Financial Analysis of PETRONAS Dagangan Berhad (PDB)

RUNNING HEAD: ACCOUNTING FOR MANAGERS
Financial analysis

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Executive summary
The report provides a brief summary about the financial analysis of PETRONAS Dagangan
Berhad (PDB). First part of the report deals with the brief introduction of the company and
explains that it is a Malaysian retailer which is involved in the marketing and distribution of oil
and gas products. Further, the report discusses about the financial analysis technique named as
ratio analysis. It includes the calculation of several categorized ratios such as liquidity,
profitability and many more. It is observed that in 2017, the current ratio of the company
increased to 1.69 times along with the increase in its quick ratio worth 1.44 times. The
profitability position of the company has also improved overall during the same year as its ROE
turned out to be 25.58% in 2017, which was more than the ratio reported in 2016. The asset
efficiency and capital structure of the company has also improved and increased during the year.
In later part, the report compares the performance of PETRONAS with its key competitors. It is
observed that the firm has performed better as compare to its competitors but it has to focus more
on its profitability and liquidity position to beat and outperform its competitor Exxon Mobil. The
last part of the report deals with conclusion and recommendation made as per the whole analysis
done in the above sections.

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Contents
Introduction.................................................................................................................................................4
Overview of the company............................................................................................................................4
Ratio analysis..............................................................................................................................................5
Liquidity ratio..........................................................................................................................................5
Profitability ratio.....................................................................................................................................7
Asset efficiency ratio...............................................................................................................................9
Capital structure ratio............................................................................................................................11
Market value ratio..................................................................................................................................12
Peer-entity comparison..............................................................................................................................14
Recommendation and Conclusion.............................................................................................................15
References.................................................................................................................................................16
Appendix...................................................................................................................................................18

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Introduction
Financial statement analysis deals with evaluation of company’s financial data presented in its
annual reports in order to measure and assess its position and performance during a specific
accounting period. It includes the assessment of past year data on the basis of which the future
growth of the organization is estimated and projected by the management.
The report contains a financial analysis of a Malaysian company named as PETRONAS
Dagangan Berhad (PDB). A brief introduction about the firm is provided in the first part of the
report followed by the ratio analysis in second. The report explains the calculation and
interpretation of various categories of ratios based on the financial data of PETRONAS for year
2016 and 2017. In the later part, peer review analysis is also conducted where the selected
organization is compared with its competitors in the industry to measure and evaluate its
performance against them. In the last, a recommendation is provided regarding the financial
position of PETRONAS followed by the conclusion in the end.
Overview of the company
PETRONAS Dagangan Berhad is a Malaysia based company that deals in the retailing and
marketing of oil and gas products. The company operates through commercial, retail and other
segments. It also offers petroleum products including aviation fuel, kerosene, diesel, fuel oil,
motor gasoline and many others. Further, the firm is also engaged in providing lubricants to its
customers across the country. The products include passenger car motor oils, marine lubricants,
automotive functional fluids, automotive gear oils and many others. Other business of the

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company includes supermarkets, banking facility, food and restaurant services, courier and car
wash services (Bloomberg 2018).
The company was found in 1982 and is almost seventy percent owned by Malaysia’s national oil
company, PETRONAS (Petroliam Nasional Berhad). The products and services are sold and
offered through approximately 1000 PETRONAS stations and 760 Kedai Mesra convenience
stores. It owns a network of infrastructure assets which is located throughout the country to
stimulate the distribution of its oil products including pipelines, petroleum gases and many
others. Mainly the firm supplies motor gasoline and diesel to the retail market and commercially
it distributes jet fuel along with the products of smaller volume such as bitumen, sulphur and
petroleum coke. It is listed on Malaysian stock exchange and has its headquarters situated at
Kuala Lumpur, Malaysia (Bloomberg. 2018).
Ratio analysis
It is a technique of financial analysis which focuses on reflecting the entire performance of the
enterprise in a nutshell to the potential investors and management of the company. It deals with
the calculation of several ratios that covers all the aspects in financial terms. Ratio analysis is
performed on the basis of the quantitative data presented in the financial statements of the
company. Usually, many investors look up to the key ratios of the entity to measure and evaluate
its past performance so as to forecast its future growth and position (Bragg, 2012). There are five
categories of ratios which are been calculated and interpreted further in the section and they help
understanding the position of PETRONAS easily.

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Liquidity ratio
This category deals with the measurement of company’s liquidity position by analysing the fact
that how efficiently it manages and utilize its liquid assets to meet its short term debt. The ratios
show the working capital management of the firm (Godwin & Alderman, 2012).
1. Current ratio
It compares company’s current assets against its current liabilities. In other words, it reflects the
capability of the firm in paying off its CLs with the help of its CAs. The ideal ratio is 2:1 which
is to be maintained by every entity (Jenter & Lewellen, 2015).
Current ratio 2016 2017
Current assets (A) 5,067,207 5,902,934
Current liabilities
(B) 3,771,629 3,487,548
CR (A/B) 1.34 1.69
In case of PETRONAS, it can be interpreted that its current ratio increases from 1.34 to 1.69 in
2017 as compare to the prior year. This was due to the significant decrease in company’s current
liabilities and a noteworthy increase in its current assets. This fluctuation boosted up the ratio in
2017 and improves company’s liquidity position. The CA rises due to the huge upsurge in the
cash balance of the company which ultimately get set off against the payments. However, the
ratio is below the standard of 2:1.
2. Quick ratio
Another liquidity ratio which takes into account the most liquid assets that comprises of those
assets which can be easily and quickly converted into cash as and when required. They include