Total is France's largest corporation as well as the fourth largest publicly-traded integrated oil and gas company in the world. Total is involved in three major segments: downstream, upstream, and chemicals. In the following report, we carefully analyzed these three business segments to determine whether or not Total should vertically integrate, diversify, divest, or just remain put. Our performance measures (EBITDA margin, ROA, net income and operating margin, etc.) revealed that upstream is profitable and generating the most value, while downstream and chemicals are maintaining profitability, however could reduce costs and increase efficiencies. As a result, we recommend that Total remain put and continue pursuing its corporate strategy: to remain one of the most dynamic and successful energy groups in the world today.In the downstream segment, Total specifically deals with trading, shipping, refining and marketing of petroleum products, automotive fuels and LPG. By using measures such as EBITDA margin, operating and net income margin, and ROA, it is clear that the overall downstream segment is profitable and efficient.
[...] Operating margin and net income margin of Total chemicals are not high compared to others. If there had been some cost savings by synergies, Total's operating margin should have been higher. It is unclear as to whether the low margin is due to inefficiency or lack of synergies. Furthermore, EBITDA margin for Total is very high but we can estimate EBITDA margin for chemicals part will be lower since Total's operating margin and net income margin as a whole are higher than those of chemicals segment. [...]
[...] a strong indicator that Total is just as efficient, if not more efficient than its competitors. Furthermore, we analyzed Total's downstream using operating margin and net income margin because these measures have the least ambiguity and are less easily manipulated. From our research, we found that Total's downstream operating margin and net income are relatively high compared to other specialized firms, indicating the company's high efficiency and cost savings resulting from operational synergies (See Appendix 2). Similarly, Total's efficiency can be measured by its ROA, as ROA is an effective measure when comparing a company's previous ROA numbers or the ROA of a similar company. [...]
[...] Total upstream has managed to keep a high profitability with a ROACE of 35% and an EBIT margin of 49% in 2006, but not at the cost of fewer exploration efforts, which are very costly. Indeed, major successes such as discoveries in Angola or Congo have expressed Total's desire to reinforce its presence in Africa. Total has maintained a competitive advantage through tight operational expenditures, amortization and exploration costs making the upstream activities the most profitable on Total's segments. Total is highly valued due to the priority given to organic growth through a portfolio structured around thirty great projects, and numerous developments on existing facilities. [...]
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