POLITEHNICA University of BucharestFaculty of Engineering in Foreign LanguagesBusiness Administration and Engineering in IndustryAndrei U

Financial Management ProjectAnalysis of financial statements and position of

Student: Andrei U

Contents

1.Company presentation32.Financial Statements42.1Balance Sheet42.2Income Statement53.Financial Ratios Analysis63.1Liquidity Ratios63.2Solvency Ratios73.3Operating Ratios73.4Profitability Ratios84.Conclusions9

1. Company presentation

OMV Petrom S.A is the largest Romanian oil and gas company with activities divided into three branches: Exploration and Production, Refining and Marketing, Natural Gas and Energy. The three branches are actually the companys divisions of activity.OMV Petrom is the largest integrated oil and gas group in South-eastern Europe, with an annual oil and gas production of approximately 66 million boe (barrels of oil equivalent). The Group has a refining capacity of 4.2 million tons/year and owns an 860 MW high efficiency power plant and a 45 MW wind park. OMV Petrom is present on the oil products retail markets in Romania and neighboring countries through approximately 800 filling stations.OMV, Austrias largest listed industrial company, holds a 51.01% share in OMV Petrom. The Romanian state, via the Ministry of Economy, holds 20.64% of OMV Petrom shares, the Property Fund (Fondul Proprietatea) holds 18.99% and 9.36% is free float on the Bucharest Stock Exchange.In the last nine years investments for the consolidation and modernization of OMV Petrom amounted to EUR 10 bn. The annual direct, indirect and induced impact of OMV Petrom in Romanias GDP is around 5%.Figure 1 OMV Petrom S.A shareholder structure

OMV Petrom S.A is registered at the Commerce Register of Romania with the following number: J40/8302/1997 and has the following CUI (Unique Code of Registration): 1590082. Its main headquarters Petrom City - is located in Bucharest, Romanian on 22, Coralilor Street.Since the 1st of December 2014, I am an employee of OMV Petrom S.A, working as a Junior Construction Engineer (Mechanical) in the Exploration & Production division Development business unit Projects & Engineering department Construction Management service.Figure 2 Petrom City, OMV Petrom SA HQ

2. Financial Statements

In this chapter I will analyse the two main financial statements of the company, as they are presented in the Financial Report for the year 2013, made by the tax and audit company E&Y (Ernst & Young), available at OMV Petroms website and attached as an annex to this project.2.1 Balance Sheet

A balance sheetorstatement of financial positionis a summary of the financial balances of asole proprietorship, abusiness partnership, a corporationor other business organization. Assets,liabilitiesandownership equityare listed as of a specific date, such as the end of itsfinancial year. A balance sheet is often described as a "snapshot of a company's financial condition stating what a firm owns and how it is financed.Figure 3 Balance Sheet of OMV Petrom S.A at 31.12.2013

The majority of the assets is consisting of Fixed Assets (88.6 % of Total Assets) and that is because the company owns a lot of property and equipment, necessary for the exploration of oil and gas reservoirs, and producing and refining petroleum products.The Net Working Capital of the company, at the moment in time that this balance sheet describes is described by the following formula:

It has a negative value, which could be considered a bad thing for the company, but considering the fact that OMV Petrom sells its products (gasoline, diesel, motor oils etc.) quite fast, without keeping them a long time in inventory, it doesnt necessarily need to keep cash as working capital.

2.2 Income Statement

Anincome statement(US English) orprofit and loss account(UK English)(also referred to as aprofit and loss statement(P&L),revenue statement,statement of financial performance,earnings statement,operating statement, orstatement of operations) is one of thefinancial statementsof a company and shows the companysrevenuesandexpensesduring a particular period.It indicates how the revenues (money received from the sale of products and services before expenses are taken out, also known as the top line) are transformed into thenet income(the result after all revenues and expenses have been accounted for, also known as net profit or the bottom line). It displays the revenues recognized for a specific period, and thecostandexpensescharged against these revenues, including depreciationandamortizationof variousassets andtaxes. The purpose of the income statement is to showmanagersandinvestorswhether the company made or lost money during the period being reported.

For the year investigated by this income statement (2013), the company registered an important Net Income (Net Profit), with a value of 4,839,330,000 RON. The Net Income is the bottom line of the Income Statement.Figure 4 Income Statement of OMV Petrom S.A at 31.12.2013

3. Financial Ratios Analysis

Financial ratios are useful indicators of a companys performance and financial situation. Most ratios can be calculated from information provided by the financial statements (in our case, the Balance Sheet and Income Statement). Financial ratios can be used to analyze trends and to compare the firms financial results with the competition and in some cases the ratios can predict future bankruptcy,Financial ratios can be classified according to the information they provide, and I will use the following types of ratios: Liquidity ratios Solvency ratios Operating ratios Profitability ratios

3.1 Liquidity Ratios

Liquidity ratios provide information about a firms ability to meet its short-term financial obligations such as debt payments, payroll and accounts payables (short-term solvency)Figure 5 Liquidity ratios of OMV Petrom SA at 31.12.2013

The Current Ratio measures if current assets are sufficient to cover short-term obligations. We can see that the value of this ratio is 0.952 which can be a sign of trouble since is less than 1, but it may also mean that the firms assets are working to grow the business.The Quick Ratio (Acid Test) measures the companys ability to meet its obligations without considering the inventory which can be hard to liquidate. The ratio tells us that using its cash, cash equivalents, accounts receivables and other financial assets, the company is able to cover only 62.4% (0.624) of its short-term debt, which is not a good think.The Cash Ratio tells us how much of the companys short-term debt can be paid using only its cash or cash equivalents, if immediate payment is needed. On 31st of December 2013, OMV Petrom was able to cover only 23.3% of its short-term debt using cash or equivalents which is a sign of trouble in the eyes of the creditors of the company.

3.2 Solvency Ratios

The Solvency (or Financial Leverage) ratios provide information about the companys ability to meet its obligations using debt to pay its operations and how easily it can cover the costs involved by long-term debt.

The Debt to Equity ratio measures the extent to which the company is using borrowed money to enhance the return on owners equity. Basically, for every 1 RON in equity, the company has a debt of 0.487 RON (48.7 %)Figure 6 Solvency ratios of OMV Petrom SA at 31.12.2013

The Interest coverage ratio assesses the margin of safety on the companys long-term debt, by computing the ratio between the companys earnings (EBIT) and the interest for its debt. The ratios value for OMV Petrom is 13.925 meaning that the company can pay almost 14 times the interest for its debt, using the money earned before paying taxes, which is very attractive for its long-term creditors.

3.3 Operating Ratios Operating or asset management ratios help the management of a company to assess the level of efficiency in using its assets and how well they are put to work in order to generate sales and income.Figure 7 Operating ratios of OMV Petrom SA at 31.12.2013

The Asset turnover ratio shows how efficiently the company uses all of its assets to generate revenue. The value of the ratio tells us that every 1 RON invested in assets will generate sales of 0.465 RON. Usually the higher the better, but a low value can also indicate that a high investment in assets has been made.Receivable Days (or Average collection period) ratio tells us how quickly the company collects funds owed by customers (accounts receivables). As we can see, on average, OMV Petrom collects its credit sales in almost 26.5 days.Days payable ratio tells how quickly the company pays its suppliers. A high value means that the company has more cash to work with, considering a lower value for receivable days. It takes OMV Petrom, on average, almost 74 days to pay its suppliers. Compared to the 26.5 days on average needed to collect receivables, it means that the company is efficiently managing its cash.Days in Inventory ratio shows how quickly the company sells its inventory during a given period of time, and in OMV Petroms case, it takes a bit over 51 days on average to sell its inventory, which is a good value, considering the Receivable and Payable Days.

3.4 Profitability Ratios

These ratios offer several different measures of the success of the company at generating profit by telling how efficiently it uses its assets and manages its operations. The focus is on the net income which is the bottom line.

The Profit Margin measures how much out of every RON of sales the company actually keeps in earnings. A higher profit margin is usually the better case, but it depends on the industry, the market, the volume of sales and other factors. OMV Petroms profit margin for 2013 was 26.8%, meaning that for every 1 RON in sales, it made a profit of 0.268 RON.Figure 8 Profitability ratios of OMV Petrom SA at 31.12.2013

The Gross Profit Margin shows how efficiently the company produces its goods and delivers its services, taking only direct costs into account. The value of 35.9 % basically tells that for every 1 RON in sales, the company has 0.359 RON (almost 36 Bani) to cover basic operating costs and make profit. Although the two profit margins may seem low, considering the fact that from the selling price of fuels (which is an important good sold by OMV Petrom SA) the state takes almost 30 %, the company is managing its operating very efficiently in order to make profit.Return on Assets (ROA) indicates how well the company is using its assets in order to generate profit. OMV Petroms return on assets has a value of 12.4% which is above the industrys average (almost 11.4%). Basically, the number means that for every 1 RON invested in assets 0.124 RON of net income will be generated.Return on Equity (ROE) shows profit as a percentage of the shareholders equity and in essence is the owners return on their investment being the true bottom-line measure of the performance for the shareholders. OMV Petrom generated 0.185 RON of profit for every 1 RON invested by the shareholders (18.5 %), which is above the average for integrated oil & gas companies (the average value is 18.31 %).

4. Conclusions

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