In today’s world, with the transition to a market economy many entrepreneurs and business leaders start to think more carefully about the way of efficiently organizing financial activities of the company, improving the management of financial resources and differentiating company’s policies and performance for firm’s future prosperity. This term paper addresses such issues for Gymnasia’s Exploration Production Company by the analysis of firm’s structure, corporate governance, financial statement and all other Important factors that determine a flannel condition of the company.
A. Objective The main goal of this work is to obtain a small number of the key and most informative parameters that give objective and accurate picture of the financial condition of the SC “Gymnasia’s Exploration Production” (hereinafter “Sunglasses PEP”) company, evaluate its attractiveness for the potential Investor and make further recommendations on possible Improvements.
Specific objectives for each chapter of the term paper are the following: 1) Corporate Governance of the firm This chapter focuses on examination of the way corporate governance of Gymnasia’s is organized and learning about major goals, responsibilities and leslies, by which shareholders, board of directors and management of the company guide their performance and behavior. ) Financial Statement Analysis and Capital structure of company The purpose of these chapters Is to Identify weaknesses and strengths In financial position of the Gymnasia’s PEP via examination of its working capital policy, liquidity position, changes in the structure of assets and liabilities, in settlements with debtors and creditors. ) Dividend policy The objective of this section of term paper lies in studying Gymnasia’s dividend logic in terms of types of dividends paid to the company’s shareholders, trends in dividends payments for the period of 2008 to 2012 and the attractiveness of firm’s dividend policy for the potential investors. 4) Capital Asset Pricing Model This chapter of project Involves estimation of Gymnasia’s cost of capital and risk of Its stock In order to evaluate the attractiveness of this stock for potential Investor.
B. Scope and source of data The scope of the project covers mainly estimation of financial ratios of Gymnasia’s PEP covering Du Pont analysis, working capital polices, capital structure, dividend logic and other financial ratios. Moreover, our research group focuses attention of in order to assess its attractiveness for the investor. All necessary data for assessing financial conditions of Gymnasia’s is retrieved from financial reports placed on official website of the company, Astrakhan Stock Exchange.
Information for Capital asset pricing model (CAMP) and estimation of such variables as beta and market risk premium and figure of risk free rate was obtained from hypochondriac. Com, EASE and National Bank (N.B.) website and reports of financial analysts such as Central Securities. C. Methodology Methodology part involves trend analysis of company’s development over last three years and comparative analysis of obtained results to the available industry average figures by use of financial ratios, as financial ratios are useful tools to measure the firm’s performance in terms of profitability, solvency, liquidity and stability. D.
Limitations One of the main limitations of this paper is an absence of necessary data. Hence, needed information was obtained from variety of sources, which is not merely official N.B. site of the companies, but also EASE, N.B. web site and reports of different investment companies, which may result in inaccuracy of estimations. Moreover, little information is available to the general public regarding industry average and benchmarks of financial ratios for Astrakhan oil and gas sector. All these factors served as challenge for the research group to make a careful analysis of the company’s performance and financial strength.
E. Significance of the issue rhea significance of this study lies in illustrating to the company’s management the Insaneness in firm’s policies regarding use of financial resources, selection of resources or amount of acquired external funding and stock performance on the market. Therefore, the ultimate findings of this project are important for the company’s administration in a sense that they may assist to identify inefficiencies in firm’s performance and eliminating these weaknesses for the further successful development of the company.
Finally, this project is valuable for potential investors “ho consider investing in local companies as it will allow them to learn and evaluate investment opportunity in stock of Gymnasia’s. II. Findings and Analysis rife description of the company Gunnysacks, which belongs to National Wealth Fund В«Samara-ZanyВ». KM PEP Nas founded in March 2004 by the merger of two hitherto Joint stock companies, Gauziness’s and Ambiguities. SC “PEP “Zigzagging” is a leading company in the field of hydrocarbon exploration and production in Astrakhan, and among the leaders of the oil and gas sector in the Caspian region.
The main activities of oil and gas properties carried out in the Caspian and Misstating basins of western Astrakhan. SC KM PEP has production branches Gauziness’s and Ambiguities, also Germanium ALP, CITE Canada Energy Limited (holds 94% in SC Christianizing) and KM PKZIP Finance BE (holds 33% in Photostatting Inc. ). rhea company is developing 41 oil and gas fields. Gauziness’s develops two major fields, Ambiguities – a group of 39 fields. In addition, the Company owns shares in associated companies engaged in production oil and natural gas. KM PEP is one of the top three oil producers in Astrakhan.
The production volume of the Company, including shares in companies ALP “JP” Germanium, CELL ( Christianizing) and Photostatting, in 2012 was 12. 2 million tons (247 thousand barrels per day). KM PEP mission is effective exploitation of hydrocarbons in order to maximize the benefits to shareholders, whilst providing long-term economic and social benefits for the regions of our operations. The main objective of KM PEP is the increase in shareholder value. KM PEP seeks to achieve value growth through growing reserves and production of hydrocarbons, improving profitability of existing assets, and developing new business opportunities.
A. Corporate Governance of Gymnasia’s The total number of KM PEP shares of which are ordinary voting shares and 4,136,107 are preference shares. Almost 57,9% of shares belongs to SC NC KM, others are treasury shares(8,1 %), free float ordinary shares 131 , 1 %) and preference shares (2,8%) (Structure of the company’s shareholders is attached in Appendix A). According to Code the Corporate Governance of the company based on the principles of fairness, honesty, responsibility, transparency, professionalism and competence.
It highlights also: principle of protection of rights and interests of the one shareholder; principle of transparency and objectivity of disclosure of information on the Company’s activity; principle of independent activity; principles of legality and ethics; principles of effective dividend policy; principles of effective management the Board of Directors and Executive Body; principles of effective HRS management; environmental protection; policy of regulation of corporate conflicts rhea Code states that – the member of Board of Directors is elected by shareholder only for 3 years or as decided by shareholders.
The activities of the Board of Directors shall be based upon the principle of maximum safeguarding the interests of its shareholders and aimed at increasing of the market value of the Company. The activities of The Board are also regulates by By-Laws on the of Board of Directors. The There are 6 Directors in SC Gunnysacks PEP; two of them are independent Directors Organizational chart is attached in Appendix B). rhea Management Board shall carry out the governance of the day-to-day work of the Company and ensure its correspondence with the business-plan and strategic plan of the Company’s development.
Members of the Management Board do not have shares/participation interests in the authorized capital of company and its subsidiary and dependent entities. There are 5 members of Management Board: Bat Nurseries-Chief Executive Officer; Benjamin Fraser -Managing Director – Financial Controller; Mali Syllabus- Managing Director for Legal Issues; Basket Imbalance- Deputy General Director for Production; Footage Kwashiorkor-Managing HRS Director. It must be noted the Corporate Governance Code is reissued recently, thus the company continuously improving the quality of corporate management.
According to rating agency Standard &Poor’s the Company’s system of corporate governance is rated as GAMMA-6 as of 01. 02. 2010. The Remuneration According to Code there should be a formal and transparent procedure on executive remuneration and for fixing the remuneration packages of individual Directors. No Director should be involved in deciding his or her own remuneration. The Remuneration Committee should consult the Chairman and/or CEO about their proposals relating to the remuneration of other Directors.
The Remuneration Committee shall recommend the level of remuneration for the Directors and the members of the Management Board relative to levels of remuneration in other similar companies. But it shall use such comparisons with caution, in view of the risk f upward ratchet of remuneration levels with no corresponding improvement in performance*. If there is a plan to offer share options, it must be offered at market price; a plan to grant options for the Board should be permitted by shareholders. Share options are not granted to Independent Directors*. *All data regarding Gymnasia’s PEP was retrieved from (http://www. MPEG. KHz/ 3. Financial statement analysis of KM PEP 1) Working capital Policy and liquidity management Morning capital is a total of all firm’s current assets, which involves cash, marketable securities, accounts receivables and inventory. Different firms use different companies prefer to follow aggressive working capital policy by holding minimum amount of current assets, others use conservative policy, which means having excess amounts of cash and inventory on hand to meet unexpected needs or obligations of a firm, and some companies try to use mix of these two policies.
Working capital policy can be assessed by estimation of short-term solvency or liquidity ratios, which measure the ability of the firm to repay its short-term obligations without undue stress (Hillier, Ross, Westfield, Gaffe &Jordan, 2010). By definition, this category of otiose is of particular interest to the short-term creditors, and should be carefully managed by company’s management. Moreover, it is useful to calculate current assets to sales ratio to see how efficiently the firm uses its assets. All these indicators provide an inside to the type of the working capital policy used by Gymnasia’s PEP. He Tablet below shows the results for Zigzagging company: Table 1 For 2010 For 2011 For 2012 in thousands of KATZ n thousands of KATZ in millions of KATZ Current Assets 516 178 554 581 303 753 333 057 Current Liabilities 169415608 169 425 506 184 556 Cash and cash equivalents 8 519680 206 511 923 1 54 705 Inventory 18 779 936 22 651 421 25 058 Net working capital 446 762 946 511 878247 748 501 Current ratio = Current Assets/Current Liabilities 4,02 Quick ratio = (Current Assets – Inventory)/Current Liabilities 3,53 3,89 4,92 Cash Ratio = Cash/Current Liabilities 158 Ninth regard to the obtained results, it is clear that Gymnasia’s uses very conservative working capital policy by holding significant amount of current assets on hand. During the last three years, the asset management becomes even more conservative, as level of current assets increase significantly by more than 50% in 012 in comparison to 2010. Moreover, with regard to estimations, the level of current assets was 3 times higher than amount of current liabilities of the company, and this figure raised to 5 in 2012. Even, the most radical liquidity measure such as cash ratio Indicates that merely cash of Gymnasia’s constitutes around 85% of firm’s liabilities.
Hence, in accordance with obtained results, it is clear that Gymnasia’s PEP uses highly conservative working capital policy, which results in high liquidity of TTS assets, and as a consequence, in lower risk of not being able to meet short-term ills as they are due. 2) Profitability and DuPont analysis of Gymnasia’s PEP Profitability ratios assess the ability of a company to generate an adequate level of earnings and cash flows relative to the amount of money invested (Palaver, n. D. ). These ratios assist us to measure how efficiently Gymnasia’s PEP uses its assets and how effectively it manages its operations. By virtue of this reason, return on assets BOA) and return on equity (ROE), using the DuPont approach, are estimated.
In accordance with Gymnasia’s income statement, the revenues of the company are increasing from year to year, however the operating expenses are growing inconsiderably from 330,605,629 tinge to 557,189,529 tinge, which reduces operating income and causes decline in company’s profitability and return on equity. Moreover, decreasing figure of Equity Multiplier indicates that Gymnasia’s uses less financial leverage, and relies more on equity to finance its assets rather than debt, which may Ninth regard to DuPont analysis of Gymnasia’s, it is possible to consider that the profitability of the company is declining as well as its risk due to the less amount of debt used by the company. Such findings actually Justify the analysis of working UAPITA policy of the company and liquidity management. To explain, conservative policy leads to high level of assets’ liquidity and consequently, to lower risk of being unable to repay short term obligations.
Since risk and return variables usually move n opposite directions, as company accepts lower risk, it experiences decreasing returns on its assets. C. Capital structure of Gymnasia’s Exploration Production In accordance with the Modeling-Miller theory, proposed by Franco Modeling and Morton Miller, in existence of an efficient or perfect market, capital structure policy is relevant to the company’s value. To explain, in a perfect market with no transaction or bankruptcy costs, all information available and absence of taxes, companies and individuals can borrow at the same interest rate, and, as consequence, investment decisions are not influenced by financing decisions (Tobago, 2008).
However, in the real world, the existence of such imperfections as bankruptcy costs, agency costs, taxes, information asymmetry provide the ground for capital structure policy relevance. To evaluate Capital structure policies of Gymnasia’s, it is useful to estimate and analyze financial leverage or so called capital structure ratios. This type of ratios measure the ability of the business to meet its long term debt obligations involving interest payments on debt, principal amount and all other fixed obligations palaver, n. D. ). The results will illustrate how much debt Gymnasia’s uses to finance total assets and what mix of debt and equity firm prefers.
Tern paper concentrates on evaluation of debt to equity, total debt, interest coverage and cash coverage ratios. rhea estimations illustrated in table below, show that the amount of debt in imprison with equity used by Gymnasia’s PEP decreases during the past three Hears, so if in 2010 Gymnasia’s utilized 23. 2 % of debt and 76. 8% of equity, in 2012 the percentage of own capital used by the company to finance its assets has increased to almost 80%. Moreover, debt to total assets ratio also indicates that the level of financial leverage used by the firm has fallen from approximately 19% to 14. 5%, which means that Gymnasia’s acquires 5% less debt to finance its assets.
Hence, the ability of the company to cover its interest expense is dubitable, as its earnings exceed the interest 45 times, while cash coverage ratio show even more radical results of cash amount of firm almost 55 times higher than its interest expense. So, with respect to estimated results, it is clear that Gymnasia’s prefers equity financing to the use of debt, which reduces its risk of being unable to meet its long term obligations and brings to the company all potential benefits of equity financing. To illustrate, due to the less amount of debt utilized by the company, Gymnasia’s not merely reduces its risk, it also decreases he probability of bankruptcy and associated costs that can be faced by the firm.
Main disadvantage of such capital structure policy is forgone tax shields on debt, as and return are moving in opposite directions, with falling use of debt financing and low risk level, Gymnasia’s may face decline in the overall value of the firm and return. D. Dividend policy of Gymnasia’s PEP Gymnasia’s issues both preferred and common stocks and in accordance with company’s statements, KM PEP has set a dividend policy to pay dividends on its ordinary and preferential shares equal in the aggregate of of after tax profit ported on its consolidated FIRS accounts. With regard to its policy, the Gymnasia’s PEP reserves the right to review and revise its dividend policy from time to time.
