Dupont Analysis

ITEMS (RM Mill) /

YEAR
Net Income

2014

2013

2012

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

Earnings before
Interest and Taxes
Net Profit Margin

77,691.00

94,258.00

89,741.00

78,610.00

95,613.00

91,069.00

14.47%

20.67%

20.44%

Total Assets Turnover

0.61

0.60

0.60

8.86%

12.41%

12.17%

1.37

1.42

1.44

12.15%

17.62%

17.56%

ROA
Financial Leverage
ROE

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 Petronass
assets in 2014 is due to the property,plantandequipmentofcertainsubsidiaries
costingRM7,229,797,000(2013:RM4,505,502,000)havebeenpledgedassecurity
forloanfacilities.

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 investors 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. Petronass 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
Net Profit Margin

2014

2013

2012

14.47%

20.67%

20.44%

Table : Petronass 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
Total Assets
Turnover

2014

2013

2012

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 companys 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: Petronass 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 shareholders 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 Petronass 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.