Japaul Oil and Maritime Services (JOM) Plc is technically insolvent as its total liabilities of N51.41 billion as at September 2017, exceeded total assets of N27.10 billion.
This resulted in a negative shareholders fund of N24.31 billion in the period under review.
Negative shareholder equity on a company’s balance sheet is a red flag that should prompt potential investors to take a closer look before committing their money.
Negative stockholders equity arises when a firm has been recording recurring losses and such losses are gradually eroding the owner’s value.
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Japaul Oil has negative retained earnings of N40.54 billion, validating the above paragraph that the company has recorded more losses than profit since its existence as a corporate entity.
For the first nine months through September 2017, the Maritime service firm recorded a loss after tax of N4.49 billion as against N3.40 billion the previous year.
Sales dipped by 27.85 per cent to N1.01 billion in the period under review as against N1.40 billion the previous.
The firm attributes weak sales to weak economic fundamentals that hit the oil and gas sector with its impact on the maritime industry.
A sharp drop in the oil price since the mid-2014 and a severe dollar shortage hit business hard as the country slipped into a recession, it’s first in 25 years.
However, the country existed a recession as GDP expanded by 0.55 per cent and 1.40 per cent in the first and second quarter, thanks to the relative calm in the Niger Delta region that saw a rebound in oil production.
Japaul Oil’s total expenses of N2.34 billion are more than revenues, which resulted in an operating loss of N1.79 billion.
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Operating expense ratio is 236.36 per cent in the period under review; which means the company has spent more on operating expenses in producing each unit of products.
Japaul Oil is highly geared or indebted as its capitalization ratio increased to 184.53 per cent in September 2017 as against 152.37 per cent as of September 2016.
A high capitalization ratio or gearing level means the large chunk of the firm’s balance sheet is financed by via debt. In other words, the firm is exposed to financial risk as it will have to pay a huge interest out of already battered earnings.
Japaul Oil’s finance costs or interest expense spiked by 131.68 percent to N2.69 billion in September 2017 from N1.16 billion as at September 2016.
The company’s share price has been stuck at N0.50 in the last six months while market capitalization stood at N3.13 billion.
BALA AUGIE
