Description of the company
Woodside is an Australian gas and oil company that explores, develops, produces and supplies oil and gas. The company is composed of a portfolio of world-class producing assets, projects and develops in Australia and globally. The company has maintained a strong performance despite the challenges. In December 2015, oil prices reached an 11-year low.
The Chairman’s report shows that he is optimistic. The proposed Browse Floating LNG (FLNG) is expected to improve the company’s income. Despite the falling oil prices, the company is confident of a sustainable growth and high returns on shareholders’ investment. It has taken initiatives to enhance reliability and productivity in the challenging LNG market.
Financial Statement Analysis
Balance Sheet (and Income Statement)
Major elements of the balance sheet
Inventories declined by 31.2% from $247 million in 2014 to $170 million in 2015. The decrease in the value of inventories could be due to the fall in oil prices.
Cash and cash equivalents also decreased by 96.3% from $3,268 million in 2014 to $122 million in 2015. Non-current assets also fell by 73.3% from $4042 million in 2014 to $1079 million in 2015. Total assets also declined by 1% to $2,839 million in 2015.
Current liabilities decreased from $1941 million in 2014 to $1304 million in 2015. Total liabilities increased by 18.7% in 2015 while equity fell by 9.8%.
Ratio analysis
Liquidity
The company’s current ratio was 0.8275 in 2015 down from 2.082 in 2014. Quick ratio also declined from 1.955 in 2014 to 0.6971 in 2015. This indicates that Woodside had a low liquidity since the liquidity ratios are less than one (Leach 2010). Besides, the liquidity declined in 2015 as shown by the trend.
Operating Capability
Inventory turnover increased from 11.67 in 2014 to 18.1 in 2015 indicating an improvement in its effectiveness to convert stock into revenues (Stice and Stice 2012). Accounts receivable turnover declined from 15.55 in 2014 to 10.29 in 2015 showing a decline in Woodside’s efficiency in debt collection (Needles 2009).
Income Statement (and Balance Sheet)
Gross profit declined from $4552 million in 2014 to $1957 million in 2015 due to the fall in oil prices. Sales also fell from $7435M to $5030M while net income decreased from $2516M to $113M. The cost of sales increased despite the fall in sales. Other expenses increased while finance cost declined in 2015.
Ratio analysis (profitability)
Gross profit margin was 38.91% down from 61.22% in 2014 while profit margin declined from 33.84% to 2.25% in 2015. Return on assets also fell from 10.45% to 0.474% in 2015 while return on equity declined from 15.1% to 0.752%. The trend indicates a fall in profitability (Gibson and Gibson 2008).
Statement of Cash Flows
Operating cash flows decreased from $5707M to $3323M in 2015 while the balance of cash and cash equivalents decreased from $3268M to $122M.
Operating cash flow margin declined from 76.76% in 2014 to 66.06% while cash return on equity declined from 34.26% to 22.12% indicating a reduction in cash generated per dollar of total revenue and equity respectively (Horngren and Harrison 2008).
Financial performance
The above ratios show that the company had a poor performance in 2015 due to low oil prices, among other factors. The financial performance declined in 2015.
Financial prospects and suggestions for improvement
Woodside has positive financial prospects amid the low oil prices. It should diversify its products, acquire small but promising firms and divest loss-making units.
P/E Ratio
The E/P ratio is a major factor that is applied by the investors because it tries to evaluate the present value of the assets as well as its attractiveness. Moreover, this ratio tries to understand whether the current share price is good for purchasing opportunities. In this scenario, the E/P ratio for the Woodside is positive. Therefore, it is accepted by the financial investors. That is investors of Woodside are not at risk when buying the company's stocks because they will not lose money for every share purchased.
Bibliography
Gibson, Charles H and Charles H Gibson. 2008. Financial Reporting and Analysis: Using
Financial Accounting Information. Cincinnati, Ohio: South-Western College Pub.
Horngren, Charles T and Walter T Harrison. 2008. Financial and Managerial Accounting,
Leach, Robert. 2010. Ratios Made Simple: A Beginner's Guide To The Key Financial Ratios.
Harriman House Limited.
Needles, Belverd E. 2009. Principles of Financial Accounting. Boston: Houghton Mifflin
Co.
Stice, Earl K and James D Stice. 2012. Intermediate Financial Accounting. Mason, Ohio:
South-Western Cengage Learning.
