Dupont Analysis

ITEMS (RM Mill) / YEAR 2014 2013 2012

Net Income 47,613.00 65,586.00 59,524.00

Total Assests 537,487.00 528,660.00 489,153.00

Total Liabilities 145,558.00 156,355.00 150,181.00

Total Equity 391,929.00 372,305.00 338,972.00

Revenue 329,148.00 317,314.00 291,226.00

Earnings before Taxes 77,691.00 94,258.00 89,741.00Earnings before Interest and Taxes 78,610.00 95,613.00 91,069.00

Net Profit Margin 14.47% 20.67% 20.44%

Total Assets Turnover 0.61 0.60 0.60

ROA 8.86% 12.41% 12.17%

Financial Leverage 1.37 1.42 1.44

ROE 12.15% 17.62% 17.56%

Table of calculating ROA and ROE for DuPont Analysis

1. Return on Assets (ROA)

The analysis of return on assets of Petronas give the percentage of the earnings

that was generated from the invested capital is decreased in 2014. The ROA

has been compared in three cummulative year which gave the value of 8.86%,

12.41% and 12.17 % in 2014, 2013, and 2012 respectively. The decrease in

the ROA shows that Petronas are not in optimizing their profit into net

income. Besides, Petronas has earning less money on high investment have

been made. The company was better at converting its investment into profit

only in 2013 where the differences is 3.55% compared to 2014. In other

words, every dollar that Petronas invested in assets during 2014 produced

RM0.355 of net income. Figure below shows the graph of comparison

between ROA for Petronas for the year of 2014, 2013 and 2012.

Figure : Graph of ROA VS Year for Petronas

As seen in the figure above, the ROA of Petronas in are 8.86%, 12.41% and 12.17%

in the year of 2014, 2013 and 2012 respectively. The ROA in 2014 has been decrease

with the differences from 2013 to 2014 is 3.55% which give big impact to the

investors analysis interm of company performance. ROA with 8.86% indicates that

Petronas has less profitability in that particular year. In order for Petronas to increase

their return on assets, they need to increase the net income without acquiring new

assets or improve the effectiveness of their existing assets. The increase of Petronas’s

assets in 2014 is due to the property, plant and equipment of certain subsidiaries

costing RM7,229,797,000 (2013: RM4,505,502,000) have been pledged as security

for loan facilities.

2. Return on equity (ROE)

The analysis of return on equity or ROE of Petronas is to measure the ability

of Petronas to generate the profits from its shareholder investment in the

company as well as to grow the firm. The high return on the equity indicates

that the Petronas able to use the investor’s funds effectively. However, the

ROE need to be compared in an average year of the Petronas financial

position. The ROE of Petronas being discuss by the affecting of the operating

efficiency which is be measured by profit margin, ability of the assets to be

turned into profits which will be measured by the total assets turnover and

lastly the amount of financial leverage used by the company which is being

measured by the financial leverage multiplier. The figure below shows that the

comparison between ROE in Petronas for the year of 2014, 2013 and 2013.

Figure : Comparison of ROE for three cummulative years

The figure above shows that the ROE for 2014 is 12.15% which shows that

the lowest percentage compared to 17.62% and 17.56% in 2013 and 2012

respectively. Petronas’s ROE in 2014 most likely indicate that the company is

not growing as compared to the previous year. The ROE of the company being

presented in the discussion of three components in the Dupont analysis in term

of profit margin, total assests turnover and financial leverage.

ITEMS (RM Mill) / YEAR 2014 2013 2012

Net Profit Margin 14.47% 20.67% 20.44%

Table : Petronas’s Net Profit Margin

The profit margin for the year of 2014 has been decreased drastically if

compared to the year of 2013 which made a huge difference. Petronas revenue

in 2014 is much higher compared to in 2013. Its indicates that Petronas have a

proprietary product and services that carry with a premium price. However, as

the operating profit of the company has been increase, thus the profit for the

year of Petronas have been decrease due to the high operating cost incur in

2014. The decrease in Petronas profit margin has effected the slide of ROE in

2014.

ITEMS (RM Mill) / YEAR 2014 2013 2012

Total Assets Turnover 0.61 0.60 0.60

Table : Total Assests Turnover

In 2013 and 2012, the total assets turnover did not substantially change over

the course of the year. However, in 2014 the assets turnover has been

increased by 1% which shows that the company is performing better in

generating more revenue in 2014 from company’s assets. Thus, the total

assets turnover will not influence the decreasing in the return on equity in

2014.

ITEMS (RM Mill) / YEAR 2014 2013 2012

Financial Leverage 1.37 1.42 1.44

Table: Petronas’s financial leverage

Financial leverage of Petronas has been calculated by considering the total

asset divided by the total equity. The financial leverage ratio of the company

has decrease in 2014 with 0.05 difference compared to 2013. The company

employs less debt in relation to their shareholder’s equity in 2014. As the price

of the oil crash in 2014, Petronas decided to cut their capital expenditure in

budgetting new and additional project. 1.37 of the assets are finanaced by the

equity and others has been finance by the debt.

However, the operating efficiency influenced Petronas’s ROE to decreased in

2014. For Petronas to increase their return on equity, the should focus on

improving and widening their margins by increase their return on sales every

year at a faster rate every year than the rise in their operating costs. The

company should revise their cost of the raw materials needeed, numbers of

employee and inflation which often increase the operation cost.