Last week we began a journey through the Financial Statements of Australian energy company Oil Search Limited in search of the numbers used to calculate financial analysis ratios.  

This week we will look at the Income Statement, or Statement of Comprehensive Income.  For many investors, it is the most important statement of all since it gets right to the heart of why corporations exist – profit.  Indeed, it used to be called the Profit and Loss Statement.  

Before we begin let us take a brief pause to put the interpretation of raw numbers like the ones we will find on the Statement of Comprehensive Income into perspective.

Some of us are “mathematically challenged.”  We often have difficulty deriving meaning from raw numbers, and in all candor, find them painfully boring at times.  However, there is another way to approach these numbers-there is a story to be found behind them – the story of a year in the life of a corporation.  So, let’s see what we can learn about life at OSH in the year 2009.

As a reminder, websites like contain links to company websites where you can find their annual reports and financial statements, as we did. (Click here to see the Annual Reports on the Oil Search website).  Here is the “Statement of Comprehensive Income” for OSH:

Oil Search Limited
Statement of Comprehensive Income
For the Financial Year Ended 31 December 2009
  Note 2009
US$ 000
US$ 000
Revenue from Operations
Operating Expenses
Amortisation – Site Restoration
Amortisation -Oil and Gas Assets
Amortisation –  Operating Assets
Royalties, Development and Mining Levies
Cost of Sales   (195,195)  (228,794)
Gross Profit from Operating Activities
Other Expenses
Profit/(Loss) from Operationg Activities
Exploration Costs Expensed
Net Impairment
Contractual Adjustments to Profit on Sale of Joint Venture Interests
Profit on Sale of MENA Assets
State Back-In LG Surplus
Profit/(Loss) on Sale of Other Non-Current Assets
Interest Income
Borrowing Costs






Profit/(Loss) from Continuing Operations before Income Tax
Income Tax Expense
Net Profit/Loss After Tax   133,180 313,362
Other Comprehensive Income
Foreign Currency Translation Differences for Foreign Operations
  6,414 (6,957)
 Total Comprehensive Income for the Year   140,094 306,40


Our story begins with the critical number at the top line of the statement – revenue from operations.  You have probably heard the expression “top-line growth” mentioned in investment articles and analyst reports.  This line number represents dollars through the front door of the corporation resulting from whatever it is they do – their operations.

In one of his books, American investor Peter Lynch tells the tale of working with elementary school children learning the basics of investing in the American stock market.  Each child selected a stock and then stood in front of the class holding a one-dollar bill.  Their task was to explain how the company earned the dollar and where the dollar went as it worked its way through the company.  This would be a worthwhile exercise for all investors of all ages!

Top line revenue for 2009 was a little over 512 billion dollars (USD).  When you compare this to the previous year the story begins to darken.  Revenue declined about 100 billion dollars from 2008.  Forgetting the expense numbers for the moment, we jump ahead and find the same pattern in all income figures

Net profit in 2009 was about 304 billion; down from the previous year’s 571 billion.  The bottom line of the statement – total income – completes the dreary picture – 140 billion; a staggering decline from the previous year’s 306 billion.

Australia was spared much of the pain of the Great Recession of 2008, but economic disaster in other parts of the world had a profoundly negative impact on many Australian companies.  When you search for the story behind the numbers, questions are often raised that need answers.  The economic calamity following the collapse of American investment bank Lehman brothers and the subsequent freezing of worldwide credit markets is a potential answer.

Skeptical and independent thinking investors look for confirmation.  In this case, we could check the financials for other Australian companies in the energy sector, but there is a simple way to find a possible answer – the technical analysts favorite tool – the share price chart.

From, we pulled a 5-year price chart for OSH.  To answer our question we added the price movement for the Australian Securities Exchange energy index, symbol XEJ. 

The XEJ represents the Australian energy sector.  In the vast majority of cases, when a company’s performance suffers the kind of decline in revenue and profit we see in OSH; the share price will fall dramatically.  If the poor performance is a matter of OSH’s individual performance, the chart should show a significant difference in the price action of OSH shares from the action in the XEJ index.

The chart tells the story.  2009 was a bad year for the energy sector as a whole.  Indeed, if you have been following share markets for several years, you know 2009 began as a very bad year for most shares.

OSH is the top line and the XEJ is the bottom line.  Their path is in almost perfect parallel.  In October 2008, both began to fall with the onset of the Great Recession.  In the second quarter of 2009, the picture began to improve.  Since, the onset of 2010, OSH has outperformed the XEJ.  Sometimes, a picture truly is worth a thousand words.

There is a final piece to the story of 2009 that bears mentioning – operational and other expenses.  In tough times, well-managed companies cut expenses to protect profits.  The numbers on the Statement of Comprehensive Income tell the tale here as well – OSH cut expenses from 93,383,000 in 2008 to 86,444,000 in 2009.  That is seven billion dollars in cost reduction.  That number tells the sad story of a very tough year for many OSH employees.

Next week we will continue our story with the final piece of the puzzle – Statement of Cash Flows for OSH.