Total S.A.: A Comprehensive Financial Analysis

Introduction

Total is a French multinational integrated oil and gas company, of which the origin can be traced back to 1924, the creation of Compagnie Française des Pétroles (CFP), also known as the French Petroleum Company. It then renamed itself Total CFP in 1985, to build on the popularity of its gasoline brand. Later in 1991, the name was changed to Total, when it became a public company listed on the New York Stock Exchange. As one of the seven 'Supermajor' oil companies in the world, Total’s business has expanded and diversified from primarily the filed of oil production in Middle East to currently that of gas, refining, petrochemicals and petroleum product marketing, as well as solar power, bioenergies and energy storage.

Also The company is a large scale chemicals manufacturer. Today, the world’s second largest solar energy company, regarded as one of the giants of the industry, Total is committed to energy that is more affordable, more reliable and cleaner, with over 100,000 employees active in more than 130 countries.

Aligned with its strategy, the Group has a strong stance on climate issues based on six criteria:

1. The scientific position: the link between human activity and climate change is considered as an established fact;
2. The Paris Agreement: a major advance in the fight against climate change;
3. Carbon pricing: implementing carbon pricing to encourage energy efficiency, support low-carbon technology and develop carbon sinks is critical to achieve carbon neutrality;
4. The role of natural gas: a key component in the energy transition, specifically as an alternative to coal;
5. Development of renewable energies: Total supports policies, initiatives and technologies to promote growth in renewable energies.
   Get to Know The Price Estimate For Your Paper

   Topic

   Deadline: 10 days left

   Number of pages

   Email Invalid email

   By clicking “Check Writers’ Offers”, you agree to our terms of service and privacy policy. We’ll occasionally send you promo and account related email

   "You must agree to out terms of services and privacy policy"

   Write my paper

   You won’t be charged yet!

   The Group also supports the development of sustainable biofuels;

6. Development of Carbon Capture, Utilization and Storage (CCUS): to achieve carbon neutrality, and the aim of the Paris Agreement.

Aiming at the collective ambition, to become the responsible energy major, Total has 5 values embedded in the corporation：

1. Safety, a matter of both individual and collective responsibility;
2. Respect for each other, principle on the basis of maintaining good work relations and listening to each other, paying the utmost respect to human rights, displaying unwavering integrity, embracing diversity and paying attention to the quality of labor relations within the company;
3. Pioneer Spirit, cultivated to adapt and overcome adversity, so as to build its business and develop strong positions all around the world;
4. Stand Together, to empower everyone to grow in a caring environment and draw support from the company’s strength as a team;
5. Performance-Minded, a performance-driven culture, coupled with a high level of expertise as a global industry leader.

Patrick Pouyanné, Chairman and Chief Executive Officer of Total said, “Combined, our values are our strength and differentiate us from others. They are the drivers that will enable us to achieve our ambition of becoming the responsible energy major.” Today, as an energy major, Total continues to fulfill its missions by striving for satisfying the energy needs of a growing world population, curbing global warming, and adapting to changing customer behaviors and expectations.

Analysis of the Financial Structure

 Sources of Financing

Sources of financing for business are equity, debt, debentures, retained earnings, term loans, working capital loans, letter of credit, euro issue, venture funding etc. They are classified based on time period, ownership and control, and their source of generation. Looking at Total’s annual reports, we can find out what financing resources have been applied in the corporation.

Calculation of Costs of Financing & Overall Weighted Cost of Capital

We can measure the ability of a company for financing itself by different ratios:

Asset Turnovermeasures how quickly a company turns over its asset through sales.

= Sales / Average Total Assets

= Revenue / (Total Assets Previous year + Total Assets actual year) / 2

= 184106 / (242631 + 256762) / 2

= 184106 / 249696.5

= 0.74

Year	Equity Financing (in M$)	Liabilities (in M$)	Share Capital (in M$)	Retained Earnings (in M$)
2018	118,114	118,115	6,602	13,011
2017	114,037	242,631	6,322	14,125
2016	101,574	230,978	6,076	14,073
2015	95,409	224,484	6,100	15,892
2014	93,531	229,798	5,963	10,863

Equity to assetsmeasures the parts of assets owned by stakeholders in the company. It indicates its leverage and amount of debt.

Equity to Asset = Total Stockholders Equity / Total Assets

= 115640 / 256762

= 0.45

Theweighted average cost of capital is an economic indicator, representing the average annual rate of return expected by shareholders and creditors, in return for their investment.

Weighted Average Cost of Capital = E/V * Re + D/V * Rd * (1-Tc)

WACC = market value total equity / total market value of the company’s combined debt and equity * Total Cost of equity + Market Value of total debt /total market value of the company’s combined debt and equity * Total cost of debt * (1- income tax rate)

E: The market Cap is of 139416.687 million dollars

To calculate this value, we add 2 years of average short-term debt and long term debt.

In September 2019, short term debt was of 12201 million dollars, and the long-term debt was of 40734.5 million dollars.

D: The total book value of debt was 52935.5 million dollars.

The we applicate the formulas:

E/V: Weight of equity = E / (E + D) = 139416.687 / (139416.687 + 52935.5) = 0.7248 %

D/V: Weight of debt = D / (E + D) = 52935.5 / (139416.687} + 52935.5) = 0.2752 %

To calculate equity, we use CAPM to find the return’s rate.

Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market -

Risk-Free Rate of Return)

We use the current risk-free rate for 10 years constant maturity rate which is of -0.28%.

The Beta is of 0.75, considering expected excess asset returns.

Market premium formula: Expected Return of the Market - Risk-Free Rate of Return

Market premium is of 6%.

Re: Cost of Equity = -0.28% + 0.75 * 6% = 4.22%

According to the last fiscal year, total interest expense was of 1414 millions and total value debt was of 52935.5 millions.

Rd: Cost of Debt = 1414 / 52935.5 = 2.6712%.

Tc: Using the average latest two years tax rates, it is of 31.405%.

According to the previous data, we are now able to calculate the WACC:

WACC = 0.7248 * 4.22% + 0.2752 * 2.6712% * (1 - 31.405%)

WACC = 3.56%

Influence of Financing Options by the Business Structure

To talk about option finance, we talk about TOTAL S.A., which includes all its consolidated subsidiaries, which numbered 903 in 2014. These subsidiaries were fully consolidated (90%) and some were accounted for by the equity method (10%). Total S.A. has decided to reinstate the shareholders. At each national assembly, they thus distribute dividends relating to local legal and regulatory provisions. The group is organized into several activities such as finance, legal, ethics, insurance, strategy and business intelligence, human resources and communication. These activities are grouped within a single entity and directly influence financial positions. Total is a company with a structural organization that can be described as a matrix structure by its size. The matrix structure is functional and divisional.

This structure is an element that defines future projects, particularly financial ones, and must rely on each unit of the company to understand their expertise, projects and responsibility. In its decision-making must take the various resources and reporting of all its activities.

Calculation of the Discount Cash Flow (DCF)

Years	2018	2019	2020	2021	2022
FCF	7,623.00	7,851.69	8,087.24	8,329.86	8,579.75

Discount rate

=WACC

5%

We estimated a growth of 10% per year. We have calculated this data in the first part, it has been establishing at 8%.We decided to think that the FCF is equal to the FCFE in order to simply the calculation' finally ,the terminal value is 892,294 and the DCF is 56525.9.

The Dividend Discount Model

Dividend 2.66

Wacc(=K) 5%

Stable growth rate (=g) 2%

ROE=NI/CE 12.2%

Dividend per share 2.66

EPS 3.21

Dividend payout 83%

Plowback(=b) 17%

D1=D0*(1+g) 2.71

D1 is the estimated value of the dividend per share in 2019.

k=WACC= 5%.

The stable growth rate is represented by “g”. g= ROE x b with: ROE= Net Income / Common

Equity=12.2%

b= 1-dividend payout

Dividend payout= Dividend per share / Earning Per Share Dividend payout= 83%

g= 12.2%*17% = 2%

Thus, we assume that dividends are trending upward at a stable growth rate of 2%.

V0= (0.51x1.02) / (0.08-0.02)= $90.33

The intrinsic value of the company’s share is $90.33, based on the expected future dividends and according to the Gordon Growth Model.

Valuation Using Multiples

$(b) Total Class B Sinopec

Market capitalization(A)

124.79 208.51 607.78

2018e net income(B) 11．446 23．3 63.098

P/E ratio (A)/(B) 10 11.17 9.6

In the third way , we chose the other two companies—Class B and Sinopec. Because they have have similar operating and financial characteristics and ffirms ideally within the same industry. we calculate the ratio of the market value to net income. As we all know, the lower the price-earnings ratio of a stock, the lower the investment risk of the stock and the more worthwhile the investment. It is not reliable to compare the price-earnings ratios of different industries, different countries, and time periods. It is more practical to compare the price-earnings ratios of similar stocks. After comparing these three sets of data, it is not difficult to find that in terms of market value and net income data performance, Total's performance is not good, even almost one-third of Sinopec. But the assessment of a company's operating conditions can not only be based on the size of the numbers. Total's P / E ratio has reached 10, which is very advantageous compared to the other two especially Class B. After calculation, we found that there is a certain gap between the calculated data and market value. What exactly caused it?

The company's market value is composed of the company's free capital value and debt value, and it is represented by the total price reflected in the company's all activities including mergers, reorganizations, joint ventures, acquisitions, and transactions. The fair market value of an enterprise should be the one with the higher renewal value and liquidation value. The basic condition of an enterprise's continuing operation is that its continuing operation value exceeds the liquidation value.

In traditional financial accounting, the book value is objective, but because it is mainly aimed at company assets, it can only be measured with a partial value of transaction costs, and many important intangible assets have not been reflected. Assets on financial statements the statistics do not include the value of assets without a transaction basis, and the predicted future returns of 10 the assets, so the book value of the company's assets is much lower than the company's market value.

In other words, Total is a company that is constantly developing, and the rapid development of global trade has added a lot of uncertainty to the company's development. Therefore, the calculated data can only be used as a reference for our analysis of the company's financial situation, not 100% consistent.