Keeping businesses afloat in Nigeria’s downstream oil and gas sector has become extremely tough, especially after a pandemic era. A lot of companies have divested and the few existing ones have reduced their labour force to stay in business.
Few companies who have struggled to stay in business have witnessed a significant decline in bottom lines, while others cut dividends to shareholders following dwindling fortunes occasioned by the difficult operating environment.
Despite these challenges, Total Energies, one of Nigeria’s downstream firms is expanding its midstream and downstream footprints across Nigeria with extensive investment in oil and gas infrastructure.
The firm saw a 7 percent dip in profit to N12.5 billion from N13 billion in the nine months of 2021.
The firm’s revenue however surged to N337.2 billion in the nine months of 2022, indicating a 39.2 percent increase from N242.2 billion in the comparable period of 2021.
Total Energies’ cost of sales took out 86.7 percent of the total revenue worth N337.2 billion in the nine months of 2022.
The firm’s cost of sales climbed to N292.5 billion in the nine months of 2022, up 45 percent from N201.6 billion recorded in the same period of 2021.
Further analysis revealed the contribution of the revenue segment which includes Petroleum products and Lubricants and others which contributed N245.5 billion(72.8%) and N91.6 billion(27.1%) to the total revenue of N337.2 billion.
Here are seven metrics to measure the firm’s performance in nine months.
Cost of sales ratio
Total Energies saw its cost to sales take out 86.76 percent of its revenue between January to September 2022, this indicates 352 basis points increase from 83.24 percent in the preceding year.
The cost of sales ratio is a financial ratio that compares a company’s expenses generated by sales activity to its revenue.
Gross margin
Total Energies’ gross margin dropped to 13.2 percent in January to September 2022 from 16.8 percent in the same period of 2021.
Gross margin is the amount of money a company retains after incurring the direct costs associated with producing the goods it sells and the services it provides.
Working Capital
Total Energies’ working capital was N5.21 billion in the nine months of 2022. This implies the firm has N5.21 billion at its disposal in the short term if it needs to raise money for a specific reason.
A positive working capital means the company’s current assets are more significant than its current liabilities. The company has more than enough resources to cover its short-term debt, and there is residual cash should all current assets be liquidated to pay this debt.
Negative working capital is an indicator of poor short-term health, low liquidity, and potential problems paying its debt obligations as they become due.
Earning before interest and taxes (EBIT)
Total Energies earnings before interest and taxes dipped slightly by 0.96 percent to N20.56 billion from N20.76 billion.
EBIT measures the profit a company generates from its operations making it synonymous with operating profit. By ignoring taxes and interest expense, EBIT focuses solely on a company’s ability to generate earnings from operations, ignoring variables such as the tax burden and capital structure.
Return on sales
Total Energies’ return on sales dropped by 247 basis points to 6.10 percent from 8.57 percent in the nine months of 2021.
Return on sales is a ratio used to evaluate a company’s operational efficiency. This measure provides insight into how much profit is being produced per naira of sales.
Operating cash flow ratio
The firm’s operating cash flow ratio dropped to a negative of 0.17 between January and September 2022 while 0.20 was recorded in the same period of 2021.
The operating cash flow ratio is a measure of the number of times a company can pay off current debts with cash generated within the same period. A high number, greater than one, indicates that a company has generated more cash in a period than what is needed to pay off its current liabilities.
Current ratio
Total Energies current ratio stood at 1.02 in the nine months of 2022, this is coming from 1.0 in the nine months of 2021.
The current ratio is a liquidity ratio that measures a firm’s ability to pay short-term obligations or those due within one year. It tells how a firm can maximize the current assets on its balance sheet to satisfy its current debt and other payables.
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