Essays on Petro China Financial Analysis Case Study

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The paper 'Petro China Financial Analysis" is a perfect example of a finance and accounting case study.   The essence of this report is to gauge the financial health of Petro China by making use of various financial analysis tools in assessing how the company has performed over the last five years (2012-2016) and hence give sound advice to a potential acquirer on the suitability of the company as an acquisition target. In so doing, the company’ s profitability, efficiency, leverage, liquidity and investor ratios will be examined. The analysis will be conducted in comparison with the company’ s close competitors as well as the industry in a bid to get a clearer picture on the company’ s financial health vis a via participants in the industry.

It is on this basis that a recommendation on whether or not to acquire the company will be made depending on whether the company is seen to have the potential of being a profitable and stable investment option. Financial analysis Profitability ratios These ratios are helpful in analyzing how the company’ s management has been successful in generating profits from the revenues the company makes.

In this regard, the company’ s net profit margin, as well as return on capital employed, have been analyzed with an aim of gauging whether the company has generated enough returns vis a via the industry over the last five years. ROCE This ratio measures the company’ s ability to earn a return on all of the capital it has employed in its operations (McClure, 2017). In other words, it tells us how many cents the company generated from the capital is employed. When compared with competitors or the industry, the company with a higher ratio is considered to have performed better. Petro China’ s ROCE performance over the five years period observes a trend that is similar to that of the industry where the profitability has sharply declined over the five years period.

The company’ s ROCE was highest in 2013 where it reached 10.5% but this declined sharply to the company’ s worst performance in 2016 when its ROCE was 2.38%. The trend though slightly worse is replicated by the industry given that the highest industry average was in 2012 when the ROCE average was 15.62 while it was lowest in 2016 at 0.22.

As such, it is worth concluding that declining performance is a reflection of the conditions in the operating environment where oil and gas product prices have sharply declined over the period under consideration. Petro China said it had succeeded in meeting its own expectations given “ the severe and complicated operating situation at home and abroad” . The results cap off a gloomy week for both Chinese and international oil groups. On Wednesday fellow Chinese majors Sinopec and Cnooc reported falling revenues, with losses increasing more than fivefold at Sinopec.

Norway’ s Statoil, meanwhile, kicked off the international majors’ earnings season with an unexpected loss (Megaw, 2017) Net Profit Margin Net profit margin expresses how much of each dollar that the company collected as revenue has been translated into profit. The higher the ratio, the better the performance.

References

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Petrochina.com.cn, 2017, Annual reports, Retrieved on 10th May 2017, from;

http://www.petrochina.com.cn/ptr/ndbg/dqbg_list.shtml

McClure, M2017, Spotting profitability with ROCE, Retrieved on 10th May 2017, from;

http://www.investopedia.com/articles/stocks/05/010305.asp

Megaw, N2016, Severe and complicated markets hit profits at Petro China, Retrieved on 10th May 2017, from;

https://www.ft.com/content/b7878c7d-ed42-3bdb-8f34-b275e523f7fe

Wilkinson, J2013, Accounts receivable turnover analysis, Retrieved on 10th May 2017, from;

https://strategiccfo.com/accounts-receivable-turnover-analysis/

Accounting-simplified.com, 2013, Dividend Coverage Ratio, Retrieved on 10th May 2017, from; http://accounting-simplified.com/financial/ratio-analysis/dividend-coverage.h

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