Total Energies SE was formerly known as Total SA. It is a French-integrated oil and gas company that was established in 1924. The company’s headquarters are in Courbevoie, France, one of the key ‘Seven Sisters’ international oil firms. Total Energies has businesses in over 130 countries as they are involved in all the energy value chain sectors ranging from upstream to midstream and downstream. Also, it has various operations in renewable energy, especially power production, which shows that the company is looking forward to transforming into a green energy economy.

Section-A Developments at Total Energies

Development 1- Operations performed by Russia and Conflict registering to Ukraine             

It was seen that the war in Ukraine and its consequences, which were the sanctions put on Russia, marred the profitability of TOTAL. If we talk about Total Energies’ decision about Russia, it was noted that the company would not invest in any new projects there due to the invasion of Ukraine and would also write off all the assets connected with Russian operations (Hoffmann, 2022). The company listed a substantial amount in the income statements for impairment as $ 3.5 billion on its operations in Russia, which significantly affected its forecast for 2022.

Factors Effecting Development 1

• The decision to exit Russia has entailed asset impairments and a direct reduction in the book value of Total Energies’ stakes in Russia, which is not favourable for Total Energies in any way.
• Due to the conflict that was followed by sanctions, they experienced operational disturbances and issues with management in their Russian sector, which affected their production and, in turn, their revenues from that area.
• Similar to the effects of sovereign debt crises, regional geopolitics that are perceived as threatening to other nations have a negative impact because political instability translates to market instability, hence eroding financial stability (Astrov et al., 2022).

Development-2: High commodity prices.

This increase in sales and the prices of Total Energies’ commodities, especially oil and natural gas, contributed to the company’s favourable performance. Such a change in energy prices put much more revenues and organizational profit into the company’s pocket. Total Energies experienced a dramatic rise in revenues to $ 240 billion in 2022 from the previous year. The company reported its net income in 2022 to be approximately $ 22 billion. The market conditions have remained favorable, and the high prices of commodities have also contributed significantly (Amountzias, 2023).

Factors Effecting Development 2

• Fluctuations in the prices of commodities that Total Energies deals in meant that the company’s revenues were up, which greatly improved its revenue returns.
• Energy cost increase received positive implications in the financial performance since it affected the production cost, thereby boosting profit margins and hence giving the company a better net income (Mutascu et al., 2022)
• The end product prices for oil and gas majors rose due to increased demand, which improved the corporation’s cash position for reinvestment and shareholders’ remunerations.

Section-B Dividend Payment at Total

Dividend Payments for the years 2021 & 2022

Over the fiscal years 2021 and 2022, the organization has displayed a solid commitment to its shareholders through the Total Energies dividends while demonstrating fidelity to its strategic business plan of rewarding shareholders with value. A breakdown of the dividend shows that in 2021, Total Energies distributed $3.04 per share. This led to a significant total dividend pay-out of about $6 billion based on the total number of shares.(Hasan et al., 2022).

Thus, in 2022, Total Energies has raised the dividend to $3.28 per share, illustrating the company’s focus on providing superior returns to shareholders amid every volatile market. The total dividend pay-out 2022 was estimated to be approximately $ 6.6 billion, rising from the previous year. This increase in the dividend pay-out ratio speaks of the group’s enhanced financial performance and adequate cash flows to fund the shareholders’ returns as well as invest in growth initiatives (Ali et al., 2022).

Dividend Policy of Total Energies

Total Energies has a clear dividend policy that has, as its primary objective, the constant generation of an excellent return to shareholders. The company’s dividend policy aims to pay 35-40% of the adjusted net income. This policy is, therefore, part of the proportion that is given back to shareholders while at the same time retaining enough to fund the organization’s operations and expansion projects. Hence, the increase in dividends from $3.04 per share in 2021 to $3.28. In 2022, the company has opted to affirm this policy and the sound financial performance it has been registering that can help it improve shareholders’ returns(Ed-Dafali et al., 2023).

Factors affecting the Dividend payment 2022

Several key factors influence Total Energies’ ability to set and maintain its dividend payments:

Financial Performance: In the current study, Total Energies’ economic performance is the primary driver in dividend payment calculations. It offers promising high net income and relatively healthy cash flow, offering rather big dividends. The fact that the dividend payment was raised in 2022 also speaks about the success of Total Energies’ financial policies and its successful management of resources to provide shareholders with larger rewards(Youness, 2023).

Commodity Prices: Like any other energy provider, any changes in oil and gas prices significantly affect Total Energies. It is commonly noted that when the prices of the commodities produced by the company are high, the company’s revenue and profitability tend to improve, thus resulting in better cash flows for dividend distributions. On the other hand, volatile prices of raw materials lower the earnings since they affect the company’s revenue capacity to meet or enhance dividend distribution. That is why the increase in dividends for 2022 reflects the commodity market conditions during that period (Saini & Sharma, 2022).

Capital Expenditures and Investments: Investment in new projects, infrastructures, and technology development may have an impact on the cash dividend available. Although such investments are indispensable for later development and increase the company’s competitiveness, they may reduce the necessary capital for shareholders’ redistribution in the short term. Total Energies has to be careful with investment in growth because, at the same time, the goal is to deliver high dividends to shareholders (Hasan, 2022).

Debt Levels: This paper shows that leverage significantly influences the company’s capacity to pay dividends. Higher levels of debt increase interest cost and burden, and this, in turn, reduces the amount of money available for dividends. This is because a lower level of debt alleviates the pressure and increases the manoeuvre to improve the dividends. As for expectations concerning the development of dividends, it is essential to touch upon the fact that Total Energies’ management has demonstrated a proper approach to debt management and has paid attention to maintaining a favorable balance sheet line.

Sources of funding at Total Energies

Total Energies uses several capital structures depending on its operations, growth, and critical projects. The article noted the following funding sources for the firm in 2022; internal cash flows, debt, equity, and strategic partnerships.

Internal Cash Flows: For the operational cash flow for the year 2022, the company recorded $45.4 billion, which is a rise from $30.7 billion in 2021. Such high cash flows from operations connect the company’s good operational results and its ability to partially fund a lot of investment from its operations cash flows (Loots et al., 2022).

Debt Financing:. In 2022, Total Energies launched bonds and various types of secured loans for its financing needs. This showed a total debt position of $58.9 billion by December 2022. rose from $54.3 billion in 2021 to finance its operations and growth through the efficient use of leverage.

Equity Financing: Total Energies sources capital from its internal cash flows and debts, though it can issue equity in the equity markets when required. This includes offering new shares to generate cash for massive projects or other acquisitions. Total Energies’ equity was also well managed in 2022, with an appropriate capital structure to meet the firm’s long-term strategic objectives.

Trade-off Theory at Total Energies

The theory relates to the trade-off between the advantages of debts’ taxation value and the disadvantages of possible financial pressure. Total Energies does this to improve the value of this capital structure while controlling the level of associated risk.

Tax Benefits: Total Energies’ interest expenses on the debt are tax allowable, which makes for a large tax shield. For 2022, the company’s interest was $1.6 billion, which is used to indicate the tax savings by the firm from the debt financing (Farhidi & Mawi, 2022).

Financial Stability: Yet, as I have noted above, Total Energies has applicable credit while remaining careful not to overload it in a way that would put the firm under financial duress. From the above financial ratios, the company’s net debt to equity ratio was 0.25 in 2022, which implies a moderate level of leveraging, keeping balance with the company’s capacities to meet its obligations.

Pecking Order Theory at Total Energies

The Pecking Order Theory believes that the funding options are arranged by the level of differentiation and tend to select the least arduous way of financing with the internal funds, debts, and equity, respectively.

Internal Financing: Total Energies’ main source of cash is internally generated, and this is used to finance its operation and investment activities. The operating cash flow was also noteworthy, standing at $45.4 billion in 2022.

Debt Financing: When internal sources of funds cannot satisfy Total Energies’ needs, it procures money through the debt markets. The total numbers for debts have also risen from $ 54 billion in 2021 to $58.9 billion in 2022, making use of debt to finance its expansion as a strategic component of its operations (Setiawan, 2022).

Equity Financing: The last method of financing that attracts the least preference is the new equity due to problems arising from the dilution effect and costs. Equity funds constitute a stable source of capital in the organization, with Total Energies only relying on them occasionally.

Traditional View Theory at Total Energies

The Traditional View Theory alludes to the fact that there is a perfect capital structure that makes the cost of capital as low as possible while the firm’s value is the highest. Total Energies has been trying to develop this balance by involving debt and equity in the financial structure (Dewasiri et al., 2022).

Capital Structure Optimization: Through its operations, Total Energies seeks to reduce the firm’s WACC Weighted Average Cost of Capital to the Lowest Level. This means that the company is maintaining a good balance in the capital structure, with the net debt to total equity ratio computed as 0. 25 in 2022. This is the key to flexibility in the firm’s financial policies and expansion.

Value Maximization: Total Energies’ investment and capital structure decisions aim to maximize the business’s value. These elements include operating cash flow, which is expected to grow in the future, and the efficient management of debt.

Section C- Financial Ratio Calculation and Explanation

1)   Profitability Ratio

• Operating Profit Margin

Operating Profit Margin is a financial ratio that reveals the proportion of the company’s total sales left after paying operating costs. It gives a view of how effectively a company undertakes its main trading activities and how it regulates its operating expenses (Dasilas & Karanović, 2023).

Formula= *Consolidated Net Income / Total Revenue)x100

The margin decreased from 16.62 % to 16.05% from 021 to 2022. This means that the reduction was due to slight operational efficiency or increased operating costs as a percentage of revenue.

• Net Profit Margin

Net Profit Margin is one financial ratio that indicates the percentage of total sales that translates to net profit after all costs, including borrowing and administration, have been met (Christophers, 2021).

Formula= (Net Profit / Total Revenue )X100

In 2022, the Net Profit Margin was 7.99%, compared to 8. 86% in 2021. This suggests that, as a percentage, the company earned a lower net profit in 2022 than in 2021 because of issues such as increased costs, higher taxes, and so forth. Falls in the net profit margin may also indicate a reduction in overall profitability and highlight areas that need to be addressed to achieve better profitability.

2)   Efficiency Ratio

• Receivable Turnover Ratio

The Receivable Turnover Ratio is a financial tool used to present information in a ratio form about how often a firm is able to collect its accounts receivable during a period. It measures how efficient a firm is in managing credit extended to buyers and the efficiency of the collection process (Manullang et al., 2020).

Receivable Turnover Ratio= Net Credit Sales / Average Account Receivable

The receivable Turnover Ratio increased from 10.24 to 11.36 from 2021 to 2022, i.e., an increased ratio. A ratio between the two years above shows that the company was more efficient in recovering the amounts due to it in 2022 compared to 2021. Firms with higher receivable turnover suggest that the company can recover the debts more effectively without a lot of time constraints, strengthening the company’s financial health regarding cash flow.

• Total Asset Turnover

The Total Asset Turnover Ratio is a business ratio that determines an enterprise’s ability to sell its total business assets to customers. It shows the efficiency with which the company is employing its total assets in generating revenues. A ratio higher than that implies better enterprise performance and optimum resource utilization (Patin et al., 2020).

Formula= Net Sales / Average Total Asset

The total assets turnover ratio increased from 0.66 to 0.88 from 2021 to 2022. This means that the company’s efficiency has increased in using the available assets to generate revenues. This higher ratio for the year 2022 indicates that the company has increased efficiency in using its assets to sell its products more effectively, hence better performance and efficient asset management.

3)   Liquidity Ratio

• Current Ratio

The Current Ratio is used to establish a company’s prospects of meeting its short-term obligations from its short-term assets (Husna & Satria, 2019).

Formula= Total Current Assets / Total Current Liabilities

For Total Energies, the Current Ratio at the end of 2022 was 1.15, a slight decrease from 1.17 in 2021. From this, for every dollar of current liabilities, Total Energies had $1.15 current assets in the year ended December 31, 2022. The current ratio is slightly reduced, but the company has adequate liquidity to fulfill its immediate liabilities.

• Quick Ratio

The Quick Ratio or Acid-Test Ratio evaluates the possibility of a firm offsetting all the current liabilities with the most liquid assets without including inventories (Iskandar, 2020).

Formula = (Total Current Assets-Inventories) / Total Current Liabilities

Quick Ratio formula of Total Energies for 2022 was 0. 94, slightly down from 0. 96 in 2021. This ratio shows that Total Energies’ total operations were funding $0.96 for every dollar of the current liabilities in 2022; it had $ 0.94 in liquid assets. If you get below 1, then it simply means that you have immediate liabilities that are adequately covered by your liquid assets, but in this case, it is slightly close, which makes me encourage the company to strive to get Mr as last year, though the ratio was somewhat higher now it has slightly reduced.

4)   Gearing Ratio

• Debt to Equity Ratio.

The debt-equity ratio is an indicator that determines the company’s borrowing degree compared to the shareholders’ funds. Logically, this ratio is crucial because it reveals the extent to which the company relies on debt, a financial leverage that determines its credit risk (Ataullah et al., 2007).

Formula= Non-Current Liability / (Non-Current Liability + Equity) X 100

To derive the above, Total Energies debt to equity ratio in 2022 is 45.19 %. It was at 45.10% in 2021.This ratio shows that over these two years. Total Energies has kept its level of leverage in the same level. A target of Debt/Equity Ratio of about 45% simply states that its financing policy combines a reasonable amount of debt and equity. The firms with 45% above a stable ratio hence demonstrating that their financial health and capital structure management is on the right track. It can be concluded that Total Energies is sustaining financial risks well while financing its expansion and requirement working capitals.

• Interest Coverage Ratio

The Interest Coverage Ratio is a financial ratio used to establish a firm’s management’s ability to meet the interest expenses on borrowed money from its operating income (Ji, 2017).

Formula= Operating Profit / Net Interest Expense

It can be established that Total Energies has managed a minimal yet positive change in the Interest Coverage Ratio in the financial year ended December 31, 2022, compared to that of December 31, 2021, having ratios from 8.82 to 8.60, respectively. This improvement gives investors and creditors in Total Energies more confidence to have enough operating profit to meet the interest costs, thus fostering confidence in Total Energies’ financial management and future planning.

Conclusion

Based on Total Energies’ performance and actions in 2022, the company’s adaptability and planning capability have been illustrated. The company demonstrates fantastic revenues, with a total revenue of $281. Revising the income statement so they get a total revenue of $20.5 billion and a net income speaks about its versatility and readiness to work in the changing energy market. Total Energies’ strategy encompasses hydrocarbon assets, and at the same time, their clear focus on renewable solutions makes them perfectly suitable for the upcoming decades.

Therefore, the company’s plans to reduce its carbon footprint and invest in renewable energy show its relevance in the energy industry’s transformation. By dedicating itself to higher-value solutions and investments, Total Energies is defending its market share in addition to working on global energy transition efforts.

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