Financial Statement of Chevron Corporation - Essay Example

of project: MANAGERIAL ACCOUNTING ASSIGNMENT and number: submitted: INTRODUCTION AND PURPOSE The prime objective and core purpose of this report is to analyze the environmental impacts and selected aspects of financial statements of one of the leading company presented and listed in Financial Times Newspaper. In addition, the selected company has been identified based on its operability in energy sector in particular. Precisely, companies or organizations which are operating in an energy Sector primarily encompasses its operations pertaining to the engagement in exploration & production activities, marketing, refining and refilling procedures, along with the most ancillary objectives of storage and transportation of oil, gas, coal and related consumable and disposable fuel products (Bhattacharyya, 2007). They also include those companies which offer various oil and gas products, consultancy and related services. Thus, to fulfill the objectives of this report in the most suitable order, the company selected for the analysis is Chevron. Chevron Corporation is among one of the huge Multi-National Companies of the world operating in an energy, oil and gas sector, having it’s headquarter in San Ramon, California. Chevron is currently active and operating among more than 180 countries on a global basis. The wide variety of its dynamic operation in the ever emerging fields of energy and oil sector makes the company highlighted in recent news and developments related to energy industry. In particular, Chevron is basically engaged in every aspects and activities related to oil, gas, fuel and geothermal energy framework of industries, which also includes, in depth scale of exploration and production activities coupled with oil refining features, storage, marketing, transportation; production and sales of various chemicals and finally the power generation facets (Chevron Policy, 2014). As of 2013, the company is ranked third in position in the Fortune Global 500 list among worlds humongous companies in energy, gas and oil sector (Fortune, 2014). ANALYSIS OF COMPANY’S RECENT ENVIRONMENTAL ACTIVITIES Period Covered by environmental report The latest environmental report of Chevron disclosing the comprehensive and detailed version of its Greenhouse Gas (GHG) Emissions during the year 2013, included under the broader framework of Corporate Social Responsibility (CSR) covers the period up to December 31, 2013. From the point of view of major shareholders and a prospective shareholders of a company, it is very essential aspect to know about the company responsibility towards the environment and how it confronts those responsibilities on an active and transparent basis, in which the investment of household, businessmen, corporate personalities and corporates. Environmental report framework That is, Chevron as per their latest environmental report on GHG emissions clearly displays and disclose all the related and affecting details of such gases on the global environment, along with the quantum of those emissions and the improvements hallmark they have achieved in recent times to reduce the possible effects of those gases towards the nature and its people and the promotion of health oriented corporate picture amongst the whole global corporates. Moreover, the management of a company as specified in the report believes to disclose all the relevant information pertaining to GHG emissions, in detailed versions including the pictorial and graphical representation and thorough comparison with prior years as well. They does so by properly jotting down congenial and relevant data from its past published environmental report and then, disclosing and including the actual facts and figures of such GHG emissions for the current period under consideration. Therefore, the company’s management does not have a policy to publish and prepare such environmental reports based on particular pre-established framework or methodology. The aim is to present the information in a way that can be suffice, conveniently and congenially understood by its shareholders, whether major or small of them. Reporting Boundaries As far as reporting boundaries are considered, i.e. organizational boundaries and operation boundaries, Chevron is following a mix trend of these boundaries based on its local jurisdiction applicable in the region it is operating and the framework of its internal policy, that may further extend its particular boundaries measures with respect to certain regions and localities (Colley, 2007). The main reasons behind this motive on part of company’s management is to completely understand and enhanced their responsibilities to the extent that none of these disclosures encompassing the areas of GHG emissions are not being compromised on their prime hands. As a shareholder of the company, most of the investors would be directly interested to know the facts and figures to which companies are jurisdictionally and legally bound to disclose information related GHG emissions and then those incidents, where the self-motives are being taken by the Company’s management on their own parts to disclose some additional, yet useful information or analysis for its shareholders (Heede, 2013). The motive would certainly be to give them a brighter and clear picture and to understand the wholesomeness of the company’s operations in more depth as well. Consequently, Chevron is continually striving to make better its overall emissions data monitoring, organization, collectability, accountability and detailed reporting procedures, along with the reasonable estimates of the diversified range of statistical and quantitative uncertainties in the underlying product cycles are also improvised and adjusted (Chevron Policy, 2014). Since the beginning of 2013, Chevron initiates to report publicly its overall emissions prospects as the two major digits, as its management quite better understood the underlying uncertainties and possible affects from its production operations across the entire globe, which report not only according to government or legal requirements and regulations in any specific jurisdiction or region, where a company is operating but also on the basis and according to overall Chevron GHG Protocol to meet their internal objectives more effectively and efficiently towards the entire environment and nature. (Goldenberg, 2013). As specifically disclosed in the company’s most recent environmental report, out of the total of 31.3 billion metric tons of Carbon Dioxide emissions from the entire global fossil fuel combustion disclosed and reported in the International Energy Agency’s (IEA’s), a prime and an essential facts and statistics from World Energy Statistics in 2013, the overall emissions of Chevron’s product represent the aggregate of 1.2 percent of such global Carbon Dioxide emissions from the combustion of those fossil fuels (Oecd-ilibrary.org, 2014). Thus, where GHG emissions legal reporting and disclosure requirements and regulations do not apply, Chevron policies and guidelines framework allow the company for an exclusion of a de minimis quantity of its particular or relevant site’s GHG emissions, from reported inventory, when that site facility or activities specifically demonstrates that at least once in every two years period that the excluded quantum of such emissions strictly remains below the aggregate percentage of 3 percent of that site wide emissions amount (Chevron Policy, 2014). Types of GHG emissions, its sources and volumes reported by Chevron GHG emissions are the resultant of production process and activities that are being taken up by the companies specially operating in energy, power, fuel, and oil and gas sector. Each type of GHG emissions are directly dependent on the type of production facility the company is involved into and its overall intensity in terms of scale of production and the final product requirements of the company, in particular. However, Chevron has reported the following types of GHG emission during the year ended December 31, 2013 in its recent environmental report. The Company has three types of GHG emissions, namely direct, indirect and grid credits (representing a credit score from aggregate of GHG emissions). Year Direct Indirect Grid Credits Net Millions of metric tons of CO2 equivalent 2013 57 0 0 57 2012 58 -2 0 56 2011 62 -2 0 60 2010 63 -3 0 60 2009 60 -2 -1 57 Source: (Chevron Policy, 2014) Direct emissions types of GHG emerge from the sources within the company’s plant site. However, indirect emissions of GHG comes from the electricity and steam facilities that Chevron imports, less the GHG emissions credits from such electricity and steam facilities that Chevron exports. Moreover, grid credits represents those electricity margins that Chevron exports to other regions and that is manufactured more effectively and efficiently as compare to the electricity from the regional or national plant or grid station. With respect to GHG emissions by source, Chevron primarily classified its different GHG emissions under the four major operational / production areas which forms the basis of such emission, including; Combustion Flaring Venting Other Details of these emissions have been disclosed in the table constructed as under; Year Combustion Flaring Venting Other Millions of metric tons of CO2 equivalent 2013 38 8 2 8 2012 38 9 2 8 2011 40 10 3 7 2010 41 10 4 6 2009 40 10 2 5 Source: (Chevron Policy, 2014) In 2013, Chevron reported the overall emissions of 57 million metric tons of Carbon Dioxide, which was near to equivalent and yet better than the company’s management goal and expectations of 57.5 million metric tons. Furthermore, Chevron has reported the following volumes of GHG emissions in its current environmental report as compared to the figures of prior years as well. Year Thousands of metric tons of Carbon Dioxide 2013 57,000 2012 56,000 2011 59,800 2010 60,000 2009 57,000 Source: (Chevron Policy, 2014) ANALYSIS OF POSSIBLE IMPLICATION OF GHG EMISSION ON COMPANY’S FINANCIAL STATEMENTS Impact on company’s operations On the assumption that government has imposed a price of US$100 per metric tons of GHG emissions, the possible implication of such price based penalty or restriction could adversely affect Chevron periodical operational performance both financially and non-financially. On financial grounds, imposition of price on GHG emission would directly inflate the operating expenses of the company and thus, the overall profitability would rather be diminished by substantial terms. As the applicable price of US$100 per metric would led to material cost to the entity when the rate will be applied to million tons metrics of GHG emissions and approximately in current year, i.e. 2013, the entity overall operating cost would tend to be increased by US$ 5.7 billion. In reality, such an inflation of direct cost on company’s part will adversely hamper their operational performances, as their annual reporting results would be drastically affected and they would hardly have any finances left to meet their short term obligations, including loans, debt covenants, day to day expenses, employees’ salaries, taxes and finance cost, if any. Apart from this financial outburst as a result of price imposition by government authorities, a company would definitely have some non-financial consequences as well. These could include decrease in the motivational aspect of the entire management of the company, both executive level staff and non-executive one because the chances to report sustainable results / profits in the upcoming board meeting would be heavily affected. Moreover, the staff might not get chances to enjoy the fortunes of any bonuses and other incentives, which is definitely a negative motivational factor. Furthermore, the overall productivity would also be hindered once the fine is imposed, because from now on the management has to make sure that minimal amount of GHG emission take place otherwise operating cost could not be kept under control and more negative affects might have to be faced by the Company’s management. Possible effects on management accounts The following possible management accounts would be directly affected as a result of imposition of environmental cost by regulatory authorities on the company; Variable overheads Cost of Goods sold Inventory Profit margins / contribution As the price imposed is directly linked with the volume of GHG emitted by the company, thus, the variables overheads would be directly increased with the volume of GHG emission into the price per metric tons of GHG imposed. Moreover, if rational allocation of environmental cost is made between the cost of goods sold and closing inventory, then aggregate of such cost would then be appropriately segregated between these two management account heads. Moreover, let say, if the allocation rate is decided on 60% to 40% on cost of goods sold and closing inventory respectively, then aggregate of environmental cost would be allocated on the decided proportions as identified. Consequently, one of the setback on customers part would that the prices of products and services offered by the company would rather be increased as well and a substantial part of the environmental cost also to be borne by customer to great extent. As witnessed from Chevron recent financial statements, that the total cost of sales amounts to US$192,943 million in 2013, which will be accordingly reduced with an extent of US$ 5.7 billion. Therefore, such an adverse cost impact would cause the overall reduction of same figure into the net income of the entity for 2013, which before any such deductions amounts to US$ 21,423 million. Effects of emission prices on Company’s forecast profits and liquidity position As evident from recent financial statements of Chevron, the company has a positive tendency towards the incremental profits over the span of five years range as a result of its operational activities. Moreover, this trait positively inherent in the company’s goodwill and its dynamic future sustainability, but on the other hand, as a shareholder of the company, the aftereffects of imposition of environmental cost would adversely hamper the production activities of the company and thus, the overall profitability of the company in particular. As disclosed previously, a total of US$5.7 billion would be incurred by the company’s management after the imposition of fine, which in itself represents quite a substantial and material amount, when it comes to the bottom line operational profit and performances of the company. On a reasonable basis and from the data available from five year operational performance of Chevron, following would be the possible impact on the company’s future profits as a result of emission prices; Particulars 2013 2014 (expected) Impact US$ in millions Total Sales and Other Operating Revenues (Increase up to 5 % in upcoming year) 220,196 231,206 11,010 Less: Total Cost and Other deductions (Increase up to 3 % in upcoming year) (192,943) (198,731) (5,788) Less: Impact of emission prices @ US$100 per metric ton of emissions Nil (5,700) (5,700) Net Income before taxation impact 27,253 26,775 (478) Therefore, the company would have to face the negative returns in terms of its profitability amounting to US$ 478 million negative, on year on year basis, i.e. as comparison to its 2013 performance with respect to current year operational results. Furthermore, the additional liquidity pressure would certainly be emerging on company’s management once these heavy environmental cost needs to be remitted to government authorities. The resultant impact could as follows; Company’s management may face difficultly in payment of its various long term and short term debt covenants to third parties In addition, they would possibly face hurdle in their in payment of rather substantial tax payment in future periods and other bulk nature payment to their suppliers as well Possible remedies to meet and control such liquidity issues, might result in issuance of various equity based and debt nature instruments from company’s board members to general public and high net worth individuals or to sign another short term agreement from financial institutions or curtail their production activities to reasonable extent to minimize the effects of such price emissions. APPENDICES Financial statement of Chevron Corporation for the year ended December 31, 2013 Recent Environmental Report Corporate Social responsibility (CSR) report REFERENCES Chevron Policy, G. (2014). Exploration and Production | About Chevron | Chevron. [online] Chevron.com. Available at: http://www.chevron.com/about/ourbusiness/explorationproduction/ [Accessed 3 Dec. 2014]. Fortune, (2014). Wal-Mart Stores. [online] Available at: http://fortune.com/fortune500/wal-mart-stores-inc-1/ [Accessed 3 Dec. 2014]. Bhattacharyya, S. (2007). Energy sector management issues: an overview. International Journal of Energy Sector Management, 1(1), pp.13-33. Chevron Policy, G. (2014). Environmental Indicators | IPIECA/API/OGP Index | Reporting | Corporate Responsibility | Chevron. [online] Chevron.com. Available at: http://www.chevron.com/corporateresponsibility/reporting/performancedata/environmental/ [Accessed 3 Dec. 2014]. Goldenberg, S. (2013). Just 90 companies caused two-thirds of man-made global warming emissions. [online] the Guardian. Available at: http://www.theguardian.com/environment/2013/nov/20/90-companies-man-made-global-warming-emissions-climate-change [Accessed 3 Dec. 2014]. Heede, R. (2013). Tracing anthropogenic carbon dioxide and methane emissions to fossil fuel and cement producers, 1854–2010. Climatic Change, 122(1-2), pp.229-241. Oecd-ilibrary.org, (2014). IEA World Energy Statistics and Balances - OECD iLibrary. [online] Available at: http://www.oecd-ilibrary.org/energy/data/iea-world-energy-statistics-and-balances_enestats-data-en [Accessed 3 Dec. 2014]. Chevron Policy, G. (2014). IPIECA/API/OGP Index | Reporting | Corporate Responsibility | Chevron. [online] Chevron.com. Available at: http://www.chevron.com/corporateresponsibility/reporting/performancedata/ [Accessed 4 Dec. 2014]. Colley, J. (2007). Principles of general management. New Haven: Yale University Press. Read More