Sunoco, Inc. Financial Analysis Report.


There is currently a high demand in energy in the market, so what better way to take advantage of the situation than invest in an energy company? For this study, I chose Sunoco, Inc. Sunoco refines and markets petroleum. The company has a refining capacity of 910,000 barrels per day from five refineries and also has around 4,684 retail sites. Sunoco also manufactures petrochemicals that are used in making fibers, plastics, film and resins. The company also manufactures metallurgical-grade coke that is used by the steel industry. With headquarters in Philadelphia, Sunoco’s petroleum and petrochemicals operations are done mainly in the eastern part of the country. Its coke-making facilities are located in Virginia, Indiana, Ohio and Brazil. The company’s shares trade at the New York Stock Exchange under the symbol SUN.

The good thing about Sunoco is that it has a very comprehensive company website and it is a public company. Being a public company, its financial statements can be accessed through the website of the U.S. Securities and Exchange Commission. From the data obtained in the company’s financial statements, revenues for the year ended 2007 went up to $44.728 billion from $38.715 billion in 2006. Due to an increase in the price of crude oil, cost of revenue and operating expenses also went up $43.218 billion in 2007 compared to $37.046 billion in 2006. As result, net income for the year ended 2007 went down to $891 million from $979 million in 2006. The company’s balance sheet showed that as of Dec. 31, 2007, total assets was $12.426 billion while total liabilities was $9.893 billion resulting in a shareholders’ equity of $2.533 billion.

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In terms of profitability, the company only had a profit margin of 1.9%. Return on assets for 2007 was 7.6% while return on shareholders’ equity was 38.7%. It means Sunoco, Inc. could utilize assets funded by debt to increase the income available for shareholders. For the year ended 2007, the company was illiquid with a current ratio of 0.82 and quick ratio of 0.62. Moreover, current ratio was slightly less than prior year as 0.84, and quick ratio was a little more than prior year as 0.59. Working capital to total assets ratio was at 0.37. Doing computations further showed that the company had a shareholders’ equity ratio of 0.20. The ratio of current assets to total debts was 0.63 while debt ratio was 0.59.

Accordingly, in terms of its solvency, Sunoco, Inc. had less fixed interest obligations with its somewhat low ratio. In relation to asset management, Sunoco had total assets turnover ratio of 3.82, inventory turnover ratio of 35.12, and receivables turnover of 16.65. Compared to the prior year, the company didn’t have that much difference on inventory turnover and asset turnover. However, it had lower receivables turnover ratio than prior year, 17.2, so there was a little longer average time between credit sales and cash collection. The company’s financial statement also showed that it had a free cash flow of $968,000 million. Based on this data, it is quite easy to know that Sunoco has a large maximum amount of liquid cash. Finally, Return on investment using the DuPont formula was 0.65. Therefore, compared to its prior year ROI of 0.73, Sunoco’s efficiency of the investment was diminished.

Additionally, the company’s stocks are trading at a little more above $50. This is actually a drop considering that the company’s shares traded at around $80 in the middle of 2007(see V). So, should I start investing in this company? Based on the results as well as the financial analysis made, I would say that the best judgment would be to hold buying stocks and see what happens during the first two quarters of 2008. Although initially thought of as a good investment, the findings show that the company had trouble recouping expenses due to the increase in the price of crude oil. Profit margin was in fact only 2%. The company is also likely to face more problems given that it had a negative net working capital ratio.

In regulatory filings, the company said that it intends to focus on upgrading its products instead of undergoing expansions. This is a good sign since it could help cut costs in the long run. If the company does encounter problems, it could always address liquidity issues by putting on hold its share repurchase program. The company had actually done this in 2002.

Overall, the attitude with regards to an investment with Sunoco is more of a “wait and see.” If I decide immediately to say “yes” to buying stocks now, I run the risk of losing big. If I say “no,” then there is also the chance that I might miss a good investment. The company has released good estimates for the year 2008 but with the price of crude oil continuing to go up, it would be best to see how the company deals with this problem before making a final investment decision.

Income Statement

PERIOD ENDING 31-Dec-07 31-Dec-06 31-Dec-05
Total Revenue 44,728,000 38,715,000 33,777,000
Cost of Revenue 41,598,000 35,706,000 30,616,000
Gross Profit 3,130,000 3,009,000 3,161,000
Operating Expenses
Research Development
Selling General and Administrative 1,087,000 881,000 1,070,000
Non Recurring 53,000
Others 480,000 459,000 442,000
Total Operating Expenses
Operating Income or Loss 1,510,000 1,669,000 1,649,000
Income from Continuing Operations
Total Other Income/Expenses Net
Earnings Before Interest And Taxes 1,510,000 1,669,000 1,649,000
Interest Expense 101,000 89,000 69,000
Income Before Tax 1,409,000 1,580,000 1,580,000
Income Tax Expense 518,000 601,000 606,000
Minority Interest
Net Income From Continuing Ops 891,000 979,000 974,000
Non-recurring Events
Discontinued Operations
Extraordinary Items
Effect Of Accounting Changes
Other Items
Net Income 891,000 979,000 974,000
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares $891,000 $979,000 $974,000

Balance Sheet

PERIOD ENDING 31-Dec-07 31-Dec-06 31-Dec-05
Assets
Current Assets
Cash And Cash Equivalents 648,000 263,000 919,000
Short Term Investments
Net Receivables 2,840,000 2,533,000 1,969,000
Inventory 1,150,000 1,219,000 799,000
Other Current Assets
Total Current Assets 4,638,000 4,015,000 3,687,000
Long Term Investments 175,000 129,000 143,000
Property Plant and Equipment 7,039,000 6,365,000 5,658,000
Goodwill 126,000 125,000
Intangible Assets 158,000 176,000
Accumulated Amortization
Other Assets 190,000 172,000 12,000
Deferred Long Term Asset Charges 100,000 431,000
Total Assets 12,426,000 10,982,000 9,931,000
Liabilities
Current Liabilities
Accounts Payable 5,636,000 4,473,000 4,033,000
Short/Current Long Term Debt 4,000 282,000 177,000
Other Current Liabilities
Total Current Liabilities 5,640,000 4,755,000 4,210,000
Long Term Debt 1,724,000 1,705,000 1,234,000
Other Liabilities 990,000 924,000 563,000
Deferred Long Term Liability Charges 1,100,000 905,000 1,226,000
Minority Interest 439,000 618,000 647,000
Negative Goodwill
Total Liabilities 9,893,000 8,907,000 7,880,000
Stockholders’ Equity
Misc Stocks Options Warrants
Redeemable Preferred Stock
Preferred Stock
Common Stock 281,000 281,000 280,000
Retained Earnings 5,372,000 4,622,000 3,766,000
Treasury Stock (4,589,000) (4,286,000) (3,390,000)
Capital Surplus 1,662,000 1,634,000 1,587,000
Other Stockholder Equity (193,000) (176,000) (192,000)
Total Stockholder Equity 2,533,000 2,075,000 2,051,000
Net Tangible Assets $2,249,000 $1,774,000 $2,051,000

Cash Flow

PERIOD ENDING 31-Dec-07 31-Dec-06 31-Dec-05
Net Income 891,000 979,000 974,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation 480,000 459,000 429,000
Adjustments To Net Income 112,000 (10,000) 107,000
Changes In Accounts Receivables (343,000) (537,000) (466,000)
Changes In Liabilities 1,141,000 485,000 994,000
Changes In Inventories 76,000 (418,000) (34,000)
Changes In Other Operating Activities 10,000 26,000 65,000
Total Cash Flow From Operating Activities 2,367,000 984,000 2,069,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures (1,179,000) (1,019,000) (970,000)
Investments (39,000) 55,000
Other Cashflows from Investing Activities 25,000 (70,000) (120,000)
Total Cash Flows From Investing Activities (1,193,000) (1,089,000) (1,035,000)
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid (220,000) (214,000) (169,000)
Sale Purchase of Stock (312,000) (909,000) (261,000)
Net Borrowings (259,000) 572,000 (71,000)
Other Cash Flows from Financing Activities 2,000 (19,000)
Total Cash Flows From Financing Activities (789,000) (551,000) (520,000)
Effect Of Exchange Rate Changes
Change In Cash and Cash Equivalents $385,000 ($656,000) $514,000

References

Securities Information from the SEC EDGAR®. Database for Sophisticated Business Professionals (Sunoco Inc, 10-K, For 12/31/07 ). Web.

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Sunoco Stock Price (SUN), Stock Quotes, Charts, Trades, Market News. Web.

Yahoo Finance, Sunoco, Inc.

Income Statement, Web.

Balance Sheet, Web.

Cash Flow, Web.

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