Corporate Finance Analysis for Halliburton - Assignment Example

Corporate Finance Analysis for Halliburton (HAL) Question Halliburton Company through its consoli d balance sheet, ment of operations and cash flow statement is able to indicate its financial performance to shareholders. Based on the two financial years, 2012 and 2013, the results indicate that it will be productive to increase the market share for the firm’s products. Considering the shareholder’s equity, there was a decrease in the common shares of the company from 2,682 in 2012 to 2680 in 2013. There is also a decrease in the shareholders’ equity from, 15790 to a 13,581. This deterioration can be accredited to the weakening in the basic income per share, and the income from the continuing operations (Ross, Westerfield & Jaffe, 2005). The shareholders’ equity as at 2013 is negative, an indication that the financial performance of the firm is declining. As such, it would not be best for a new investor to invest in the shares of the company since the cost of net income that can be attributed to the company also decreased from $2,839 in 2011 to $2,125 in 2013. Based on this information and the information from the calculation of cash flow identity, the company looks to be in a better position in terms of liquidity given that it has a high liquidity level with an ability to offset debts by 47% without affecting the performance of the firm. Therefore, financially, the company is in a good position as at 2013, and will only require to improve on its standings in order to maintain the shareholders’ equity performance high. Also, based on the earnings per share of $1.99 and dividend per share of $0.43 that are all positive, it is an indication that the company is in a better position to pay dividends to its shareholders after making payments to creditors. Question 2 Based on the viewpoint of the bondholders, the fiscal performance of the firm from time to time can be described as below. Principally, it is imperative to have in mind that the company’s bonds are flexible given that the company has numerous options for bonds that are flexible. For instance, by looking at the calculations for the company’s EFN, it is indicated that it has a net income of $3, 5232.07 for the year 2013, and thus, is able to issue dividends amounting to $769.27. The current tax rate for the company’s bonds is 18.3%. This is lower than the normal set rate of 23%; thus, an indication of the charging of the company’s bonds at lower costs/rates, and the company’s ability to purchase treasury stocks at lower rates (Helbæk, Lindest & McLellan, 2010). Furthermore, the company seems to have a good rating in terms of the payout ratio at 22%, an indication of the company’s ability to issue more bonds to shareholders and be able to pay out dividends adequately over the same in the foreseeable future. Therefore, the high company performance can be maintained through the issuing of more bonds to bondholders, and borrowing for more money to enable it expand on its operations. The issuing of more bonds seems to be the course of action for the company for ensured growth and success given that it has the capability to strictly maintain the success of the firm based on the customers’ transactions and ability to be able to pay for the bonds in either cash or debit. Therefore, for the company to be more balanced and attain high performance levels, it should be able to attain more cash by issuing more bonds to its customers (Berk & DeMarzo, 2007). Question 3 From view point of the senior management of Halliburton Company, an increase in the revenue is a signal of the enhanced performance of the firm. Based on the financial statements of the firm, there has been a reliable intensification in the revenue of the firm out of its operations. This is designated by the intensification in the total assets of the company from $27,410 in 2012 to $29,223 in 2013. Subsequently, based on the calculated net working capital, it is indicative of the improved financial performance of the firm that can be assessed by the positive value of the net working capital. Furthermore, the positive net working capital is an indication that there are no visible difficulties for the firm and its management in relation to the attainment of interests of the shareholders. Additionally, considering the Du Pont Identity that encompasses the profit margin of 0.026, the total asset turnover of 1.006, the equity multiplier of 2.146 and a return on equity of 5.6. Based these figures, the management is able to gauge the returns on equity for the shareholders; hence, a positive Du Pont Identity indicates that the firm’s performance is improving (Berk & DeMarzo, 2007). However, as is indicated by the decrease in the net operational income over the years 2011, 2012, and 2013 from the cash flows, the firm’s management is faced with the need to clear all debts that amount to 500M; without which, it would be impossible to meet the interests of the shareholders or allow for the management to make informed decisions on various investment channels to adopt. In order to gain more cash, the senior management for the firm should expand its income base through the issuing of more bonds, as well as increasing the output so that the total turnover for the assets is increased. Question 4 Halliburton Company may be faced with financial management strengths and weaknesses of various forms based on the nature of financial reports that they achieve. The determination of their strengths is largely based on the manner in which their performance is gauged, while their weaknesses or failures are determined by the manner in which their resources allocations are done to the various activities and departments that they serve. Subsequently, as a strength, the company has a lot of assets that form its capital base. As such, it is capable of meeting up to its financial obligations without having to run into debts. This is indicative of the high amount of assets that outweighed its liabilities in the financial statements of the firm. With regards to debts, the firm is able to get out of debt easily and even pay the debts through avenues such as bonds that it offers. Thus, it has the capability to pursue its stock in a productive manner. Finally, the company has a strength of being rated highly by suppliers, creditors bondholders and shareholders given that all its financial performance prospects indicate a growth aspect (Helbæk, Lindest & McLellan, 2010). With regard to weaknesses, the firm market value seems to be declining, an indication of improper distribution of revenue to growth. Subsequently, the firm has got no proper resources allocation mechanisms; hence, it is unable to obtain a higher market value. Question 5 The firm can determine the back up plans that it has for its future operations. However, these plans will be dependent on the past and current financial performance of the firm. I this regard, the senior management of Halliburton Company should employ or set key priorities that would ensure continued operation and growth for the foreseeable future. The main priorities should be the maximization of profit margins so that all the firm’s revenues are put to use and not wasted. This maximization aspect will greatly help in attracting more investors into the buying of the bonds and shares of the company. Subsequently, with the maximization, the company will be able to pay out good dividend amounts to its shareholders with every profit margins obtained in the financial year (Berk & DeMarzo, 2007). Subsequently, the company can engage in activities such as partnering with other firms as a priority for the future. With this strategy, the senior management will be strategically situating the company into a path that it will be able to garner all the profits from all the areas of operation as a result of the diversification of operations. Question 6 The core financial recommendations that can be made in response to the firm’s financial position as presented in the calculations would include aspects such as the firm repurchasing of its stocks. This is essential in the sense that it would provide the company with the opportunity to be more independent in its revenue generation. Subsequently, the firm should make as a part of its compensation plan to ensure that it offers the CEO and top management a certain amount of shares in the company. This is to ensure that their loyalty to the firm is maintained and that they also have an intellect of fitting in the company. This helps in controlling against embezzlement of funds by the senior management (Helbæk, Lindest & McLellan, 2010). Additionally, I would recommend that the firm minimize on its A/R ratio, and at the same time accept more cash for its operation, and limit the use of credit as payment options. This is to ensure that the cash flow to the creditors is minimized. Furthermore, the company should be able to issue more bonds to enable it generate more capital for the expansion of its operations (Berk & DeMarzo, 2007). It should also make the shareholders happy by increasing the allocation amount given to shareholders in the form of dividends paid out to them. Finally, it would be essential if the firm engaged in a chain distribution way of business as this will lower its costs of operations such as distribution of products, but cushion it against such costs since another firm will be engaged in that aspect (Helbæk, Lindest & McLellan, 2010). Question 7 Based on the news release, I have a strong feeling that the company will be in a better position to achieve its set goals as has also been indicated by the increasing financial performance of the company. The main reason for the support into why the company will be in a superior position is as a result of the positive and stable profit margins that it is obtaining; hence, it is evident that it will be able to continue into operations in the future. The articles found and used in supporting the answering of this paper is obtained from the following links: http://www.corporatewatch.org/content/corporate-watch-halliburton-overview http://blogs.wsj.com/riskandcompliance/2014/09/05/halliburton-stalked-by-worlds-problems/ References Berk, J. B., & DeMarzo, P. M. (2007). Corporate finance. Boston: Pearson Addison Wesley. Helbæk, M., Lindest, S., & McLellan, B. (2010). Corporate finance. New York: McGraw-Hill. Ross, S. A., Westerfield, R., & Jaffe, J. F. (2005). Corporate finance. Boston: McGraw-Hill/Irwin. Read More