Project 210 (Research Paper Sample)

Project 210
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Project 210
Obtain the most recent annual report (or 10-K report) for two competitor companies in an industry of your choice. The report must contain at least three years of income statement data and two years of balance sheet data.
The paper will analyze the financial statements of Adams Resources & Energy Inc. and Adino Energy Corporation, both in the energy industry.
Adams Resources & Energy, Inc. was established in 1947 and is based in Houston, Texas. It is an oil company with various subsidiaries in other countries. This company engages in marketing natural gas and crude oil. It also engages in the exploration, development of gas properties and domestic oil in Texas and the south central region of the United States. Adams Resource & Energy, Inc. holds interests in 484 wells.
Adino Energy Corporation was incorporated in 1981 and is based in Houston, Texas. Adino Energy Corporation is a company operating in producing and exploring gas and oil. It mainly focuses on oily assets in the Permian Basin in West Texas. This company was known as Consolidated Medical Management, Inc. but in January 2008 changed its name to Adino Energy Corporation.
Analyze at least three items on the income statement for your target company that would be important to an investor, and discuss whether your company’s performance related to these items appeared to be improving, deteriorating or remaining stable. Justify your answer by going deeper than just citing percentage increases or decreases.
According to analysis of the financial statements, I recommend Adams Resources & Energy, Inc. as the best to invest. Adams Resources & Energy Company should be targeted because of its financial position based on the analysis of the past three years on operations. The items analyzed on the income statement of Adams Resourcs & Energy, Inc. are sales revenue, net income and cost of goods sold.
The sales revenues for the three years 2010, 2011 and 2012 were 2083.8 $, 3045.04 and 3381.0$ respectively. Revenues for 2010 and 2011 show an increase of 961.2$ or 9.6%. This means that, company made many sales hence increasing its annual revenue. The increased revenues and operating results were an improvement from the transportation sectors achieved in the last two years of operations. In 2012 and 2011, the increased revenues were due to increased customer demand. Over the last three financial years, Adams Resources & Energy Inc. showed a growth rate on revenues collected in the three financial years from $3.0 B USD to $3.4 B USD. The company achieved this by reducing the percentage of sales devoted to cost of goods sold from 98.06% to 97.86% hence growth from $22.9 M USD to $27.8 M USD. This growth rate of revenue is one of the bases which investors used to make decisions on where to invest thus the company is in a position to encourage investors.
The second item analyzed is net income. In the three financial years, net income showed a positive amount hence better operating position of the company. Positive net income of a company is significant in encouraging investors. Most investors are willing to invest in a company with a foreseen future of operations. Positive net income shows that the company can broaden its activities without any fear of giving negative results at the end of a financial year and is in a stable operating position with a future going concern. The net profit ratios for the three financial years are 9%, 23% and 28% respectively. These ratios will show increased profits ratios in the future of the company operations. The EPS is the base where the investment decisions are based on the investment. In this case, the three financial positions have shown positive EPS hence investor have base for their decisions.
The third item is the cost of goods sold. Adams Resources & Energy, Inc. managed to reduce the amount devoted to cost of goods sold. This reduction of cost of goods sold leads to improved growth of the company in terms of net profit, which has been earned at the end of the financial year. The percentage reduced on cost of goods sold was 0.2%. The cost reduced in the 3rd year of operation has lead to an increase in net income of 4.99%.
Analyze at least three items on the balance sheet for your target company that would be important to an investor, and discuss whether your company’s performance related to these items appeared to be improving, deteriorating, or remaining stable. Justify your answer by going deeper than just citing percentage increases or decreases.
The three items analyzed in the balance sheet of Adams Resources & Energy, Inc. are disposing and acquisition of assets, cash and cash equivalent, and share capital. The company operations which gained $1.2 million and $2.6 million in the year 2011 and 2012 respectively were from the sale of used equipment hence increasing the net income for the company. As the transportation revenues decrease or increase, operating earnings will decrease or increase at an accelerated rate. The Crude oil revenues increased in 2011 relative to 2010 and in 2012 relative to 2011 due to the increased field level purchase volumes and due to the higher average crude oil price. Increased Volume of sales resulted from a well-established customer base in the Eagle Ford Shale trend of South Texas from 2011. The prices fluctuate upwards with general market conditions hence, the operating earnings will grow.
Cash and cash equivalent are maintained by the company through making discretionary investments in its transportation, exploring businesses and marketing. The company uses the sale proceeds from property to fund its cash flow needs and reinvestments in long-term assets. The company has budgeted $9.9 million to be used for storing tank terminal arrangements, office lease space and for planned investment. The company maintains future commitments in order to curtail operating cash flows. Maintenance of cash to settle daily operation of the company is important, as this will facilitate daily operation hence will maintain the stability of the company through running its daily activities. Investors should consider this as important since cheques do not discharge all the transactions.
In this company, accounts receivable is one of the industry's worst performing items with 25.15 days worth of sales outstanding. This implies that collections of revenues are not collected in an efficient manner. Finally, Adams Resources & Energy Inc. is one of the least efficient in its industry in managing inventories, with 2.58 days on the Cost of Goods Sold held in Inventories. Investors should be aware of changes in working capital, when deciding where to invest in.
The final analysis is based on the share capital. The company relies much on the trade credit to finance its project and other long-term activities and avoid acquiring debt obligations. Adams Resources & Energy, Inc. obtains credit finance from the suppliers. Analyzing the situation, it can be said that this way of financing operation is not good and does not enable the company to broaden its financial operation hence investors are not encouraged to invest in companies with such financial behaviors. For instance, the company used working capital of $57,799,000 at December 31, 2012. In 2012, capital expenditure included additions of property costing $23,083,000, transportation equipment, and marketing of $27,929,000 and all this funding is from available working capital and operating cash flow.
Analyze your company’s investing and financing activities for the most recent year as identified in the statement of cash flows, specifically identifying the two largest investing activities and the two largest financing activities. Discuss whether you agree or disagree with the investing and financing strategies that your company is employing.
Adams Resources & Energy, Inc. financing activities include disposing of property, plant and equipment at 6.3$, 8.4$ and 0.1$ in 2013, 2011 and 2010, respectively. The company also acquires new equipment to replace old sold equipment. Investing activities the company engaged in include payment of dividend at the end of 2012 financial year; the company paid an annual cash dividend of $.62 per common share to common stockholders of record on December 3, 2012. In 2011 financial year, the company paid an annual cash dividend of $.57 per common share to common stockholders of record. Total dividends paid amounted to $2,614,954 and $2,404,000 for 2012 and 2011, respectively. Finally, the company reinvested dividend on the ex-dividends date. The company performance is good because it does not use debt in financing its activities and thus it is not much exposed to risks. The financial strategies applied by the company include reinvesting dividend on the ex-dividend date. It also uses net income to broaden its activities.
Identify two items not included in the financial statements that you think would be important to someone considering whether to invest in your company. Discuss your reasons for believing that these two items about the company would be important in making an investment decision. You might want to consider items disc...