools and techniques
to describe or explain a phenomenon. The unit of analysis was the financial information
included in the Financial Statements of PhilEx Mining corporation from 2014 to 2017 and 2018
to 2020. The use of this research design helped the researchers identify whether any variation in
the financial performance of PhilEx Mining Corporation can be attributed to the additional 2%
excise tax. Furthermore, the study also employed qualitative descriptive research wherein the
data collected and analyzed through quantitative methods are placed into context and added
illustrative detail to conclusions (George, 2022). In addition, the time frame of the research was
cross-sectional which was defined in Setia (2016) as a type of study wherein a certain group is
assessed and/or measured at a particular point in time.
Sample and Settings
The purposive sampling method was employed in this study which is defined as a
technique in which a specific sample is chosen due to the characteristics it possesses. Hence, in
this study that aimed to identify the influence brought about by the change in excise taxes for
petroleum and mining products under TRAIN Law, PhilEx Mining Corporation has been
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
selected since it is one of the top-performing companies in its line of industry. Incorporated and
listed on the Philippine Stock Exchange in 1955, PhilEx operates its mining business and
petroleum corporation in various areas in the country such as Padcal Mine, Bulawan, and Sibutad
(PhilEx Mining Corporation, n.d). Moreover, the study utilized annual financial statements from
the years 2014-2020, which is a duration that encompasses years prior to the TRAIN Law, its
implementation, and subsequent ceasing.
Instruments
The study used financial information from the annual reports from 2014 to 2020 as a
research instrument, primarily collected from the available financial statements of PhilEx Mining
Corporation made available on the Philippine Stock Exchange (PSE) website and the company’s
official website. The study employed descriptive statistics which are used in summarizing data to
describe a relationship between variables in a sample (Yellapu, 2018). It describes the basic
features of data in a study such as its central tendency which is commonly the mean, median, and
mode. The applicable formula for financial ratio analysis was based on reliable sources such as
that from NCERT (2021) and International Financial Reporting Standards (2014). Other relevant
information about PhilEx Mining Corporation such as audited financial statements, PSE
disclosures, and other disclosures will be retrieved from the official website of the company.
Data Collection
Data collection is defined as a systematic method that is used in obtaining observations
and measurements. This will allow the researchers to gain first-hand knowledge, information,
and valuable ideas for the research problem (Bhandari, 2021).
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
The financial information essential to the achievement of the answers to the statement of
the problem is classified as secondary data. This secondary quantitative data was collected
through the financial statements readily accessible through Philippine Stock Exchange or PSE’s
website, which also includes company disclosures and stock data. In addition, there are also
available audited financial statements, ownership reports, stock and shareholders, annual
verification, and other disclosures on the official company website. The data collected and
summarized from the financial statement, stock, and shareholder, and reports was employed in
analyzing the company’s profitability, liquidity, and solvency. The results of the data analyzed
were summarized using a graph to demonstrate how the increased excise tax of TRAIN Law
affected the financial performance of PhilEx Mining Corporation.
To describe the outline of the study, the researchers used the Input-Process-Output
systematic approach. The Input-Process-Output model was implemented in this research to
identify the variables and how will they interact with the outcome of the study.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Figure 2.
Input – Process – Output (IPO) model
Data Analysis
Financial data necessary to the study is classified as secondary data in which da Cunha,
Martins, and Serra (2018) have defined as any data obtained through or analyzed by someone
else. Hence, data collected from the financial statements of PhilEx Company was examined
accordingly through descriptive analysis, trend analysis, vertical analysis, and financial ratios.
Descriptive analysis is employed in quantitative research as a means to summarize quantitative
data in an organized manner which includes the measures of the central tendency to specifically
describe an entire data set in a single measurement (Yellapu, 2018). It includes the primary
measures of mean, which is the arithmetic average of the values, median, which is the middle
value of distribution, and mode which is the common value in the given dataset. The data was
subjected to various formulas categorized as profitability, liquidity, and solvency ratios. Aside
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
from this, to assess the significance of financial statement data, the researchers utilized a variety
of tools such as horizontal and vertical analysis. Comparing historical financial statement
information from various reporting periods is known as trend analysis or horizontal analysis
(Tuovila, 2022). Its main purpose is to find out whether there has been an increase or decrease in
a series of financial data and is also used to assess a company’s financial position and rate of
growth in comparison to rivals. Whereas vertical analysis, according to Grant (2022), examines
the degree to which the individual line items on a financial statement are related to the base item,
with the results presented as a percentage.
Under profitability, gross profit ratio, net profit ratio, return on assets (ROA), return on
equity (ROE), and earnings per share was computed. For liquidity, the current ratio and acid-test
or quick ratio was determined. Solvency was analyzed through debt to equity and debt to asset
ratios. In addition to financial ratios, the researchers used trend analysis, which NCERT (2021) is
defined as a technique of studying the financial position and operational performance of a
company in each period. Furthermore, in addition to financial ratios and trend analysis, the notes
to financial statements, likewise, underwent analysis in support of any interpretations found from
the derivation of financial ratios. The following will be the list of formulas necessary for the
analysis of the data:
Table 2.1
Horizontal Analysis
Horizontal Analysis
Amount in Comparison Year - Amount in Base Year
Amount in Base Year
x 100
The horizontal analysis calculates the growth patterns by subtracting the current year to
the past year's amount and then dividing it by the past year.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Table 2.2
Vertical Analysis
Vertical Analysis
Income Statement
Balance Sheet
Income Statement Item
Total Sales
x 100
Balance Sheet Item
Total Assets or Liabilities or
Equity
x 100
The vertical analysis measures the proportional portion of the line item in the balance
sheet and income statement.
Table 2.3
Profitability Ratios
Profitability Ratios
Net Profit Ratio
Net Income
Total Revenue
Return on Asset
Net Income
Average Total Assets
Return on Equity
Net Income
Average Total Equity
Asset Turnover
Net Sales
Average Total Assets
Receivable
Turnover
Net Sales
Average Total Receivables
Table 2.4
Liquidity Ratios
Liquidity Ratios
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Current Ratio
Current Assets
Current Liabilities
Working Capital
Current Assets - Current Liabilities
Acid Test Ratio
Quick Assets
Current Liabilities
Table 2.5
Solvency Ratios
Solvency Ratio
Debt-Equity Ratio
Total Liabilities
Total Equity
Debt to Assets Ratio
Total Liabilities
Total Assets
Times Interest Earned
Before Provision for Income Tax
Provision for Income Tax
Ethical Considerations
In conducting the study, the researchers ensure that information is properly cited, and
authors are credited. The secondary data that is readily available and publicly released on the
Internet will be utilized in this study. Permission to further use and study the required data is
reasonably expected and implied. In addition, said information is paraphrased and restructured to
avoid plagiarism. In the matter of financial data, financial information is to be collected from
PSE and PhilEx Mining Corporation’s official website which allows the public to readily access
data. The researchers make sure that said data are used to measure the impact of increasing
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
excise tax brought about the implementation of TRAIN Law as an academic requirement and
shall not be used for commercial purposes and personal development.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
RESULTS AND DISCUSSION
This section of the paper presents the main findings of the paper necessary to achieve the
objectives of the study and their corresponding interpretations to provide significant information.
I. Horizontal Analysis
The horizontal analysis is used to examine the trend in PhilEx Mining Corp.'s account
balances over time. Users may quickly identify trend situations and the company's growth
pattern since the data is reasonably simple when stated in percentages.
The table below shows the important account titles of the consolidated statement of
comprehensive financial position’s horizontal analyses (see Appendix A).
Table 3.1
Horizontal Analysis of Consolidated Statement of Financial Position for Years 2014-2020
Current Assets
Non-Current
Assets
Current
Liabilities
Non-Current
Liabilities
Horizontal Analysis
2016
2017
2018
30.80% -9.11% -28.94%
2019
-34.40%
2020
17.91%
2014
13.63%
2015
-44.69%
11.34%
9.02%
-17.01%
5.18%
8.52%
-3.53%
1.48%
-23.04%
-24.03%
-2.40%
-12.92%
40.23%
-27.63%
-14.37%
138.29%
4.71%
-8.20%
4.19%
1.10%
-1.97%
4.92%
The company's noncurrent assets managed to reach 8.52% in 2018 following a series of
decreases as a result of growth over the preceding year. PhilEx Mining Corporation's deferred
exploration expenses have changed, which has caused the rapid fluctuation. Despite this, the
company's noncurrent assets experienced a significant loss in 2020, which was brought on by a
decline in a number of current accounts. In addition, PhilEx Mining Corporation liabilities have
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
been declining throughout the last years of data. Valuations only increased in 2018 overall. Refer
to Figure 3 for a clearer understanding of the assets and liabilities' trajectory from 2014 to 2020.
Figure 3.1
Horizontal Analysis for Consolidated Statement of Financial Position for Years 2014-2020
Table 3.2
Horizontal Analysis of PhilEx Mining Corporation Current Assets for 2014-2020
2014
Cash and Cash
Equivalents
Accounts
Receivable
Inventories
Advances to a
related party
Other Current
Assets
Total Current
Assets
Current Assets
2015
2016
2017
2019
2020
27.43%
49.26%
-8.64%
49.74%
-45.79% 103.62%
-69.71%
38.71%
-11.12%
1.52%
22.92%
-34.58%
-25.02%
-8.25%
28.71%
-
-
-
-1.15%
-36.03%
-
-
2.49%
7.41%
-2.77%
-29.96%
-24.80%
-12.09%
-18.90%
13.63%
-44.69%
30.80%
-9.11%
-28.94%
-34.40%
17.91%
28.22%
-80.72%
257.37%
-15.00%
-30.36%
-54.60%
2018
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Table 2 elaborates on the Current Asset trend analysis found in Table 1. From 2014 to
2015, there is a huge decline in cash and cash equivalents of the company which may explain the
45% decrease in current assets in 2015. This is primarily due to Silangan Mindanao Exploration
Co., Inc and Pitkin are issuing convertible notes and extensive exploration activities for the
Silangan and Pitkin projects. The further decline in 2016 is also mainly due to the continued
exploration activities in the said projects. The consequent increases in cash balance 2017
onwards is attributable to the timing effect of ore shipments to the customers. The minimal
decrease in cash accounts in 2019 was due to the primary use for day-to-day expenses and capital
expenditures as well as augmenting cash requirements for the completion of Definitive
Feasibility Study (DFS) of the Silangan project.
The enormous favorable changes in Accounts Receivable are mainly due to the copper
concentrates from Padcal operations in 2012 to 2013, which were shipped countries abroad such
as Japan. Hence, since the copper concentrates were shipped on one big scale, it is only natural
that the succeeding shipments would decline in value, resulting in lower Accounts Receivable.
The same recurred for the 2017 account, which garnered the receivables from copper
concentrates since 2015. This is to be expected as mining mineral products require funding and
extensive periods before they are eventually sold and shipped.
Inventory declined by 30% in 2014 which is accounted for by the shipment of copper
products. The remaining inventory comprises mostly of materials and supplies which were also
lowered by P1.8b. As supported by the decrease of Accounts Receivable, which meant there
were not much shipments made in 2015 and 2016, the inventory balance has increased as mining
products as well as coal and petroleum inventories are stored before shipment. Materials and
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
supplies accounted for 74% of the inventory in 2015 and subsequently decreased to 54% by 2016
due to the growing amounts of mine product inventories. The same occurred with 2017
shipments onwards.
Advances to a related party started from 2016 to 2018 which represented advances to
PXP Energy Corporation which is the energy and hydrocarbon subsidiary of PhilEx Mining
Corporation.
Other current assets have a minimal steady increase since 2015 until a slight decline in
2016. This took a heavier dip in 2017 which was mainly due to input value-added tax claims on
purchases of materials and supplies and equipment pending with the Bureau of Customs and the
Bureau of Internal Revenue.
To get a better look at these trends on current assets, see Figure 3.2.
Figure 3.2 Horizontal Analysis of Current Assets for Years
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
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Table 3.3
Horizontal Analysis of PhilEx Mining Corporation Non-Current Assets for 2014-2020
Non-Current Assets
2015
2016
2017
2014
2018
2019
2020
Property, plant,
3.76%
-4.35%
-1.35%
-0.22% -19.59% -41.06% -4.47%
and equipment
Financial assets
measured at
2.43%
-5.73%
FVOCI
Available for sale
(AFS) financial
-7.04% -88.23% -1.94% -27.32%
assets
Investment in
-2.77% 214.75% -5.55% -1.12%
Associate
Deferred income
-30.41% -27.14%
tax assets - net
Deferred
exploration costs
15.12% 14.03% -21.33%
7.20%
4.41%
5.09%
2.30%
and other
noncurrent assets
Pension Asset 19.60% -3.73% -37.82% 38.68%
net
Total Noncurrent
11.34%
9.02% -17.01%
5.18%
8.52%
-3.53%
1.48%
Assets
Table 3 details the Non-Current Asset trend analysis found in table 2. The company’s fall
in property, plant and equipment in 2015 was accounted for by a greater amount of depletion,
depreciation and amortization as compared to additions to fixed assets made throughout the year
while the decline over the next two years, 2016-2017, was mostly related to the deconsolidation
of PXP Energy Corporation. The company’s recognition of an impairment in 2018 that is
attributable to its Padcal mine and mining properties due to declining ore grades in the remaining
reserves explains the huge decline from the prior years. On top of that, an additional impairment
was reported the following year that caused the further decline in property, plant and equipment.
In 2020, the decrease is associated with higher amount of total depreciation, amortization and
depletion compared to additional capital expenditures for Padcals’ mine development activities
and mine equipment acquisition.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Following the implementation of a new accounting rule in 2018, the company’s financial
assets which are consisted mainly of shares in golf and country clubs were reclassified to
Financial Assets Measured at FVOCI from Available-for-Sales (AFS) Financial assets in the
previous years.
The significant decline in Available-for-Sale (AFS) financial assets from 2014 to 2015
was due to the sale of Indophil shares and reclassification of the Lepanto share to investment in
an associate following the effectivity of the Joint Voting Agreement between the company and
another Lepanto shareholder. With regard to 2016-2017, the slight decrease is due to changes in
the fair value of the investments under AFS financial assets.
After the reclassification of the investment in Lepanto, Investment in Associate account
was established in 2015 amounting to P659.4 million. The account increased the next year
following the reclassification and because of the decrease in interest ownership in PXP Energy
Corporation. The same reason goes for the drop in 2017 only this time, PXP was deconsolidated.
In 2018, there was additional equity subscription by the company in upstream oil and gas
affiliate, PXP, which caused the increase in the account. However, it decreased once more in the
following years due to the share in net losses of associates in 2020 and also in 2019 which
included impairment provision.
Deferred income tax assets are recognized for all deductible temporary differences to the
extent that it is probable that sufficient future taxable profits will be available against which the
deductible temporary differences. The carrying amounts are reviewed at each reporting date and
reduced to the extent that is no longer probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax to be utilized. The unrecognized portion is reassessed
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
at each reporting date and is recognized to the extent that it has become probable that future
taxable profits will allow the account to be recovered.
The 14% growth on deferred exploration costs and other non-current assets from 2014 to
2015 was mainly attributable to the then on-going extensive exploration activities in the Silangan
and Kalayaan projects as well as in the oil exploration projects of Forum Energy Plc (FEP). The
company obtained a decline of 21% in 2016 and a 6% increase in 2017 which consisted solely of
exploration costs covering mining projects while the previous years’ balances still included oil
exploration projects under PXP that was subsequently derecognized as a result of the company’s
loss of control over PXP in 2016. Additions in the balances were mainly on account of the ongoing pre-development activities in the Silangan Project and other exploration activities. The
account balances in 2018 onwards continued to increase as the company continues to actively
explore potential new ore sources within and surrounding areas of Padcal and Silangan for
possible mine life extensions as Padcal’s end of mine life nears.
The pension assets represent the excess between the fair value of plan assets and the
present value of defined benefit obligations under the company’s retirement plan, net of SMMCI
pension obligation.
Figure 3.3 gives a simple illustration of the abovementioned trends.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
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Figure 3.3 Horizontal Analysis of Non-Current Assets for Years 2014-2020
Table 3.4
Horizontal Analysis of PhilEx Mining Corporation Current Liabilities for 2014-2020
Loans
Payable
Accounts
Payable &
Accrued
Liabilities
Income Tax
Payable
Dividends
Payable
Provision
and
Subscriptions
Payable
Total Current
Liabilities
Current Liabilities
2016
2017
2014
2015
-30.25%
-22.98%
-7.09%
-22.64%
-19.34%
311.69% -72.56%
2018
2019
2020
-20.63%
-11.89%
17.44%
-29.82%
26.53%
-9.87%
8.43%
-10.21%
5.27%
1162.22%
39.82%
-99.99%
295922.22
%
39.44%
6.11%
-1.88%
3.85%
6.16%
4.19%
-0.25%
0.72%
9.69%
-48.36%
-
-
-
-91.94%
-33.87%
-23.04%
-24.03%
-2.40%
-12.92%
40.23%
-27.63%
-14.37%
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
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Figure 3.4 Horizontal Analysis of Current Liabilities for Years 2014-2020
In terms of current liabilities, PhilEx Mining Corporation does a great job of decreasing
its loans payable on a steady basis. The notable increase in 2019 by 375, 970 or 17% was due to
a loan used to fulfill part of the cash requirements for the Silangan Mindanao Mining Co. Inc
(SMMCI), which is a subsidiary of the corporation. However, this loan was subsequently
reduced in the following year, which meant that the company had enough revenue to fund for its
loans.
Accounts payable and accrued liabilities are mainly from suppliers and contractors.
Despite increases in the years 2016, 2018, and 2020, PhilEx Mining Corporation ensures that it
does not leave any balance unpaid and is within acceptable terms.
The 300% increase in income tax payable from 2013 to 2014 was mainly due to an
improvement in earnings, which was signified in Table 2 and Figure 4 where there is a signified
increase in accounts receivable resulting from a large shipment of copper concentrates. The same
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
explanation goes for any increase in income tax payable as it increases if there is any boost in net
profit and likewise for when net income decreases.
Dividends payable has increased in 2014 as it declared dividends in February accounting
for 9% of core net income for 2013 and subsequently another declaration in October 2014
representing income until September 2014. The company still declared dividends in 2015,
however at an amount less than that declared in the previous year. The succeeding years have
elevated dividends payable due to significant improvement in earnings as evidenced by the
increase in income tax payable.
The prominent decrease in provisions and subscriptions payable in 2015 from 2014 was
from payment of reorganization costs s as a result of a manpower rationalization program while
subscriptions remained consistent. The account remained consistent with no changes until 2019
wherein the corporation has made its final and additional payment for its current subscription in
PXP Energy which caused the corporation’s interest to increase from 19.8% to 30.4%
Table 3.5
Horizontal Analysis of PhilEx Mining Corporation Non-Current Liabilities for 2014-2020
2014
Deferred
income tax
liabilities – net
Loans and
Bonds Payable
Pension
obligation
Provision for
losses and mine
rehabilitation
Total
Noncurrent
Liabilities
Total Liabilities
Non-Current Liabilities
2015
2016
2017
2018
2019
2020
-2.22%
2.07%
-24.91%
1.59%
-7.16%
-20.48%
3.37%
10710.64
%
5.24%
5.33%
5.42%
5.51%
5.59%
5.67%
101.80%
49.60%
10.17%
46.29%
-59.36%
0.72%
41.74%
-50.41% -56.67%
138.29%
4.71%
-8.20%
4.19%
1.10%
-1.97%
4.92%
25.67%
-7.58%
-6.16%
-2.07%
13.82%
-12.24%
-1.45%
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
With respect to the non-current liabilities of PhilEx Mining Corporation, Table 6 further
explains the trend in Table 1. The deferred income tax liabilities account balance in 2016 to 2020
is composed mainly of the acquisition of the remaining 50% of Silangan companies from Anglo
& accelerated depreciation and deferred exploration costs and other deductions. The account
balances in 2014 and 2015 also included PXP’s acquisition of additional interest in Pitkin.
The account balance of the loans and bonds payable pertains to the carrying amount of
convertible bonds issued by SMECI, net of the unamortized DTC. The account balance incurred
increases from 2014 to 2017 due solely to the amortization of deferred transaction costs while for
2018 to 2020, the yearly changes in the balances also include the accretion of interest from the
discounting of the face value of the CN and accrual of the 3% redemption premium.
The present value of pension obligation is determined using actuarial valuation which
involves making various assumptions. The account balance decreased from P43.6 million in
2014 to P22 million in 2015.
Provisions for losses and mine rehabilitation costs were mainly comprised of FEP’s
contingent liability while the provision for mine rehabilitation represents the amortized value of
the company’s estimated mine closure costs. The change in the account balances in 2016 to 2017
was due to the derecognition of the contingent liability following the loss of control over PXP.
The decrease in the account is associated to the company’s incurred expenses in 2018 onwards
for the requirement under the company’s approved Final Mine Rehabilitation and Development
Program.
Refer to Figure 3.5 for the non-current liabilities trend.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Figure 3.5
Horizontal Analysis of Non-Current Liabilities for Years 2014-2020
Table 3.6
Horizontal Analysis of PhilEx Mining Corporation Equity for 2014-2020
Capital stock - P1
par value
Additional paid-in
capital
Unappropriated
Appropriated
Net unrealized
gain on financial
assets measured at
FVOCI
Net unrealized
loss on AFS
Financial Asset
Cumulative
Translation
Adjustments
Net revaluation
surplus
Effect of
transactions with
non-controlling
interests
2014
2015
0.07%
-
5.59%
Equity
2016
2017
2018
2019
2020
-
-
-
-
-
2.25%
0.11%
-
-
-
-
14.13%
-
16.64%
-
-19.17%
-
18.66%
5.00%
-20.25%
-
-17.43%
-
36.39%
-
-
-
-
-
-
6.80%
-15.59%
-
-
-
-98.40%
1465.11%
202.74% -118.03%
48.79%
232.71%
-
-
-
-
-
-
-
-2.42%
-
-
-
-
-57.68%
21.38%
236.26%
-
-
-
-
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Figure 3.6
Horizontal Analysis of Equity for Years 2014-2020
Regarding the shareholder’s equity of PhilEx Mining corporation, refer to table 7. The
yearly increases in the capital stock and additional paid-in capital from 2014 to 2016 were from
the exercise of stock options under the company’s stock option plan and amortization for sharedbased compensation. In 2017, no amortization was reported as the stock option plan was fully
amortized in 2016.
The recorded amount of the company’s net income attributable to the equity holders of
the parent company boosted the account balance of retained earnings in 2014 to 2015. The slight
decline in 2016 and 2017 was due to the amount reported net of cash and property dividends; and
net of the provision for expected credit losses on PXP Advances & net of cash dividends for
40
IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
2018. The account balances in 2019 and 2020 includes the net loss incurred in 2019 and net
income incurred in 2020, respectively, and also payment of cash dividend. The company’s board
of directors approved the appropriation of P10 billion of the retained earnings for the company’s
share in the Silangan mine development and construction in 2014-2016. In February 2017, the
board approved further appropriation of P500 million thereby, increasing total appropriation to
P10.500 billion for 2017 to 2020.
The temporary declines in the fair value of AFS financial assets were recorded in the net
unrealized gain (loss) on AFS financial assets under equity that caused the declines in the
account balances. The equity conversion options correspond to the carrying amount of the
conversions options of the convertible bonds issued by SMECI. Upon the adoption of a new
accounting rule in 2018, the net unrealized gain on financial assets, measured at FVOCI
increased from 2017 to 2019 and decreased in 2020.
Changes in the account balances of the Cumulative Translation Adjustments in 2014 to
2015 were a result of the translation of foreign subsidiaries’ accounts. No further cumulative
translation adjustment was reported in 2016 onwards following the deconsolidation of
investment in PXP.
The net revaluation surplus managed to maintain its account balance of P1.611billion in
2014 to 2015 but decreased to P1.572 billion in 2016 and remained that way until 2020.
The effect of transactions with non-controlling interest grew in 2015 from 2014 reflecting
the difference between the acquisition cost and the book value of the interest acquired in PGI,
FEP and FEC shares. The balances of non-controlling interest were reduced by losses in
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
subsidiaries but by 2016, the changes in its account were attributable to the deconsolidation of
investment in PXP. In 2017 onwards, the account balances were reported insignificant.
Table 3.7
Horizontal Analysis of PhilEx Mining Corporation Profit and Loss Statement for 2014-2020
2014
3.31%
2.51%
Revenue
Gross Profit
Cost and
12.50%
Expenses
Net Income
124.99
Comprehensive
322.84%
Income
Excise Tax
0.00%
Profit and Loss Statement
2015
2016
2017
-13.16
11.78%
-2.79%
-15.16
10.01%
-2.52%
2018
-23.48
-16.43
2019
-11.13
-11.13
2020
15.38%
15.38%
-12.97
-5.78%
-1.78%
0.63%
1.41%
-8.94%
10.36%
102.08
5.79%
-63.27
-206.38
-289.61
54.86%
55.48%
15.45%
-62.37
-212.32
-278.93
-14.53
9.06%
0.44%
11.40%
32.73%
-17.82
Figure 3.7
Horizontal Analysis of PhilEx Mining Corporation Profit and Loss Statement
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Table 3.8
Horizontal Analysis on Statement of Profit and Loss Accounts – Revenue
2014
5.51%
0.77%
-4.75%
Gold
Copper
Silver
Smelting
28.85%
charges
Petroleum and
44.57%
others
Gross Profit
2.51%
2015
-3.72%
-25.25%
-10.80%
Revenue
2016
2017
9.51%
-12.51%
15.26%
12.55%
24.03%
-10.74%
-1.56%
6.78%
-45.44%
-15.16%
2018
-24.36%
-22.34%
-27.82%
2019
-11.57%
-10.98%
6.49%
2020
28.24%
0.40%
14.89%
-5.70%
-
-
-
-
-
-
-
-
10.01%
-2.52%
-16.43%
-11.13%
15.38%
Figure 3.8
Horizontal Analysis on Statement of Profit and Loss Accounts – Revenue
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Table 3.9
Horizontal Analysis on Statement of Profit and Loss Accounts – Cost and Expenses
2014
Mining and
milling cost
General and
administrative
expenses
Excise taxes
and royalties
Petroleum and
other production
costs
Handling,
hauling, and
storage
Cost and Expenses
2015
2016
2017
2018
2019
2020
23.12%
-9.40%
-0.22%
-1.85%
0.77%
-69.80%
-30.98%
-28.07%
-33.34%
-40.64%
-2.69%
-15.82%
-5.99%
-0.07%
-5.47%
-13.87%
3.56%
0.00%
11.95%
-15.65%
27.16%
128.46%
-59.41%
-
-
-
-
-5.43%
-
-
-
-
32.49%
-95.24% 2103.29%
Figure 3.9
Horizontal Analysis on Statement of Profit and Loss Accounts – Cost and Expenses
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
II. Vertical Analysis
Table 4.1
Vertical Analysis of Consolidated Statement of Financial Position for Years 2014-2020
Current Assets
Non-Current Assets
Current Liabilities
Non-Current
Liabilities
2014
21.35%
78.65%
16.85%
2015
12.10%
87.90%
13.12%
Financial Position
2016
2017
2018
2019
2020
17.83% 15.79% 10.94% 7.71% 8.85%
82.17% 84.21% 89.06% 92.29% 91.15%
14.43% 12.24% 16.73% 13.01% 10.84%
22.57%
24.23%
25.05% 25.43% 25.06% 26.39% 26.95%
As stated by Crismundo (2018), there is little discussion of the effects on businesses or
the perspectives of manufacturers and distributors, particularly Philex Mining Corporation. The
company's current assets dropped from 21.35% in 2014 to 12.10% in 2015, then to 17.83% in
2016, before dropping further in subsequent years to 8.85% in 2020. The decrease was primarily
due to cash and cash equivalents, accounts receivable, and inventories. This indicates a
disadvantage in terms of the company’s ability in day-to-day funding. Furthermore, it can be
observed that the company’s noncurrent assets increased, from 78.65% in 2014 to 91.15% in
2020, although the noncurrent asset for 2019 is higher than 1.14%, the increase is still
significant compared to 2014. Although the company's property, plant, and equipment
decreased by 55.77% from 2014 to 2020, the company still managed to record an increase, due
mainly to the fact that the company began receiving pension assets in 2016, and it also began
investing in associates in 2015. An increase in noncurrent assets shows that the company is
more involved with long-term goals beyond just short-term ones. Such an increase in noncurrent
assets also signifies the company’s plan to continue its operations.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
In addition, there was also a decrease in the company’s current liabilities, from 16.85%
in 2014 to 10.84% in 2020. Although this decline is positive for the company's credit standing,
it could also have an impact on its current assets because the majority of its current assets were
used to settle its short-term debts. The noncurrent liabilities projected a slight upward trend as it
only increased from 22.57% in 2014 to 26.95% in 2020. The slight increase may be traced to
the loans payable of the company. Despite the implementation of TRAIN law that increases the
excise tax, the company’s liabilities were not significantly affected due to limited operations
because of COVID-19 pandemic. Refer to Figure 5 for a wider scope of the assets and
liabilities' trend from 2014 to 2020.
Figure 4.1
Vertical Analysis for Consolidated Statement of Financial Position for Years 2014-2020
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Table 4.2
Vertical Analysis of Consolidated Statement of Profit and Loss for Years 2014-2020
Gross Profit
Cost and
Expenses
Net Income
Comprehensive
Income
Excise Tax
2014
94.95%
2015
92.77%
Profit and Loss
2016
2017
2018
2019
2020
91.30% 91.56% 100.00% 100.00% 100.00%
79.52%
79.70%
67.18% 67.88%
89.27%
101.87%
80.40%
6.64%
8.44%
-9.02%
16.61%
7.97%
-9.54%
15.68%
5.87%
10.47%
14.57% 17.30%
8.51%
-10.76%
16.68%
1.85%
1.82%
1.78%
2.67%
4.00%
2.85%
1.84%
Under the new tax system, mining companies that extract metallic or non-metallic
minerals must pay an excise tax of 4%, double the prior rate, on the value of their production
(Lassourd Thomas & Zaplan, 2018). TRAIN law was enacted to aid the government’s projects
resulting to numerous tax increases including excise tax, affecting companies such as Philex. The
company’s gross profit had a slight downtrend from years 2014 to 2017, which can be traced
from its income on gold, silver, and copper. For years 2018 to 2020, PFRS 15 took effect which
requires to present gross profits as net of smelting charges. Due to rising costs and expenses,
mainly in the petroleum and other costs account, the company experienced a net loss of -9.54%
in 2019, a notable decrease from the previous year. In light of higher income and lower costs in
2020 compared to 2019, the company was able to generate an income. In terms of a percentage
of the revenue, the excise tax that the company paid for the year 2020 was a little lower
compared to 2019. To further understand the trend, see figure 4.2.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Figure 4.2
Vertical Analysis for Consolidated Statement of Profit and Loss for Years 2014-2020
III. Ratio Analysis
Ratio analysis is one of the most used tools that provides better knowledge and information
about financial statements. It is considered as a benchmark for examining the connection
between the various aspects of the financial statements such as the balance sheet and income
statement. Through this, the management and the users will gain a clearer picture of the current
company's health and performance (Jayaraj, 2022). The following is a presentation that
summarizes PMC's important financial ratios:
A. Profitability
Profitability ratios are measurements used by PhilEx Mining Corporation to gauge the
ability of the business to create income in relation to revenue, assets, operating expenses, or
equity of shareholders during a certain time period. It demonstrates how well PhilEx uses its
resources to produce profit and bring value to shareholders (Corporate Finance Institute, 2022).
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
Table 5.1
Profitability Ratios
Profit Margin
Return on Asset
Return on Equity
Asset Turnover
Receivable
Turnover
2014
6.99%
1.66%
2.65%
0.24
2015
9.10%
1.76%
2.86%
0.19
14.87
8.73
Profitability
2016
2017
16.71% 18.14%
3.81% 4.23%
6.18% 6.89%
0.23
0.23
13.55
12.38
2018
7.97%
1.51%
2.51%
0.19
2019
-9.54%
-1.65%
-2.78%
0.17
2020
15.68%
3.20%
5.21%
0.2
11.84
18.96
19.93
A.1. Net Profit Margin
Figure 5.1
Net Profit Margin
The Net Profit Margin (NPM) measures the percentage of revenue left after deducting all
costs and expenses including operating expenses, taxes, and interests. It indicates the amount of
profit generated for every peso of sales. A higher net profit margin is favorable since it means
that the business is effective at exercising cost control and is able to price its products/services
correctly (Corporate Finance Institute, 2022). Shown in Figure 6 is the net profit margin of
PhilEx Mining Corporation. It can be observed that the business was able to generate a constant
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
increase in its net profit margin of 6.99%, 9.10%, 16.71%, and 18.14% from the years 2014 to
2017, respectively. However, it declined to 7.97% the following year and continued to drop to 9.54% in 2019. According to the company’s disclosure to the stock market, the decline in the net
income and, consequently, the net profit margin, was attributed to lower metal output due to low
ore grades, greater non-cash impairment, and higher taxes as a result of the new tax system’s
doubling of excise tax rates (Mogato, 2018). By 2020, PhilEx’s net profit margin improved
to15.68% despite the temporary halt of operations caused by the pandemic. Ochave (2021)
reported that this increase was due to better cost management and efficient operations of the
company as it was able to reduce its costs and expenses by 9%.
A.2. Return on Asset
Figure 5.2
Return on Assets
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
The return on asset reflects the profitability of the company’s assets and the efficiency of
the business in managing its economic resources. This ratio provides the management and
investors a picture of the company’s ability to convert its investments in assets into profits thus,
the higher the return on asset ratio is, the more desirable it is to investors (Hargrave, 2022). With
regard to the return on asset of PhilEx in Figure 7, the company’s ratio grew from 1.66% in 2014
to 1.76% in 2015 to 3.81% in 2016 and to 4.23% in 2017. These continuous increases illustrate
how productive and efficient the business was in generating income from the use of its resources.
In addition, McClure (2021) mentioned that when the return on asset ratio is increasing, it is
caused by either an increase in net income or a decrease in the average total assets. In the case of
PhilEx, it is because of the former. Therefore, when the ratio fell to 1.51% in 2018, it can be
associated to the decrease of net income in the same year or to an additional of more than three
million in investment in associate that failed to produce revenue growth. The decline was still
acceptable to investors as the business was still able to earn profit out of its assets though lower
than the previous years. The following year, however, PhilEx obtained a -1.65% return on asset
ratio because of the net loss acquired by the business. Despite this, the business was able to
bounce back the next year when its return on assets climbed to 3.20%, that is a result of an
increased gross output and a reduced costs and expenses.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
A.3. Return on Equity
Figure 5.3
Return on Equity
The return on equity is the return that the owners of a company’s common stock earn on
their investments. It signifies how efficient the management is in using the shareholder’s equity
to drive revenue growth (The Economic Times, 2022). Figure 8 illustrates the return on equity of
PhilEx from 2014-2020. The business maintained a positive increasing trend of return on equity
of 2.65%, 2.85%, 6.18%, and 6.89% from 2014 to 2017, respectively, which shows that the
management was effective at reinvesting the capital that shareholders contributed to the
company. By 2018, the company’s return on equity weakened to 2.51% that was possibly due to
an increase in the liabilities of the business and further dropped to -2.78% in 2019 which was
caused by the net loss incurred the said year. In spite of that, PhilEx was able to bring up its
return on equity to 5.21% the next year, which was good because this meant that management
was able to recuperate and return its return on equity ratio back to normal.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
A.4. Asset Turnover
Figure 5.4
Asset Turnover
Asset turnover ratio is used to gauge a company’s ability to generate sales from its
assets. It reveals how good the company is in deploying its economic resources in order to
produce sales. A low asset turnover ratio is unfavorable as it suggests that the company has poor
asset management as it fails to extract revenue from using its resources (The Economic Times,
2022). In the case of PhilEx, the business’ asset turnover ratio was not stable. From 2014 to
2020, PhilEx incurred the lowest asset turnover ratio of 0.17 during 2019 and it is in the same
year that the business generated the lowest net revenue of only 6,789,566 as compared to
10,048,240 in 2014, the year that gained the highest turnover ratio of 0.24. The ratio of PhilEx
came back to 0.20 in 2020 which is the average ratio of the business. These ratios mean that
PhilEx was able to utilize its economic resources efficiently as it was able to produce sufficient
revenue from its operations.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
A.5. Receivable Turnover
Figure 5.5
Receivable Turnover
The receivable turnover ratio quantifies how well the business is in managing the credits
extended to their customers by estimating the time it takes to collect its outstanding balances in
an accounting period. A company that is efficient in collecting receivables has a high turnover
of receivables but a ratio that is too high may also suggest that the company has tight credit
policy and that may turn away potential sales (Murphy, 2022). With respect to PhilEx, the
business acquired the lowest ratio of 8.73 times in 2015 even though it has the highest total
average receivables amounting to 976,657.50. This might signify that during the year, the
business is not as effective in making collections as compared to other years. Meanwhile,
PhilEx had a ratio of 19.93 times in 2020, highest among others, with the least amount of
account receivables amounting to 393,026. This may imply a number of things. It may indicate
that more sales were made on the basis of cash, or the business was a little conservative in
extending credits, or the business was simply efficient in taking collections.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
B. Liquidity
The term "liquidity" is used to describe the PMC's resources and its capability to meet its
short-term obligations that are typically due in less than a year. An asset is considered more
liquid if it can be quickly and easily converted into cash. The users of the financial statements
may get a sense of the company's financial well-being based on these ratios (Beaver, 2020).
Table 6
Liquidity Ratios
Current
Ratio
Working
Capital
Acid Test
Ratio
2014
2015
2016
1.27
0.92
1.24
2,007,665
1.02
Liquidity
2017
1.29
-443,427 1,317,170 1,410,076
0.59
0.82
0.98
2018
2019
2020
0.65
0.59
0.82
2,357,487 2,007,821 776,176
0.49
0.38
0.50
B.1. Current Ratio
Figure 6.1
Current Ratio
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
The current ratio reflects the company’s financial health and how its management
maximizes its existing assets to settle debts and other obligations due within the year. It is
considered that the company has a good current ratio if the ratio calculated by dividing the
current assets over the current liabilities is above 1 (Corporate Finance Institute, 2022). In
relation to Philex Mining Corporation’s current ratio, it shows that the company has no problem
settling its current financial liabilities in the year 2014-2017, as it was able to maintain a good
ratio which equals 1.27, 0.92, 1.24 and 1.29 consecutively. Even though the company’s ratio fell
to 0.92 in 2015, it was able to generate enough assets to pay its liabilities and continue the same
in the succeeding years. However, starting in 2018, the ratio fell to 0.65, indicating that the
company began to experience difficulties paying its existing obligations. This is due to a
decrease in their inventory by P800,000 and other current assets by P430,000 in the said year.
This downfall continued in 2019 as the current ratio of PMC dropped to 0.59 due to the Covid-19
pandemic, which negatively affected the operation of the mining industry and at the same time,
mine production outputs suffered a significant loss. The company experienced a 0.23 increase in
its current ratio where it became 0.82 in 2020, but despite it, PMC must continue its great efforts
to increase its current assets to be able to pay its current liabilities on time.
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
B.2. Working Capital
Figure 6.2
Working Capital
Working capital also measures the ability of the company to meet its short-term
obligations and cover upcoming costs using its current assets (Xero, n.d.). Ideally, the company's
working capital is positive and sufficient to sustain the daily needs and operation of the business.
The Philex Mining Corporation shows a favorable working capital in 2014-2017, except in 2015,
as the company's current liabilities exceeded by P443,427 over its current assets due to a
substantial decrease in the latter account by P4,259,026 from the previous year. It indicates that
the company's current resources are insufficient to cover its short-term debts. This unfavorable
scenario occurred again in 2018 as the company's total working capital was worth -P2,357,487.
Based on the company's annual report, this is due to the decrease in metal production and a
downward trend in gold production. The negative working capital balance of PMC remained in
the succeeding years, 2019 and 2020, due to the massive effect of the global pandemic on the
economy. The metal prices fluctuated, especially since residential and commercial construction
substantially fell to their lowest. Lastly, the market's uncertainty resulted in an unfavorable effect
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
on the foreign exchange market, which became a challenge in the mining industry. Because of
the facts given, it can be depicted that the company had a hard time paying off its short-term
obligations as the current assets are not enough and are relatively lower than its liabilities.
B.3. Acid Test Ratio
Figure 6.3
Acid Test Ratio
The acid test ratio, also known as the quick ratio, is important to identify the company’s
liquidity and how quick the firm’s current assets can be converted into cash in order to pay its
current liabilities, without acquiring additional financing or disposing of company’s inventories
(Ross, 2022). During the year 2014, it can be depicted that Philex Mining Corporation’s
liquidity was healthy as its quick ratio was 1.02. Not until the start of the year 2015, the
company had a ratio of less than 1, indicating that it is experiencing difficulty in paying its
obligations using current assets that are easily convertible to cash. The substantial fall in the
company’s quick ratio started in 2018 since most of its current resources were used for the
acquisition and process of the Silangan Mega Copper and Gold Project in Surigao del Norte,
which the company expects to be a major copper producer nationwide. While on 2019, the
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
PMC’s current assets amounting to P14million were used for the company’s Social
Development and Management Program (SDMP) for Covid-19 funds such as purchasing
personal protective equipment, relied goods, health supplies, and financial aid to those who are
affected within the company’s operational regions. But despite the other obligations that the
company must meet and fulfill, Philex Mining Corporation must maintain enough short-term
assets so that it will be able to settle its current financial obligations in the succeeding years.
C. Solvency
There are several other financial analyses that can be performed, but one of the most
important is the solvency ratio since it indicates whether a firm has enough cash flow to pay its
long-term obligation. Once PMC has a low solvency ratio, it will be more likely to make
delinquent payments or the company may not be able to meet its financial obligations (Byju,
n.d.). Additionally, the management can use the solvency ratios to monitor the declining
patterns that may signal impending insolvency.
Table 7
Solvency Ratios
Debt-Equity
Ratio
Debt to
Assets Ratio
Times
Interest
Earned
2014
2015
2016
0.65
0.60
0.65
0.39
0.37
3.00
3.12
Solvency
2017
2018
2019
2020
0.60
0.72
0.65
0.61
0.39
0.38
0.42
0.39
0.38
-0.33
3.34
9.05
2.82
5.07
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
C.1. Debt-Equity Ratio
Figure 7.1
Debt-Equity Ratio
The debt-to-equity ratio is an indicator of a company's solvency as it measures the
amount of debt the company uses to fund its daily operations rather than its assets (Fernando,
2022). Therefore, having a low debt-to-equity ratio is preferred since the company does not
depend on debts to operate continuously. Philex Mining Corporation's data reveals that from
2014 until 2020, the company's ratio is less than 1, which is more favorable to investors and
creditors since entering into a long-term debt will put the company at a higher risk than in shortterm obligations. In means that the company is utilizing its wholly-owned funds rather than
entering into debt financing to leverage its funds. As a matter of fact, only 60-65% of the
company's capital came from debt consistently throughout the years, not until in the year 2018
when PMC's debt-to-equity ratio rose by 12%, and became 72%, which indicates that the firm
relies more on bank loans than using its finances from the shareholders. But the company's debtto-equity ratio came back to its normal ratio in the succeeding years since the company decided
to increase its equity interest from 19.8% to 30.4%, to become one of the largest shareholders in
60
IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
PXP Energy Corporation (PXP), which is an oil and gas affiliate (PMC, 2018). This is an
advantage for PMC for them to have more stable financial health as they do not need to rely
much on debt to fund their business operations.
C.2. Debt-Asset Ratio
Figure 7.2
Debt-Asset Ratio
The debt-to-assets ratio is used to assess to debt capacity of the company as it measures
the total amount of the company’s assets that came from debts (BDC, n.d.). This ratio is also
used to know if the company is solvent, capable of settling its financial obligations and can
produce a return on its investment. In the case of Philex Mining Corporation, its debt to asset
ratio is stable at 37%-39% from 2014-2017. It indicates that the company has more assets than
debts and is therefore favorable to creditors and investors since the company has the ability to
repay its debts. However, in 2018, the company’s ratio rose to 42% since its total liabilities have
increased by more than P2million, mainly because of the company’s provisions and
subscriptions payable and obtaining additional loans and bonds. But after that year, the
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
company’s ratio returned to its normal debt-to-assets ratio, wherein 39% and 38% in the year
2019-2022, consecutively. Therefore, it is good for the company because since it indicates that it
has the ability to pay debts, and it can acquire new borrowings, which it can use in expanding its
business.
C.3. Times Interest Earned
Figure 7.3
Times Interest Earned
The times interest earned ratio determines whether a business is profitable enough to
finance its interest payments using its pretax earnings (Chen, 2022). Philex Mining Corporation
had an acceptable times interest earned ratio in 2014 and 2015, which was 3.0 and 3.12
consecutively. It means that the company is more than 3x capable of paying its interest expenses
using its earnings before interest and taxes. However, in 2016, the ratio significantly dropped to
-33%, which posed a risk to the company on meeting its obligations as it incurred a 229,006 loss
on its earnings before income tax. This is because of the P2,504,850 total provision for
impairment losses identified, particularly on the company's investment in an associate and
deferred exploration costs. But despite it, the company was able to bring up its usual time
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
HOLY ANGEL UNIVERSITY
interest earned ratio and even rose up to 9.05 in the year 2018 as a result of the company's
stronger performance. However, it fell again in 2019 as a result of the firm's declining sales and
increased expenses due to the Covid-19 pandemic. But as of 2020, the company managed its
favorable interest earned ratio and is more likely to fulfill its interest debts and obligations.
IV. Analysis on Excise Taxes
Table 8
Summary of Gross Output and Excise Tax from 2014-2020
Copper
and
Gold
Excise
Taxes
Gross Output and Excise Tax
2016
2017
2018
2014
2015
35,496,
162
34,211,
936
35,064,
366
30,202,
844
195,940
167,476
182,657
183,463
2019
2020
26,636,
663
25,790,
271
26,434,
914
204,373
271,257
222,915
Under Republic Act 10963, otherwise known as TRAIN Law, was made effective last January
1, 2018 until January 1, 2020 under the regime of former President Rodrigo Duterte. The
TRAIN Law affected the excise taxes of PhilEx Mining Corporation as taxes on mineral
products such as copper, gold, chromite, and all other metallic minerals were doubled from the
previous rate of 2% to 4%., especially that the corporation has deemed 99% of their revenues to
be mainly from gold and copper concentrates. The researchers have included this summary of
values because the excise tax on mineral products is based on the actual market value of the
gross output at the time of removal or production (National Tax Research Center, 2018). Hence,
to help achieve the desired results of the study, the following figures demonstrate the trends of
the gross output and corresponding excise tax for the years 2014-2020.
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Figure 8.1
Gross Output Trend from 2014-2020
From 2014 to 2016, the relative extraction of gross gold and copper have minimal
variations as comparison to the gross amounts. However, in 2017, there is a large dip in gross
extraction by 7.33% which was attributed to the declining ore grades as ore sources are getting
depleted. The decline continued onto 2018 with a decrease of only 1.81% in gross output which
was primarily due to the impact of typhoons which resulted to less operating days, frequent
power interruption, and safety concerns for laborers. Moreover, there were also issues with
equipment breakdown which consequently underwent periodic maintenance. PhilEx Ming
Corporation has also identified that the decline of ore grades, inherent to the fringes of the ore
body, still caused the drop in gross production. The decline goes onwards in 2019 with a
decrease of 4.74% as compared to the previous years. The diminishing gross output was still
attributed to unseen events such as forest fires and sudden power outages as well as internal
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IMPACT OF TRAIN LAW ON THE FINANCIAL PERFORMANCE OF PHILEX
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factors like problems with machinery and maintenance. The company has turned around in
2020, with an increase of 2.50% in gross copper and gold concentrates
Figure 8.2
Excise Tax Trend from 2014-2020
As seen on the figures, the gross output and excise tax have similar movements from the
years 2014-2016 wherein both figures decreased and increased correspondingly. However,
changes began in 2017 to 2020 wherein the relationship between the two have began to show
inverse characteristics. Whenever there is an increase in gross output, there is a decrease in
excise tax. Even so, the TRAIN Law effectiveness has only started in January 2018 ending in
January 2020.
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Conclusions and Recommendations
This chapter gives a summary of the conclusions derived from the results of the study as
well as any recommendations that may arise from the subsequent discoveries thereof.
Conclusions
The mining industry is a relatively more unexplored area of interest as compared to that
of the commercial industry. However, it is still necessary to denote its enormous contribution to
the Philippines’s economy particularly its Gross Domestic Product (GDP), hence, there is a need
to identify which risks in the business environment can affect its operations and be mitigated to
protect the interests of the industry. Since 2014, the local mining industry is heavily regulated
dictating the behavior of mining operations and investments. This pertains to the regulatory and
tax environment which is identified by PhilEx Mining Corporation as one of its major business
risks.
The study reflects that PhilEx Mining Corporation has been performing rather favorably,
maintaining positive revenues from 2014 until 2020, apart from 2019. This is supported by the
corporation having mostly positive profitability ratios. The net profit margin best represents the
financial performance of the company as it reflects that it earns more than a peso for every peso
of sales. However, its negative performance in 2019 is highly attributable to external business
environment risks such as low ore grades, halted operations due to the CoVid-19 pandemic, and
higher taxes as a result of TRAIN Law. In addition, the increased excise taxes from 2018 to 2020
are evident as compared to previous years with a relatively similar gross output of mining
products. Nonetheless, it is also notable that while the amount has increased, the corporation has
enough resources to pay for its excise tax payable. Meanwhile, the company’s asset turnover is
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in dire need of improvement, however, due to company operations, PhilEx Mining Corporation
prefers to have larger scale shipments than consistent ones, hence, sales largely increase only at
certain periods. Furthermore, in terms of liquidity, the corporation is unable to retain a good
average of 1, primarily because most of the assets are non-current as evidenced by the vertical
analysis and the majority of the current assets are inventories if not cash. The ability of the
corporation to meet its long-term goals is impressive as it has more assets and more equity than it
has of debt, which is significant for companies in the mining industry as they generally plan to
operate in long-term periods.
As reflected in the analyses, the excise taxes of PhilEx Mining Corporation have taken a
great increase in 2018 and 2019, indicating the influence of the TRAIN Law on its operations as
it deals mainly with mineral products. However, despite the additional costs brought about by the
regulatory and tax environment, the corporation can generate enough net profit to pay for its
excise tax payables. Hence, the operations of the corporation are not prominently affected and
dictated by the implementation of TRAIN Law. Rather, it has only increased the costs that the
corporation needs to pay.
Recommendations
To the Government. As the mining, coal, and petroleum industries generally do not
generate sales consistently whilst company operations are continuous, it may prove difficult for
them to finance their current payables such as that of their income and excise taxes. Hence, it
will prove better to put it in mind when creating tax laws in the future especially as the
regulatory and tax environment is one of the identified major business risks in the industry.
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To the Bureau of Internal Revenue. With regards to the same concern as that of the
government, it will aid the mining, coal, and petroleum industries if they are given tax incentives
that will allow them to avoid incurring penalties on tax liabilities for years that they generate
below average sales due to the nature of their operations. Moreover, it will encourage them to
pay their taxes on time when they are able and continue operations for longer periods of time
especially as they largely contribute to the country’s gross domestic product.
To PhilEx Mining Corporation. The study provides the opportunity for the corporation
to review its financial performance over a longer duration. Hence, they can use this to formulate
strategic plans and implement efficient schemes to improve their profitability while ensuring that
they either maintain or decrease their liabilities and create more value for their shareholders.
To Future Potential Investors. This study serves as a portfolio for potential investment.
Mining companies generally have volatile stocks but may make good long-term investments.
The industry is a perfect example of high-risk, high-reward system and it would be best for
investors to carefully evaluate which company they should invest in.
To Future Researchers. Aside from financial performance, there are still multitudes of
perspectives to explore with mining companies as they are often overlooked as against that of
commercial businesses. Hence, this study may serve the purpose of being the foundation of
future research. They may opt to explore other business environment risks aside from the
regulatory and tax environment such as Exploration and Development of Mineral Deposits,
Mineral Agreements, Permits and Licenses, and Operating and/or Royalty agreement,
Operational Risk for Mining Operations, Price Risks, Environmental and Natural Events Risks,
and Social License to Operate. In addition, aside from financial performance, it can also be
recommendable to traverse on liquidity and solvency related performances especially that mining
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industries occur large costs to operate despite not generating sales that match their extraction of
mining products.
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Appendix A
Audited Financial Statements (Statement of Financial Position)
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Appendix B
Audited Financial Statements (Statement of Profit and Loss and Statement of
Comprehensive Income)
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Appendix C
Notes on Excise Tax and Royalties Line Item
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Appendix D
Horizontal Analysis
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Appendix E
Vertical Analysis
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Appendix F
Financial Ratio Analysis
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Appendix G
Curriculum Vitae
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