Financial Performance Analysis of Woodside Petroleum

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FBL5030
FUNDAMENTALS OF VALUE CREATION IN BUSINESS
Semester 191
ASSIGNMENT - ACCOUNTING

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Executive Summary
The present report is developed for analyzing the financial performance of Woodside
Petroleum over the selected financial period of 2014-2018. It focuses on evaluation and
examination of key ratios in relation to profitability, liquidity and solvency position of the
company.
Methodology
The report has adopted the use of financial ratio analysis technique to examine the
financial performance of the selected company. The results obtained are compared with a
selected competitor company, that is, Santos Limited and with the industry average for
facilitating the decision-making of the investors.
Results
The results of the ratio analysis have indicated that its financial performance assessed in
terms of profitability, liquidity and solvency is better as compared with the competitor company
and the overall industry average.

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Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Evaluation of financial performance of Woodside Petroleum with respect to its competitor and
industry average for last five years..................................................................................................4
Profitability Analysis.......................................................................................................................6
Operating Profit Margin (OPM)..................................................................................................6
Return on Equity (ROE)..............................................................................................................7
Net Profit Margin.........................................................................................................................9
Liquidity Analysis.........................................................................................................................10
Current Ratio..............................................................................................................................10
Days Receivable Ratio (DRR)...................................................................................................11
Acid Test Ratio..........................................................................................................................12
Solvency Analysis.........................................................................................................................14
Debt Ratio..................................................................................................................................14
Equity Ratio...............................................................................................................................15
Interest Coverage ratio...............................................................................................................16
Conclusion.....................................................................................................................................17
References......................................................................................................................................19
Appendix........................................................................................................................................22

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Introduction
Woodside Petroleum is a recognized company of Australia that is involved in exploring
and developing of petroleum products. The company is recognized to be the largest operator of
oil and gas within Australia and as such is attributed to be the most renowned independent
dedicated oil and gas company. The company is listed on ASX and is headquartered within
Australia. The company has the presence of about 3300 employees for carrying out its
operational activities. It conducts its operations through its different subsidiaries such as
Woodside Finance Limited, Woodside Natural Gas Inc., Woodside Eastern Energy Pty Ltd,
Woodside Energy and others. It has a global presence and is recognized all over the world for its
expertise and capabilities (Woodside Annual Report, 2014). It is an explorer, developer,
producer and supplier of energy that has an international presence and has achieved a leadership
position within the energy sector of Australia owing to the use of its world class capabilities and
expertise. The company conducts its activities with the use of three operational segments that are
liquefied natural gas, oil and liquefied petroleum gas.
This report has undertaken a comparative analysis of the financial performances of the
five year period from 2013-2017. This has been done for examining the financial strategies of the
company by carrying out an evaluation of its financial performance and analyzing its future
growth prospects. The analysis of the financial performance of the company has been undertaken
with the use of ratio analysis technique. The technique of ratio analysis involves evaluating the
financial statements of a company for examining its profitability, liquidity, solvency or market
performance. The report is made of distinct sections for presenting the financial results obtained
with the use of ratio analysis technique. The financial analysis of the company with the use of
ratio analysis has been carried out by examining its profitability, liquidity and solvency position.
The report is structured in the sections consisting of profitability, liquidity and solvency that
have examined the key ratios that provide an insight into its financial performance over the
selected period. Financial performance of Woodside Petroleum has been compared with its
competitor Santos Limited and also with the industry average. Lastly, the conclusion section has
provided a brief summary regarding the financial performance of the company and examining its
future growth prospects (Arnold, 2013).
Evaluation of financial performance of Woodside Petroleum with respect to its competitor
and industry average for last five years
Financial performance of Woodside Petroleum has been evaluated through using the ratio
analysis as the important financial tool. Ratio analysis provides the best medium to evaluate the
financial performance of any company and also allows comparing the performance with past
years as well as from its competitors. Ratio analysis has certain limitations that must be
considered before making any recommendations. Before making the calculation of ratios it is
important to gather relevant data from the prescribed sources (DatAnalysis-Morning Star) so that

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calculation of ratios should be perfect and error free. In this regard required data has been
gathered from DatAnalysis for Woodside Petroleum and Santos Energy for last 6 years and it has
been presented below:
Financial Data of Woodside Petroleum Limited
Items 2013 2014 2015 2016 2017 2018
All figures are in $ Million
Operating Profit
(EBIT) 2783.86 4476.96 603.61 1918.19 2115.38 3285.63
Net Profit 1974.74 3067.54 154.67 1344.67 1435.90 2136.58
Total Revenue 6722.17 9113.63 6935.40 5715.87 5050.00 7536.13
Shareholder's Equity 17834.15 20310.90 20565.29 21644.56 20358.97 25959.20
Average Shareholder's
Equity 19072.53 20438.10 21104.93 21001.77 23159.09
Current Assets 3235.36 4928.07 1476.87 1243.78 1298.72 3415.98
Inventory 214.57 301.15 232.69 205.91 238.46 219.61
Prepaid Expenses 24.59 0.00 0.00 0.00 0.00 0.00
Quick Assets 2996.20 4626.92 1244.18 1037.87 1060.26 3196.37
Current Liabilities 2641.93 2366.50 1784.83 1330.85 1394.87 1480.59
Account Receivables 506.26 582.78 669.31 616.36 617.95 690.00
Average Account
Receivables 544.52 626.05 642.84 617.16 653.98
Total Liabilities 8730.44 9050.23 12064.06 12563.57 12206.41 12419.95
Total Assets 26564.60 29361.13 32629.35 34208.13 32565.38 38379.14
Interest Expenses 211.22 217.02 121.82 77.39 120.51 306.04
Financial Data of Woodside Petroleum Limited
Items 2013 2014 2015 2016 2017 2018
All figures are in $ Million
Operating Profit
(EBIT) 855.00 845.00 -7033.00 -1572.69 -420.51 1892.89
Net Profit 504.00 533.00 -5446.00 -1380.60 -458.97 882.69
Total Revenue 3675.00 4111.00 3307.00 3847.43 4224.36 5600.74
Shareholder's Equity 10212.00 9413.00 10202.00 9784.41 9167.95 10313.12
Average Shareholder's
Equity 9812.50 9807.50 9993.21 9476.18 9740.54
Current Assets 2078.00 2065.00 2921.00 4076.84 2528.21 3114.20
Inventory 419.00 443.00 495.00 443.62 341.03 408.05
Prepaid Expenses 202.00 91.00 64.00 46.99 35.90 45.34
Quick Assets 1457.00 1531.00 2362.00 3586.23 2151.28 2660.81
Current Liabilities 1726.00 1946.00 1273.00 2150.36 1219.23 2618.31
Account Receivables 793.00 633.00 539.00 507.19 564.10 738.17

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Average Account
Receivables 713.00 586.00 523.10 535.65 651.14
Total Liabilities 10397.00 12932.00 11724.00 11307.35 8403.85 13962.88
Total Assets 20609.00 22345.00 21926.00 21091.76 17571.79 24276.00
Interest Expenses 62.00 116.00 297.00 409.07 376.92 365.54
(Woodside Annual Report, 2014 to 2018), (Santos Annual Report, 2014 to 2018) and (CSI
Market, 2019)
Note 1: Details of ratio calculation has been shown in appendix for further review.
Note 2: Industry average has been taken from CSI Market (Web-link:
https://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=603)
Profitability Analysis
The profitability analysis is carried out for developing an understanding of the ability of a
company to generate profits from its operational activities. The analysis is useful to examine the
profit generating capacity of a company in relation to other companies operating within the same
industry. The analysis has been carried by calculation of the following ratios and comparing the
results obtained within the competitor data obtained from the financial statements of Santos
Limited, a competitor company of Woodside Energy Ltd.
Operating Profit Margin (OPM)
The operating profit margin ratio is used for examining the effectiveness of a company in
managing its operational costs. The analysis of the operating profit margin is very essential for
the companies operating within the energy sector such as Woodside Petroleum as they have to
consistently modify their production levels due to fluctuations in exchange rates and other
factors which have a large impact on the cost of their operations.
The ratio can be calculated with the use of following formula:
Formula: Earnings before interest and tax (EBIT)/ Total Revenue (Brigham & Michael, 2013)
The evaluation of the operating profit margin ration would help in examining the
potential of a company for realizing future growth. It analyzes the financial position of a
company by evaluating its ability to meet its fixed costs and interest’s obligations. The
companies having higher operating profit margins indicates having a control over their
operational costs and thus realizing higher profits.
Operating Profit Margin
Ratios 2014 2015 2016 2017 2018
Woodside Petroleum 49.12% 8.70% 33.56% 41.89% 43.60%
Santos Limited 20.55% -212.67% -40.88% -9.95% 33.80%