June 24, 2013 (Chinavestor) An investor can take Petrochina’s (NYSE:PTR) net profit figures for a particular fiscal year and use it as an indicator for the firms profitability. However, whilst this may produce an initial ‘buy’ response, an astute investor may wish to take a closer look at Petrochina’s (NYSE:PTR) financial statements and make a judgement call once they have analysed the fundamentals of the firm. Profitability in a firm is undoubtedly one of the highest means of measure, but a company’s liquidity may paint a clearer picture of corporate health. If one had to be made into accepting this truth, then they should realise a firm can declare bankruptcy even though they have made a profit for the year.
PTR’s business operations are formed under three main sections; Cash from Operating Activities, Investing Activities and Financing Activities. Cash inflows and outflows are attributed to these sections with only the cash actually received making the statement and transactions going towards the income statement.
Analysing the statement of cash flows is preferred by financial analysts who want to view the company as what it is. Operating cash flows signal how much cash is generated from its normal activities and whether it has the ability to conduct daily business operations efficiently. PTR’s Operating Cash Flows (OCF) for FY12 had decreased 17.5% to RMB 239288 from RMB 290155 in FY11. A decrease in OCF is usually attributable to changes in working capital and alterations in taxes. Also, PTR posted a decrease in profits for the year of 13% which, even when an increased DD&A charge is added back, caused the cash from business operations to decrease.