Accounting for Business: Financial Analysis of Santos Ltd Report

This report analyzes the financial performance of Santos Ltd, focusing on its profit and loss statement, cash flow statement, and balance sheet. The analysis includes profitability comparisons with a competitor, Premier Oil Ltd, and an examination of key financial ratios like return on assets, inventory turnover, and quick ratio. The report also evaluates Santos Ltd's corporate governance, management approaches, business operations, and investment activities. The analysis reveals improvements in Santos Ltd's financial performance from the previous year, particularly in terms of profitability and liquidity. The report assesses the company's cash flow from operations, investments, and financing activities, highlighting debt repayments and equity increases. Additionally, the report touches on the company's strategic objectives, risk management, and commitment to ethical standards and employee safety, providing a comprehensive overview of Santos Ltd's financial position and operational strategies.

Running head: ACCOUNTING FOR BUSINESS
Accounting for Business
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary
The main purpose of assignment is to analyze the financial statement of Santos Ltd which is
selected for this assignment. The assignment will be analyzing the financial performance of the
business on the basis of the profit and loss statement, cash flow statement and Balance sheet
which is prepared by the business. The assignment will also be calculating significant financial
ratios which will throw light on the performance of the business on the basis of such ratios.
Lastly the assignment will be analyzing the internal structure of the business and analyze
whether the investors will be willing to invest in the shares of the business.

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Table of Contents
Introduction......................................................................................................................................3
Discussions......................................................................................................................................3
Section 1......................................................................................................................................3
Profitability Comparisons............................................................................................................3
Analysis of Cash Flow Statement................................................................................................5
Analysis of Balance Sheet...........................................................................................................6
Section 2......................................................................................................................................8
Computation and Analysis of Ratios...........................................................................................8
Section 3......................................................................................................................................9
Corporate Governance of the Company......................................................................................9
Management Approaches............................................................................................................9
Business operations...................................................................................................................10
Investment and Financing Activities.........................................................................................10
Industry size and Competitors...................................................................................................10
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................12
Appendix........................................................................................................................................15

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Introduction
The main purpose of this assignment is to analyze the financial statement of Santos ltd in
order to understand whether the financial performance of the business is up to the mark. The
assessment will also be using ratios which are computed and shown in the table below and the
same will also be compared with other business competitors of Santos ltd which are engaged in
same Industry (Santos.com. 2018). This way the financial performance of the Santos ltd can be
analyzed for the purpose of making investments decisions.
Discussions
Section 1
Profitability Comparisons
The analysis of the profitability of the business is to be done on the basis of the
performance of the business in the current year as well as in previous year. In addition to this the
performance of Santos Ltd will also be measured in terms of the performance of its competitor
(Makori and Jagongo 2013). The competitor which is selected for this assessment is Premier Oil
ltd which is engaged in the same business as Santos ltd which is engaged in extraction and
distribution of natural gas and oil. The profitability comparison of the business is shown below in
table:

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Premier Oil
Particulars 2017 2016 2017 With 2016 With Premier
Product Sales 3107 2594 1043.1 19.78%
Cost of Sales 2272 2153 455.4 5.53%
Gross Profit 835 441 587.7 89.34%
Net Profit/(Loss) -360 -1047 -253.8 -65.62%
Total Equity 7151 7080 616.9 1.00%
Gross Profit Margin 26.87% 17.00% 56.34% 58.08% -52.30%
Net Profit Margin -11.59% -40.36% -24.33% -71.29% -52.38%
% of Cost of Sales 73.13% 83.00% 43.66% -11.90% 67.49%
Return on Equity -5.03% -14.79% -41.14% -65.96% -87.76%
Santos Ltd. Comparison %
Figure 1: (Table Showing Profitability Comparison of the Business)
Source: (Created by the Author)
As per the table which is shown above, the product sales of Santos ltd has increased from
the previous year which is shown in 2017 as $ 3107 million which was in 2016 as $ 2594
million. The sales of Santos ltd is even better than the sales achieved by Premier Oil ltd as shown
in the table above, which suggest that the business of Santos ltd is performing better than
Premier Oil ltd and the focus of the company is sales maximization (Grant 2016). The cost of
sales for the business is high as shown for 2017 as $ 2272 million which has increased from
previous year and is significantly more than Premier Oil ltd. It is understandable that the cost of
sales of Santos ltd is high as the overall sales of the business is also high but the former needs to
be controlled to generate more profits for the business (Enqvist, Graham and Nikkinen 2014).
The gross profit margin of Premier Oil is much more than Santos ltd which is due to the fact that
Premier Oil ltd has better control over the cost of the business as compared to Santos ltd. In
addition to this, due to the high operational costs of the business, Santos ltd have negative net
profit which signifies that the business has earned losses. The net loss of the business is shown to

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be $ 360 million for the year 2017 which has improved from the estimates of 2016 which was $
1047 million. The net profit margin of the business has improved from 2016 estimate which was
- 40.36% and the same is shown in 2017 as – 11.59%. The net profitability of Santos ltd is much
better than Premier Oil ltd as per the table which is shown above (Niresh and Thirunavukkarasu
2014). The return on equity of Santos ltd has improved from the previous year’s estimate and is
much better than the return on equity of Premier Oil ltd of the business. Thus, on the basis of the
comparisons which can be made to Santos ltd and Premier Oil ltd for the year 2017, it can clearly
be identified that the performance of Santos ltd has significantly improved in financial terms as
compared to 2016 estimates and the company is at a better position as compared to Premier Oil
ltd.
Analysis of Cash Flow Statement
As per the cash flow statement of Santos ltd which is prepared, on the basis of following
direct method of preparation of the cash flow statement of the company. As per the cash flow
statement, the receipts from the customers during the year has increased which is shown to be $
3217 million in 2017 and the same was $ 2708 million in 2016. This shows an improvement in
business and this is majorly due to the increase in the overall sales of the business which is
shown in the profit and loss statement of the business (Reid and Myddelton 2017). The cash
from operations also shows that the business has incurred $ 1611 million as payments which are
made to the suppliers of the business and the same has slightly increased from previous year’s
estimate. The borrowing costs of the business has also increased as shown in the cash flow
statement of the company. In an overall estimate, the cash which is generated from operating
activities of the business is shown to have increased tremendously which is shown to be $ 1248
million in 2017 and the same was shown as $ 840 million in 2016. This suggest that the business

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has improved its operational structure and the cash outflows of the business has reduced in such
a case.
The cash from investing activities of the business are investment made in exploration and
evaluation assets, oil and gas assets, other land and building equipment and other equipment as
well. The company has also sold a part of the assets of the business during the year as shown by
the cash flow statement of the business (Call, Chen and Tong 2013). The cash which is generated
from investing activities are shown in the cash flow statement is shown in negative which is $
534 million which may be due to the various investments which are made by the business.
The financing activities of the business includes borrowings which are taken by the
business and also repayment of borrowings which is also shown to be of significant amount and
the business has also purchased shares from the market. The debts which have been repaid by the
business is shown to be $ 2442 million in 2017 which is of significant amount as shown in the
cash flow statement of the business. The cash from financing activities of the business is also
shown in negative which is mainly due to the borrowings of the business which has been repaid
and the same is shown to be $ 1518 million. The closing cash and cash equivalent figure which is
shown to be $ 1231 million for the year which is shown positive and is favorable as well
(Farshadfar and Monem 2013).
Analysis of Balance Sheet
The balance sheet of the company depicts the financial performance of the business and
the cash and cash equivalents of the business has reduced from previous year which is mainly
due to repayments of debts which are made by the business during the year (Bobryshev et al.
2014). The inventory of the business has also reduced during the year which is shown to be $

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266 million during the year. The total non-current assets of the business has decreased slightly
over the period which is not a favorable sign for the business and the management of Santos ltd
needs to focus on the assets of the company. There has been a slight decrease in the current
liabilities of the business which is good sign for the business. The loans of the business has also
reduced which signifies that the management of Santos ltd has decided to make changes in the
capital structure of the business. The equity of the business has increased which is due to the
increase in the issued shares of the business as shown in the balance sheet of the business
(Hörmann and Schabert 2015). The accumulated losses of the business show that there is a loss
of $ 1934 million which is shown in the balance sheet of the company.
Particulars 2017
% of Total
Assets 2016
% of Total
Assets
Current Assets 1972 14.39% 2950 19.33%
Non-Current Assets 11734 85.61% 12312 80.67%
Total Assets 13706 100.00% 15262 100.00%
Current Liabilities 951 6.94% 1556 10.20%
Non-Current Liabilities 5604 40.89% 6626 43.42%
Total Liabilities 6555 47.83% 8182 53.61%
Total Equity 7151 52.17% 7080 46.39%
Figure 2: (Table Showing Comparison of Balance Sheet Between 2016 and 2017)
Source: (Created by the Author)

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Section 2
Computation and Analysis of Ratios
Particulars 2017 2016
Net Profit/(Loss) -360 -1047
Total Assets 13706 15262
Cost of Sales 2272 2153
Inventory 266 321
Current Assets 1972 2950
Current Liabilities 951 1556
Prepayments 28 34
Earning Per Share -0.173 0.582
Market price per share 5.45 4.02
Return on Assets -2.63% -6.86%
Inventory Turnover 8.541 6.707
Quick Ratio 1.764 1.668
Price-to-Earnings Ratio -0.032 0.145
Figure 3: (Table Showing Various ratios of the business)
Source: (Created by the Author)
As per the above table, the return on assets of the company shows that it has improve
significantly from the previous year’s estimate and the same is shown to be -2.63% for 2017 and
– 6.86% for the year 2016. This signifies that the returns still are not favorable but have
improved from the previous year’s analysis (Delen, Kuzey and Uyar 2013). The inventory
turnover ratio of the business has increased from the previous year’s estimate which is a positive
sign for the business as this suggest that the company has an efficient inventory management
system and also that the sales structure of the business is pretty good. The quick ratio of the
business is shown to be 1.764 for the year 2017 and the sane has showed improvements from the

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previous year’s estimate which suggest that the business has improved tremendously from the
view point of liquidity of the business as shown in the financial statement of the business. The
price to earning ratio of the business has fallen significantly during the year and the same is
shown as 0.032 for the year 2017.
Section 3
Corporate Governance of the Company
The corporate governance of the company is the responsibility of the board of directors of
the business. The company diligently follows the board charter and is responsible for overseeing
the strategic management and formulation of the strategies of the business as per the financial
requirements of the business as per the corporate governance statement of the company (Davies
2016). The company is committed to high ethical standards of the business and expects the
employees of the business to act in an ethical manner (Hřebíček et al. 2014). The management
has developed a Santos Management System (SMS) which sets the mandatory performance
requirements for the employees of the business and also states the code of conduct of the
business.
Management Approaches
The basic strategy of the business is to transform the business by minimizing the costs
and increasing the production, building an identity of the business in the market and taking
advantages of every opportunity available and further more grow the business by generating
more revenues, unlocking core assets of the business and develop the low carbon energy
generation projects of the business. In pursuance of such strategic objectives the business faces
risks such as environmental and safety risks, strategic risks, operational risks which the

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management of the company needs to mitigate. The management considers the safety of the
employees as a must and also focuses on restoration projects for minimizing the environmental
impacts of the activities of the business. There is a risk of cancellation of the license and
therefore the business needs to consider all the risks and dealt with the same by formulating
appropriate strategies.
Business operations
The business operations of the business include exploration projects, mining activities,
energy generation projects. A future business operation which the company is considering for
2019 and 2020 perspective are n energy generation project which utilizes low amount of carbon
as a fuel and the business also wants to further expand the operations of the business in future.
Investment and Financing Activities
The investment and financing activities of the business has increased in 2017 as shown in
the cash flow statement of the company. The business has invested in various assets such as
exploration drills and machines, gas and oil extraction machines, other property and equipment
as shown in the cash flow statement. The financing activities of the business includes takinga
loan and repayment of a part of the loan which is done in 2017.
Industry size and Competitors
As per the Industry size the business can be considered to be a large business and is
significant one in the natural gas and oil industry. The major competitor of Santos Ltd as pointed
out in the assessment is Oil Premier ltd which is also a big business.

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Conclusion
As per the financial analysis of Santos ltd annual reports, it can be clearly identified that
the business is performing well in terms of profitability cash inflows and in terms of significant
ratios of the business. Therefore, the investors should invest in the shares of Santos ltd as tne
financial performance of the business is exceptionally good. This is confirmed by the analysis of
the significant ratios of the business which is shown in the above paragraphs.

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Reference
Bobryshev, A.N., Uryadova, T.N., Lyubenkova, E.P., Yakovenko, V.S. and Alekseeva, O.A.,
2014. Analytical and management approaches to modeling of the accounting balance sheet. Life
Science Journal, 11(8), pp.502-506.
Call, A.C., Chen, S. and Tong, Y.H., 2013. Are analysts' cash flow forecasts naïve extensions of
their own earnings forecasts?. Contemporary Accounting Research, 30(2), pp.438-465.
Davies, A., 2016. Best practice in corporate governance: Building reputation and sustainable
success. Routledge.
Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios: A
decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Enqvist, J., Graham, M. and Nikkinen, J., 2014. The impact of working capital management on
firm profitability in different business cycles: Evidence from Finland. Research in International
Business and Finance, 32, pp.36-49.
Farshadfar, S. and Monem, R., 2013. Further evidence on the usefulness of direct method cash
flow components for forecasting future cash flows. The international journal of
accounting, 48(1), pp.111-133.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

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Hörmann, M. and Schabert, A., 2015. A monetary analysis of balance sheet policies. The
Economic Journal, 125(589), pp.1888-1917.
Hřebíček, J., Soukopová, J., Štencl, M. and Trenz, O., 2014. Integration of economic,
environmental, social and corporate governance performance and reporting in enterprises. Acta
Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 59(7), pp.157-166.
Makori, D.M. and Jagongo, A.O., 2013. Working Capital Management and Firm Profitability:
Empirical Evidence from Manufacturing and Construction Firms Listed on Nairobi S ecurities
Exchange, Kenya.
Niresh, A. and Thirunavukkarasu, V., 2014. Firm size and profitability: A study of listed
manufacturing firms in Sri Lanka.
Reid, W. and Myddelton, D.R., 2017. Cash flow statement. In The Meaning of Company
Accounts (pp. 16-16). Routledge.
Santos.com. (2018). Santos - 2017 Annual Report. [online] Available at:
https://www.santos.com/media-centre/announcements/2017-annual-report/ [Accessed 27 May
2018].

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Appendix

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