Financial Analyst of Halliburton

Topics: Balance sheet, Asset, Generally Accepted Accounting Principles Pages: 6 (1692 words) Published: April 24, 2013

Halliburton is a world-leading provider of energy industry products and services. The company serves the oil and gas industry by locating hydrocarbons and managing geological data, drilling and formation evaluation, well construction and completion, and optimizing oil field production. Halliburton consists of two divisions: Drilling & Evaluation and Completion & Production. As of December 31, 2011, these two divisions accounted for approximately 25.0 billion dollars in revenue. Halliburton has more than 70,000 employees in over 80 countries. Halliburton plans to maintain a competitive position by delivering services and products to customers that maximize their production and recovery. Halliburton works within an extremely competitive industry. Some of the competitive dynamics of sales include: price, service delivery, service and product quality, global talent retention, hydrocarbon reservoir knowledge, warranties, technical proficiency and health, safety, & environmental standards and practices. Operations may also be adversely affected by politics, terrorism, civil strife, governmental involvement, inflation and foreign currency exchange. In the future, Halliburton’s expected growth consists of investing in production enhancement, Sperry drilling, Cementing, and Wireline & Perforating. Halliburton expects its customer projects to become increasingly complex as the search for new hydrocarbons becomes more challenging. To sustain growth, it will continue to execute on its strategies and enhance capabilities through investments in technology and the development of new distribution networks. The firm remains committed to incorporating sustainable practices into everyday operations to reduce the impact on the environment and building strong relationships in the community. Halliburton uses estimates and assumptions of future events to detail the impact on its operations and financial statements. It uses eight accounting policies, two of which, income


tax accounting and legal, environmental, & investigation matters, have the most effect on Halliburton’s operations. Operating as a multi-national company, Halliburton is subject to a large number of tax laws, treaties, and tax authorities. Its income tax accounting policies use an asset and liability approach to recognize deferred tax liabilities and forecast future tax consequences for each of its tax-paying components in each tax jurisdiction. Halliburton’s tax accounting system is critical given the complexity and variability of tax codes in each territory Halliburton operates in. Operating as a service and engineering firm, Halliburton is subject to a variety of risk factors and legal liabilities; the most notable of which was the Deepwater Horizon incident of 2010 in the Gulf of Mexico. This incident led to many legal, environmental, and investigational costs for the company. Estimates of probable costs from potential combinations of litigation and settlement strategies are generated by Halliburton’s legal team. Due to the complexity and variability of these types of proceedings, Halliburton has had to make substantial adjustments to initial cost estimates of its legal liabilities, making it paramount that the estimations be as reasonable and as accurate as possible. Halliburton’s ratios over the last three years indicate that the company is making steady improvements in asset management while increasing return to investors (see Appendix A). From 2009 to 2011 Halliburton’s management increased its ROE by 72%, going from 14% to 24%. Management was able to increase the return to shareholders by effectively managing the company’s assets and utilizing the company’s leverage to its advantage. The company consistently maintains a Debt-to-Equity ratio under 1, while increasing its’ profit margin, ROA, and ROFL over time. Management’s ability to effectively manage assets, liabilities, and costs has proven to be a key reason for Halliburton’s success. During the period...
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