Example Of Report On Annual Analysis Of Rosneft Oil Company

1. What are the main business activities of the selected company?
Rosneft is the leader of the petroleum industry in Russia and is the world’s largest publicly traded oil company. Its worldwide business operations include upstream offshore projects, exploration and production of hydrocarbon, refining of crude oil and hydrocarbon, and gas and product marketing. 2. Examine its Balance Sheet. Make a list of different accounts of Assets, distinguishing between Current and Non-Current (Tangible and Intangible), and Liabilities, distinguishing between Current and Long-Term Liabilities.
The current asset accounts of Rosneft include cash and cash equivalents, restricted cash, other short –term financial assets, accounts receivable, inventories, and prepayments and other assets. Its non-current assets items are property, plant and equipment, intangible assets, other long-term financial assets, investment in joint ventures and associates, bank loans granted, deferred tax assets, goodwill, and other non-current non-financial assets.
Its current liabilities section include accounts payable and accrued liabilities, loans and borrowings, finance lease liabilities, liabilities related to derivative instruments, income tax liabilities, other tax liabilities, provisions, and other current liabilities. Its non-current liabilities section include loans and borrowings, finance lease liabilities, deferred tax liabilities, provisions, prepayment on oil supply agreements, and other non-current liabilities.
3. What disclosures can you find in Annual Report? Locate the notes to the financial statements and identify the information topics disclosed in these footnotes.
Rosneft’s notes to the financial statements include general disclosures about the incorporation and nature of business of the company and its subsidiaries, the basis or preparation for the financial statements, significant accounting policies employed in areas such as business combinations and goodwill, significant accounting judgments, estimates, and assumptions, newly issued standards and interpretations but are not yet effective, capital and financial risk management, acquisition of subsidiaries, segment information, income tax, taxes other than income tax, export customs duty, finance income and expenses, other income and expenses, personal expenses, operating leases, non-controlling interests, earnings per share, and the list of specific items that make up the aggregate account amounts appearing in the financial statements.
4. Calculate the gross profit percentage for each of the years shown in the company’s income statements. Evaluate the company’s trend in sales and gross profit. By what percentage amounts did net sales increase or decrease in each of the years reported?
The gross profit rates from 2011-2013 are 17%, 13%, and 12% respectively. Using 2011 as the base year, we can observe that Rosneft’s revenues increased by 14% in 2012 and significantly by 73% in 2013. However, its gross profit rate has been decreasing for the last two years from 17% to 12%. 5. Does the company report any investments in marketable securities? If so, how does it report unrealized gains and losses?
Yes, the company’s financial assets include, loans issued and granted to employees and repurchase agreements, deposit and deposit certificates, corporate and state bonds, and derivative instruments. Unrealized gains and losses are determined after an impairment test for all categories of the financial assets is performed. There is impairment if there is an objective evidence frm one or more events that occurred since the initial recognition and if the loss has a significant impact that can be reliably estimated on the company’s future cash flows. Some of the events that assert an impairment has occurred include the financial difficulty of debtors, delinquency or default on principal payments, the probability of bankruptcy or reorganization, and observable data measuring the decrease in the estimated future cash flows, and poor economic conditions.
6. At what point does the company recognize and record revenue from its customers? On average, for how many days do the company’s accounts receivable remain outstanding before collection? What is the company’s allowance for uncollectible accounts (bad debts) for the current year reported?
The company recognizes revenues the risks and rewards are passed on to the consumer. This occurs when the title passes to the customer and that the contract price is already fixed and its collection is reasonably assured. This is the case for Rosneft’s sales of crude oil, gas, and petroleum products and materials. For its export sales, the title passes when the company pays the transportation expense except for the freight, duties, and taxes at the border of the Russian Federation. The revenue is then measured at fair value of the consideration receivable or received including any volume rebates, trade discounts, and reimbursable taxes. There is revenue recognition in its support services as they are performed and the service price can be determined without reasonable uncertainties on its receipt.
7. What inventory system does the company uses? What inventory evaluation method is used by the company? What is the amount of inventory reported in the current year? How often does the company take a physical count of inventory? Compute the inventory turnover for the years reported.
The inventories reported by Rosneft include materials and supplies, crude oil and associated gas, petroleum products and petrochemicals. The values for these items (in billions) as reported in the 2013 annual report are:
They are accounted for at the weighted average cost except when the net realizable value is lower than its cost. Materials used in the production are not written down below their costs if their incorporation in finished products can be sold above the costs. There is no mention of an actual physical count of their inventories in the annual report. However, the website provided information that their reserves are being audited by DeGolyer & MacNaughton.
8. What depreciation method does the company use for different categories of tangible assets? Property, plant and equipment are depreciated using the straight line method over their estimated useful life lives from the time that are available for use except for catalysts which are amortized using the unit-of-production method. The components of the PPE and their respective useful lives are: Buildings and Structures for 30-45 years, Plant and Machinery for 5-25 years, Vehicles and other PPE for 6-10 years, Service Vessels and Offshore Drilling Assets for 20 years. Land leasehold rights are also depreciated using the straight line method over their expected useful life of 20 years. 9. Does the company have any research and developments (R&D) expenditures? How does the company account for them (i.e. R&D costs are capitalized or charged to expense)?
The company does not have a specific line item for research and development but have been reporting a similar item as exploration expenses. The exploration and evaluation costs are recognized using the successful efforts method. Under this method, license acquisition costs, appraisal and exploration drilling are all temporarily capitalized in cost centers by wells until the drilling program results to economic feasibility. Rosneft also acquired smaller firms such as Saras and LLC Research and Development and made mutual agreements with ExxonMobil for its research and technological innovation purposes.
10. What is the nature of company’s liabilities? If the company has any long-term loans, for how many years they are taken, and what percentage of interest the company pays on them? Does the company have any contingencies? Compute the company’s current ratio and debt ratio for the years reported. Do these ratios provide support that the company is able to repay its current liabilities as they come due?
The company’s liabilities generally include accounts payable to their suppliers, employee salary and benefits, banking customer accounts, and advances received. They also include bank loans, Eurobonds, customer deposits, promissory notes, and repurchase agreement obligations. The nature of their long-term loans and borrowings are generally for financing of special purpose business activities, construction and purchase of property, plant, and equipment, and replenishment of their working capital with maturity dates of more than 5 years.
Rosneft pays interest at the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR) plus additional interests stipulated in their loan agreement.
The current ratio indicates that the company’s current obligations can be completely covered by its short-term assets. This is also the case for total liabilities as it the debt ratio is less than 1. 11. Using information from the financial statements, evaluate the company’s profitability and liquidity.
The liquidity ratios of the company indicate that that current liabilities can generally be covered its assets. The profitability ratios of the company have more or less remained the same for the last two years.