Woodside Energy is an Australian corporation whose headquarter is located in the city of Perth Australia. Woodside is the largest oil & gas production organization in Australia. The organization is listed in Australia Securities Exchange and generate a significant amount of profit. The organization was formed in the year 1954. According to the latest statistics the organization has employed 3300 employees. In this paper, the financial ratio analysis has been performed for analyzing the profitability, solvency and liquidity position of the Woodside Corporation.  The paper has discussed the financial performance in detail by focusing on various financial ratios.

Financial Ratio Analysis of Woodside Petroleum

Profitability Analysis of Woodside Petroleum

            The profitability ratios can be explained as financial metrics which are utilized for evaluating how much profit the corporation is generating. The profitability ratios asses the corporation's earnings comparative to their operating costs, revenues and assets. The profitability indicates how effectively the corporation is utilizing its assets for creating profit. Through profitability ratios, it can be determined whether the organization is creating value for shareholder or not. The net profit margin, Return on Asset, Return on Equity and Gross Profit margin are some of the most commonly used profitability ratios. It is highly important to know about the profitability of the organization because several financial decisions depend on profitability (Erickson).

            The higher the profitability, the more will it be better for the corporation. The high profitability ratios are considered good for the organization. However, the profitability ratios provide brief analysis if they are compared with the ratios of the industry or other competitors. The organization can compare its profitability ratios with its own historical performance as well. The profitability ratios are highly significant for the investors because the investors evaluate the profitability of the organizations before taking any financial decision.  In this paper, the profitability ratios of Woodside Petroleum will be analyzed to get deep insights into its earnings. The key ratios which are used for evaluating the Woodside energy organization are mentioned in detail below:

Source: http://financials.morningstar.com/ratios/r.html?t=WPL®ion=aus&culture=en-US

Return on Equity (ROE) of Woodside Petroleum

        The return on equity provides a brief overview of the financial performance of the organization. The ROE explains how efficiently the management of the organization is utilizing its assets for generating profit. The formula for calculating the Return on Equity is

            An appropriate ROE of the organization depends on how the other organizations are performing in the industry. If the ROE of the organization is higher than peer organizations than it can be said that the corporations ROE is good. A higher ROE means that the company is utilizing its assets more efficiently in creating profit (Pandey).

         If the ROE of Woodside Petroleum is analyzed, then it can be said that The Corporation needs to improve its return on Equity. The Return on Equity in the year 2014 was 16.21 which decline in the upcoming years. ROER of Woodside declines drastically in 2015 up to 0.18. In the year 2017 and 2018, the ROE of Woodside has made a slight recovery and become 8.77. The declining trend of ROE indicates that the corporation needs to utilize its assets more effectively in order to improve its ROE (Higgins).

Return on Asset (ROA) of Woodside Petroleum

            The return on assets provides a brief overview of the profitability of the organization. Through ROA the financial analysts evaluate how effectively the corporation is generating profit relative to total assets. The ROA provides better information if the corporation compares it with its past performance or with other competitor organizations. The ROA considers organization debt whereas ROE does not consider any debt. The formula of ROA is:

            The high ROA ratio is considered favorable for the organization because it means that the organization is generating more profit by investing less in the corporation. In simple words, ROA is a measure which evaluates how much return the organization is getting on investment (assets) (Atrill).

            The Woodside needs to improve its ROA ratio because in the year 2014 the ROA ratio was 10.53 which decline in the following years. In the year 2017 and 2018, the ROA has made slight recovery and become 5.45 which is still less than 10.53. It means that the corporation will have to improve its ROA by utilizing the assets more efficiently (Robinson, Henry and Pirie).

Net Profit Margin of Woodside Petroleum

            Net profit margin is considered among the most significant indicator of the financial performance of the corporation. The increase or decline in the net profit margin provides an overview of the organizational practices. The net profit margin the information regarding COGS, Debt payments, total revenue and investment income can be known. The formula of net profit margin is:

            If the Net Profit Margin Ratio of Woodside is analyzed, then it can be said that the organization needs to improve its profitability because it shows a declining trend in the 5 year period.  The net profit margin was 32.47% in the year 2014 which declines drastically in 2015. In 2018 it again reached up to 25.64%. the net profit margin ratio of 25% is considered good however when its compared to the past performance than the organization needs to improve it to reach up to at least 35% (Christoffersen).

References of financial analysis

Atrill, Peter. Financial Management for Decision Makers . 7. Pearson Higher Ed, 2014.

Christoffersen, Peter. Elements of Financial Risk Management. Academic Press, 2011.

Erickson, K.H. Financial Risk Management: A Simple Introduction. K.H. Erickson, 2014.

Higgins. Analysis for Financial Management. Tata McGraw-Hill Education, 2007.

Pandey, I.M. Financial Management. Vikas Publishing House, 2015.

Robinson, Thomas R., et al. International Financial Statement Analysis, Third Edition (CFA Institute Investment Series) . 3. John Wiley & Sons, 2015.