Total Nigeria, Capital Oil, suffer N5bn loss on working capital in 2017

Total Nigeria Plc and Capital Oil and Gas Industries Ltd are currently faced with a N5 billion working capital deficit findings by business a.m. have shown.

Working capital is the capital of a business which is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities.

In other words, it is a common measure of a company’s liquidity, efficiency, and overall health.

For the period under review, Total Nigeria Plc reported a capital deficit of N4.96 billion, following the petroleum marketing company borrowing of about N13 billion in 2017 from N9.2 billion in 2016.

According to the result of business a.m.’s analysis of the company’s financials, the multinational petroleum marketing reported 32 percent drop in current assets to N72 billion in 2017 from N106.77 billion reported in 2016 while current liabilities declined to N76.9 billion in 2017 from N113 billion in 2016.

The profit and loss figures of the company showed weak earnings as profit after tax dropped significantly by 45.8 percent from N14.8billion in 2016 to N8 billion in 2017.

On the other hand, Capital Oil and Gas Limited, an indigenous player in the downstream sector of the oil and gas industry, reported a negative working capital of about N109.5 million in 2017 from N3.8 million in 2016.

Its reported current assets was N31.7 million in 2017 against current liabilities of N141.2 million in 2017. The company had reported N160.8 million loss in 2017 from N340.25 million loss reported in 2016.

If a company’s current assets substantially decrease as a result of a large one-time cash payment, for example, or current liabilities increase due to significant credit extension resulting in an increase in accounts payable, its working capital may turn negative.

However, some oil and gas companies recorded marginal increases in their working capital.

Forte Oil Plc, an indigenous energy group recorded a working capital of N7.1 billion as against a negative working capital of N145.7 billion recorded in 2016.

Rotimi Fakayejo, chief executive officer of Enterprise Stockbrokers Plc said this could be as a result of not keeping inventories and borrowing at par with needs.

On Total Nigeria Plc, he said: “I believe it is a better working environment for them because if you look at their inventory, they kept less inventory in 2017 compared with the previous year which implies that their total current assets came down from N106.7 billion to N72.2 billion.

“This to me is a better management for them because even with less working capital, they were able to maintain the kind of revenue that they had the previous year.

“They had more finance cost, which means they were borrowing at par with needs which definitely will be more expensive.

“So, they were not keeping inventories. Whatever they needed they bought. But this became more expensive because it was not a structured finance. At the end of the day, it did not pay them. Their finance cost moved from N861 million to N3.65 billion.

“A lot of them are increasing cost, reducing their exposure in Nigeria and doing everything possible to take out all of the money.

“This is because, with the kind of mouth-watering dividend that they pay, you would have expected that they should have ploughed that back into the business and have better working capital.

“You can see the way the foreign portfolio investors (PFI) are checking out and putting pressure on the naira. This is not limited to listed multinational companies alone. They want out. So, whatever, they can push out by way of capital flight of their profit, they are doing that as much as possible,” he said.