Comparing 4 companies using these attributes. Discuss each patterns across the companies. Provide potential explanations for any differences discovered. Which company would you recommend as the best company to invest in? Explain your reasoning.
a) Search the annual report for information on how the company applies the LC&NRV rule to inventory. Did the company report the amount of inventory written down during the year?
1. Suncor Energy Inc
Suncor applies the LC&NRV rule to inventories of crude oil and refined products with exception to inventories held for trading purposes.
Suncor did not report the amount of inventory written down during the year.
2. Amplify Energy Corp
Since the company is having no inventory and for developed reserves, the price is taken as average price during past 12 months prior to end date determined using unweighted arithmetic mean of first day of each month so LC and NRV method is not applicable.
3. Ultra Petroleum Corporation
Ultra Petroleum applies the LC&NVR value rule by calculating the weighted average at the end of a certain time period less reasonably estimated costs of transportation. If the estimated calculation is less than the original weighted average, the company will record a write down. There was $7,461 thousand in inventory write-downs in 2019, but none in the prior years.
4. Nabors Industries Ltd
Nabors uses the weighted average method which means they apply the LC&NVR value rule. The Inventory sat at $176, XXXXXXXXXXin 2019 and $165,587,000 in 2018.
) Calculate the receivables turnover ration for the cu
ent and prior years and explain any change between the two years.
1. Suncor Energy Inc
Receivable turnover = Net sales revenue ÷ average net receivables
2019: [38,344,000,000 ÷ ((4,052,000,000+3,206,000,000) ÷ 2))] = 10.7
2018: [38,542,000,000 ÷ ((3,206,000,000+3,281,000,000) ÷ 2))] = 11.9
The inventory turnover ratio fell from 11.9 in 2018 to 10.7 in 2019. This indicates that Suncor was less efficient in 2019 at collecting its receivables than in 2018. They could also be allowing customers to have more time to pay so they buy more.
2. Amplify Energy Corp
Particulars
2019
2018
Sales revenue
XXXXXXXXXX,47,607
XXXXXXXXXX,39,840
Accounts receivables- Opening
XXXXXXXXXX,514
XXXXXXXXXX,680
Accounts receivables- Closing
XXXXXXXXXX,145
XXXXXXXXXX,514
Avergare receivables
XXXXXXXXXX,330
XXXXXXXXXX,097
Accounts receivable turnover ratio (Sales/ Avg receivables)
XXXXXXXXXX90
XXXXXXXXXX
3. Ultra Petroleum Corporation
2019
Net Revenue = $742,032 thousand
Average Receivables = (71,957+133,042)/2 = $102,500 thousand
Receivables Turnover Ration = 742,032/102,500 = 7.2
2018
Net Revenue = $892,499 thousand
Average Receivables= (133,042+46,487)/2 =$179,529 thousand
Receivables Turnover Ration = 892,499/179,529 = 5.0
The higher the ration, the better the turnover, therefore the 2019 year had a faster turnover ratio than 2018. This means that receivables were paid faster in 2019.
4. Nabors Industries Ltd
2019:
Net Revenue: $3,053,596,000
Average Receivables; $453,042,000
Receivables Turnover Method; 6.7%
2018:
Net Revenue: $3,057,619,000
Average Receivables; $756,230,000
Receivables Turnover Method; 4.0
2019 was a better year with a better turnover ratio meaning receivables were paid faster that year.
c) Describe the depreciation methods used.
1. Suncor Energy Inc
Once properties have been explored and evaluated and production has started, the cost of Exploration and Evaluation is transfe
ed to Property, Plant, and Equipment and is depreciated using the unit-of-production method. The exception to this is exploration and evaluation costs associated with oilsands mines, as well as costs to develop and construct the mines, which are depreciated using the straight-line method. Capital expenditure costs are depreciated using the straight-line method over a period of 2 to 5 years. Right-of-use assets are depreciated using the straight-line method.
Depreciation methods are reviewed annually or when events happen that effect depreciation in any way.
2. Amplify Energy Corp
The receivable turnover ratio has been declined to 7.90 which shows that the revenue of the organization has been declined significantly. The company is using SLM method and depreciation is charged over the estimated useful life of assets.
3. Ultra Petroleum Corporation
The declining-balance method is the depreciation method Ultra Petroleum uses. This method involves multiplying the book value at the beginning of the period by the depreciation rate. This method implies that the PP&E used by Ultra Petroleum are most efficient in the beginning years of use
4. Nabors Industries Ltd
Nabors uses the Units of Production method to provide for the depreciate of the drilling rigs. For each day a rig is operating, it depreciates over a 4,927day period. Depreciation on their buildings, oilfield hauling, and mobile equipment are made using the straight-line method.
d) Compute the percentage of fixed asset cost that has been depreciated and a description of what it implies about the length of time the assets have been depreciated.
1. Suncor Energy Inc
Percentage of fixed asset cost that has been depreciated = (Accumulated depreciation ÷ Property, Plant, and Equipment) × 100
2019: (52,524,000,000 ÷ 125,164,000,000) × 100 = 42%
42% of the cost of the fixed assets have been depreciated. This implies that the assets have been depreciated for almost half of their useful lifetime.
2. Amplify Energy Corp
The percentage of fixed costs is as below:
Particulars
2019
2018
Depreciation costs
62000
65832
Fixed assets
819667
778881
% fixed costs
8%
8%
The depreciation is around 8% of fixed assets in each year and the useful life is approx. 12.5 years.
3. Ultra Petroleum Corporation
Accumulated Depreciation= $16,313 thousand
PP&E= $26,092 thousand
Percentage that has been depreciated= 16,313/26,092= 0.625 or 62.5%
This percentage means that 62.5% of the Property, Plant, and Equipment asset has been used up, with 100% meaning the assets will be completely used up. Therefore, PP&E have used up more than half their useful life, with the exception of Land, as the useful life is unlimited, and there is no depreciation applied
4. Nabors Industries Ltd
Accumulated Depreciation: $8,685,073,000
Property, Plant & Equipment: $4,930,549,000
Accumulated Depreciation ÷ Property, Plant, and Equipment) × 100
Depreciation Percentage: 17.6% of the cost of fixed asset was depreciated meaning the asset still has a long way to go before the end of its life.
e) Compute the fixed asset turnover ratios for the cu
ent and prior years and a description of what this tells you about the efficiency of the company’s use of their assets
1. Suncor Energy Inc
Fixed asset turnover = Net Sales Revenue ÷ Average Net Fixed Assets
2019: [38,344,000,000 ÷ ((72,640,000,000+74,245,000,000) ÷ 2)] = 0.5
2018: [38,542,000,000 ÷ ((74,245,000,000+73,493,000,000) ÷ 2)] = 0.5
Suncor has maintained the same efficiency from 2018 to 2019 at generating sales from the use of its assets.
2. Amplify Energy Corp
Particulars
2019
2018
Net fixed assets
553469
574462
Sales revenue
247607
339840
Fixed assets turnover ratio
XXXXXXXXXX
XXXXXXXXXX
The fixed assets turnover ratio has been declined from 0.59 to 0.45 times which shows that the organization is not utilizing its assets efficiently to generate revenue and the efficiency has been declined in year 2019 as compared to year 2018.
3. Ultra Petroleum Corporation
2019
Net Revenue = $742,032 thousand
Fixed Assets = (9,779+ 11,635)/2 = $10,707 thousand
Fixed asset turnover ratio = 69.3
The fixed asset turnover ratio tells you that for every dollar invested in PP&E, there is $69.30 produced in revenue.
2018
Net Revenue= $829,499 thousand
Fixed Assets= (11,635+ 9,469)/2 =$10,552 thousand
Fixed Asset Turnover Ratio= 78.6
In 2018, for every dollar invested in PP&E, $78.60 was produced in revenue. The 2018 year produced a higher ration than 2019, meaning that the fixed assets were creating more revenue.
4. Nabors Industries Ltd
Fixed Asset Turnover Ratio = Net Sales Revenue ÷ Average Net Fixed Assets
2019: Net Sales Revenue; $3,053,596,000
2019: Fixed Assets; $3,754,524,000
Fixed Asset Turnover Ratio: 81.3
2018: Net Sales Revenue; $3,057,619,000
2018: Fixed Assets; $3,217,203,000
Fixed Asset Turnover Ratio: 95
2018 produced a higher ratio then 2019, as more assets were creating more revenue at the time.
f) What are the most significant types of cu
ent liabilities owned by the company?
1. Suncor Energy Inc
The most significant types of cu
ent liabilities owned by the company are:
Accounts Payable & Accrued Liabilities: $6,555,000,000
Short-term Debt: $2,155,000,000
2. Amplify Energy Corp
The major cu
ent liabilities of the organization are short- term derivative instruments, accounts and revenue payables and accrued liabilities.
3. Ultra Petroleum Corporation
The most significant cu
ent liability is the “Debt, at face value” accounting for $1,928,048 thousands of cu
ent liabilities. All other cu
ent liabilities were of no significant value
4. Nabors Industries Ltd
The most significant liabilities held by Nabor’s as a company is the ‘Long Term Debt’ which is cu
ently standing at $3,333,220,000. Another high liability account was Trades Account Payable standing at $295,159,000.
g) Read the company’s financial statement note regarding long-term debt and commitments and contingencies. Does the company have any significant amounts coming due in the next five years?
1. Suncor Energy Inc
For Long-term debt, Suncor has $1,444,000,000 in notes coming due in 2021, as well as $968,000,000 coming due in 2024.
For commitments and contingencies, Suncor has significant amounts coming due each year for the next five years for Product Transportation and Storage commitments averaging in amount of about $1,050,600,000 per year. Suncor also has significant amounts coming due each year for the next five years for Other Commitments averaging in amount of about $212,800,000 per year.
2. Amplify Energy Corp
The company is having minimum purchase commitment $4,365 thousands and minimum volume commitment is $11,781 thousands in next five years.