Caltex Financial Statements Analysis Essay Example

Caltex Australia Limited

Company Background

It is a public company ranked number 12 of the top 2,000 companies in Australia. Its main income generating activity is petroleum refining as well as petroleum manufacturing in Australia industry. The company has 3166 employees in Australia including those in its subsidiaries (Evaluateenergy.com, 2017). The company’s main operations include refining and supply, marketing and other products and services including online account management to order products and obtain pricing information and engineering consulting pertaining to training and coolant, grease, oil and hydrocarbon management. It also operates reselling depots across Australia as well as Caltex branded payment options including StarCard, PayPump and StarFleet (Caltex, 2017). The following is a financial analysis of the company for the six years from 2011 to 2016 with an aim of recommending whether it is a good investment option.

Income Statement

Fig.1: Common size analysis for Caltex

	Operating Revenue
	Other Revenue
	Total Revenue Excluding Interest
	Operating Expenses
	Depreciation
	Amortization
	Depreciation and Amortization
	Interest Revenue
	Interest Expense
	Net Interest Expense
	Pretax Profit
	Tax Expense
	Net Profit after Tax Before Abnormals
	Abnormals
	Abnormals Tax
	Net Abnormals
	Reported NPAT After Abnormals
	Outside Equity Interests

The company’s EBITDA was the lowest in 2014 when it was 2% of total revenue and was highest in 2016 when it was 6%. However, these levels are still low and are an indication of the industry in which the company operates where operating costs are relatively high. However, the decline of the EBITDA between 2011 and 2014 could be attributed to high costs as well as the onset of declining commodity prices. However, by 2016, the company has put in measures to increase efficiency which results in increased EBITDA despite the lowering commodity prices.

Net Profit

The company’s net profit observes a similar trend to the EBITDA although it is lowest in 2011 when the company made a net loss owing to high amount of Abnormals (Kelly, 2015). However, the company realizes the highest net profit in 2015 and 2016 when the net profit is 3%. These increases are attributed to lower levels of Abnormals.

Fig 2: Horizontal analysis for Caltex

	Operating Revenue
	Other Revenue
	Total Revenue Excluding Interest
	Operating Expenses
	Depreciation
	Amortization
	Depreciation and Amortization
	Interest Revenue
	Interest Expense
	Net Interest Expense
	Pretax Profit
	Tax Expense
	Net Profit after Tax Before Abnormals
	Abnormals
	Abnormals Tax
	Net Abnormals
	Reported NPAT After Abnormals
	Outside Equity Interests
	Shares Outstanding at Period End
	Weighted Average Number of Shares
	EPS Adjusted (cents/share)
	EPS After Abnormals (cents/share)

Figure 1 and 2 above are Caltex Australia Limited’s common size and horizontal analysis respectively. The common size analysis and the horizontal analysis cover the period between 2011 and 2016. In a bid to give a clear picture of the analysis, specific items have been analyzed as follows;

Sales revenue trend analysis

Based on the chart above as well as horizontal analysis, there is a 10% increase in the company’s revenue between 2011 and 2013. However, the trend starts declining from 2014 to 2016 when there is a 20% decline in revenue in comparison to the 2011 levels. The initial increase is associated with the company’s increased selling activity coupled with the good prices prevailing in the market then. However, there is significant decline in world petroleum product prices which results in the fall in world crude oil prices and this results in lowering refiner margins. The decline is also partly blamed on the fall in the Australian dollar as product prices are denominated in it.

Cost of sales trend

The cost of sales trend follow a similar trend to that of sales revenue in that the costs increase by 12% between 2011 and 2013 before declining by 22% in 2016 in comparison to 2011 levels. The decline is similarly associated with declining replacement cost of goods sold owing to the lower price of refined products.

Profitability trend

The company’s profitability appreciates by 174% between 2011 and 2013 before slightly declining to 103% of 2011 levels before appreciating again to 186% of 2011 levels in 2016. The lower levels of profit in 2011 were associated with high costs in 2011 as compared to the following years. On the other hand, the increase in profitability despite the declining revenues could be attributed to increased efficiency and the significant decline in costs that was greater than the decline in revenues.

Balance Sheet Common size analysis for Caltex

	CA — Receivables
	CA — Prepaid Expenses
	CA — Inventories
	CA — Investments
	CA — NCA Held Sale
	CA — Other
	Total Current Assets
	NCA — Receivables
	NCA — Inventories
	NCA — Investments
	NCA — PP&E
	NCA — Intangibles(ExGW)
	NCA — Goodwill
	NCA — Future Tax Benefit
	NCA — Other
	Total NCA
	Total Assets
	CL — Account Payable
	CL — Short-Term Debt
	CL — Provisions
	CL — NCL Held Sale
	CL — Other
	Total Curr. Liabilities
	NCL — Account Payable
	NCL — Long-Term Debt
	NCL — Provisions
	NCL — Other
	Total NCL
	Total Liabilities
	Share Capital
	Reserves
	Retained Earnings
	Other Equity
	Convertible Equity
	SE Held Sale
	Outside Equity
	Total Equity

Assets Analysis

The company’s total current assets have recorded a declining trend from 2011 when they were 57% of the total assets up to 2015 when they are 39% of the total assets. However, there is a slight increase in 2016 when they are 40% of the total assets. The declining trend is attributed to declining levels of accounts receivables and inventories which may be explained by the declining commodity prices. On the other hand, the long-term assets have been noted to increase from the 43% level of 2011 to 60% of total assets in 2016. The trend is attributed to increases in property, plant and equipment which increased from 32% in 2011 to 51% in 2016 and this could be attributed to increased investment.

Liability analysis

The company’s total liabilities recorded a decline from 54% in 2011 to 47% in 2016. The decline is majorly attributed to declines in current liabilities which declined from 41% in 2011 to 28% in 2016 with the decline being mainly attributed to declines in accounts payables and short term debt. This is in line with the company’s debt management policy. On the other hand, changes in long-term liabilities are associated with increases in long-term debts as well as provisions. This is in line with the company’s debt management policy that seeks to reduce the amount of interest liability.

Equity Analysis

The company’s equity has shown an increasing trend from 46% in 20111 to 53% in 2016. The increase is mainly attributed to increases in retained earnings which increased from 34% in 2011 to 43% in 2016. This is attributed to the company’s improved profitability over the period (Roman, 2012).

Balance sheet horizontal analysis for Caltex

	CA — Receivables
	CA — Prepaid Expenses
	CA — Inventories
	Total Current Assets
	NCA — Receivables
	NCA — Investments
	NCA — PP&E
	NCA — Intangibles(ExGW)
	NCA — Goodwill
	NCA — Future Tax Benefit
	NCA — Other
	Total NCA
	Total Assets
	CL — Account Payable
	CL — Short-Term Debt
	CL — Provisions
	Total Curr. Liabilities
	NCL — Account Payable
	NCL — Long-Term Debt
	NCL — Provisions
	Total NCL
	Total Liabilities
	Share Capital
	Reserves
	Retained Earnings
	Outside Equity
	Total Equity

Caltex total assets trend

The company’s total assets increase by 24% between 2011 and 2013 before declining to just 9% of the 2011 levels in 2013. This trend is attributed to the company’s strategy for managing debt in that some assets have been expended to repay debts. However, it should be noted that the increase in the company’s total assets also reflects increased investment activities by the company.

Caltex total liabilities trend

The company’s total liability trends show mixed reactions with the liabilities increasing by 30% between 2011 and 2013. However, this trend is reversed and by 2016, the total liabilities are just 6% lower than the 2011 figures. This would mean that the company is prudent in debt management since despite the fluctuations, it has been able to control its liabilities and hence there would be no need for worry for investors that liabilities will get out of control.

Equity Trend Analysis

The company recorded an increasing trend in total equity which was 27% higher in 2016 compared to the 2011 trends. This increase is mainly attributed to retained earnings which is the only component that increased significantly and consistently during the period. The increased retained earnings strategy is a sound strategy given the period of declining commodity prices which has necessitated the company to increase retained earnings owing to the need to have a strong cash flow position.

Cash flow analysis

	Receipts from Customers
	Payments to Suppliers and Employees
	Dividends Received
	Interest Received
	Interest Paid
	Net Operating Cash flows
	Payment for Purchase of PPE
	Proceeds From Sale of PPE
	Payments for Purchase of Subsidiaries
	Other Investing Cashflows
	Net Investing Cashflows
	Proceeds from Borrowings
	Repayment of Borrowings
	Dividends Paid
	Other Financing Cashflows
	Net Financing Cashflows
	Net Increase in Cash
	Cash at Beginning of Period
	Cash at End of Period

The company’s operating cash flow has consistently increased for the six years period and is 108% of the 2011 levels in 2016. The increase is mainly attributed to increase in interest received. In addition, there has been declining payments leading to stronger operating Cashflows position. Increased Cashflows from operations show a strong position for the company given that they continue to increase despite the declining commodity prices.

Net increase in cash analysis

The company has had a fluctuation trend as far as the increase in cash is concerned with the biggest increases noted in 2011 while the lowest increase was noted in 2014. These have resulted from many factors including financing cash flows (Banes, 2007). The increases and decreases also depict the market position as far as declining commodity prices is concerned.

	Net Profit Margin (%)
	EBIT Margin (%)
	EBITA Margin (%)
	EBITDA Margin (%)
	NOPLAT Margin (%)
	Invested Capital Turnover
	Inventory Turnover
	Asset Turnover
	LT Asset Turnover
	PPE Turnover
	Depreciation/PP&E (%)
	Depreciation/Revenue (%)
	Wkg Capital/Revenue (%)
	Working Cap Turnover
	Financial Leverage
	Gross Gearing (D/E) (%)
	Net Gearing (%)
	Net Interest Cover
	Current Ratio
	Quick Ratio
	Gross Debt/CF
	Net Debt/CF
	NTA per Share ($)
	BV per Share ($)
	Cash per Share ($)
	Receivables/Op. Rev. (%)
	Inventory/Trading Rev. (%)
	Creditors/Op. Rev. (%)
	Funds from Ops./EBITDA (%)
	Depreciation/Capex (%)
	Capex/Operating Rev. (%)
	Days Inventory
	Days Receivables
	Days Payables
	Gross CF per Share ($)
	Sales per Share ($)
	Year End Share Price
	EV/EBITDA
	Market Cap./Rep NPAT
	Market Cap./Trading Rev.
	Price/Book Value
	Price/Gross Cash Flow

Liquidity Analysis

	Current Ratio
	Quick Ratio

The company’s liquidity showed mixed signals over the period. Its current ratio was the lowest in 2011 and the highest in 2012. However, this declined to the 2016 level of 1.43. On the other hand, the company’s quick ratio was the lowest in 2011 and the highest in 2015. However, the ratio was 0.71 in 2016. Despite the fluctuations, the ratios show that the company is strong as far as liquidity is concerned especially with regard to current ratio. The lower levels are however not desirable as it shows that the bulk of the company’s current assets are in the form of inventories and this may expose the company to liquidity problems should the short term debtors demand payment within short notice.

	Net Profit Margin (%)
	EBIT Margin (%)
	EBITA Margin (%)
	EBITDA Margin (%)

The company’s net profit margin was lowest in 2014 and the highest in 2011. In 2016, it was 3.46. On the other hand, the company’s EBIT was the lowest in 2014 and the highest in 2016. These trends are attributed to changing market environment especially as far as commodity prices and hence revenues are concerned. The company’s return on assets was the highest in 2011 and the lowest in 2013. However, it was 12.58% in 2016. The trends are associated with increase in company’s total assets as well as the company’s profitability.

References:

Evaluateenergy.com, 2017, Caltex Australia: Profile, Retrieved on 20^th April 2017, from;

https://www.evaluateenergy.com/View/879—co- coInfo/Company/caltex_australia

Caltex, 2017, Our Company, Retrieved on 20^th April 2017, from;

https://www.caltex.com.au/our-company

Kelly, J2015, Principles of accounting, New York, John Willey & Sons.

Roman, W2012, Financial accounting: An introduction to concepts, methods and uses, South Western College Pub.

Banes, P2007, The analysis and use of financial ratios, Journal of Business Finance and Accounting, vol. 14, no4, pp.449-46.