petrochemicals
TRANSCRIPT
Academy of Economic Studies, Bucharest
FABIZ, Master, English Section
Custura Ruxandra-Gabriela (Group 1)
S.C. Petrochemicals S.A.
Table of contents
1. Description of the company.................................................................................................21.1 Structure.........................................................................................................................31.2 History............................................................................................................................3
2. Banking relationships...........................................................................................................32.1 Credit history.................................................................................................................42.2 Relevant information from accredited institutions........................................................4
3. Analysis of the Petrochemicals industry and distribution....................................................54. Company’s competitors.......................................................................................................55. Company’s suppliers............................................................................................................66. Company’s customers..........................................................................................................77. SWOT Analysis...................................................................................................................88. Risk Evaluation....................................................................................................................89. Company’s market position.................................................................................................910. Financial Analysis of the company......................................................................................9
10.1 Analysis of the Balance Sheet..................................................................................910.2 Analysis of the profit & Loss Account..................................................................11
11. Ratio Analysis....................................................................................................................1312. Company’s future projects.................................................................................................16Conclusions..............................................................................................................................18Bibliography.............................................................................................................................19
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1. Description of the company
S.C. Petrochemicals S.A declared that their main mission is to provide high quality services. An organization maintains its reason to exist only when its services meet the needs and expectations of its customers, the focus of S.C. Petrochemicals S.A’s policy in quality domain is on the client.
Customer satisfaction can be ensured only when there is a harmonious interaction between the responsibility of management, human and material resources and quality management system structure.
Therefore the overall activity of our organization is based on the following principles:• customer orientation (customer satisfaction)• leadership (performance management and participatory)• management decision based on facts• Mutually beneficial supplier relationships• addressing systemic processes within the company• staff motivation and satisfaction• continuous improvement of performance
To achieve these goals the company has proposed implementing and maintaining a quality management system in accordance with reference standard ISO 9001: 2008, designed to continuously improve its performance by taking into account the needs and expectations of all stakeholders (customers, suppliers, employees, society).
The policy adopted the following:• providing quality services, following European legislation and national requirements, to come to be recognized as a leading organization in our industry;• continuous improvement of services offered by Treiro by identifying and correcting any discrepancies found;• continuous training of all employees to achieve awareness and taking responsibility for quality performance;• fostering among its staff, skills, responsibility and a positive attitude;• ensure consistency in communication with customers to better understand and manage risk;• maintaining credible competitor status, serious, quality infrastructure in the reliability, competence of services offered;• Attracting and maintaining innovative and creative staff;• attracting new customers;• operation of the market in terms of profitability;• environmental protection.
Employees at all levels are aware of the advantages they offer quality services and their impact on customer satisfaction, the other employees, the economic efficiency and on society at large.Each employee is trained, motivated and has provided conditions for the pursuit of health and safety conditions at work.
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1.1 Structure
S.C. Petrochemicals S.A is a transport company specialized in distribution of petroleum products (fuel, oil and LPG) from refineries (deposits) at the point of sale (filling stations).
Registered office is located in Magurele, 409 Hall Street Atomistilor No central 2nd floor room 24, Ilfov, and operational headquarters rented 260 m² offices in Sauce Catelu Station No. 174, C7 body, Sector 3, Bucharest, Romania
Associated persons: DI IN 3375 srl-shares (48.91%) - DRUSIAN srl-3375 shares (48.91%)-ROSSI-shares GABRIELE 150 (2.1739%). Authorized persons: Renato Angelo Drusian Sirtori.-administrator with full powers
Employees: 143 contracts indefinitely.
1.2 History
S.C. Petrochemicals S.A was founded in late 1998, foreign capital, especially to their activity in the transport and distribution of petroleum products and recorded a rapid development.
It began its work in spring 1999 with three vehicles with permanent contracts.Since 2001 the company and expanded the business to transport LPG in cylinders and in
tanks, an activity which is carried by their vehicles purchased.
2. Banking relationships
Until now, S.C. Petrochemicals S.A. has developed a very good relationship with Intesa Sao Paolo.
S.C. Petrochemicals S.A holds current accounts in RON, USD and Euro with the bank, and has offered this bank 99% of its account activity is currently held by Intesa Sao Paolo.
As a consequence, the company enjoys a preferential treatment including overnight deposit option on the Euro and RON accounts, preferential interest rates on credit and fees.
The following table depicts the accounts, their preferential conditions and the approximate balances options at Intesa Sao Paolo, Sucursala Izvor.
Table no.1 Account Preferential conditions Balance at 31.12.2010USD 0 USDRON Overnight deposit interest -3%
yearly interest Approx. 900 000 Lei
EURO Overnight deposit interest -2% yearly interest
Approx. 100 000 Euro
Source : S.C. Petrochemicals S.A.’s internal documents
Moreover, the bank the company also works with is BRD GSG. The firm has accounts in Euro and RON.
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Table no. 2Bank Type of account Currency Monthly cash flow
(RON)BRD GSG Current account Euro, RON 25 000
Source : S.C. Petrochemicals S.A.’s internal documents
2.1 Credit history
The company has contracted just one investment credit from Intesa SanPaolo. This loan (with an interest rate of 5.20%/ year) matured in June 2010, and the amount of
300 000 Euro was fully repaid over a period of 3 years, with no monthly delays. The object of the credit was the purchase of a building of 1200 sqm, in Magurele City.
The company holds 30 financial leasing contracts for the company, whose financial statement can be depicted from the following table :
Table no.3Leasing company Obiect Contract Total
monthly payment (Euro)
Account balance(Euro)
Maturity date
UNICREDIT car 3 contracts 20150 236.462 oct.2010, nov.2011, febr.2012
VFS INT car 26 contracts 52153 894.347 19ctr/2011 7ctr/2012
PORSCHE LEASING
car 1 contract 850 18.933 febr.2012
Source : S.C. Petrochemicals S.A.’s internal documents
This amount represents the balance of the financial debts of the company. This figure will be further used for the calculation of the quantitative debt coverage factor within the credit scoring analysis.
2.2 Relevant information from accredited institutions
A. Credit Information Bureau DatabaseAccording to the Credit Information Bureau statement, S.C. Petrochemicals S.A. has no
recordings of unpaid loans in the database.
B. Payment Incident Bureau DatabaseAccording to the Payment Incident Bureau statement, the company has a major recording
on the 21st of June 2011 with the sum of 59 333.05 Lei, regarding a refused promissory note because of partial lack of money
Speaking about this recording, the company declared that it represented the equivalent value of a leasing instalment ( Beneficiary : UniCredit Leasing).
C. Taxes, social insurances to the state budget
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According to the consultation from the 5th of December 2011, the company has paid all its debts to the state budget.
3. Analysis of the Petrochemicals industry and distribution
Petrol industry in Romania has its beginnings in the 19th century. The distribution and transport of petroleum products has been free from 1994. In the past, the government used to control the prices from the gas market through Petrom. Thus,
In present times, after the selling of Petrom to OMV, the influence of the Government was reduced.
The main gas products in Romania, mil.tones(Table no.4)2000 2001 2002 2003 2004
Petroleum 10 532 10 948 11 906 10 736 12 358Gasoline 3 221 3 394 4 404 3 841 4 276Diesel oil 3 354 3 842 4 305 3 721 3 928Fuel oil 1 433 1 797 2 050 1 558 1 553GPL 267 311 291 322 340
Source : http://www.insse.ro/publicatii/Romania_in_cifre.pdf
Even though the crisis has brought decreases in all domains, every economy need the transportation of fuel in order for the entire economical life to survive.
4. Company’s competitors
The company has a strong position on the market and as competitors, S.C. Petrochemicals S.A has the following firms :
PetromWith activities in the business segments of Exploration and Production, Refining,
Marketing, Gas and Power, Petrom has proved oil and gas reserves of 854 mn boe, a maximum refining capacity of 8 million metric tons per year, approximately 540 filling stations in Romania and 270 filling stations in Moldova, Bulgaria and Serbia. In 2009, the turnover of the company was EUR 3,029 mn and EBITDA was EUR 696 million. After its privatization in 2004, the company recorded positive results. The modernization process initiated in 2005 is underway in accordance.
RompetrolThe Rompetrol Group N.V. is a multinational oil company headquartered in Amsterdam,
The Netherlands, operating in 12 countries, and with the majority of its assets and operations based in France, Romania, Spain, and South-East Europe. The group is active primarily in refining, marketing and trading, with additional operations in exploration and production, and other oil industry services such as drilling, EPCM, and transportation. TRG aims to become one of the largest independent oil companies in Europe and obtain a strong position in the Black Sea and Mediterranean areas.
Rompetrol is a well-established oil company, a trustworthy worldwide partner, and a revered corporate citizen. The success and strength of our business lies first and foremost with our staff. Therefore, if our actions are dynamic, modern, creative and experienced, it is due to the employees who sustain our business, and who can be best described by those four words.
OMV
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With Group sales of EUR 34.05 bn and a workforce of 29,800 employees in 2011, OMV Aktiengesellschaft is one of Austria’s largest listed industrial companies. In Exploration and Production, OMV is active in two core countries Romania and Austria and holds a balanced international portfolio. OMV had proven oil and gas reserves of approximately 1.13 bn boe as of year-end 2011 and a production of around 288,000 boe/d in 2011. In Refining and Marketing, OMV has an annual refining capacity of 22.3 mn t and as of the end of 2011 approximately 4,500 filling stations in 13 countries including Turkey.
In Gas and Power, OMV sold approximately 24 bcm of gas in 2011. In Austria, OMV operates a 2,000 km long gas pipeline network with a marketed capacity of around 101 bcm in 2011. With a trading volume of around 40 bcm in 2011, OMV’s gas trading platform, the Central European Gas Hub, is amongst the most important hubs in Continental Europe. OMV further strengthened its position through the ownership of a 97% stake in Petrol Ofisi, Turkey’s leading company in the retail and commercial business.
5. Company’s suppliers
S.C. Petrochemicals S.A. makes sure that the entire supply process of merchandise and service satisfies the own necessities and also the clients’ requests. All the suppliers are evaluated before the beginning of the collaboration with them.
The situation of the rollover of the suppliers between January-October 2011 is presented below :
Table no.5Suppliers Rollover
2011% rollover 2011
Product type Due date
OMV PETROM 3.985.955 Lei 26% fuel 20 daysLukoil Romania 2.370.393 Lei 25% fuel 23 daysCefin Romania 1.140.299 Lei 12% Auto repairs
/parts45 days
Dumatrucks SA 422.671 Lei 4.5% Auto repairs /parts
45 days
Others 1.578.993 Lei 32.5 %TOTAL 9.498.311 Lei 100%
Source : S.C. Petrochemicals S.A.’s internal documents
The value of the debts owed to suppliers on the 31st of October was approx. 4.855.157 Lei, as the tabel shows :
Table no.6Suppliers Sold < 30 days
RON30-90 days
RONover 90
days RON% out of
totalDI.PE SRL Italia 1.044.637 21.51%
DRUSIAN SRL Italia
890.278 18.33%
OMV Mineral Oel (OMV Petrom Marketing)
554.805 554.805 11.43%
Lukoil Downstream SRL
472.533 472.533 9.73%
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Cefin Romania SRL
401.713 303.365.41 98.347.70 8.27%
Dralog Romania SRL
315.864 315.864 6.51%
Others 1.175.327 24.22%
TOTAL 4.855.157 100.00% Source : S.C. Petrochemicals S.A.’s internal documents
S.C. Petrochemicals S.A. has long term relationships to its suppliers and it is very important that it does not depend on one supplier. The company registers a quite high level of dependency on OMV Petrom and Lukoil Romania but it is not completely dependent on them.
6. Company’s customers
A dispatch was set up within the structure of the company, with well trained and experienced staff in conducting the road tankers, to supply the stations and points ( commercial or domestic ) but also for the permanent monitoring of stocks and consumption ( sales ).
The qualified staff is the company guarantee of quality services. The 100 professional drivers in Petrochemicals conduct regular preventive, defensive driving courses , road traffic legislation , ADR regulations , first aid and fire prevention training.
The situation of the rollover of clients between January-October 2011 is presented bellow:
Table no.7Client Rollover 2011 %
Rollover 2011
Product type Due date
Butan Gas Romania SA 7.500.196 Lei 39% services transport
45 days
OMV Petrom Marketing
7.244.822 Lei 38% services transport
20 days
Primagas/Crimbo Gas 1.724.560 Lei 10% services transport
30 days
Petrom LPG 1.193.801 Lei 7% services transport
30 days
Others 1.314.309 Lei 6% Services transport
TOTAL 18.977.688 Lei
100%
Source : S.C. Petrochemicals S.A.’s internal documents
On the 31st of October 2011, the sold of the clients account recorded approx. 4.311.893 Lei, as the tabel shows :
Table no.8
Name of the client Sold of the balance
< 30 daysRON
30-90 daysRON
over 90 days RON
% out of total
Butan Gas Romania SA
3.179.111 2.226.387 952.724 74%
OMV Mineral Oel (OMV Petrom
466.218 466.218 11%
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Marketing)Primagaz Romania SRL
255.923 255.923 6%
Petrom LPG SA 203.738 203.738 5%
Crimbo Gas 2003 SRL
142.258 142.258 3%
Others 64.645 64.645 1%
TOTAL 4.311.893 1.132.782 2.226.387 952.724 100%Source : S.C. Petrochemicals S.A.’s internal documents
7. SWOT Analysis
Another way to assess a company is the SWOT analysis, which implies the identification of strengths, weaknesses, opportunities and threats. Strengths and weaknesses refer to internal environment of the company, while opportunities and threats to the external environment.
A. Strengths Very good market position Cost advantages Name recognition Skilled employees Loyal customers and good reputation among customers Experience of the managers in the industry; S.C. Petrochemicals S.A. has as managers people
who own firms in this field for many years but in other countries Long term relationship with suppliers Ascending business trend
B. Weaknesses Medium advertising offers Dependence on the weather; it may cause delays in transport because of weather conditions
C. Opportunities Growing customer base Could seek better supply deals Construction of highways
D. Threats Legislation could change because of the environmental effect caused by cars Price competition
8. Risk evaluation
Table no.9Key risks Mitigation factorsBusiness risk The management, meaning the shareholders, has
experience in this field – they own companies with the same object of activity for over 30 years in Italy.
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Market risk During financial crisis, the transporters’ turnovers decreased. But taking into account the demand of car fuel is unchanged or increased, there is no market risk.
Repayment risk The company works with economically powerful clients(over 80% from the turnover), there is no problem regarding repayment.
Foreign exchange risk The company collects only in Lei, so there is n foreign exchange risk.
Source : S.C. Petrochemicals S.A.’ internal documents
9. Company’s market position
The company has won many prizes in the field that it activates, meaning on land transport and through pipes :- 2008 – Top of Companies 2008 – 3rd place, award granted by the Ilfov Chamber of Commerce and Industry- 2010 – 1st place in Top Business Romania 2010, award granted by the LIST OF COMPANIES- 2011 – 1st place in Top Profit Romania 2011, award granted by the LIST OF COMPANIES- 2011 – 3rd place in Top Business Romania 2011, award granted by the LIST OF COMPANIES
10. Financial analysis of the company
The financial analysis of the activity of S.C. Petrochemicals S.A. was realized based on the evolution of the accounting documents from 2009 through 2011 and forecasting techniques.
10.1Analysis of the balance sheet
Table no.10 Assets Liabilities
Current assets 31.dec.09 31.dec.10 31.dec.11 Current liabilities
31.dec.09 31.dec.10 31.dec.11
Cash&bank acc. 477.123 443.722 478.104 Account payables 4.478.690 5.825.706 6.159.405
Receivables - trade 2.392.003 3.813.108 4.970.940 Short term bank loans 0 374.920 394.300
Other receivables 494.001 70.964 87.082 Other short term debts
592.193 381.726 629.527
Inventories 87.311 166.633 165.751 * to the state budget 305.269 238.253 447.835
* to the associates 0 0 0
Total current assets *
3.450.438 4.494.428 5.701.877 Total current liabilities 5.070.883 6.582.352 7.183.232
Non - current assets
31.dec.09 31.dec.10 31.dec.11 Non - current liabilities
31.dec.09 31.dec.10 31.dec.11
Tangible assets 11.633.793
9.802.556 6.581.716 Long term bank debts 465.102 0 0
* land 0 0 0 * overdue 0 0 0
* buildings 0 0 0 Other long term debts 7.840.950 5.832.887 3.090.742
* equipment 11.582.850
9.748.335 6.546.049 * to the state budget 0 0 0
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* in progress 0 10.839 0 * to the associates 0 0 0
Financial assets 1.368 1.368 98.591 Capital, reserves & funds
1.378.227 1.411.472 1.428.336
Intangible assets 10.067 2.337 696 Result - previous years
302.861 376.030 893.388
Total fixed assets 11.645.228
9.806.261 6.681.004 Result - current year 80.218 550.603 264.711
Profit allocation -7.048 -33.245 -16.847
Total equity 1.754.258 2.304.860 2.569.588
Provisions for risks 167.999 0 167.999
Adjustment accounts
203.526 419.410 628.680 Adjustment accounts 0 0 0
Total non - current assets
11.848.754
10.225.671
7.309.684 Total non - current liabilities
10.228.309 8.137.747 5.828.329
Total assets 15.299.192
14.720.099
13.011.561
Total liabilities 15.299.192 14.720.099
13.011.561
Source : S.C. Petrochemicals S.A.’s internal documents
Share of Cash = Cash
Total Assets
Share of Cash2009 = 477.123
15.299.192 = 0,02922
Share of Cash2010 = 443.722
14.720.099 = 0,03014
Share of Cash2011 = 478.104
13.011.561 = 0,03674
Share of Short-Term Liabilities = Sh .term L ,
Total Liab.+O . E .
Share of Short−term Liab.2009 = 5.070 .88315.299.192 = 0,33144
Share of Short−term Liab.2010 = 6.582.352
14.720.099 = 0,44716
Share of Short−term Liab.2011 = 7.183 .23 ,
13.011.561 = 0,0552
Share of Long -Term Liabilities = Long term L ,
Total Liab.+O . E .
Share of Long−term Liab.2009 = 10.228.30915.299.192
= 0,66855
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Share of Long−term Liab.2010 = 8.137.747
14.720.099 = 0,55283
Share of Long−term Liab.2011 = 5.828 .32
13.011.561 = 0,04479
NWC = Current assets – Current Liabilities
NWC2009 = 3.450.438 - 5.070.883
NWC2010 = 4.494.428 - 6.582.352
NWC2011 = 5.701.877 - 7.183.232
Net working capital is a derivation of working capital, that is commonly used in valuation techniques such as DCFs (Discounted Cash Flow). If current assets are less than current liabilities it means that the company has a working capital deficiency, also called a working capital deficit.
This means that the company is not able to continue its operations and hasn’t sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.
The decrease in working capital indicates that the business has increased current liabilities ( short-term bank loans, accounts payables as we can observe from the table above).
Inventories increased from one year to another which allows the company an uninterrupted production flow higher by each year it comes but also the investment in raw materials is to be reduced and minimizes reordering costs - and hence increases cash flow. Besides this, the lead times in production should be lowered to reduce Work in Progress (WIP) and similarly, the Finished Goods should be kept on as low level as possible to avoid over production
10.2Analysis of the profit and loss account
Table no.11RON
Income Expenses 31.dec.
0931.dec.
1031.dec.
1131.dec.
0931.dec.
1031.dec.
11Turnover 21.645
.01321.758
.53322.528
.676Cost of sales 0 0 0
Margin of sales
21.645.013
21.758.533
22.528.676
Loss from sales - - -
Total operating income
22.498.921
22.037.788
23.064.852
Total operating expenses
20.582.319
20.665.399
22.160.391
Operating 1.916. 1.372. 904.46 Operating 0 0 0
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Profit 602 389 1 LossExchange rate income
626 132.378
151.968
Exchange rate expenses
585.931
171.256
171.869
Interest income
218 485 1.248 Interest expenses
914.144
570.530
523.017
Total financial income
106.196
603.796
473.864
Total financial expenses
1.881.830
1.281.873
1.041.374
Profit before extraordinary items
140.968
694.312
336.951
Loss before extraordinary items
0 0 0
Extraordinary income
0 0 0 Extraordinary expenses
0 0 0
Profit before tax
140.968
694.312
336.951
Loss before tax
0 0 0
Total income 22.605.117
22.641.584
23.538.716
Total expenses 22.464.149
21.947.272
23.201.765
Profit tax 60.750 143.709
72.240
Net profit 80.218 550.603
264.711
Loss 0 0 0
EBIT 1.055.112
1.264.842
859.968
Source : S.C. Petrochemicals S.A.’s internal documents
Analyzing the profit and loss account of S.C. Petrochemicals S.A, we can come up with the following highlights :
The turnover for 2011 is almost equal with the one from 2010 (increased with ~1%), maintain its upward trend compared to 2009
The operating profit from 2011 registered a decrease, maintaining the negative trend started in 2009 (61% decrease from 2009 to 2011), mainly from the increasing of fuel and spare parts expenses
The Net Profit also decreased, from 80 218 RON in 2009 to 264 711 RON in 2011, keeping the negative trend all three years
Furthermore, EBIT registered the same trend like the other indicators Cash Flow = Net Income + Depreciation & Amortization – Calculated revenues – Δ Net Working Capital
Cash Flow2009 = 80 218 + 0 – 0 + 1 620 445 = 1 700 663 RON
Cash Flow2010 = 550 603 + 0 – 0 + 2 087 924 = 2 638 527 RON
Cash Flow2011 = 264 711 + 0 – 0 + 1 481 355 = 1 746 066 RON
The company has the capacity to generate positive cash flow, source of repayment is backed by oil transport business activity for multinational companies: Butan Gas, Lukoil, OMV.
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11. Ratios analysis
Table no.1231-Dec-
0931-Dec-
1031-Dec-
11Industry Average
Liquidity Ratios (Short term
solvency)
1. Current ratio Current assets/Current liabilities 0.68 0.68 0.79 0.00%
2. Quick ratio Quick Assets/Current liabilities 0.66 0.66 0.77 0.00%
3. Fixed ratio (Fixed Assets+Investment Assests)/Equity
6.64 4.25 2.60
Debt Management Ratios
1. Leverage ratio Total debts/Equity 7.63 5.39 4.00 0.00%
2. Debts to assets Total debts/Assets 0.87 0.84 0.79 0.00%
3. Times Interest Earned
EBIT/Interest expense 1.15 2.22 1.64 0.00
Assets Management Ratios
1. Total assets turnover
Turnover/Assets 1.41 1.48 1.73 0.00
2. Inventory turnover
Trunover/Invenory 247.91 130.58 135.92 0.00
3. Receviables Turnover
Turnover/Receivables 9.05 5.71 4.53 -
4. Payables Turnover
Turnover/Payables 4.83 3.73 3.66 -
Growth Ratios
1. Sales (%) (Sales1-Sales0)/Sales0 1.01 1.04
2. Margin of sales (%)
(Margin of sales1/Margin of sales0) 1.03 0.34
3. Liquid Assets (%)
(Liquid Assets1-Liquid Assests0)/Liquid Assets0
30.26% 26.87%
Profitability Ratios
1. Profit margin on sales
Net profit/Turnover 0.37% 2.53% 1.17% 0.00%
2. Return on assets - ROA
Net profit/Assets 0.52% 3.74% 2.03% 0.00%
3. Return on equity - ROE
Net profit/Equity 4.57% 23.89% 10.30% -
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Source : S.C. Petrochemicals S.A.’s internal documents
Current ratio is a financial ratio that measures whether or not a company has enough resources to pay its debt over the next business cycle (usually 12 months) by comparing firm's current assets to its current liabilities.
The higher the current ratio is, the more capable the company is to pay its obligations. Current ratio is also affected by seasonality. If current ratio is bellow 1 (current liabilities exceed current assets), then the company may have problems paying its bills on time. Acceptable current ratio values vary from industry to industry. In this case, however, the low value do not indicate a critical problem but should concern the management.
For the quick ratio, just like the current ratio, a higher value indicates greater liquidity. Having a quick ratio of 1:1 or higher does not mean that the company has a strong liquidity position because a company may have high quick ratio but slow paying debtors. On the other hand, SC Petrochemicals having a bit lower quick ratio may have fast moving inventories. For example, if inventory turns over much more rapidly than the accounts payable become due, then the current ratio will be less than one. This can allow to SC Petrochemicals to operate with a low current ratio.
Moving on to the Leverage Ratios, in this case, the leverage ratio in 2011 (4.00) had decreased from 7.63 in 2009, which is an improvement since generally, companies with higher leverage as determined by a leverage ratio are thought to be more risky because they have more liabilities and less equity.
Regarding the Debt to Assets Ratio, it quantifies how leveraged a company is, and a company's degree of leverage is often a measure of risk. When the debt ratio is high, the company has a lot of debt relative to its assets. It is thus carrying a bigger burden in the sense that principal and interest payments take a significant amount of the company's cash flows, and a hiccup in financial performance or a rise in interest rates could result in default. If the ratio is greater than 0.5, most of the company's assets are financed through debt. If the ratio is less than 0.5, most of the company's assets are financed through equity. In this case, even if the value is higher, it can bring several advantages : The deductibility of interest from business expenses can provide tax advantages, returns on equity can be higher and debt can provide a suitable source of capital to start or expand a business.
The times interest earned ratio is another debt ratio that measures the long-term solvency of a business. It measures how well a company can meet its interest expense obligations. Higher value of times interest earned ratio is favourable meaning greater ability of a business to repay its interst and debt. For SC Petrochemicals, TIE has a value 1.64 being safe to meet its interest obligations because earnings are significantly greater than annual interest obligations.
There is no set number that represents a good total asset turnover value because every industry has varying business models. What it is worth mentioning is the fact that the increases in the asset turnover ratio over time indicate the company SC Petrochemicals has enlarged its capacity and is becoming more efficient in generating revenues/
Inventory turnover reflects how frequently a company flushes inventory from its system within a given financial reporting period. The high inventory turnover ratio that the company has implies strong sales , can indicate better liquidity and a lower risk of loss through un-saleable stock.
Accounts receivable turnover is the ratio of net credit sales to average accounts
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receivable. It is an activity or efficiency ratio and it measures average number of times a business collects its receivables during a period usually a year. Generally a high value of accounts receivable turnover is favorable and lower figure may indicate inefficiency in collecting outstanding sales. But a normal level of receivables turnover is different for different industries. Increase in accounts receivable turnover overtime indicates improvement in the process of cash collection on credit sales. The value of the ratio has been in continuous decline in the last years. Its value in 2011 was 4.53, which is a fairly good value compared with the industry average. However, management should pay attention next year, because a low indicator might suggest that the company does not collect its receivables in time or that it might have quality problems regarding the services they offer.
Accounts payable turnover is the ratio of net credit purchases of a business to its average accounts payable during the period. It measures short term liquidity of business since it shows how many times during a period, an amount equal to average accounts payable is paid to suppliers by a business. A higher value indicates that the business was able to repay its suppliers quickly. Thus higher value of accounts payable turnover is favorable. This ratio can be of great importance to suppliers since they are interested in getting paid early for their supplies. Other things equal, a supplier should prefer to sell to a company with higher accounts payable turnover ratio. The value of this ratio (3.66) is lower than the industry average and it also decreased in the last few years like the accounts receivables turnover, but at a steadier pace. This is also a concerning fact, the company might not be able to pay the suppliers in time or encounter quality problems in the near future.
Even though the two ratios analyzed before indicate some problems the company might have, it is important to mention that both sales percentage variation and liquid assets percentage variation has a positive value. In other words, the company increased its sales in 2011 than in 2010 and the value of its liquid assets increased as well, which translates into a lower risk of illiquidity or problems with sales.
Net profit margin is the ratio of net profit of a business to its revenue. It is a profitability ratio measuring what proportion of revenue is converted into net profit (i.e. revenue less cost of goods sold). Higher values indicate that more cents are earned per dollar of revenue which is favorable because more profit will be available to cover non-production costs. But net margin ratio analysis may mean different things for different kinds of businesses. For example, in case of a large manufacturer, net margin measures the efficiency of production process. For small retailers it gives an impression of pricing strategy of the business. Even though the net profit also decreased in 2011 compared with 2010, the ratio is higher than the industry average. It is clear that the company had some losses last year, but it is important to keep an eye on the net profit next year.
Return on assets is the ratio of annual net income to average total assets of a business during a financial year. It measures efficiency of the business in using its assets to generate net income. It is a profitability ratio. Return on assets indicates the number of cents earned on each dollar of assets. Thus higher values of return on assets show that business is more profitable. This ratio should be only used to compare companies in the same industry. The reason for this is that companies in some industries are most asset-insensitive i.e. they need expensive plant and equipment to generate income compared to others. Their ROA will naturally be lower than the ROA of companies which are low asset-insensitive. An increasing trend of ROA indicates that the profitability of the company is improving. Conversely, a decreasing trend means that
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profitability is deteriorating. Because the net profit decreased in the last year and assets increased but at a lower rate, this indicator has also decreased and it is also slightly below industry average.
Return on equity or return on capital is the ratio of net income of a business during a year to its stockholders' equity during that year. It is a measure of profitability of stockholders' investments. It shows net income as percentage of shareholder equity. Higher values are generally favorable meaning that the company is efficient in generating income on new investment. Investors should compare the ROE of different companies and also check the trend in ROE over time. However, relying solely on ROE for investment decisions is not safe. It can be artificially influenced by the management, for example, when debt financing is used to reduce share capital there will be an increase in ROE even if income remains constant. ROE is higher than the industry average but also lower than last year. The management team should however be careful in making investments based solely on ROE, because it takes into account only the return, but not the risk.
12. Company’s future projects
At present, the firm has very good technological equipment that allows the company to perform at a high level its services. All means of transport have, beside GPS tracking, the legal authorizations issued by Romanian Road Register, Romanian Road Authority, Iprochim, CNCIR (Romanian Company for the Control of Boilers, Lifting Devices and Pressurized Containers ), BRML ( Romanian Office of Legal Metrology ). All the tankers that are used for transport of oil products have compartments and are equipped with flow meters with electronic temperature compensation, possibly with the pump required for above-ground unloading or at very long distances (40-50 m), fitted according to the clients’ demands.
The park of vehicles of Petrichemicals is made up of 100 motor vehicles brands such as Renault , Volvo , Iveco , Scania , Man: tractor trucks , road tankers for oil products , Liquefied Petroleum Gas transport road tankers , vehicles specialized in the transport of LPG cylinders.
The acquisition of higher and bigger quality machines is extremely important for the satisfaction of the clients’ needs. So, the company plans to invest in 30 vehicles, which would require an initial investment of 1 000 000 RON and the generated sales would be 10 000 000 RON in the first year. After that, the sales will grow with 1% per year for the following 4 years. Variable costs are 2 200 000 RON in the first year and fixed costs are considered to be 200 000 RON (including depreciation, calculated with straight line method). The income tax rate is 16% and the assumed increase of the investment in Net Working Capital is 700 RON in the first year. Moreover, the investors require a return on 20% and the residual value is 4 000 000 RON.
In order for the company to establish the profitability of the investment, net present value (NPV) is one method for this estimation. NPV measures the total amount by which an investment is expected to increase based on the present value of its potential cash flows and initial cost. NPV compares the value of a dollar today to the value of that same dollar in the future, taking returns into account.
NPV = ∑i=1
n CFi
(1+K )i
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n = life span of the projectCFi - cash flow of year ii – number of the yearK – return of investment
Therefore, the cash flow generated in each year is required.Cash Flow = Net Income + Depreciation & Amortization – Calculated revenues – Δ Net Working Capital
The monthly net income is depicted in the income statement sheet each for each year.
NI = (Sales – Variable Costs – Fixed Costs – Depreciation & Amortization) * (1-Income Tax)
Since Sales differ from year to year, they will have to be calculated.
Sales2 = Sales1 + 1%*Sales1
Sales2 = 11000 000 RONSales3 = 12 000 000 RONSales4 = 13 000 000 RONSales5 = 14 000 000 RON
Also Variables Costs are different each year.
VC1 = x*Sales1 => x=0.22VC2 = 2 420 000 RONVC3 = 2640000 RONVC 4 = 2860000 RONVC5 = 3080000 RON
After that, Net Income can be computed.
¿1 = 638400 RON¿2 = 703900 RON¿3 = 7694400 RON¿4 = 8349600 RON¿5 = 9004800 RON
In order for the cash flows to be computed, depreciation of the cars has to be calculated.
Depreciation = Initial Invetmentlifeof the project
= 10 000 000 RON5 years
= 2 000 000 RON
CF1 = 2638330 RONCF2 = 9039200 RONCF3 = 9694400 RONCF 4 = 10349600 RONCF5 = 11004800 RON
Hence, all the values are known and NPV can be calculated.
NPV = 2638330
(1+0.1)1 + 9039200
(1+0.1)2 + 9694400
(1+0.1)3 + 10349600
(1+0.1)4 + 11004800
(1+0.1)5 + 4 000000
(1+0.1)5 - 1000 000 RON
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NPV = 24 162 238.95 RON
The value is higher than 0, so the company should accept the project and increase the value of the firm.
Conclusions
The society has made efforts to maintain the economic activity at the same level in the
current financial conditions. It had even tried to develop new collaborative relationships, even
though the operational expenses had been reduced so that the company could have profit.
The clients the company has is a proof of a good reputation and also, the company does
not have a bad history regarding bad debts.
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Bibliography
1. Grath, A. (2008) The Handbook of International Trade and Finance: The Complete Guide to Risk Management, International Payments and Currency Management, Bonds and Guarantees, Credit Insurance and Trade Finance, Philadelphia: Kogan Page.
2. S.C. Petrochemicals S.R.L.’s internal documents3. Olteanu, A. (2003). Management bancar, Ed. Dareco, Bucuresti, 20034. Van Greuning, H., Brajovic Bratanovic, S. (2009) Analyzing banking risk a
framework for assessing corporate governance and risk management, 3rd edition, Washington D.C.: The World Bank
5. www.finaritare.ro/6. www.insse.ro/publicatii/Romania_in_cifre.pdf7. www.investopedia.com8. www.omv.ro9. www.Petrochemicals.ro/10. www.romaniapress.com/11. www.rompetrol.ro12. www.treiro.ro/13. www.wisegeek.com
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