CALTEX

busin
AUSTRALIA – WOODSIDE PETROLEUM

Business Finance Report

INVESTOR ANALYST REPORT
Submitted by

2019
 Business Finance Report 2019

Executive summary

Long term growth, development, profitability and sustainability required efficient and effective
decision making and wonderful performance. For such results and outstanding performance
holistic evaluation is the key. Elementally, critical evaluation of any business necessitates
managerial teams/groups, investors/stakeholders. The credibility, accuracy, consistency,
transparency and relevancy are the basis of strong financials of a company.

Keeping all this information in consideration, business and financial analysis of two companies
working in the same sector i.e Caltex Australia and Woodside is done, as an analyst. The
comparative analysis details the managerial and financials comparisons providing sound
recommendations for the investor client to make his investment decision. The in-depth research
leads towards sharp and radiant conclusion, leaving the client to make his valuable decision of
choosing which company to invest and associate with.

The comparative analysis, charts, diagrams are extracted from company websites, news and
journal articles and academic books regarding the topic.

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 Business Finance Report 2019

Contents
Executive summary......................................................................................................................... 1
Introduction: .................................................................................................................................... 4
About the company: ........................................................................................................................ 4
Caltex Australia ........................................................................................................................... 4
History of Caltex ..................................................................................................................... 4
Organizational structure of Caltex:.......................................................................................... 5
Planning and controlling management systems: ......................................................................... 5
Woodside Petroleum ................................................................................................................... 5
History ..................................................................................................................................... 6
Tabular Comparative analysis ................................................................................................. 7
Factors for long term shareholder Value ........................................................................................ 7
Calculation and Comparison of selected performance ratios ......................................................... 8
Performance ratios....................................................................................................................... 8
Liquidity and profitability Ratio ................................................................................................. 8
Caltex Australia Profitability Ratios ........................................................................................... 9
Woodside petroleum Profitability ratios ................................................................................... 10
Liquidity ratios of Caltex Australia ........................................................................................... 10
Liquidity Ratios of Woodside petroleum .................................................................................. 11
Income statement analysis of Caltex ......................................................................................... 12
Income statement Analysis of Woodside petroleum ................................................................. 13
Share price movement Analysis.................................................................................................... 14
Relation between share price and investment ........................................................................... 14
Caltex’s share price Analysis .................................................................................................... 15
Woodside’s share price analysis ............................................................................................... 15
Comparative share price analysis .............................................................................................. 17
Calculation and Analysis of WACC ............................................................................................. 17
Comparison of current capital structure weights....................................................................... 17
Woodside Petroleum ...................................................................................................... 17
Caltex Australia .............................................................................................................. 18

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 Business Finance Report 2019

Weighted average cost of capital - calculation.......................................................................... 18

Capitalization ................................................................................................................................ 19
Capital structure Ratios ............................................................................................................. 19
Conclusion: ................................................................................................................................... 20
Recommendations ......................................................................................................................... 21
References ..................................................................................................................................... 22

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 Business Finance Report 2019

Caltex Australia and Woodside

Petroleum
Introduction:
Our company; ‘Blink Strategic Investment Group’ is providing a financial and business report
for a strong foreign investor. The companies analyzed and compared are Caltex Australia and
Woodside Petroleum. This report will widen investors information for immediate, wise and long
term investment decision making.

About the company:

Caltex Australia
Caltex Australia limited is a renowned fuel supplier and an integrated marketing company.
Caltex is known for offering its customers with products like fuel, diesel, biofuel and aromatic
blends. Caltex purchases, distributes, refines, and supplies the petroleum products. Caltex
Australia operates with initiating two major segments marketing and the supply chain. Caltex
Australia was founded in 1900 having its headquarter in Sydney Australia.

History of Caltex:

The history of Caltex fold back when Ampol , the oil importer was listed on Australia Stock
Exchange in the early year 1940. Both Ampol and Caltex were consistent competitors which
provided refinery services back then. With the passing time Ampol acquired companies like
Total and Caltex. The merger of Caltex and Ampol’s , made it the largest known refiner
company in Australia. The company has over 4000 current employment with highly skilled and
trained employees.

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Organizational structure of Caltex:

Planning and controlling management systems:

Planning and controlling systematic regulations require managers of Caltex and their
supervision. The latest and upgraded technology helps Caltex’s management to plan and then to
direct the planning of the company accordingly. Caltex has specific software named rocket
roster, rocket roster generates the salary or wages amount when the managers just enter the hours
they have worked. This has made controlling and planning properly managed with on time and
proper payments to the employees. Human resource management of Caltex congregates the
individual goals with the organization’s goals which make it a perfect fit for the company to
work in.

Woodside Petroleum:
Woodside petroleum is a Australian oil and gas exploration company. The company specializes
in development, evaluation and production of oil and hydrocarbons. The company has been
segmenting in six of the major segments. The segments include North West shelf business unit,

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 Business Finance Report 2019

Australia oil business unit, Pluto business unit, browse business unit United States business unit
and many others. Woodside petroleum operates in regions like China, Japan, Brazil, United
Kingdom, Australia and America. Woodside limited was founded on 26th July, 1954, having its
headquarter located in Perth Australia (Woodside.com.au, 2019).

History
Woodside petroleum was established in the year Australia discovered its oil range. Woodside’s
name was derived from a small town near victoria. The company aims in doing the right things
and delivering the most reliable service to attract the customer’s loyalty. The company aims in
maintaining strong position for providing higher returns to its shareholders and missionizes to
become the best oil refinery of the country (Woodside, 2018)

Corporate governance of Woodside petroleum:

Woodside petroleum has proper corporate governance and a maintained organizational culture
with the right blend of ethical, integral and moral aspects. Woodside aims to process long term
success with the valuing of every individual part of the corporate governance of the company.
The company’s core framework includes the strategic planning and implementation with
admiration, work balance, regulations, standards and quality maintenance of the company.
Below is the model of Woodside’s corporate governance:

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 Business Finance Report 2019

Tabular Comparative analysis

Caltex Australia Woodside petroleum

Founded in 1900 Founded in 1954

Headquarter in Sydney Headquarter in Perth

Stock code CTX Stock Code WPL

Fuel and petroleum suppliers Oil and gas exploration company

Share price declined Share price increased

Factors for long term shareholder Value:

Here’s a flowchart valuing the importance of shareholders, considerate by both the companies.

Long Term
Shareholder Value

Productivity Growth
Strategy Strategy

Expanding
Cost Asset Customer
Revenue
Structure utilization Value
Opportunities

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 Business Finance Report 2019

Calculation and Comparison of selected performance ratios:

Performance ratios:
Financial ratios are the most common tool to analyze the financial performance and position of
the companies. Fundamentally, they are retrieved from the company’s financial statements.
Financial ratios are defined as company’s determination of information for the financial
purposes.

Liquidity and profitability Ratio:

The external investors have questions, which they find important enough to be answered by the
company’s management. Taking an example, consider an investor wants to know the company’s
ability of an existing borrower as to the aspect of making decisions and principle payments.
Investors are keen enough to come up to an conclusion foreseeing the company’s future earnings
respective to its liquidation. In such case, financial statements analysis and cash flow movements
prove very insightful. According to Brigham and Houston (2009), perfect financial analysis
includes performance analysis showing the financial position and stability of the company.

Profitability Ratios:

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 Business Finance Report 2019

Liquidity Ratios

Caltex Australia Profitability Ratios

Ratios Formula 2016 2017 2018

Net profit Margin Net Income * 0.46 0.08 0.09
Net Sales
Return on assets Net Income *
(Beginning +
Ending Total 2.72 2.62 2.77
Assets) / 2
Operating income Operating Income -0.90 0.002 0.009
margin Net Sales

Return on Net Income *

investment Long-term 3.98 4.91 4.45
Liabilities + Equity

Return on equity Net Income *

Equity 5.89 5.02 6..7

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 Business Finance Report 2019

Woodside petroleum Profitability ratios

Ratios Formula 2016 2017 2018
Net profit Margin Net Income * 0.77 0.79 0.80
Net Sales
Return on assets Net Income * 3.59 3.93 4.15
(Beginning +
Ending Total
Assets) / 2
Operating income Operating Income 0.33 0.49 0.41
margin Net Sales

Return on Net Income * 4.71 5.23 5.84

investment Long-term
Liabilities + Equity

Return on equity Net Income * 6.00 6.60 6.96

Equity

Liquidity ratios of Caltex Australia

Ratios Formulas Year 2016 Year 2017 Year 2018

1.43 1.16 1.35

Current ratio Current Asset/
current liabilities

Liquid Assets/ 0.66 0.41 0.53

Quick Ratio current liabilities

Total liabilities/ 0.25 0.19 0.27

Debt/equity total equity

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 Business Finance Report 2019

Liquidity Ratios of Woodside petroleum

Ratios Formulas Year 2016 Year 2017 Year 2018

0.93 0.93 1.7

Current ratio Current Asset/
current liabilities

Liquid Assets/ 1.36 1.48 1.53

Quick Ratio current liabilities

Total liabilities/ 0.18 0,20 0.23

Debt/equity total equity

Liquidity and the profitability of a company share inverse relation. If one is increasing, the other
is decreasing. There are conflicts in the profitability and liquidity. The liquidity management
conceptualizes for receiving serious attention globally and all part of the economy. Managers and
the businessmen look forward for devise strategies of managing their daily operations and
increase the maximization of shareholder’s wealth.

Comparing the net profit, Caltex Australia has net profit lesser than Woodside and this shows the
company has been struggling with its profitability, this indicates higher and greater weightage of
liabilities in the company’s financials. On the other hand, Woodside petroleum’s financial ratios
are positive and in an increasing manner, giving Caltex an tough competition.

As per the analyzing, we think it is certainly not a good idea to make a decision of investing in
Caltex, as an investor, the profitability and return on investment is what matters the most and
unfortunately Caltex chart has been evaluated as declining, whereas Woodside petroleum is
definitely a better and surplus option to take notes of.

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 Business Finance Report 2019

Income statement analysis of Caltex

The table above shows income statement data of Caltex from previous three years and forecasted
data for the coming two years. As per the forecasted income statement, the company’s sales
income is slightly predicted to drop in 2020 as compared to the year 2019. But the yield,
operating profit and the net income of the will increase going from 550 in 2018 to 608 in 2020.

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 Business Finance Report 2019

Income statement Analysis of Woodside petroleum

Woodside’s annual income statement shows how well the company managed pulling its sales
back up from 3908 in 2017 to 5031 in 2018 ,and expected to increase even more in the coming
years going up to 5768 in the year 2020. Alongside, the yield, operating profit and sales are
positively in a supportive predicted manner for woodside petroleum.

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 Business Finance Report 2019

Share price movement Analysis:

Relation between share price and investment:

Investment and share price have are closely interlinked with the investment models. Managers
look forward to making decisions for investing when they see how well the investment can be
beneficial for the betterment of the company. Share prices reflect information to the investors
like how well the firm’s expected value is there what and how the share price movement of the
company is fluctuating. Increasingly, it has been recognized that the share markets are solely not
efficient and are likely to deviate after a while from the fundamental value of expectation.
Keeping this in mind, that the share prices which are not really fundamental can distort the actual
investment decisions and planning (Poterba et al., 1995).

Different researchers portray difference thoughts regarding the importance and relevant of share
price. Taking the example of (Chirinko and Schaller, 1996), they state that the management who
link or signify with the long term market value if the company are likely to ‘scrap the plans with
the response of highly volatile short run changes in the prices’ whereas on contrary there is
another part of literature which explains that the share price and its analysis helps in providing
core price signals to the main managers of corporate investment decisions (Fischer and Merton,
1984). If this would happen, the inefficiencies would lead to distorting the major investment
decisions. Managers can also benefit from the non-fundamental movement of the share prices.
This means that on analyzing if the managers know they are quite overvalued, they can strategize
by taking advantage of low cost of capital by issuing the capitalization of the firm (Fischer and
Merton, 1984).

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 Business Finance Report 2019

Caltex’s share price Analysis

(Marketscreener.com, 2019)

Caltex Australia is yet another company, which could not keep away the scandals approaching it.
The scandal of Caltex for underpaying its employees and for work exploitation has affected the
company’s shares very rapidly in a declining manner. As per the stock price, its analysis shows
that it has been doing good, but the fluctuations have led to serious decline from the past year
2018 till the current year 2019.

Woodside’s share price analysis

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 Business Finance Report 2019

Analysis:
Although Woodside is known as a high level competitor, the company has capitalization over $
30.4B. Woodside shares daily volume over 2 million shares for the dollar volume of $60 million
Aud. Despite being an Australian company, it deals in USD.

The research of the share price shows that there are many factors that affect the rising and falling
of the share price. There are chances that the stock price would also be affected by the various
economic factors like the interest rate, inflation, deflation etc. Similarly if the company borrows
money from a bank with higher interest, the cost of debt would also be higher resulting in
reduction in the dividends. In the case of Woodside petroleum, the stock price kept increasing
March 2018, going from $28.4 in January to $40 in September in months. The share price trend
of the company has shown positive and growing outcome, however during the financial year
2016 there has been continuous fluctuation from sudden decline to sudden increase back and
forth.

During 2018, in this one year the Woodside’s share price took height with almost doubling in
months. There are many reason as to which this sudden change might have happened. First of all
the reason can be that the earnings of the company has been increasing. The profitability trend
has been rapidly flowing positively. Secondly the greatness and easiness at which the customers
can avail their service i.e. products like fuel, petroleum and energy have made them
competitively stronger. Since Woodside has already maintained a competitive advantage, many
of the investors find it an attractive company to invest in as that demand also increases the share
price valuation.

Comparing both the company’s share price movement

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 Business Finance Report 2019

Comparative share price analysis:

According to the share price comparative analysis we can see that Woodside petroleum has been
doing tremendously better in the stock market as compared to Caltex. With unfortunate scandals
and fines Caltex current comparative share analysis shows negative 30% decline whereas
Woodside petroleum is at positive 20%. The difference is quite clear and vigilant from the trend
above.

The Woodside petroleum has purchased over 50% of the Scarborough gas asset from Mobil.The
Company’s purchase has also brought ownership to over 75% with higher expenses of
development as well. The company aims to keep itself tracked with more projects to come and
with production of over $100 million barrels of oil by the year 2020. All these strategies have
doubled Woodside petroleum’s profitability.

On the other hand, Caltex have cut their capital expenditures over 40% during the years 2014 to
2018. The major drawback was cutting the employee list dropping over 400,000 workers out and
letting them go. This not only led the Caltex’s management to revise their employee hiring plan
but it called the company out of many projects that were lined up, deferring them.

But fortunately the oil and energy sector has developed and turned out of emerging from the
turmoil it has been stuck in. yet still, Caltex Australia lags behind the pack with the growth that
is lower than 23.11% over the past years. The companies’ slow growth and effectiveness seems
unaware of the competition. The oil and energy company, Caltex has future expectations but it
may also experience expensive stock relative.

Calculation and Analysis of WACC

Comparison of current capital structure weights

 Woodside Petroleum
Current capital structure weight

The assets of the Woodside Petroleum are financed by the equity and debt.
Therefore, the capital structure would include the weights of equity and debt.

Weight of equity = E / (E+D)

= 22556.740/ (22556.740 + 50007.08687453)

= 0.8183

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 Business Finance Report 2019

Weight of Debt = D /(E+D)

= 5007.08687453/ (22556.740 + 5007.08687453)

= 0.1817

 Caltex Australia
Current capital structure weight

The assets of the Caltex Australia are financed by the equity and debt. Therefore,
the capital structure would include the weights of equity and debt.

Weight of equity = E / (E+D)

= 4689.520/ (4689.520 + 584.936948513)

= 0.8891

Weight of Debt = D /(E+D)

= 584.936948513/ (4689.520 + 584.936948513)

= 0.1109

While comparing the capital structure of Woodside Petroleum and Caltex Australia, it is
concluded that the weight of equity for Woodside Petroleum is less than the Caltex Australia.
Whereas the weight of the debt of the Woodside Petroleum is greater than the Caltex Australia.
The difference between the Weight of equity is 0.0708 and between weight of debt is 0.0708.
The difference is equal in both the cases.

Weighted average cost of capital - calculation

Woodside Petroleum

WACC = E/ (E+D) * Ke + D/(E+D) * Kd * (1-t)

= 0.8183(15%) + 0.1817(7%) (1-30%)

= 0.122745 + 0.012719(0.7)

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 Business Finance Report 2019

= 0.122745 + 0.0089033

= 0.1316483

= 13.16%

Caltex Australia

WACC = E/ (E+D) * Ke + D/(E+D) * Kd * (1-t)

= 0.8891(15%) + 0.1109(7%) (1-30%)

= 0.13336 + 0.007763(0.7)

= 0.13336 + 0.0054341

=0.138
The WACC of the Caltex Australia is higher than the Woodside Petroleum. The higher value of
WACC indicates that decrease in the valuation and increase in the risks.

Capitalization

Capital structure Ratios

These capital structured ratios however provide useful insight in the financing techniques used
by the company for its long term existence, continuity and solvency problem.

Ratios Formula Caltex (year2018) (Woodside petroleum

2018)
Total debt to assets Total liabilities/ total 0.53 0.38
assets
Capitalization ratio Long term debt/total 0.13 0.20
assets
Debt to equity ratio Total debt / total 1.05 0.63
equity
Interest coverage EBIT/ Interest 7.06 9.27
ratio Expense

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 Business Finance Report 2019

All short and long term debts are considered while analyzing the capital structure of any
business. After assessing the debt and equity from the balance sheet, we can see that Woodside
has higher leverage ratio which means it has aggressive capital structure. The aggressive capital
structure means the company tends to take risks more often and uses debts more equity to
finance the assets. Whereas Caltex Australia is known to have a lower leverage ratio which
means it has conservative capital structure and they are not risk takers that much.

Higher leverage can take Woodside petroleum to higher growth rate, which can be alarming for
Caltex. Caltex needs to mix and blend debt and equity.

Conclusion:

This business finance report comes to an conclusion by considering and supporting the
comparative analysis of both the companies. It is quite vigilant how effectively the upper
management runs the lower management provides support and motivation equally. Managers
strive for the achievement of reasonable level of the profitability. Therefore the report, concludes
that investing in Woodside petroleum is a wise decision, as comparison to considering Caltex
currently. Managerial and financial drawbacks have led Caltex face serious fall in its share price,
and profitability chart, but the strategizing ability and the determination of stabilizing the
business once again, can lift Caltex up.

Meanwhile, Woodside petroleum from the managerial and financial aspect is stronger, their
returns on assets and net margins are way higher than Caltex. Woodside’s debt level has been
constant. The constancy of debt along with generation of operating cash flow over $2.40 billion
indicates the operational efficiency of the company.

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Recommendations
After the research, both managerial and financial of both the companies, there are some
recommendations

There is a need for Caltex’s management to follow standards and principles which are highly
essential for operational excellence. Thus, we are aware of the fact that Caltex has been targeted
and fined for unethical procedures and manner of business. The aim of principles is to improve
the operating standards and environment with adaptation of change.

Other than that, concentration on equity prices by both the companies as a mechanism adoption
needs to push investors to realize the companies earning capabilities. Since equity rise has
increased contributing to about 30 percent of the financing requirements, Caltex and Woodside
should take it attentively strategizing around it.

Then, demand needs to be forecasted so that the companies know where they can lead serious
competitive advantage by focusing on their core competencies.

Effort •Expectancy

Performance •Instrumentality

Rewards •Valence

The WACC of the Caltex Australia is higher than the Woodside Petroleum. The higher value of
WACC indicates that decrease in the valuation and increase in the risks.

Performance of Caltex can improve by achieving maximum rewards with meeting maximum
expectations of the customers they serve and target. Howsoever quality leads quantity, and the
difference needs to be understood and realized.

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 Business Finance Report 2019

References
(WPL), W. (2019). Woodside Petroleum (WPL) Financial Ratios. [online] Investing.com.
Available at: https://www.investing.com/equities/woodside-petroleum-limited-ratios
[Accessed 24 Jan. 2019].
Asx.com.au. (2019). [online] Available at: https://www.asx.com.au/asx/share-price-
research/company/WPL [Accessed 23 Jan. 2019].
Chirinko, R. and Schaller, H. (1996). Bubbles, fundamentals, and investment: A multiple
equation testing strategy. Journal of Monetary Economics, 38(1), pp.47-76.
Doctor, T. (2019). Woodside Petroleum: Raising Billions To Fund The Development Of Another
Large Gas Project. [online] Seeking Alpha. Available at:
https://seekingalpha.com/article/4168400-woodside-petroleum-raising-billions-fund-
development-another-large-gas-project [Accessed 23 Jan. 2019].
Fischer, S. and Merton, R. (1984). Macroeconomics and finance: The role of the stock
market. Carnegie-Rochester Conference Series on Public Policy, 21, pp.57-108.
Kankanamage, C. (2016). The relationship between board characteristics and earnings
management: evidence from Sri Lankan listed companies. Kelaniya Journal of
Management, 4(2), p.36.
Marketscreener.com. (2019). Caltex Australia Limited : Financials, earnings estimates and
forecasts for Caltex Australia Limited | CTX | MarketScreener. [online] Available at:
https://www.marketscreener.com/CALTEX-AUSTRALIA-LIMITED-6492233/financials/
[Accessed 23 Jan. 2019].
Poterba, J., Samwick, A., Shleifer, A. and Shiller, R. (1995). Stock Ownership Patterns, Stock
Market Fluctuations, and Consumption. Brookings Papers on Economic Activity, 1995(2),
p.295.
Woodside.com.au. (2019). Purpose & Strategy - Woodside Energy. [online] Available at:
https://www.woodside.com.au/about-us/purpose-strategy [Accessed 23 Jan. 2019].
Compensation Agreements Between Ceylon and Caltex, Esso, and Shell. (1965). International
Legal Materials, 4(06), pp.1074-1089.
Hašková, S. (2012). The Cost of Information in Dependence on the Investor Relation to the
Risk. Folia Oeconomica Stetinensia, 11(1), pp.73-85.
Sax, J. and Andersen, T. (2018). Making Risk Management Strategic: Integrating Enterprise
Risk Management with Strategic Planning. European Management Review.

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