Part II OPERATIONAL AND FINANCIAL INFORMATION
Item 7. Financial Statements
4. RISK MANAGEMENT OBJECTIVES AND POLICIES
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(f) Determining Recoverable Amount of Deferred Tax Assets
The University reviews its deferred tax assets at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Management assessed that the deferred tax assets recognized as at March 31, 2015, 2014 and 2013 are fully recoverable because those will be fully utilized in the coming years. The carrying value of deferred tax assets as of those dates is disclosed in Note 22.
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The following table illustrates the sensitivity of the University’s profit before tax with respect to changes in Philippine peso against U.S. dollar and Euro exchange rates. The percentage changes in rates have been determined based on the average market
volatility in exchange rates, using standard deviation, in the previous 12 months at a 68% confidence level.
2015 2014 2013
Reasonably Effect in Reasonably Effect in Reasonably Effect in
possible profit before Effect in possible profit before Effect in possible profit before Effect in change in rate tax equity change in rate tax equity change in rate tax equity PhP - USD 8.29% (P 48,213) (P 24,018,237) 20.61% (P 18,294) (P63,693,969) 14.25% (P 564,710) (P 20,975,118)
PhP - EUR 52.05% - ( 28,051,679) 33.31% - ( 22,912,477) 17.58% - ( 10,283,724)
(P 48,213) (P 52,069,916) (P 18,294) (P86,606,446) (P 564,710) (P 31,258,842)
Exposures to foreign exchange rates vary during the year depending on the volume of foreign currency denominated transactions. Nonetheless, the analysis above is considered to be representative of the University’s currency risk.
(b) Interest Rate Risk
The University’s exposure to interest rate risk arises from the following
interest-bearing financial instruments which are subject to variable interest rates. All other financial assets and liabilities have fixed rates.
Notes 2015 2014 2013
Cash and cash
equivalents 7 P 423,710,674 P 215,797,069 P 195,608,838 AFS financial assets 10 1,446,499,583 1,486,580,783 1,645,490,432 Short term investments 11 13,629,095 110,740,446 344,738,279 Interest-bearing loans 16 ( 676,923,077) ( 800,000,000) ( 800,000,000)
P 1,206,916,275 P 1,013,118,298 P 1,385,837,549 The following table illustrates the sensitivity of profit before tax for the years with regard to the University’s interest-bearing financial instruments. These percentages have been determined based on the average market volatility rates, using standard deviation, in the previous 12 months, estimated at 68% level of confidence. The sensitivity analysis is based on the University’s financial instruments held at March 31, 2015, 2014 and 2013.
2015 2014 2013 _
Reasonably Effect on Reasonably Effect on Reasonably Effect on possible profit before possible profit before possible profit before change in rate tax change in rate tax change in rate tax
Cash and cash equivalents +/-0.18% P 762,679 +/-0.46% P 992,667 +/-0.41% P 801,996 AFS financial assets +/-3.89% 56,268,834 +/-0.59% 8,770,827 +/-1.16% 19,087,689 Short term investments +/-3.89% 530,172 +/-0.59% 653,369 +/-1.16% 3,998,964 Interest-bearing loans +/-0.61% ( 4,129,231 ) +/-0.65% ( 5,200,000 ) +/-0.93% ( 7,440,000 )
P 53,432,454 P 5,216,863 P 16,448,649
(c) Other Price Risk
The University’s exposure to price risk arises from its investments in equity securities, which are classified as part of the AFS Financial Assets account in the statement of financial position. These consist of publicly listed equity securities which are carried at fair value.
Management monitors its equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis.
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For equity securities listed in the Philippines, an average volatility of 16.69%, 17.43%
and 12.27% has been observed during 2015, 2014 and 2013, respectively. If quoted price for these securities increased or decreased by that amount, other comprehensive income would have changed by P124.3 million, P143.3 million and P45.9 million in 2015, 2014 and 2013, respectively.
No sensitivity analysis was provided for government and corporate bonds, and investments in Unit Investment Trust Fund (UITF) classified as AFS financial assets as management deemed that the risk at the end of the year is not representative of a risk inherent in financial instruments.
The investments are considered medium to long-term strategic investments. In accordance with the University’s policies, no specific hedging activities are undertaken in relation to these investments, except as discussed in Notes 9 and 10 in connection with its investment in certain foreign currency denominated corporate debt
instruments which are also subject to a cross-currency swap agreement. The
investments are continuously monitored to ensure returns of these equity instruments are timely utilized or reinvested in the University’s favor.
4.2 Credit Risk
Credit risk represents the loss the University would incur if the counterparty fails to perform its contractual obligations. The credit risk for cash and cash equivalents and AFS financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. Included in the cash and cash equivalents are cash in banks and short-term placements. These are insured by the Philippine Deposit Insurance Corporation up to a maximum coverage of P0.5 million for every depositor per banking institution.
The University’s exposure to credit risk on its receivables related primarily to the inability of the debtors to pay and students to fully settle the unpaid balance of tuition fees and other charges which are owed to the University based on installment payment schemes. The University has established controls and procedures to minimize risks of non-collection. Students are not allowed to enroll in the following semester unless the unpaid balance in the previous semester has been paid. The University also withholds the academic records and clearance of the students with unpaid balances, thus
ensuring that collectability is reasonably assured. The University’s exposure to credit risk on its other receivables from debtors and related parties is managed through close account monitoring and setting limits.
The University has neither any significant exposure to any individual customer or counterparty nor does it have any other concentration of credit risk arising from counterparties in similar business activities, geographic region or economic parties.
Also, none of the University’s financial assets are secured by collateral or other credit enhancements; except for cash and cash equivalents as described above.
With respect to credit risk arising from cash and cash equivalents, receivables and AFS financial assets, the University’s maximum exposure is equal to the carrying amount of these instruments. The risk is minimal as these financial assets and investments are with reputable financial institutions and or with related parties.
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The maximum exposure to credit risk at the end of the reporting period is as follows:
Notes 2015 2014 2013
Cash and cash
equivalents 7 P 423,710,674 P 215,797,069 P 195,608,838
Receivables 8 355,918,596 298,539,270 320,180,882
Financial assets
at FVTPL 9 340,800 - 18,629,900
AFS financial assets
(debt securities) 10 1,446,499,583 1,486,580,783 1,645,490,432 Short-term investments 11 13,629,095 110,740,446 344,738,279
Refundable deposits 4,377,630 3,929,796 3,929,796
P 2,244,476,378 P 2,115,587,364 P 2,528,578,127
The table below and in the succeeding page shows the credit quality of the University’s financial assets as of March 31, 2015, 2014 and 2013 having past due components.
Neither
past due nor Past due
Notes impaired and impaired Total
2015
Cash and cash
equivalents 7 P 423,710,674 P - P 423,710,674 Receivables 8 319,058,140 36,860,456 355,918,596 Financial assets
at FVTPL 9 340,800 - 340,800
AFS financial assets
(debt securities) 10 1,446,499,583 - 1,446,499,583 Short-term investments 11 13,629,095 - 13,629,095
Refundable deposits 4,377,630 - 4,377,630
P 2,207,615,922 P 36,860,456 P 2,244,476,378
2014
Cash and cash
equivalents 7 P 215,797,069 P - P 215,797,069 Receivables 8 260,690,446 37,848,824 298,539,270 AFS financial assets
(debt securities) 10 1,486,580,783 - 1,486,580,783 Short-term investments 11 110,740,446 - 110,740,446
Refundable deposits 3,929,796 - 3,929,796
P 2,077,738,540 P 37,848,824 P 2,115,587,364
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Neither
past due nor Past due
Notes impaired and impaired Total
2013
Cash and cash
equivalents 7 P 195,608,838 P - P 195,608,838 Receivables 8 196,883,073 123,297,809 320,180,882 Financial assets
at FVTPL 9 18,629,900 - 18,629,900
AFS financial assets
(debt securities) 10 1,645,490,432 - 1,645,490,432 Short-term investments 11 344,738,279 - 344,738,279
Refundable deposits 3,929,796 - 3,929,796
P 2,405,280,318 P 123,297,809 P 2,528,578,127
The University has no past due but not impaired financial assets at end of each year.
The University classifies tuition and other school fees receivables from students based on the number of semesters the receivables have been outstanding. Receivables from students that are outstanding for more than one semester are analyzed to determine whether they are impaired. Those that are not outstanding for more than one semester or are classified as current receivable are determined to be fully collectible, based on historical experience.
The University’s management considers that all the above financial assets are not impaired, except those specifically provided with allowance for impairment at the end of the reporting period, and of good credit quality. Cash and cash equivalents, financial assets at FVTPL, AFS financial assets and short-term investments are coursed through reputable financial institutions duly approved by the BOT.
4.3 Liquidity Risk
The University manages liquidity risk by maintaining a balance between continuity of funding and flexibility. Treasury controls and procedures are in place to ensure that sufficient cash is maintained to cover daily operational and working capital
requirements. Management closely monitors the University’s future and contingent obligations and ensures that future cash collections are sufficient to meet them in accordance with internal policies. The University invests in cash placements when excess cash is obtained from operations.
As at March 31, 2015, 2014 and 2013 the University’s financial liabilities have contractual maturities which are presented below and in the succeeding page.
Current Non-current
Within 6 to 12 1 to 5