COP: Financial Gauge Analysis (Updated) for the September 2009 Quarter

We previously posted ConocoPhillips's (NYSE: COP) preliminary financial gauge scores for the third quarter of 2009.  To obtain those results, the financial statements in Conoco's latest earnings announcement were used to calculate Cash Management, Growth, Profitability and Value metrics.

Conoco later filed a more detailed 10-Q report, which included an updated Balance Sheet, and we have now revised the metrics and scores to take advantage of the latest information. 


The net effect of the changes was to trim one point each from the Cash Management and Overall gauge scores:

• Cash Management: 8 of 25 (down from 10 in June) -- initial estimate was 9
• Growth: 0 of 25 (unchanged)
  
• Profitability: 5 of 25 (down from 6)
  
• Value: 4 of 25 (down from 8)
  

• Overall: 18 of 100 (down from 27) -- initial estimate was 19

For the record, current and historical figures for the financial metrics that determine the gauge scores are listed below.  Numbers that changed from the preliminary analysis are highlighted.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

Cash Management	Sep 2009	Jun 2009	Sep 2008	5-Yr Avg
Current Ratio	0.9	1.0	1.0	0.9
LTD/Equity	45.0%	49.1%	23.4%	30.9%
Debt/CFO (years)	2.9	2.0	0.8	1.2
Inventory/CGS (days)	N/A	N/A	N/A	N/A
Finished Goods/Inventory	N/A	N/A	N/A	N/A
Days of Sales Outstanding (days)	35.7	33.3	22.5	24.4
Working Capital/Invested Capital	-2.6%	0.0%	-1.0%	-1.5%
Cash Conversion Cycle Time (days)	1.4	-1.2	-0.2	0.7
Gauge Score (0 to 25)	8	10	12	11

Because a Balance Sheet for 30 September 2009 was not available prior to the release of the 10-Q, the preliminary analysis assumed no change to Assets and Liabilities since June.  Not surprisingly, the actual data included numerous small and a few not-so-small changes.

For example, Long-Term Debt was trimmed from $28.9 billion in June to a little under $27.7 billion in September.  In addition, activity during the third quarter increased Shareholders' Equity from $58.9 billion to $61.5 billion.  As a result of these two changes, Long-Term Debt to Equity fell during the quarter from 49.1 percent to 45.0 percent.

The positive effect of lower debt leverage was partially offset by Working Capital changing from nil to negative $2.4 billion, which is about 2.6 percent of Invested Capital.  The gauge lost one point to 8, from the initial estimate of 9.

Growth	Sep 2009	Jun 2009	Sep 2008	5-Yr Avg
Revenue growth	-39.4%	-19.7%	41.3%	2.6%
Revenue/Assets	89.5%	106.2%	139.1%	130.3%
Operating Profit growth	-13.0%	-5.7%	20.2%	0.5%
CFO growth	-60.3%	-39.5%	13.7%	1.1%
Net Income growth	N/A	N/A	77.9%	93.8%
Gauge Score (0 to 25)	0	0	22	13

Revenue, CFO, and Net Income growth rates compare the last four quarters to the four previous quarters.
The Operating Profit rate is the annualized rate of growth in Operating Profit after Taxes over the last 16 quarters.

The $2.35 billion increase in Total Assets during the third quarter was enough to lower the Revenue-to-Assets ratio from 90.2 percent to 89.5 percent.  This trivial change had no effect on the gauge score.

Profitability	Sep 2009	Jun 2009	Sep 2008	5-Yr Avg
Operating Expenses/Revenue	93.4%	91.0%	88.3%	88.9%
ROIC	5.8%	9.7%	14.8%	13.4%
Free Cash Flow/Invested Capital	-6.1%	-2.8%	10.9%	5.4%
Accrual Ratio	-15.6%	-15.2%	3.4%	1.8%
Gauge Score (0 to 25)	5	6	9	9

The changes to the Balance Sheet during the third quarter resulted in minor revisions to several Profitability metrics.  The score did not change.

Value	Sep 2009	Jun 2009	Sep 2008	5-Yr Avg
P/E	N/A	N/A	5.8	8.1
P/E vs. S&P 500 P/E	N/A	N/A	0.3	0.5
PEG	N/A	N/A	0.3	0.8
Price/Revenue	0.4	0.3	0.4	0.5
Enterprise Value/Cash Flow (EV/CFO)	9.3	6.1	5.0	6.9
Gauge Score (0 to 25)	4	8	15	6

The updated Balance Sheet led to a small change in Enterprise Value and, therefore, the EV-to-Cash Flow ratio.  The change was not significant enough to change the gauge score.

Overall	Sep 2009	Jun 2009	Sep 2008	5-Yr Avg
Gauge Score (0 to 100)	18	27	54	35

Originally estimated at 19, the one-point reduction in Cash Management gauge was carried through to the Overall gauge score.



Full disclosure: Long COP at time of writing