type of document: a combination of company research and financial analysis
has to be listed in UAE stock exchange
duration of 5 years for financial analysis and trend graph
see the requirement in the attachment.
Understanding Total Limited Company
Total limited company is one of the oldest energy based companies in the world. The company was incorporated in the year 1924, meaning that it has operated for more than 9 decades in the oil industry (PR, 2017:p.107). The parent company for Total Limited is based in the Middle East which happens to be its country of origin though the company has subsidiaries in about 130 countries in the world. The operations of the company have been divided into two major operations known as downstream and upstream. According to Zhang et al (2017; p.5-6).The upstream’ operations is confined to exploration of the hydrocarbon, conversion of the hydrocarbon and production thereof. Upstream on the other hand is confined within the functions of refinery. The specific functions therefore include; refinery of petrochemicals and other speciality chemicals. Besides refinery, this department oversees shipping of these products, trading and marketing in all the markets that total has shares.
Operations of the Company in the Various Stock Markets
Being a public company, Total Limited’s shares are sold in various security markets in the various continents of the world. Some of these security markets upon which Total’s shares are sold include; the Middle East Security Market, the United States of America Security Market, the Financial Times Security Exchange and a number of security markets in the African nations (Manea, 2017:p.21). Some of the specific nations whose security markets trade Total limited’ shares include; Nairobi Stock Exchange in Kenya, Tanzania Security exchange among others. It is worth to note that the despite the challenges that has faced the oil industry, risking a major dwindle, the shares for Total Limited has remained stable in the various global security markets upon which it is listed.
Petroleum products are some of the most commonly used products in the various sectors of the global economy. This has made these products very marketable though other environmental friendly energy products such as electricity and wind have been rivalling these petroleum products. This has however, not reduced significantly the revenue trend of this company. According to PR (2017:p.111), the performance of the company in the various stock markets which the shares are listed is as follows; in the Nairobi Stock exchange market the price has never fallen below Kenya Shillings 300, in the FTSE the price ranges between € 54 and 60 while in the United States the price $ 23 and $ 27. This is a clear indication of a great level of stability of the stock for this company in the various security markets that it operates in.
The Recent auditors Report
In the year 2016, the auditors have an unqualified opinion concerning the financial reports for Total Limited Company. This is to mean that the financial reports represented true and fair view of the company. Besides this the unqualified opinion meant that all the policies of accounting have been observed in reporting the financial activities of the organization (Hackl, Anderson & Harvey, 2011; p.46022).
The company Products
As has been stated earlier, Total limited company operates in the various market across the globe. The company sells only the products of the oil which are divided into upstream and downstream. This is to mean that both short chain carbon based fuels as well as the long chain carbon based fuels are sold by this company (Zhang et al., 2017; p.8). The specific products sold by Total Limited include the gas fuels, the petrol chemicals, diesel, regular as well as bitumen which tends to have the longest carbon chain. As had been reiterated initially, the company’s products are rivalled other fuels that are environment friendly though this has not deterred its steady growth in the various market in which it operates in. A recent survey revealed that the company has a brighter future despite the anti-carbon based campaign due to the global worming menace.
Two Recent events of the Company
Based on the fact that the company operates in a very competitive market, the level of innovation must be very high. This has been achieved majorly through research that has been consistently sponsored by the company both in the market and the oil industry. Some of the recent activities of the company include;
- Introduction of Total Fuel Card
This is a card that allows the holders to save a certain amount in the amount that is systematically withdrawn electronically at any single time that the holder visits any Total fuelling station. This card is not only safe, but also allows for a systematic planning of the expenditure to be used on fuel.
- Introduction of Graduate Trainee Opportunities
In an effort to maximize the spirit of Corporate Social Responsibility, the company has introduced an opportunity known as graduate trainee opportunities, through which graduates from the various disciplines are absorbed into the company to mentorship purposes (.Zhang et al (2017; p.4) The trained individuals or else professionals are prepared to take up the mantle from the current work force and propel the agenda of the company. These among others are some of the new developments in Total Limited Company. It is worth to note that these activities takes place in all the subsidiaries of the company across the globe.
Demand of the Company’s Products
The company’s product’s demand has been on the rise for a duration. This is based on the fact that Total Limited has managed to fill the gap that exists in the market in terms of quality and pocket friendly products (Zhang et al., 2017; p.6). Besides this, the environmentally friendly products that are advocated for tend to be more expensive hence forcing most people to prefer oil based fuels. From this, it is possible to state that the company is one of the giants in the market.
The Industrial Revolution That Has Affected the Industry
As had been reiterated, the industry has been facing difficulties due anti-carbon based fuel’s campaign. This is majorly due to the recent rise in global warming. Based on this campaign, research has been intensified on alternatives sources of fuel such as geothermal, wind, solar among others. Oil wells depletion and the challenge of Cartels in the Oil Producing and Exporting Companies has also brought some challenges to this industry. None the less, Total Limited has been committed to overcome these challenges (PR, 2017:p.112).
Financial Statements Analysis and Understanding the Financial Statements
Financial analysis is a systematic way through which the various items of the financial statements. According to Krivka and Stonkutė (2015:p.231), the analysis can either take place through ratios or in terms of percentage. These ratios show the current state of the business, the efficiency and the likely future. In order to analyse the financial statements of Total limited the focus will be based on the following rations will be discussed based on the financial statements for the years 2016;
- Liquidity Ratio
This ratio shows the ability of the company to pay the short term liabilities or obligations as they fall due (Kulchev, K 2017: p.74)
- Current Ratio
This the ratio between the current assets and the current liabilities. It is calculated as follows;
Current ratio = Current assets: Current liabilities
$ 72,517: $ 54,685
= 1.32: 1
- Quick ration (Acid test ratio)
This ratio gauges the liquidity of an organization by evaluating the most liquid assets. This is done by eliminating the inventories from the current assets shown below and dividing the result by the current liabilities;
Quick or acid test ration = Current assets – Inventories /Current liabilities
$ 72,517- $ 15,247/$ 54,685
= $ 54,270: $ 54,685
= 1.05: 1
- Gearing or Leverage Ratio
This used to gauge the ration between the capital of the company owners and the capital borrowed (Krivka & Stonkutė, 2015:p.227). The following are the specific examples of leverage ratio;
- Total Debt Ratio
Measures the ratio between the capital employed and the debt finance
Total debt ration= long term debt/ Capital Employed *100
= $ 43,067/ $ 230,978 *100
- Debt/ Equity ratio
This measures the amount of non-owner finance used to fund the activities of the organization. The formula is as follows;
Debt or equity ratio = Long term Debt/ Equity (net worth of the organization)
$ 43,067/ $ 230,978
= 1: 5.36
- Times Interest Earned Ratio
It shows the number of frequencies that the earnings of the company manages to meet the current required payments. High Times Earned ratio equals to low leverage hence low risks associated with the financial obligations. The ratio is calculated as follows;
Times Interest Earned Ratio= EBIT+ Depreciation/Interest Charged
$ 6,075+ 14,423/197
- Profitability Ratios
This is a ratio used to evaluate the level of efficiency of management in using the assets it has in generating revenue (Krivka & Stonkutė, 2015:p.231).The higher the profitability ratios, the higher the levels of efficiency and vice-versa. The specific profitability ratios are as follows;
- Gross Profit Margin
This indicates the level of control on the production costs or the cost of sales with an aim of maximizing the company profits. This ratio is calculated as follows;
Gross Profit margin = Gross Profit/ Net sales * 100
- Net Profit Margin
This focuses on the level of efficiency put in place by an organization to control the production as well as other post production costs such as operations costs, financing costs and other sales administration expenditures. The formula for calculating the net profit margin is;
Net Profit margin = Net Profit /Sales *100
= $ 6,206/149,743 *100
The net profit margin is low based on the above mentioned challenges faced by the company in the energy company and specifically oil based sources energy.
- Return on Investment
This gauges the effectiveness of the company in using the shareholders’ funds to increase the net worth of the subject organization. The higher the Return on Investment, the higher the levels of efficiency and vice versa. The ratio is calculated as follows;
Return on Investment = Net Profit after tax/ Capital Employed *100
$ 6,206/ $ 230, 978* 100
- Activity Ratios
These is the ratio used by the financial analysts to gauge the efficiency of the management in using the assets to generate sales (Kulchev, 2017:p.78).The specific examples of the activity ratios include the following;
- Return on Assets
This measures the efficiency levels of the subject organization in using the available non-current assets in generating revenue. The formula for calculating this ratio is as follows;
Return on Assets = Earnings / Non-Current Assets * 100
= $ 6,206/ $ 158,461* 100
- Turn Over Ratio
This measures the number of times the mutual funds are fully exhausted and therefore replaced in the course of the year. This majorly relates to investment decisions made. The formula for turnover ratio as follows;
Turn Over Ratio = Cost Of Goods Sold/ Average Inventory
= $ 127, 925/ $ 15947
= 8.02 which is 8 times
This is also the basis for determining the number of times the complete cycle of sales from the times of sales to the time of credit collection is completed. In this case therefore it is 8 times.
- Investment or Equity Ratios
This a way through which the aggregate performance of the organization is assessed (Manea, 2017:p.22).The specific examples of this ratio include;
- Earnings per Share
This shows the amount of earnings that each shareholder expects to get out of the net earnings of the organization (Krivka & Stonkutė, 2015:p.220).The earning focused on in this case is the earnings attributed to the shareholders.
Earnings per Share (EPS) = Net Earnings Declared / the Number of shareholders
= $ 2.52 (from the consolidated income statement of the year 2016)
- Price Earnings Ratio
This the ratio that relates the earnings of the shareholders against the par value or the market value of the share being sold (Andrijasevic & Pasic, 2014:p.121).The formula is as follows;
P/E ratio = Par value of the company’s shares / The Earnings per share
Using the rate at United States the P/E ratio is as follows;
= $ 27/ $2.51
From the above analysis, it is evident that the company’s current and future financial health is stable despite the few challenges that it faces currently.
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Krivka, A, & Stonkutė, E 2015, ‘Complex Analysis Of Financial State And Performance Of Construction Enterprises’, Business, Management & Education / Verslas, Vadyba ir Studijos, vol. 13, no. 2, pp. 220-233.
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