Overview of Petronas
Petroliam Nasional Berhad is also known as Petronas, which is a Malaysian gas and oil company. It is established in the year 1974 and are wholly possessed by the Malaysia Government, the corporation is conferred with the entire gas and oil resources in Malaysia & is delegated with the accountability of adding and developing value to these resources. Its segments contain Gas Processing, which is involved in the processing of natural gas from the gas fields. By the end of FY 2020, the total amount of net profit generated by the company is 2082281 and the total number of employees employed in the same financial year is 47669.
Petronas’s profitability position is determined by analysing or examining the gross profit margin and net profit margin (Monahan,2018). Based on the calculation, the gross profit margin pertaining to 2020 and 2019 stands at 47.50% and 43.73%. Thus, it has been observed that there is a significant increment in the metric, implying that the company has utilized its net sales efficiently in terms of generating gross profit. However, Petronas has made a reasonable profit on net sales and investors are also willing to pay more for an organization with the higher gross profit in the current year as compared to previous year. Whereas, on the other hand, the net profit margin for the years 2020 and 2019 is calculated at 37.24% and 36.35%, indicating that the company has generated more profits from its net sales. Petronas is more effective at converting net sales into actual net profit. Moreover, the product has also been priced efficiently and is using good cost control. In order to enhance, profit margin, the company must reduce its costs and by increasing net revenues (Williams & Dobelman, 2017).
The Petronas’s operational efficiency is decided by scrutinizing or examining the inventory turnover ratio and assets turnover ratio for the years 2020 and 2019. On the basis of financial calculation, the inventory turnover ratio pertaining to the year 2020 is 65.32 times and while that of 2019 it is calculated at 39.30 times (Robinson,2020). Thus, it is to be noted that there is a considerable increase in the metric which implies that the group is selling its goods or products quickly, and there is a significant demand for their products in the current year (2020) as compared to previous year (2019). Hence, an effective sales promotion or advertising campaign causes a boost in the total net sales. Moreover, on analysing the asset turnover ratio it is being observed that there is a marginal increment in the metric from 0.28 times (2019) to 0.30 times (2020). However, it implies that the company is trying to be more efficient in generating net revenue from its total assets in the current year as compared to previous year. In addition, Petronas has also utilized its total assets efficiently in terms of generating net revenue.
The overall liquidity position of Petronas is determined by analysing the current ratio and quick ratio for the financial years 2020 and 2019. Hence, on the basis of financial ratio calculation, the current ratio for 2020 is calculated at 3.93 times and while that of 2019 it stands at 5.17 times. Though, the company is having enough liquid assets or cash to cover all of its short-term obligations, still it needs to manage its working capital efficiently. The main reason behind this is that the value of current assets is more than the value of current liabilities. In addition, the company is also not efficient in investing the net cash into it. While, on the other hand, the quick ratio pertaining to the years 2019 and 2020 is 5.09 times and 3.89 times, indicating that the company is not dependent on its inventory in order to cover all of its current debts or obligations (Miao,Teoh & Zhu,2016). Due to a significant increment in the net sales and inventory turnover, the quick ratio is also high. Overall, Petronas has tried to improve its liquidity position in the current year as compared to previous years.
Profitability Analysis
The financial leverage position of Petronas is decided by determining debt-to-equity ratio and debt-to-assets ratio for the financial years 2020 and 2019. Based on the financial ratio calculation, the overall leverage position of the company has improved in the current year as compared to previous year (Jurakulovna,2021). The debt-to-equity ratio decreases to 41.45% in 2020 from 44.37% in 2019, implying a lower proportion of financing by current debt through lenders. Lower metrics tend to imply a firm and stock with less risk to the shareholders. However, Petronas is less levered & closer in order to be fully financed. Moreover, the debt-to-assets ratio pertaining to 2020 and 2019, stands at 29.31% and 30.73%, indicating that overall financial risk of the group has decreased and also owns fewer total assets than the liabilities.
Based on the calculation, it has been observed that the financial trends in 2020 have quite enhanced as compared to previous year in terms of profitability, efficiency ratios, liquidity ratios, and gearing ratios. Thus, the company mainly focused on four areas that might assist in driving the profitability position. These are increasing turnover, increasing efficiency, reducing costs, and increasing productivity. In addition, the company has also expanded its services into new markets, or sectors. Business profits enable firms to enhance the livelihood of managers, employees, and owners. This might include offering performance bonuses, additional vacation time and proposing performance bonuses. These rewards might also produce positive goodwill and reputation with the employees.
Based on the above discussion and analysis, it can be observed that overall financial performance of the company has improved in the current year (2020) as compared to previous year as it is evident from the viewpoint of profitability ratios, efficiency ratios, gearing ratios and liquidity ratios (Gordon et al., 2017). Still, there are few potential areas where the company can do better & enhance upon are recommended as follows:
- An increase in the marketing expenses and digital marketing prioritization in order to improve net sales in the future.
- Further investments in the capital expenditures
- An improvement in the company’s overall liquidity position is needed.
- Consistency in covering the overall debt implications.
- Optimization of manufacturing costs and production in order to yield efficient gross profit margins.
Based on the cash flow statement, it has been observed that the opening cash balance stands at 19 which is positive, but the end cash balance turns out in negative that is -2. It is quite important for the company to increase its net revenue or sales in the current year. Though, the cash flow from operating activities is in positive, still it needs to generate more cash from the operating activities. While on the other hand, the cash which is used in financing activities is in negative and the cash used to invest activities is also in negative, implying that considerable cash amount is being invested or capitalized in the long-run health of a firm. Moreover, the company is servicing debt and is making dividend payments & stock repurchases or retiring debt. The finance cost and purchase of land & building and plant & machinery is unavoidable, thus net sales needs to increase in order to enhance the cash flow from operating activities (Khansalar & Namazi,2017). Additionally, negative cash flow might indicate a firm’s poor performance which can be improved by increasing gross profit, customer retention, returns on investment, and net revenue. There are various ways to improve the position of statement of cash flow. Hence, the following ways are discussed and mentioned below:
- Get Deposits for a large order
- Offer a flexible payment option
- Forecast net sales and track due dates
- Lease now and buy later
- Purchase on credit terms
- Link a purchasing cooperative
- Experimenting with a selling price
- Cut down on the process costs
- Utilize invoice factoring services
The related software and hardware products offered by the organizations in the hardware sector may have vulnerabilities that reveal consumers to the data security threats (TEXTS, 2018). Thus, hardware manufacturers play a significant role in confirming security of the user data. These types of vulnerabilities might risk revealing consumer data to the security threats & potentially corroding the customer base trust. The increasing occurrence of cybersecurity intimidations generates both opportunities and risks for the hardware sector, as efficient product security may be a substance of competitive advantage, consequently assisting firms in increasing their net sales and in expanding market share. In addition, with respect to data security & related government actions may also help as a revenue-generating chances for federal agreements & the security products provisions (Muniroh & Yuliati, 2021).
Moreover, despite an attempt by the sector to enhance inclusion and workforce diversity, the workforces of hardware company are characterized by comparatively low representation from minority groups and women. However, better workforce diversity is fundamental for innovation because it assists companies in understanding the requirements of a global and diverse customer base, which causes a capability to design suitable products & communicate with customers efficiently. Thus, companies that are not able to retain and attract diverse talent might risk losing share market to peers that employ successfully a staff proficient of identifying the requirements of varied populations & imposing demands from the segments that have been overlooked (Rusdiyanto et al., 2019). Furthermore, organisations that are perceived to be more representative of their varied, worldwide consumer base are more likely to experience enhanced brand loyalty, which could be a competitive edge. Successful companies in attracting & retaining a diverse & inclusive staff are less likely to have considerable turnover, which saves money.
References
Gordon, E. A., Henry, E., Jorgensen, B. N., & Linthicum, C. L. (2017). Flexibility in cash-flow classification under IFRS: determinants and consequences. Review of Accounting Studies, 22(2), 839-872.
https://www.petronasgas.com/IR/Documents/2.%20Governance%20and%20Financial%20Report%202020.pdf
Jurakulovna, J. G. (2021). The Necessity and Theoretical Basis of Financial Statement Analysis in Modern Management. Academic Journal of Digital Economics and Stability, 7, 89-95.
Khansalar, E., & Namazi, M. (2017). Cash flow disaggregation and prediction of cash flow. Journal of Applied Accounting Research.
Miao, B., Teoh, S. H., & Zhu, Z. (2016). Limited attention, statement of cash flow disclosure, and the valuation of accruals. Review of Accounting Studies, 21(2), 473-515.
Monahan, S. J. (2018). Financial statement analysis and earnings forecasting. Foundations and Trends® in Accounting, 12(2), 105-215.
Muniroh, I., & Yuliati, A. (2021). Do cash flow and accounting profit information affect stock prices?. Journal of Accounting and Strategic Finance, 4(1), 108-121.
Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.
Rusdiyanto, R., Agustia, D., Soetedjo, S., Septiarini, D. F., Susetyorini, S., Elan, U., … & Rahayu, D. I. (2019). Effects of Sales, Receivables Turnover, and Cash Flow on Liquidity.
TEXTS, I. A. (2018). Financial statement analysis. Instructor.
Williams, E. E., & Dobelman, J. (2017). Financial statement analysis. Quantitative Financial Analytics. London: World Scientific, 109-69.
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