Financial Statement Analysis
Halliburton Company Financial Statement Analysis
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Halliburton Company Financial Statement Analysis
1. Comparison of financial ratios for 2014 and 2013
Ratio 2014 Industry 2013 Industry
Current ratio 2.73 2.90 2.73 2.85
Quick ratio 1.68 1.89 1.70 1.92
Debt to equity ratio 0.48 0.64 0.58 0.78
Profit margin 15.85% 24.20% 15.21% 26.70%
Return on asset 11.39% 15.59% 7.50% 10.89%
ROE 23.45% 28.60% 14.48% 24.08%
The comparison of the financial ratios will be important in understanding the overall financial performance of Halliburton Company. The return on invested capital and return on equity has also declined from 2013 to 2014. For instance, the return on equity increased from 14.48 percent in 2013 to 23.45 percent in 20124. However, the debt to equity ratio has worsened slightly from 0.58 to 0.48. In 2013, the gross profit margin was 15.21 percent and increased 15.85 per cent in 2014. Halliburton has been financially performing bad and its financial health not favorable. Apart from all, the current ratio and quick ratio indicates the improved liquidity ratios in the company. The financial ratios of Halliburton help in assessing the overall financial performance of the company.
Some of the main financial ratios have declined and thus, affecting the ability of the company to perform better. Halliburton Company should implement better financial strategies to stabilize the financial condition and performance. In comparison with industry standards and averages, the company is performing adversely (Fridson & Alvarez, 2011). The financial norms recommend that the financial statement and ratios must be prepared according to the International Financial Reporting Standards (IFRS).
2. Revenue recognition policies of Halliburton Company
Halliburton sells its products and services based on the purchased order or contracts with its customers including the fixed prices, but with no provision for the right of return or even other after-sale obligations. The company only recognizes revenues from products sales when title passes to its customers. Thus, the customer assumes risks and rewards of the ownership and delivery are made as directed by customers. No adjustments are required, as the company has adopted a reasonable revenue recognition policy. The revenue policy could affect the financial ratios adversely. Since, the revenue recognition policy limits the amount of sales, which can be recognized by Halliburton Company.
3. Company’s use of R&D, restructuring and tax items that may represent infrequent items needing adjustments.
Halliburton accepts the various differences in the financial reporting standards and tax laws among countries to promote the income tax. The company also notes the differences between the differed tax assets and liabilities through reviewing the IRS regulations. The company’s uses its additional tax expense relating to the settlement of a research and development credit with U.S tax authorities to offset tax expenses in other countries where its operation occurs, including Iraq and Brazil. However, the company has not invested heavily in research and development. In 2014, the financial statements did not record any amount set aside for research & development. It affects the analysis of the overall company’s analysis because of the partial offsetting of tax because the effective tax rates are different in different countries.
4. Asset Analysis
Asset ratio Financial year ending Feb 1 2015 Financial year ending Feb 1, 2014
Asset turnover 1.1 1.0
Return on asset 11.4% 7.5%
Net operating asset turnover 2.756 2.5448
RNOA 14% 11%
The asset analysis of Halliburton Company evaluates the efficiency of the company in using its assets. The asset turnover ratio assists in understanding how a company uses its assets to create revenues. The asset turnover ratios of 1.1 and 1.0 in 2014 and 2015 indicate a considerable efficiency in the usage of its resources. The metric of return on assets seeks to determine the amount of return, which could be obtained from money invested in the various assets. The net operating turnover ratio increased from 2.756 to 2.5448 while the return on net operating assets increased from 11% to 14%. This is appropriate in enhancing substantial growth of the net profit after tax.
5. Use off-balance sheet financing items.
As of December 31, 2014, the company had no off-balance sheet items except operating lease. It uses the lease to increase its income by allowing sub-lease operations (Fridson & Alvarez, 2011). Halliburton has accounted for the lease appropriately in the contractual obligation, and it need no further adjustments. Additionally, Halliburton’s financial statements need no further adjustments because of the balance sheet items as well as income statements. The financial statements have been effectively measured and recorded in their respective appropriate accounts.
6. Adjusted Statements
The company’s cash changed due to the increase for cash. The change in the cash flows leads to the following effect.
condensed balance sheet showing operating and non-operating items 2014 2013 2012
Total operating asset $ 29,949 $ 28,867 3,575.80 $ 24,926
Total operating liabilities $ 8,088 $ 7,792 $ 6,800
Total non-operating asset $ 1,407 $ 1,108 $ 980
Total non-operating liabilities $ 1,350 $ 1,280 $ 1,070
The total operating assets changed because of an increase in the total assets. Therefore, adjustments were made in the following ratios
Net operating asset 2014 2013 2012
Operating asset $ 29,949 $ 26,867 $ 24,926
Less: operating liability $ 8,388 $ 7,792 $ 6,800
Net operating asset $ 21,861 $ 19,075 $ 18,126
Average net operating assets $ 20,468 $ 18,600.5
The positive adjustment of the assets increased the operating assets, which lead to improved net operating assets and the average net operating assets. The adjustments in operating assets has influenced by the following financial ratios.
RNOA 2014 2013
NOPAT $ 2,176 $ 1,860
Average NOA $ 20,468 $ 18,600.5
RNOA 0.1063 0.01
The amount of the return on net operating assets increased from 2013 to 2014. This is because of the increase in the total assets and adjustments.
Current ratio 2014 2013
Current assets $ 15,068 $ 13,704
Current liabilities $ 5,883 $ 5, 026
Current ratio 2.56 2.72
7. Summary of the Conclusions
In summary, the company has not been able to perform better over the last seven years. However, when compared to other competitor companies, Halliburton Company has performed better. Despite the fluctuating oil and gas prices, the company has maintained sale returns throughout the years. In compliance with the industry standards, Halliburton Company has used the IFRS to prepare and account for its financial transactions. Therefore, it is recommendable to improve the overall financial performance of the company with industry.
References
Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner’s guide (Vol. 597). New York, NY: John Wiley & Sons.
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