China Aviation Oil (Singapore) Corp Ltd’s (SGX: G92) share price has fallen 37% from its 52-week high price of S$1.69 to S$1.06 currently. At the current share price, it sports a dividend of 4.2%. Is the company fundamentally strong? Let’s find out by looking at its key historical financial figures in three parts below. But before that, here’s a quick background on the company.
China Aviation Oil is the largest physical jet fuel trader in the Asia-Pacific region and is a key supplier of imported jet fuel to the civil aviation industry in China. The firm is also involved in trading of jet fuel and other oil products.
Revenue and profit
We will start with the income statement. This statement, also known as profit and loss statement, shows us how much revenue the company brought in from the sale of its goods, and how much is left after paying all the various overheads needed to run the business. The leftover portion is known as profit.
The table below shows the key figures from China Aviation Oil’s income statement in its last five financial years (the company has a financial year that ends on 31 December every year):Source: S&P Global Market Intelligence
The company’s revenue, gross profit and net profit have been erratic from 2013 to 2017. The net profit margin of 0.5% is very low for my liking. The low net profit margin is typical of a trading company.
Cash and debt
Although revenues and profits are important, they do not tell investors the whole story. For instance, the income statement does not show if a company can survive a prolonged economic crisis. That is where the balance sheet comes into play. It can reveal the health of a company by providing a snapshot of its financial condition.
The table below shows the key figures from China Aviation Oil’s balance sheet over the last five years:Source: S&P Global Market Intelligence
China Aviation Oil possesses a strong balance sheet; as of 31 December 2017, it had more cash than debt. The company is also highly likely to be able to meet its short-term obligations since its current ratio is healthy.
Many of you may have heard the saying, “Cash is king”. Although the income statement shows the amount of profit a company makes every year, this profit does not necessarily translate into the actual cash that flows into a company’s coffers due to accrual accounting.
Accrual accounting requires businesses to record revenues and expenses when the transactions happen, not when the cash is exchanged. Also, the income statement usually includes non-cash revenues or expenses. To get a true picture of the flow of money in and out of a company, we have to look at the statement of cash flows.
The table below shows the key figures from China Aviation Oil’s statement of cash flows, for the same period as its income statement and balance sheet shown above:Source: S&P Global Market Intelligence
China Aviation Oil had generated positive free cash flows in only two out of the five years. Free cash flow is cash that the company can use to dish out dividends to shareholders, buy back shares, make acquisitions, or strengthen its balance sheet, among other things.
The Foolish takeaway
When looking at the historical financial performance alone, China Aviation Oil might not look appealing to investors. However, the growth of the aviation sector in China and China Aviation Oil’s expansion into other international airports could bode well for the company over the longer term. At the current share price of S$1.06 on Monday, China Aviation Oil had a trailing price-to-earnings ratio of slightly below 8.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.