Write a 500-750 words report based on Caltex Australia 2013 ANNUAL REPORT (NOT THE CONCISE REPORT) Essay Example

Caltex Australia 5

Analysis of Caltex Australia 2013 Annual Report

Analysis of Caltex Australia 2013 Annual Report

Profit Analysis

Caltex Australia recorded an after tax profit of five hundred and thirty million Australian dollars in 2013. This marked a significant increase from the previous year, when the company had only made profits of fifty-seven million dollars. Several issues contributed to the significant increase in profits (Caltex Australia Ltd 2014). For instance, the value of the firm’s total assets increased from 5.3 billion in 2012 to 6 billion in 2013. There was also a sizeable increase in Caltex Australia’s revenue from 23.5 billion dollars in the 2012 financial year to 24.6 billion in 2013. A combination of these and other factors meant that the firm’s profits increased by almost half a billion dollars between the 2012 and 2013 financial years. Interestingly, the profit increase did not translate to positive news for the firm’s shareholders as the dividends paid per share decreased by 0.06 Australian dollars, as they went down from 0.40 to 0.34 (Caltex Australia Ltd 2014).

A comparison of the profits recorded in 2013 with those from previous financial years reveals that the company has made great strides towards improving its fiscal situation. The company’s profits had increased marginally between 2009 and 2010 before plummeting in 2011 as Caltex Australia experienced massive losses. In 2011, the firm recorded losses of 714 million Australian dollars. Accordingly, the profits recorded in 2013 effectively mark a return to normal business for the company as it gets past the losses that it made three years ago (Caltex Australia Ltd 2014).

The firm’s management revealed that various operational changes had contributed to the significant increase in earnings for the 2013 financial year. The previous year’s income had been affected by the closure of the Kurnell refinery (Morgan 2014). This affected the company’s supply chain and led to significant losses for the firm. To compensate for the loss of the Kurnell refinery, Caltex Australia opened an office in Singapore that is intended to sustain the product supply chain. Even though the situation involving the refinery has stabilized, there is still a possibility of the firm’s profits decreasing as the value of the Australian dollar does down (Morgan 2014).

When compared to rival firms, the profits that Caltex Australia made in 2013 place the company well above the industry average. The company’s gross profit was 6.20 percent higher than the industry average while total revenue was 4.82 percent higher (Caltex Australia Ltd 2014). Caltex Australia is still lagging behind major competitors such as Exxon Mobil Australia. Within the same financial period, Exxon Mobil recorded profits of eight billion Australian dollars. Interestingly, these earnings marked a sixteen percent decrease from the previous year (Exxon Mobil Corporation announces estimated fourth quarter 2013 results 2014). Accordingly, Caltex Australia is a lagging far behind some of its rivals and needs to increase the size of its operations if it is to catch up.

Motivation of Executives

Executive compensation is an issue that many scholars have delved into so that they can understand the way that high-ranking employees are motivated and incentivized to do well (Conyon 2006, p. 39). Within some firms, the remuneration for high-level executives is tied in with the performance of the company. Through this system, the companies pay their executives bonuses that are dependent on the earnings made. In a year with poor performance, the executives fail to make a lot in bonuses. Contrastingly, a good financial performance ensures that the executives make more money (Conyon 2006, p. 39).

The attachment of executive bonuses to company performance motivates the executives in various ways. Since their bonuses are attached to the profits of the company, executives are likely to make decisions that are aimed at helping the firm achieve financial gains. While this translates to significant profits for the company’s shareholders as well, it does not always help the community as a whole (Conyon 2006, p. 39). Firstly, some of the decisions that the executives make may be profitable but reckless. They could generate a significant profit for the company but at the expense of a good reputation and public image. In other cases, profit-oriented decisions and actions could occur at the disadvantage of the company’s employees and staff. A better system for regulating executive bonuses and pay is by remunerating high-level company employees with stock options and equities. Doing so would mean that there would be a direct attachment between the executive’s bonuses and pay and all aspects of the firm’s performance (Conyon 2006, p. 39). The executives would have to be concerned about a range of issues such as the firm’s reputation, future investments, profits and current standing. Conyon (2006, p. 40) argues that with the stock options, a decline in the value of the company’s shares would mean that the worth of the executive’s assets decline significantly. Alternatively, a rise in the value of the firm’s shares would be good news for the executives, as it would allow their own assets to grow.

References

Caltex Australia Ltd 2014, businessweek, viewed 22 April 2014, <http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=CTX:AU>

Conyon, MJ 2006, ‘Executive compensation and incentives’, Academy of Management Perspectives, pp. 25-44.

Exxon Mobil Corporation announces estimated fourth quarter 2013 results 2014, exxonmobil, viewed 22 April 2014, <http://news.exxonmobil.com/press-release/exxon-mobil-corporation-announces-estimated-fourth-quarter-2013-results>

Morgan, E 2014, Caltex profit bounces back after restructuring costs hit previous year’s result, ABC, viewed 22 April 2014, <http://www.abc.net.au/news/2014-02-24/caltex-profit-jumps-as-restructuring-costs-cycle-out/5279074>