Discuss about the Accounting for Business Decisions for Woodside Energy Limited.
Woodside Energy Limited is an Australian based oil and gas company that is actively involved in exploration, production and supply of oil and gas. The company in Australia conducts floating production, storage and offloading vessels. The company operates its activities on an international level and is recognized around the world for providing world-class capabilities. Woodside is mainly involved in developing and marketing LNG, crude oil, condensate, LPG and pipeline natural gas. The company being established in the year 1954 has a wide global presence including Ireland, New Zealand, Spain, the Republic of Korea and Peru (Woodside, 2016). The company has attained a distinctive position in the oil and gas sector through its unique capabilities and maintaining strong relationships with all its stakeholders. The company’s strong balance sheet and cash flow statement reflects its sound financial performance in the oil and gas sector. It has achieved operational effectiveness through enhancing the life of its developing assets and maintaining its contingent resources. The company places strong focus on developing its distinctive competencies across the oil and gas value chain for establishing world class projects. Woodside Energy has a good growth record in designing, construction and operation of world-class LNG plants, seismic acquisition, subsea technology and deepwater drilling (Woodside, 2016).
The company implements the use of innovative technologies such as floating LNG, near-shore liquefaction and modular liquefaction, subsea and seismic processing for manufacturing innovative products and services for achieving customer satisfaction. Woodside also aims to reduce its operational costs through developing remote operations from Perth-based Puto support centre. It is also strongly focusing on enhancing its exposure in emerging petroleum provinces and seeking to expand its portfolio for maximizing shareholder value. The company strives to maintain a workplace culture that has imbibed values such as integrity, respect, working together, discipline and working sustainably. The strong corporate values of the company have enabled it to strengthen its brand image across the world thus promoting its long-term growth and development (Woodside, 2016). The present report aims to analyze and examine the financial statements of Woodside Energy Limited for identifying the strengths and weakness in the company’s financial position. The report developed is also highly beneficial for the investors for providing them complete information about the financial position that enables them to take decision regarding holding, buying or selling its shares (Annual report: Woodside Energy Limited, 2015).
Analysis of financial statements using analytical tools helps the users of financial statements to gather important information about the performance of company (Needles, 2012). There are various financial tools that are used to interpret the financial performance of company. Some of financial tools are ratio analysis, trend analysis, SPSS etc. In this repot trend analysis will be implied to make comment on the financial performance of Woodside Energy Limited. Woodside Energy Limited publishes their annual report every year and for this report, annual reports of year 2014 and 2015 have been used to make the analysis.
Every annual report contains audited financial statements of the company and they are supported by the notes to accounts. Financial data of year 2014 will be compared with financial data of year 2015, so that trend analysis can be performed (Stone, 2003). The four main financial statements that are presented in the annual reports are Statement of Financial Position, Statement of Profit and Loss, Statement of Cash Flow and Statement of Change in Equity. All these financial statements contain various items that tell the financial performance of the company.
This statement is regarded as the most important statements in all of the four statements as it reflects true picture of company financial health in that year. Statement of financial position shows all the values of liabilities and assets that have taken in particular year along with remaining balances of previous year. This statement is also known as Balance Sheet as this statement is based one on the important accounting equation. That accounting equation is Liabilities + Equity = Assets. As per this equation the values of all liabilities and equity capital will always be equal to assets present in the company. Some of the major items that are contained in the balance sheet are current assets, current liabilities, shareholder’s equity and long term assets. AASB has issued the specific format of prepare the balance sheet and every listed company needs to follow the same. It is mandatory to prepare the financial statement in accordance with the IFRS issued by the IAB (Needles, 2012).
The important items of statement of financial position in context to year 2014 are compared with figures of year 2015, so that increase or decrease can be found and reported. Assets represent the company wealth and company must try to increase the value of assets so that their wealth should also get increased. On the other hand liabilities represent the company’s obligation therefore they must be paid as early as possible (Stone, 2003).
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Trend Analysis in the Statement of Financial Position Of Woodside Energy Limited |
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Major items of balance sheet |
2015 |
2014 |
Net Increase of Decrease in value |
% Increase or Decrease in respect to year 2015 |
|
Total Assets |
$23,839.00 |
$ 24,082.00 |
$ (243.00) |
-1.01% |
|
Current Liabilities |
$ 1,304.00 |
$ 1,941.00 |
$ (637.00) |
-32.82% |
|
Current Assets |
$ 1,079.00 |
$ 4,042.00 |
$ (2,963.00) |
-73.31% |
|
Total Non-Current Assets |
$22,760.00 |
$ 20,040.00 |
$ 2,720.00 |
13.57% |
|
Total Non Current Liabilities |
$ 7,510.00 |
$ 5,482.00 |
$ 2,028.00 |
36.99% |
|
Shareholders Equity |
$15,025.00 |
$ 16,659.00 |
$ (1,634.00) |
-9.81% |
As per the above table it can be said that year 2015 was proved to worst year for the Woodside Energy Limited as there was major collapsed in the capacity of the company due to international downfall of commodities prices. The value of current assets has been reduced to 1079 million dollar in year 2015 as compare to 4042 million dollars in year 2014, showing an overall downfall by 73.31%. As compare to current assets there was not much downfall in the value of current liabilities in year 2015. The value of current liabilities has moved by only 32.82 % that shows current ratio has moved downwards in year 2015 as compare to year 2014. The value of shareholders equity has also moved downwards due to change in value of various reserves that company has created for future expansion plans (Annual report: Woodside Energy Limited, 2015).
The financial statement related to change in equity shows the balances of various items that make up the value of shareholders equity. Some of the major items are issued capital, foreign exchange reserves, retained earnings etc. This statement is highly important as provides information about the major components that are involved in making the equity capital. It shows all the major items that make up the net worth of company as it represents total assets less total liabilities.
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Trend Analysis in the Statement of Change in Equity Of Woodside Energy Limited |
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Major items in statement of change in equity |
2015 |
2014 |
Net Increase of Decrease in value |
% Increase or Decrease in respect to year 2015 |
|
Equity Share Capital Issued |
$ 5,064.90 |
$ 4,850.10 |
$ 214.80 |
4.43% |
|
Number of Shares |
822,943,960 |
822,771,118 |
172842 |
0.02% |
|
Foreign Currency Reserve |
$ 776.00 |
$ 773.00 |
$ 3.00 |
0.39% |
|
Retained Earnings |
$ 6,743.00 |
$ 8,447.00 |
$ (1,704.00) |
-20.17% |
|
Non Control Interest |
$ 799.00 |
$ 783.00 |
$ 16.00 |
2.04% |
|
Employee benefit Reserves |
$ 187.00 |
$ 161.00 |
$ 26.00 |
16.15% |
The above table list down all the major components that form the value of shareholder’s equity of Woodside Energy Limited. Having looked the table it can be said that there some minor changes in the items of statement except in case of retained earnings. The value of retained earnings has been decreased by 20 %in year 2015 that shows that company has suffered the great deficit in the net profits of the company (Baker and Powell, 2009). The management of Woodside Energy Limited has also decided to increase the amount of reserves in respect of Employee Benefits (Annual report: Woodside Energy Limited, 2015).
The statement of profit and loss account shows the balances of items that show the company profitability position over the period of time. It shows the balances of revenue, cost of goods sold, net income tax paid, net income, Earning per share etc. This statement is very useful for the investors as it shows efficiency of the company in earning the profits. Performing trend analysis on the profit and loss statement helps the management to forecast the value of future earnings (Stice, Stice, and Swain, 2007).
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Trend Analysis in the Statement of Profit and Loss Of Woodside Energy Limited |
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Major items |
2015 |
2014 |
Net Increase of Decrease in value |
% Increase or Decrease in respect to year 2015 |
|
Revenue |
$ 5,030.00 |
$ 7,435.00 |
$ (2,405.00) |
-32.35% |
|
Cost of Goods Sold |
$ 3,073.00 |
$ 2,883.00 |
$ 190.00 |
6.59% |
|
Earning per Share (In US Cents) |
$ 3.20 |
$ 293.40 |
$ (290.20) |
-98.91% |
|
Income Tax |
$ 112.00 |
$ 1,061.00 |
$ (949.00) |
-89.44% |
|
Finance Cost (Interest) |
$ 89.00 |
$ 178.00 |
$ (89.00) |
-50.00% |
|
Net Income |
$ 113.00 |
$ 2,516.00 |
$ (2,403.00) |
-95.51% |
Above table contains all the major items of profit and loss account of Woodside Energy Limited in year 2014 and 2015, along with increase or decrease in balances. On making the overall analysis of the profit and loss account it can be said that Woodside Energy has suffered great downfall in the revenue due to poor market conditions and low performance of management. It can be said that management has not taken any decision regarding the influence of international change in commodities prices (Adams, 2006). There has been 32.35% downward shift in the total revenue of company that reflects the poor profitability position in past few years. It is interesting knows that despite of fall in fall in total revenue, the cost of good sold has risen up by 6.59% and it can be said worst situation for the company in year 2015 (Annual report: Woodside Energy Limited, 2015).
Cash flow statement tends to analyze the cash generated or used by operating activity, financing activity and investing activity (Needles, 2012). Operating activity list downs the items that are directly related to the core business activities and it only shows actual movement of cash in the company. Financing activities list down the items that are related with financing of business such as issue of share capital, issue of debt bond, dividend paid etc. Investing activity list down the items that show the investments made by the company in fixed assets, financial securities and also lists the sales proceed from sale of all these assets.
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Trend Analysis in the Statement of Cash Flow Of Woodside Energy Limited |
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Major items |
2015 |
2014 |
Net Increase of Decrease in value |
% Increase or Decrease in respect to year 2015 |
|
Net cash inflow (outflow) from operating activities |
$ 2,376.00 |
$ 4,785.00 |
$ (2,409.00) |
-50.34% |
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Net cash inflow (outflow) from financing activities |
$ (58.00) |
$ (3,119.00) |
$ 3,061.00 |
-98.14% |
|
Net cash inflow (outflow) from investing activities |
$ (5,456.00) |
$ (617.00) |
$ (4,839.00) |
784.28% |
|
Net increase (decrease) in cash during the year |
$ 122.00 |
$ 3,266.00 |
$ (3,144.00) |
-96.26% |
This table clearly shows the cash generated or used by all three activities performed in Woodside Energy Limited. There was about 50% downfall in cash provided by the operating activity and it was normal looking at the profitability performance of the company in year 2015. Management at Woodside Energy Limited has decided to expand the business and lower the expenses, therefore they have invested quite a huge amount in plant and machinery and it was about 784% more than previous cash value. Cash used by the financing activity has also got reduced by 98 % and it clearly tells that company has not paid any borrowing in year 2015 (Annual report: Woodside Energy Limited, 2015).
The company financial condition has been declined in the year 2015 as evaluated from reviewing its financial statements. The company is provided following recommendations for raising its financial performance in the future. In this context, the company is regarded to create strategic fit between its aims and objectives and the financial resources available. This can be attained by the company by prioritizing its value chain activities and eliminating the non-value adding activity from its supply chain. This will largely prove to be beneficial for the company in reducing its operational cost and maximizing its effectiveness. The company’s profitability has been largely negatively impacted by the downfall in the international oil and gas sector in the year 2015 (Stice, Stice, and Swain, 2007). As such, it needs to implement effective strategies for minimizing its operational cost for maximizing its performance. Thus, aligning the company’s strategic objectives with the financial resources would enable it to lower down its cost of goods produced thereby enhancing its profitability.
In addition to this, as analyzed from the financial statements review of the company it incorporates larger debt proportion in the capital structure as compared to that of issuing equity shares. This is not a positive sign for the company’s growth in the future context as it will increase its financial leverage. The increase in financial leverage can impact the company’s ability to cover up its debt obligations in case of occurrence of any contingency condition. In this direction, the company is recommended to increase shareholder’s equity and reduce debt obligations in developing the capital structure. This will help the company to reduce the business risk and thus improve its profitability position. The company’s reserves and retained earnings are also not increasing as analyzed from its financial statements review. This can prove to be harmful for the company to meet its debt obligations in the future context. The company is thus recommended to implement strong measures for improving its reserves and retained earnings.
Conclusion
The overall discussion held in the report inferred that Woodside Energy Limited financial performance is declining recently. The main reason responsible for the decrease in share prices of the company is reduced profitability of oil and gas sector on an international level. This is impacting the company’s performance as well causing a strong decline in its profitability as can be seen from its financial statements of the year 2015. The company is thus recommended to take effective steps in the report for improving its financial performance in future context. On the basis of the financial position analyzed, it can be stated that investors should not buy the shares as its profitability position is predicted to decline in the future. This can be seen from the negative growth trend of oil and gas sector internationally that will cause a decline in the profitability position of Woodside Energy Limited. The main aim of developing the report is fulfilled by reviewing the different items of the financial statement of the company so that its performance can be assessed and economic decision can be drawn. Financial statements analysis has provided all the information regarding the financial position, changes in equity, performance and cash generated by the company. All these details would prove to be largely beneficial for the investors to make the opinion on investment decision and act as proper guide to them.
References
Adams, D. 2006. Management Accounting for the Hospitality, Tourism and Leisure Industries: A Strategic Approach. Mason: Cengage Learning.
Annual report 2015. Woodside Energy Limited. [Online]. Available at: www.woodside.com.au/Investors…/17.02.2016%202015%20Annual%20Report.PDF [Accessed on 23 September, 2016].
Baker, H. K. and Powell, G. 2009. Understanding Financial Management: A Practical Guide. Oxford: John Wiley & Sons.
Needles, B. E. 2012. Principles of Accounting. Cengage Learning.
Stice, J. D., Stice, E. K. and Swain, M. R. 2007. Accounting: Concepts and Applications: Concepts And Applications. Cengage Learning.
Stone, P. 2003. Understanding Financial Accounts: Understanding the Principles and Practice of Accounting – from Book-keeping to VAT. United Kingdom: How To Books Ltd.
Woodside. 2016. [Online]. Available at: https://www.woodside.com.au/About-Us/Pages/Strategy.aspx#.V-a8oIh97Mx [Accessed on: 25 September 2016].
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