Flotek Industries Inc. Flotek Industries Inc. is an international company operating in the drilling and related product industries, most especially taking a specialty in chemical and oilfield drilling services (UOIG, 2). Started in 11985, Flotek Industries Inc. has been offering both products and services in three segments of the oil and mining industries. First, the company offers down-hole drilling product tools used in both the mining and the chemical industries, and is currently operating in several regions globally including the USA, the Middle East, South America and Central America, as well as Mexico, Asia and Canada (FTK, 1).
The other business of the company is to provide the energy and mining companies with specialty chemicals to be used in the mining and oil drilling processes. The last area of specialization of Flotek Industries Inc is in the artificial lift segment, where it offers the management of bulk mineral or oil materials in a logistical process of handling, loading and blending (FTK, 2). The three major competitors of Flotek Industries Inc include Baker Hughes Incorporated, Schlumberger Limited and CARBO Ceramics Inc.
(FTK, 4). Despite the fact that these companies compete in the same industry, locations and countries with Flotek Industries Inc, the company has been able compete effectively with the other competitors through diversification into the three segments, which ensure that the company does not depend on revenue streams from one commercial segment as does some of its competitors (UOIG, 2). The other competitive advantage for Flotek Industries Inc is that it provides customized and individualized technologies for its customers, making the customers loyal to the company. Further, with only around 500 employees, Flotek Industries Inc benefits from reduced expenses and thus beats competition through specializing in a few but large customers such as the government and major private companies, which accounts for the bulk of the company’s revenues (FTK, 2).
Profitability assessment of Flotek Industries Inc. indicates that it is a highly profitable company, since the company has shown a growth in both gross profits and net profits for the last financial periods. The gross profit of Flotek Industries Inc increased by 8.90% in 2013 compared to the 2012 gross profits, while the net profits increased by 18.755% in 2013 compared to the company’s net profits in 2012 (FTK, 22).
Flotek Industries Inc has shown consistent growth in revenues and profitability throughout the history of its operations, such that for example the company had total revenue of $ 100 million by the close of the fourth quarter in December 2013, but the revenues have grown to $117 million for the third quarter closing April 2014 (UOIG, 2). Similarly, the gross profit for Flotek Industries Inc has also increased from $39 million in December 2013 to $46 by April 2014, while the net profit for the same period has increased from $11 million to $ 14.4 million (UOIG, 2).
The same trend has been registered for the years before, where Flotek Industries Inc. revenues increased by 19% in 2013, compared to the 2012 revenues, while the revenues have grown by 152% since the year 2010 to 2013, which indicates a compounded annual revenue growth of 36% (FTK, 17). Additionally, the company has shown huge strides in financial value growth, with the shares of the company appreciating by 23% in 2011, followed by a share appreciation of 28% in 2012 and a remarkable share appreciation of 65% in 2013 (FTK, 22).
The solvency position of the company is also good, owing to the fact that the company has consistently grown its revenues when compared to its liabilities, such that revenues of the company for the year 2013 were $376 million compared to the cost of revenues of $223 million (FTK, 22). This then means that the company has a healthy operating cash flow that allows it to cover for all its costs and still remain with more revenues in hand.
Further, the operational costs of the company decreased from 21.2% in 2012 to 21.1% 2013, while the operating cash flow increased from 39.8% in 2012 to 42.1% in 2012 (FTK, 30). This serves to indicate a healthy solvency position for Flotek Industries Inc, which is capable of decreasing the costs while managing to increase the comparative operating revenues. The liquidity position of the company is also healthy, since when the current assets of Flotek Industries Inc are compared to its current liabilities, with the current assets for the company in 2012 being $2.1 Million compared to the accrued liabilities of $1.9 million, indicating a liquidity ratio of 1.105 (FTK, 35).
Any liquidity ratio that is equal to 1 or more than 1 indicates that a company has the ability to cover its short-term liabilities using the current assets without the need to borrow or dispose the company’s long-term assets. Flotek Industries Inc is an efficient company, owing to the accounts receivable comparison with the accounts payable, increased inventory and the change in the tax obligations for the last financial period of the company.
Thus, Flotek Industries Inc efficiency is indicated by the fact that the company has increased its inventories from $9.4 million in 2012 to $11.1 million in 2013, to be able to meet the demands of the customers without falling short of inventories (FTK, 35). Additionally, Flotek Industries Inc is efficient, since it has been able to reduce the accounts payable from $5.0 million in 2011 to $2.5 million in 2012, while managing to reduce the tax payable from $1.6 million in 2011 to $0.9 million in 2012 (FTK, 35).
All these statistics serves to show that the company is increasing its revenue earning capability while reducing its revenue burdens, thus showing that the company is increasingly becoming efficient. There are certain risks that Flotek Industries Inc faces. First, there is the risk of severe drop in the oil and gas prices, which means that there is likelihood of the revenues of the company decreasing (UOIG, 7).
The other risk that the company faces is the risk of decreasing demand for fossil fuels, while the green energy is increasingly gaining attention and demand. This also means that Flotek Industries Inc may lose its business to the green energy competitors. Finally, there is the risk of new government regulations in both oil and chemical industries (UOIG, 7). These regulations include the regulations on mining and drilling environmental impact and oil emission regulations, which may adversely affect the mining and oil industries. Nevertheless, Flotek Industries Inc is a good investment prospective, owing to the fact that the company is increasingly growing in both revenues and profitability, while also growing the shareholders returns through the appreciation of the company shares from 23% in 2011, to 28% in 2012 then by 65% in 2013 (FTK, 22).
Additionally, the liquidity, solvency and efficiency states of Flotek Industries Inc. are healthy, meaning that it is a company moving in the right track, despite the risks facing the industry in which the company operates. Thus, for these reasons, Flotek Industries Inc is a good company to invest in.
Works Cited Flotek Industries Inc. (FTK). “2013 Annual Report” Form 10-K”, December 31, 2013. 1-90. Print. University of Oregon Investment Group (UOIG). “Flotek Industries Inc: Investment Thesis”, April 4, 2014. 1-18. Print.