Philippine Stock Market Advisory - Primer on Stock Market

All corporations require money for its operating capital (for the purchase of assets, for improving existing facilities, etc.), and corporations can do either of two things or both to supply them with that money. The corporation can either borrow the money, or have its shareholders (owners) infuse the money, or both. Debt to Equity ratio tells us how much money was borrowed for every peso infused into the corporation’s operating capital. For instance, a debt to equity ratio of 1.50 tells us that, for every peso the shareholders put up, the corporation borrows an additional P1.50 to keep its operations going.

As a general rule, a corporation is considered healthy from a debt to equity standpoint when it is below .5, and considered borderline when it is between .9 and 1, anything above 1.6 is recipe for disaster.

Two corporations that have debt to equity ratios below .25 (and thus are virtually debt-free) are Aboitiz Equity Ventures and Alaska Milk, rising interest rates and wild fluctuations in the foreign exchange markets are of no consequence to these guys. Benpres Holdings, with a debt to equity ratio of .91 is fine, but would do better to trim it down a little bit. Now, to those whose use of their credit cards sort of got out of hand, JG Summit and International Container Terminal Services have debt to equity ratios in excess of 2.30.

Book Value Per Share gives us a theoretical picture as to how much each share of a corporation's capital stock will be worth if the corporation for various reasons ceases its operations and liquidates all its assets at fair market value. When a corporation is liquidated, the party that get first shot at the proceeds of the sale will be the creditors, then the owners pockets what's left.

A corporation that is trading below their book value per share is Universal Robina Corp. (URC) which has a BVS of P9.68. On tthe other hand, two corporations trading at a premium of their BVS are Ayala Corporation (AC) P4.40 and Ayala Land (ALI) P3.80. The reason why some companies' stocks go up inspite of being "expensive" from a BVP standpoint is because some companies such as AC and ALI command premium because of the immeasurable value of its name and reputation.

The price-earnings ratio calculates the relationship between the price of a company's stock, and the annual earnings of a company. It is calculated by dividing the closing price of the stock by the earnings per share of each stock. For instance, a stock selling at P20 with projected earnings of P2 a share next year will have a forward P/E of 10.

BUYING TRANSACTION

EX: 10,000 SHARES DGTL @ 1.04 EXTENSION x (1%) COMMISSION + 7%(of commission charge) GRT + DST + PCD + SCCP = NET BUYING AMOUNT

Extension - 10,000 X 1.04 = 10,400.00

Commission - 10,400.00 x .01 = 104.00

VAT 10% of comm. - 104.00 X .10 = 10.40

PCD Fees - 10,400 X .0000917 = .95

SCCP - 10,400 X .00000917 = .10

Net Buying Transaction Cost = 10,515.45

SELLING TRANSACTION

EX: 10,000 SHARES DGTL @ 1.10
EXTENSION x (1%) COMMISSION + 7%(of commission charge) GRT + ST + PCD + SCCP = NET BUYING AMOUNT

Extension - 10,000 X 1.10 =          11,000.00

Commission - 10,400.00 x .01 =         110.00

VAT 10% of comm. - 110.00 X .10 = 11.00

Sales Tax - 11,000 X .005 =                 55.00

PCD Fees - 11,000 X .00000917 = 1.01

SCCP - 11,000 X .0000917 = .10

Net Buying Transaction Cost = 10,822.89

A) Interest on M/A (1.67% monthly)

Ex: 2/17/05 Bought "10,000" DGTL at P1.04 "P10,400.00" Due on 2/23/05

02/23/99 "10,400.00" x 1.67 % / 28 days = 6.20
02/24/99 "10,400.00" x 1.67 % / 28 days = 6.20
02/25/99 "10,400.00" x 1.67 % / 28 days = 6.20
02/26/99 "10,400.00" x 1.67 % / 28 days = 6.20
02/27/99 "10,400.00" x 1.67 % / 28 days = 6.20
02/28/99 "10,400.00" x 1.67 % / 28 days = 6.20

Total --- P37.22

B) Penalty on M/A (1.5% monthly)

2/23/99 "10,400.00" x 1.5 %/28 days = 5.57
2/24/99 "10,400.00" x 1.5 %/28 days = 5.57
2/25/99 "10,400.00" x 1.5 %/28 days = 5.57
2/26/99 "10,400.00" x 1.5 %/28 days = 5.57
2/27/99 "10,400.00" x 1.5 %/28 days = 5.57
2/28/99 "10,400.00" x 1.5 %/28 days = 5.57

Total --- P33.43

CASH ACCOUNT T + 4 Days .5% Daily

Ex: 2/17/05 Bought "10,000" DGTL at P1.04 "P10,400.00" Due on 2/23/05
2/25/99 Paid "10,400.00"

Computation of Penalty Charges due to 2 days delay

02/23/99 "10,400.00" x .50% = 52.00
02/24/99 "10,452.00" x .50% = 52.26
02/25/99 104.26 x .50% = 0.52
02/26/99 104.78 x .50% = 0.52
02/27/99 105.30 x .50% = 0.53
02/28/99 105.83 x .50% = 0.53

Total --- P106.36

Penalty charges is debited on client's account every first week of the following month