Vous êtes sur la page 1sur 18

Oil States International Inc.

(OIS)
Ratio Analysis and Critical Assessment
Finance 4431, Spring 2012 Michelle Peterson April 30,2012

RATIO ANALYSIS Oil States International Inc., (NYSE:OIS) is a leader in providing manufacturing products and services to the oil and natural gas industry around the world. They manufacture capital equipment for deep-water production facilities, subsea pipelines, and provide services such as accommodations, production-related rental tools, oil country tubular goods distribution as well as land drilling services (Oilstatesintl.com). To find a competitor for analysis, I searched for Oil States NAICS code (333132), and selected Dril-Quip, Inc. (NYSE: DRQ). Oil States vs. Dril-Quip. The information provided in Exhibit 1 and Exhibit 2 will be used to compare the company to competitor and the following ratios will be considered: Liquidity, Long-term Debt Paying Ability, Profitability, and Investor will to be analyzed to determine how well the companies can attract investors. A Liquidity Ratio gives the information concerning a firms ability to meet its short term financial obligations. The Current and Quick Ratios are the most frequently used of the Liquidity Ratios. The Current Ratio measures current assets to current liabilities. Oil States Current Ratio from 2007 to 2008 decreased from 2.84 to 2.31, then increased in 2009 to 2.94. A similar trend occurred with Dril-Quips Current Ratio for year 2007 as it was 5.62, and in 2008 decreased to 4.52. Then in 2009, their Current Ratio increased to 5.90. These figures suggest that Oil States has a better capability of paying its long term obligations over its competitor, but unfortunately Dril-Quip has a better capability of paying its short term obligations. The Quick Ratio is another liquidity ratio which measures the companys ability to meet its short term obligations with its most liquid assets. Oil States Quick Ratio decreased from 1.58 in 2007 to 1.13 in 2008. In 2009, the companys Quick Ratio increased to 1.51. Dril-Quips Quick Ratio

followed the same pattern as it was 3.49 in 2007 and decreased to 2.36 in 2008, and in 2009, 3.14. Since Oil States has a lower Quick Ratio, this indicates that the company is less liquid when it comes to paying short-term obligations compared to the competitor, Dril-Quip. Even though Oil States figures are lower, they still are in an upward trend with an increase of their Quick Ratio from 2008 to 2009. The last liquidity ratio that will be observed is the Days Sales in Inventory. The Days Sales in Inventory measures how quick a company can turn its inventory into sales. Oil States Days Sales were 79.58 days in 2007 and increased to 100.03 days in 2008. Then in 2009, Days Sales decreased to 94.15 days. Dril-Quips Days Sales were 187.04 days in 2007, 202.23 in 2008, and 230.42 in 2009. Oil States figures were lower than the competitor which means that the company can sell its inventory at a faster rate. Long Term Debt Paying Ability observes the firms ability to carry debt. The Times Interest Earned ratio measures the firms ability to meet its debt obligations according to its Income Statement. Oil States TIE ratio increased from 1.20 in 2007 to 1.45 in 2008. Then in 2009, the TIE ratio decreased to .86. Dril-Quips TIE for 2007 was 396.38, 797.62 in 2008 and 913.76 in 2009. Oil States TIE ratio was significantly lower than its competitor, which means they have a greater chance they will not be able to meet interest obligations. Another Long Term Debt Paying Ability ratio is the Debt Ratio, which specifies a percentage of a companys assets that are financed by creditors. The Debt Ratios for Oil States for 2007, 2008, and 2009 were 43.78%, 46.25% and 28.48% respectively. Dril Quips Debt Ratios were 18.11% in 2007, 21.66% in 2008, and 15.91% in 2009. These values mean that Oil States has more assets financed by creditors than Dril-Quip, but from 2008 to 2009 the ratio significantly decreased. The last ratio that is analyzed for LT debt paying ability is the Debt/Equity ratio. This ratio

measures what is owed by the company and what is already owned, which helps creditors determine how protected they are in case of bankruptcy. Oil States D/E ratio increased from 77.87% in 2007 to 86.03% in 2008, and then decreased to 39.82% in 2009. The decreasing trend from 2008 to 2009 indicates that the firm is using less leverage and has a stronger equity position. Dril-Quips D/E ratio in 2007 was 18.11%, 21.66% in 2008, and 15.91% in 2009. The Probability Ratios measures the earning ability of the company. The Net Profit Margin indicates the net income dollars generated by each dollar of sales. Oil States Net Profit Margin for 2007 was 9.42% and decreased to 7.30% in 2008 and to 2.76% in 2009. Dril-Quips Net Profit Margin also had a decreasing trend in 2007 at 21.78% to 19.45% in 2008 and to 19.46% in 2009. Both companies suffered decreasing net profit, and unfortunately Dril-Quip enjoyed a higher margin than Oil States. Return on Assets (ROA) indicates how profitable a company is relative to its total assets. Oil States ROA for 2007 was 10.27%, and then declined slightly to 9.54% in 2008 and in 2009, ROA dropped again to 3.08%. Dril-Quips ROA remained stable over the three year period, at 15.42% in 2007, 15.51% in 2008 and 12.87% in 2009. Since Oil States ROA was lower than the competitor in the last year of analysis, indicates that the company needs to improve asset revenue efficiency. Return on Investments (ROI) measures the performance of the firm by how much income is earned on investments. Oil States ROI in 2007, 2008 and 2009 was 13.30%, 13.23% and 4.22% respectively. Dril-Quip reported ROI in 2007 of 17.99%, in 2008 18.65% and in 2009 a drop to 14.77%. In the 3 years being analyzed, Dril-Quip seems to be able to earn more money on investments than Oil States, but both companies ROI dropped from year 2008 to 2009. The Return on Total/Common Equity Ratio measures how much money is returned to the shareholders for their initial investment. Oil

States and Dril-Quip do not have any Preferred Stockholders, so therefore Common or Total Equity ratio can be used. Oil States ROE was 18.42% in 2007, 17.71% in 2008 and declined significantly in 2009 to 4.28%. Dril-Quips ROE remained stable for the 3 year period, at 18.22% in 2007, 18.87% in 2008 and 14.91% in 2009. Unfortunately for Oil States, Dril-Quips ROE is in a healthier state. There are also ratios that are of concern to the investor, in addition to the ratios previously discussed. The next ratio that is of interest is Financial Leverage, which is the amount of debt a company may use to fund its assets. Oil States degree of financial leverage for the years 2007, 2008 and 2009 were 1.08, 1.06 and 1.15 respectively. These figures show that the company had a low degree of leverage with little change in the 3 years being analyzed which is a positive quality to an investor. Dril-Quip had a stable degree of leverage, at 1.0 for 2007, 2008 and 2009. Based on this ratio alone, Dril-Quip is more attractive to investors because of the lower degree of leverage. Earnings Per Share (EPS) is the amount of money per share that is distributed to common stockholders within an accounting term. Oil States EPS for the year 2007 was $3.92 and had increased to $4.26 in 2008. But in 2009, EPS sharply declined to $1.18. Dril-Quips EPS remained fairly stable in the 3 year period, at $2.63 in 2007, $2.62 in 2008 and $2.66 in 2009. Based on the EPS, Dril-Quip seems more attractive to investors because it remained strong all 3 years being analyzed, even though the change was not very significant. The Price/Earnings Ratio is significant to investors because it compares the market price of the companys stock to EPS. Oil States P/E ratio in 2007 was $8.70 and declined to $4.39 in 2008. But in 2009, P/E for the company increased dramatically to $33.30. Dril-Quips P/E in 2007 was

$21.16, and then declined significantly to $7.83 in 2008, then increased to $21.23 in 2009. Oil States had a higher P/E ratio than the competitor, which looks better in the eyes of an investor. In summary, by comparing the liquidity ratios, Oil States is less liquid than their competitor, Dril-Quip. Oil States long-term debt paying ability is not as strong as the competitor, but their D/E ratio is in a decreasing trend which shows the company is using less leverage and is moving towards a stronger equity position. Dril-Quip outperformed Oil States in the 3 profitability ratios that were analyzed, but both companies suffered losses for the ROI ratio from 2008 to 2009. By reviewing the Investors ratios, Oil States maintained a low degree of leverage for the 3 years being analyzed, and Dril-Quips remained low as well but more stable. Dril-Quip had a more attractive EPS for the 3 years, but Oil States P/E ratio came out stronger in year 2009 in comparison to the competitor. It would be wise for investors to put their money into Oil States for a long-term investment based on the more attractive P/E ratio, and the decreasing trend of the companys leverage ratio. Even though Oil States EPS was not as attractive as the competitor, the company still has strengths that outweigh the weaknesses overall that are more important to the long-term investor. Oil States vs. Industry. To compare Oil States International Inc. to its industry, ratios were obtained from the RMA eStatement Studies and also Dun and Bradstreets Key Business Ratios. In order to retain accurate comparison, I used Current Data Sorted by Assets in RMA for the range of $500M-2MM for the year 2007, and the range of $2MM-10MM for years 2008 and 2009. Although Oil States fell under the category for $500M-2MM for the year 2009, data was unavailable in RMA so I had to round up to the next category of $2MM-10MM and use that data instead. Oil States SIC industry code is 3533 and industry information was obtained from

D&Bs Key Business Ratios. A spreadsheet was created using this information and is displayed in Exhibit 3 of the analysis. To compare Oil States to its industry, liquidity ratios will be analyzed first. Oil States Current Ratio over the 3 year period remained stable at 2.84 in 2007, 2.31 in 2008, and 2.94 in 2009. The industry had little change over the 3 year period, at 1.70 in 2007, and 1.80 in both 2008 and 2009. Based on these figures, Oil States is stronger than the industry as a whole at handling short-term obligations. Oil States Quick Ratio was 1.58 in 2007, declined to 1.13 in 2008, and increased to 1.51 in 2009. The industrys Quick Ratio in 2007 was 1.40 and in 2008 and 2009 it was 1.00 for both years. By comparing the Quick Ratio of the company to the industry, Oil States immediate liquidity position is healthier. Days Sales in Receivables represents the number of days the companys receivables have been outstanding for the accounting period. Oil States days declined over the 3 year period, with 78.68 days in 2007, 71.30 in 2008 and 66.80 in 2009. The industry also had a declining trend and its days were 58.87 in 2007, 51.14 in 2008 and 50.00 in 2009. The industry performed better compared to the company in Days Sales in Receivables. Days Sales in Inventory is the turnover rate of the inventory on hand measured in days. For the years 2007, 2008 and 2009 Oil States days were 79.58, 100.03, and 94.15 respectively. The industrys days were lower than Oil States and were fairly stable at 48.67 days in 2007, 64.04 in 2008 and 48.67 in 2009. By comparing the company to industrys figures for days in inventory, Oil States number of days was higher for the 3 year period, which means inventory turnover needs improvement. Since the information is available regarding Day Sales in Inventory and Days Sales in Receivables, the Operating Cycle for the company and the industry can be computed. The Operating Cycle is the time between the

purchase of goods and the time cash is received from the sale of those goods. Oil States Operating Cycle increased from 158.27 days in 2007, to 171.33 in 2008, then in 2009 decreased to 160.95. The decrease from 2008 to 2009 indicates that the company has improved liquidity. The industrys Operating Cycle decreased from 107.29 days in 2007 to 116.18 in 2008, then increased to 98.687 days in 2009. Even with the decrease of the companys Operating Cycle from 2008 to 2009, they still have a longer cycle than the overall industry. The Long-Term Debt Paying Ability examines the capacity a company can carry debt. The Times Interest Earned Ratio measures the ability the company can pay back its interest obligations according to the Income Statement. Oil States TIE ratio increased from 1.20 in 2007 to 1.45 in 2008 and decreased to .86 in 2009. The industrys TIE ratio information in 2007 for the $500M-2MM asset class was unavailable, but in 2008 it was 6.50 then increased to 15.8 in 2009. Comparing the company to the industrys TIE, the industry carries healthier interest coverage. The next LT Debt Paying Ability Ratio being analyzed is the Debt Ratio, which is the measure of a companys assets that are financed by creditors. Oil States Debt Ratio was 43.78%, 46.25% and 28.48% for the years 2007, 2008 and 2009 respectively. The Debt Ratios for the industry were 72.22% in 2007, 57% in 2008 and 58% in 2009. Oil States has less debt financed by creditors than the industry and is in a declining trend, which is healthier for the company in the long-run. The last LT debt paying ability ratio being reviewed is the Debt/Equity Ratio. This is defined as the relationship of what is owed to creditors and what is owned by the company and discloses how protected creditors are from bankruptcy. Oil States had a high D/E ratio at 77.87% in 2007 and increased to 86.03% in 2008. In 2009, the D/E ratio for the company decreased to 39.82% which is good for the company. The industry D/E ratio for 2007

was 260% then decreased to 130% in 2008, and in 2009 rose again to 140% . The industrys D/E ratio is extremely high compared to Oil States, which shows the company is much healthier than the industry as a whole. Comparing Oil States Profitability ratios to the industry as a whole reveals earning ability. The Net Profit Margin measures the net income dollars produced by each dollar of sales. Oil States Net Profit Margin ratios for 2007, 2008 and 2009 were 9.42%, 7.30% , and 2.76% respectively. The industrys Net Profit Margin was 7.69% in 2007, 8.2% in 2008, and 5.7% in 2009. The company and industry suffered a decreasing trend for the margin, but the industrys was stronger. This means there is room for improvement for Oil States return on sales. Return on Assets (ROA) measures the companys capability to create profit from its assets. Oil States ROA decreased from 10.37% in 2007 to 9.54% in 2008 and 3.08% in 2009. The industrys ROA remained stable at 10.7% in 2007, 10.7% in 2008, and 7.2% in 2009. The industry had a stronger and more stable ROA ratio, so therefore Oil States has room for improvement for generating sales from assets. The Total Asset Turnover measures how well the company generates sales by its assets. Oil States turned assets over 1.08x in 2007, 1.28x in 2008 and 1.09x in 2009. The industrys turnover was 2.20x in 2007, 1.99x in 2008 and 2.03x in 2009. The industry is more efficient at turning assets over as a whole compared to the company. Return on Total Equity measures the amount that is returned to all shareholders, Preferred and Common. Oil States ROE had a decreasing trend for the 3 years being analyzed with 18.42% in 2007, 17.71% in 2008 and 4.28% in 2009. The industrys ROE increased from 7.7% in 2007 to 14.1% in 2008, and then slightly decreased to 11.4% in 2009. Unfortunately for Oil States, the industrys ROE is in a much healthier state. Lastly, Gross Profit Margin measures Gross Profit to

Net Sales of a firm. Oil States Gross Profit remained fairly stable over the 3 year period, at 23.37% in 2007, 24.20% in 2008 and 22.20% in 2009. The industrys Gross Profit also remained fairly stable at 36.80% in 2007, 39.90% in 2008 and 38% in 2009. Although, the industry had a healthier Gross Profit, Oil States margin at least maintained stability. To summarize the financial ratios, the industry is in a better liquidity position overall than Oil States. Even though Oil States had a better Current Ratio and Quick Ratio, the industrys Days Sales in Receivables, Days Sales in Inventory, and Operating Cycle was healthier. Oil States showed more strength in Long Term Debt Paying Ability against the industry. The industry had better interest coverage, but Oil States performed better with less debt in relation to its assets and shareholders. The profitability ratios revealed that the industry showed more strength in Net Profit Margin, Total Asset Turnover, ROA, ROE, and Gross Profit than Oil States. Even though the industry outperformed Oil States in all profit ratios that were reviewed, they maintained a stable Gross Profit Margin. CRITICAL ASSESMENT OF THE FIRM It is important to analyze financial ratios in order to determine the financial position of a company. The important ratios are Current Ratio, Quick Ratio, Debt and Debt/Equity Ratios as well as TIE Ratio, Net and Gross Profit Margins, ROA, ROE, and ROI. Degree of Financial Leverage, EPS, and P/E Ratio are also important when evaluating a firm. Oil States appears to be in a good state of health over the 3 years analyzed. Oil States had a healthy and stable Current and Quick Ratio which indicates that they have a good liquidity position. The company has weak interest coverage , but has a low amount of debt which has improved over the 3 year period. The companys assets were financed with

less than 28% by creditors by the end of the 3 years, and the D/E Ratio has decreased over the same period. The companys ROE, ROA, and ROI decreased over the 3 year period, which could be due to the increase of equity in year 2009. The Net Profit Margin has been on the decline, but the Gross Profit Margin remained stable. Oil States carried a low Degree of Financial Leverage for the 3 year period, which is a positive attribute in the eyes of an investor. Earnings Per Share took a sharp decline in the last year being analyzed, but P/E increased dramatically that same year. The higher P/E ratio may indicate that the companys profitability will increase over time, which validates the reasoning behind the higher price.
In conclusion, Oil States managed to remain sustainable during an economically volatile period. The demand for oil field products will remain high as the economy has placed a high value on this natural resource over time. As this company is highly sensitive to oil prices, the company must continue to evaluate its asset structure, and work harder to improve inventory turnover. After thorough analysis, it appears the company will be a key player in the oil field manufacturing industry for the long-run.

REFERENCES

Dun and Bradstreet. (2007-2009). Ratios for SIC 3533. Retrieved April 15, 2012, from http://libproxy.uhcl.edu:2156/KBR_Main.asp. Gibson, Charles H. Financial Reporting and Analysis 12th ed. Mason: South-Western Cengage Learning, 2011. Oil States International Inc. 20 Feb. 2012. Investor Relations. SEC Filings. 10-K Reports. 20082010. http://www.oilstatesintl.com/fw/main/Investor_Relations-4.html. Risk Management Association. (2007-2010). NAICS 333132. Retrieved April 15, 2012 from RMA eStatement Studies database. U.S. Census Bureau. (2007). 2007 NAICS definitions, 333132, Oil and gas field machinery and equipment manufacturing. Retrieved from: http://www.census.gov/econ/industry/def/d333132.htm.

EXHIBIT 1 OIL STATES INTL, INC. LIQUIDITY Days' Sales in Receivables * Accounts Receivable Turnover * A/R Turnover in Days Days' Sales in Inventory * Inventory Turnover * Inventory Turnover in Days * Operating Cycle Working Capital Current Ratio Acid Test Cash Ratio * Sales to Working Capital Cash Flow/Cur. Mat. of Debt & NP LONG-TERM DEBT-PAYING ABILITY Times Interest Earned Fixed Charge Coverage Debt Ratio Debt/Equity Debt to Tangible Net Worth Cash Flow/Total Debt PROFITABILITY Net Profit Margin * Total Asset Turnover * Return on Assets Operating Income Margin * Operating Asset Turnover * Return on Operating Assets 2009 66.80 5.46 66.80 94.15 3.88 94.15 160.95 610,345 2.94 1.51 0.28 3.45 977.07 2009 0.86 0.86 28.48% 39.82% 47.31% 82.38% 2009 2.76% 1.09 3.08% 5.63% 1.26 7.09% 2008 71.30 5.12 71.30 100.03 3.65 100.03 171.33 700,979 2.31 1.13 0.06 4.21 52.09 2008 1.45 1.45 46.25% 86.03% 114.29% 24.22% 2008 7.30% 1.28 9.54% 13.02% 1.53 19.85% 2007 78.68 4.64 78.68 79.58 4.59 79.58 158.27 560,756 2.84 1.58 0.10 3.72 52.54 2007 1.20 1.20 43.78% 77.87% 121.87% 29.34% 2007 9.42% 1.08 10.37% 14.26% 1.44 20.50%

* Sales to Fixed Assets * Return on Investment * Return on Total Equity * Return on Common Equity Gross Profit Margin INVESTOR ANALYSIS Degree of Financial Leverage Earnings per Share Price/Earnings Ratio Percentage of Earnings Retained Dividend Payout Dividend Yield Book Value per Share Materiality of Options Oper. Cash Flow per Share Oper. Cash Flow/Cash Dividends Year-end Market Price

2.81 4.22% 4.28% 4.28% 22.20% 2009 1.15 1.18 33.30 100.00% 0.00% 0.00% 29.67 9,027.70 39.29

4.24 13.23% 17.71% 17.71% 24.20% 2008 1.06 4.26 4.39 100.00% 0.00% 0.00% 26.69 5,007.66 18.69

3.56 13.30% 18.42% 18.42% 23.27% 2007 1.08 3.92 8.70 100.00% 0.00% 0.00% 23.34 4,869.26 34.12

EXHIBIT 2 RATIOS: DRIL-QUIP, INC.

LIQUIDITY Days' Sales in Receivables * Accounts Receivable Turnover * A/R Turnover in Days Days' Sales in Inventory * Inventory Turnover * Inventory Turnover in Days * Operating Cycle Working Capital Current Ratio Acid Test Cash Ratio * Sales to Working Capital Cash Flow/Cur. Mat. of Debt & NP LONG-TERM DEBT-PAYING ABILITY Times Interest Earned Fixed Charge Coverage Debt Ratio Debt/Equity Debt to Tangible Net Worth Cash Flow/Total Debt PROFITABILITY Net Profit Margin * Total Asset Turnover * Return on Assets

2009 88.39 4.13 88.39 230.42 1.58 230.42 318.81 512,731 5.90 3.14 1.89 1.05 188.67 2009 913.76 913.76 13.72% 15.91% 15.91% 121.62% 2009 19.46% 0.66 12.87%

2008 115.71 3.15 115.71 202.23 1.80 202.23 317.94 400,535 4.52 2.36 0.84 1.36 63.96 2008 797.62 797.62 17.80% 21.66% 21.66% 33.57% 2008 19.45% 0.80 15.51%

2007 104.64 3.49 104.64 187.04 1.95 187.04 291.68 454,192 5.62 3.49 2.05 1.09 96.46 2007 396.38 396.38 15.34% 18.11% 18.11% 77.02% 2007 21.78% 0.71 15.42%

Operating Income Margin * Operating Asset Turnover * Return on Operating Assets * Sales to Fixed Assets * Return on Investment * Return on Total Equity * Return on Common Equity Gross Profit Margin INVESTOR ANALYSIS Degree of Financial Leverage Earnings per Share Price/Earnings Ratio Percentage of Earnings Retained Dividend Payout Dividend Yield Book Value per Share Materiality of Options Oper. Cash Flow per Share Oper. Cash Flow/Cash Dividends Year-end Market Price

26.29% 0.66 17.38% 2.77 14.77% 14.91% 14.91% 26.29% 2009 1.00 2.66 21.23 100.00% 0.00% 0.00% 17.78 3,450.15

26.11% 0.80 20.82% 3.38 18.65% 18.87% 18.87% 26.11% 2008 1.00 2.62 7.83 100.00% 0.00% 0.00% 14.34 1,009.56

27.93% 0.71 19.77% 3.50 17.99% 18.22% 18.22% 27.93% 2007 1.00 2.63 21.16 100.00% 0.00% 0.00% 14.52 2,015.83

56.48

20.51

55.66

EXHIBIT 3: INDUSTRY RATIOS 2007: $500M-2MM Asset Class 2008-2009: $2MM-10MM Asset Class SIC 3533: Oil Field Machinery

LIQUIDITY Days' Sales in Receivables Accounts Receivable Turnover A/R Turnover in Days Days' Sales in Inventory Inventory Turnover Inventory Turnover in Days Operating Cycle Working Capital Current Ratio Acid Test Cash Ratio Sales to Working Capital Cash Flow/Cur. Mat. Of Debt & NP LONG-TERM DEBT PAYING ABILITY Times Interest Earned Fixed Charge Coverage Debt Ratio Debt/Equity Debt to Tangible Net Worth Cash Flow/Total Debt PROFITABILITY Net Profit Margin Total Asset Turnover Return on Assets Operating Income Margin Operating Asset Turnover

2009 50.00 7.30 50.00 48.67 7.50 48.67 98.67 N/A 1.80 1.00 N/A 6.60 N/A 2009 15.8 N/A 58% 140% N/A N/A 2009 5.7% 2.03 7.2% N/A N/A

2008 52.14 7.00 52.14 64.04 5.70 64.04 116.18 N/A 1.80 1.00 N/A 7.40 N/A 2008 6.50 N/A 57% 130% N/A N/A 2008 8.2% 1.99 10.7% N/A N/A

2007 58.87 6.20 58.87 48.42 7.60 48.42 107.29 N/A 1.70 1.40 N/A 8.40 N/A 2007 N/A N/A 72.22% 260.00% N/A N/A 2007 7.69% 2.20 10.7% N/A N/A

Return on Operating Assets Sales to Fixed Assets Return on Investment Return on Total Equity Return on Common Equity Gross Profit Margin

N/A 16.50 N/A 11.4% N/A 38.00%

N/A 11.80 N/A 14.1% N/A 39.90%

N/A 7.60 N/A 7.7% N/A 36.80%

Vous aimerez peut-être aussi