January 26, 2022

Accounting + Finance Blog

# Seplat Petroleum Working Capital Explain from 2020 Financial Statements

Seplat Petroleum is a company listed in the Nigeria Exchange Group (NGX) as an oil and gas company. This article will explain the computation of the company working capital and explain some salient points from it.

First of all, working capital is the difference between a business current assets and current liabilities with respect to the balance sheet. The computation is very important, as it tells you if the company can meet current obligations in less than a year. A positive value for WC is necessary for success. A negative value tells that the company is using too much debt to finance its business.

### Computing Working Capital for Seplat Petroleum

From the formula: WC = CA – CL, we can compute the working capital for Seplat Petroleum company. The screenshot below shows the current assets (CA) and current liabilities (CL) for the company. I have extracted them from Seplat petroleum annual report for 2020.

In the screenshot, the total current assets is 597,770 and 933,440 for the group for two comparative years (2020 and 2019). Also the company’s current assets were 227,154 and 286,569 respectively. More so, the current liabilities for the group were 471,452 and 623,849 in 2020 and 2019 financial years. For the company, it was 179,151 and 191,522 respectively. When subtracted accordingly, the working capitals for all years were positive. This can be seen in the bottom of the screenshot above.

### Implications of Seplat Petroleum Positive Working Capital

Seplat Petroleum shows positive working capital for the two comparative years. This shows that the company is healthy. However, the current working capitals are lower than the previous ones. For example, the company’s WC for 2019 was 95,047 million. And the 2020 value fell to 48,003 million. That’s a sharp fall of almost 50% (approximately, 49.5%). For the group, the WC was down by 59.1%.

A fall in working capital doesn’t mean the company isn’t healthy. As long as the value is positive, it is fine. The reason for the fall is decline in certain current assets. Like the trade and other receivables, as you may notice from the screenshot above. There was no significant increase in current liabilities.

### Conclusion

Seplat Petroleum maintains positive working capital for the company and the group. Although, there was a decline in the value for 2020 as compared to 2019. Such decline doesn’t mean the firm can’t meet its current obligations, as long as the value is positive.