UNIWERSYTET EKONOMICZNY W KRAKOWIE

WYDZIAŁ FINANSÓW
KIERUNEK: Finanse i Rachunkowość
SPECJALNOŚĆ: Corporate Finance

Daria Kocik

Financial Analysis PKN ORLEN S.A

Praca Licencjacka

Promotor:
Dr Hab. Marcin Kędzior

KRAKÓW 2022
Table of contents
INTRODUCTION..................................................................................................................................... 3

CHAPTER I. THE ESSENCE, ROLE OF FINANCIAL ANALYSIS IN THE ASSESSMENT OF THE

COMPANY'S OPERATIONS ................................................................................................................... 3
1.1 THE ESSENCE AND ROLE OF FINANCIAL ANALYSIS........................................................................................... 5
1.2 DATA SOURCES FOR FINANCIAL ANALYSIS ...................................................................................................... 7
1.3 ASSUMPTIONS, STRUCTURE OF THE FINANCIAL STATEMENTS.......................................................................... 9
1.4. METHODS AND TECHNIQUES OF ASSESSING FINANCIAL STATEMENTS .......................................................... 15
CHAPTER II THE MOT IMPORTANT RATIOS AND THEIR ANALYSIS ......................................... 21
2.1 FINANCIAL LIQUIDITY RATIOS AS INFORMATION ABOUT THE COMPANY'S SOLVENCY ................................... 21
2.2 DEBT RATIOS AS AN IMPORTANT ELEMENT OF ASSET FINANCING AND THE EFFECTIVENESS OF CAPITAL
INVOLVEMENT ..................................................................................................................................................... 23
2.3 PROFITABILITY RATIOS REPORTING THE EFFICIENCY OF THE COMPANY'S OPERATIONS ................................. 26
2.4 MARKET VALUE RATIOS AS A CONNECTION BETWEEN THE FINANCIAL STATEMENTS AND THE CAPITAL
MARKET ............................................................................................................................................................... 29
2.5 ADVANTAGES AND DISADVANTAGES OF FINANCIAL RATIOS ......................................................................... 31
CHAPTER III FINANCIAL ANALYSIS OF PKN ORLEN .................................................................... 33
3.1 CHARACTERISTICS OF PKN ORLEN ............................................................................................................. 33
3.2 ANALYSIS OF THE MOST IMPORTANT ELEMENTS OF THE FINANCIAL STATEMENTS ........................................ 34
3.3 RATIO ANALYSIS BASED PKN ORLEN ......................................................................................................... 41
3.4 SUMMARY OF THE EMPIRICAL PART .............................................................................................................. 47
CONLUSCIONS ..................................................................................................................................... 54

BIBLIOGRAPHY ................................................................................................................................... 58

INTERNET SOURCES........................................................................................................................... 60

LIST OF TABLES .................................................................................................................................. 64

LIST OF FIGURES ................................................................................................................................ 65

ATTACHMENTS ................................................................................................................................... 62

2
Introduction
Because of dynamic changes management has to demonstrate different skills such as:
technical, interpersonal and conceptual skills as well as diagnostic and analytical ability.
Thanks to correct diagnose directior can recognize the cause of problems and effectively react
to this situation.
Properly done financial analysis determines the financial status of the company, shows
potential threats or current issues, also can help to increase the company's efficiency and
automate its operation. It is a base source of information for all companies. The financial
analysis is done by the company's management as well as its shareholders, but the interest in
its analysis does not end there. Banks also use this analysis because results are information
about the financial credibility of the enterprise as well as chck if company are able to handle
loan. Investors use these results to make the right decisions about investing their funds. The
results of the financial analysis are so important for the enterprise because on their basis big
decisions are made which also influence the further development of the company.
This thesis, consisting of three chapters, is of a descriptive and research nature and
aims to present the Polski Koncern Naftowy Orlen capital group and to assess its current
financial condition. To present this, a financial analysis of PKN ORLEN's enterprise was
carried out with the use of the company's annual financial statements for the period 2017 -
2021.
The first chapter contains theoretical aspects of the presented issue. It covers the goals
which may vary depending on the analyst's intention. It describes the preliminary analysis of
all three reports from the financial statements: balance sheet, income statement, and cash flow
statements. The last element of this part of the thesis was to discuss how data is collected, as
well as the formulas for the initial analysis of the above mentioned reports.
The next chapter is dedicated to the ratio analysis, which is an extension of the initial
analysis of financial statements described in the first chapter. Each of the four subsections
describes in detail the following types of ratios: financial liquidity ratios, debt ratios,
profitability ratios and market value ratios. A better understanding of the objectives of the
ratio analysis is possible thanks to the final part of the second chapter, which presents its
advantages and disadvantages.
The third chapter is devoted entirely to the survey company - PKN ORLEN. It starts
with the characteristics of the company and then presents a preliminary analysis of financial
statements based on official data published by the company for 2017-2021. The third

3
subsection of this chapter is the most important part of the thesis. The ratio analysis was
carried out there, along with the interpretation of these indicators. The next section
complements the previous two. It explains the reasons for the largest changes in the values
analyzed earlier, all to answer the question - what was the financial condition of PKN
ORLEN in 2017-2021 and what influenced individual changes.
The summary of the thesis presents conclusions from the theoretical and empirical
parts. Scientific literature, popular science studies, Internet sources legal acts and information
from the financial statements and reports of the PKN Orlen S.A. company were used to write
the thesis.

4
CHAPTER I. THE ESSENCE, ROLE OF FINANCIAL
ANALYSIS IN THE ASSESSMENT OF THE
COMPANY'S OPERATIONS

1.1 The essence and role of financial analysis

The Great Universal Encyclopedia has published word “analysis” it means to dissect,
decompose the whole into factors, components and consider each of these parts separately in
the process of cognition and practical activity. 1 Financial analysis is described as a separate
scientific discipline that aims to identify the factors that shape economic phenomena and to
recognize the effects of these factors. 2 Generally speaking, it is a key to learn about the course
and results of economic processes. Each enterprise or economic entity requires a periodic
analysis. It allows to determine whether the activities carried out so far have produced the
intended effects and to determine the directions and ways of improving any future activities.
The economic analysis is a general name for an analysis that relates to an economic
activity. It mainly describes:3
• micro- and macroeconomic analysis,
• technical, economic and financial analysis.
Microeconomic analysis concerns the study and evaluation of the activities of such economic
entities as: enterprise, household and individuals. The macroeconomic analysis conversely
includes the study and assessment of aggregated economic quantities relating to the entire
national economy. The technical and economic analysis, alternately, is based on economic
values in material or personal terms, which are only supplementarily enriched with financial
terms.4
The main purpose of a financial analysis is to assess the financial activity of the
enterprise; it is one of the key elements of economic analysis. Such a measure may be

1
Great Universal Encyclopedia, Warszawa 2010, p. 235
2
C. Kochalski, Analiza Finansowa i Controlling. Zeszyty Naukowe Uniwersytetu Szczecińskiego, Szczecin
2012 p.84.
3
L. Bednarski, Analiza finansowa w przedsiębiorstwie, Polskie Wydawnictwo Ekonomiczne, Warszawa 1999
p.72.
4
L. Bednarski, Analiza finansowa w przedsiębiorstwie, Polskie Wydawnictwo Ekonomiczne, Warszawa 1999
p.73.

5
introduced, among others, in terms of the implementation of the adopted assumptions,
compared to the activities accomplished in previous periods or cross-reference to the amounts
achieved by other companies operating on the market in this area. Performing financial
analyses also gives the opportunity to indicate new, additional research directions, relevant
from the point of view of factors shaping the current results of the company as well as those
which may affect these results in the future. 5
The quintessence of the financial evaluation is the financial activity of the enterprise
based on the involved human resources, capital and property. The motive of financial analysis
is to arrange for the owners (equity partners, shareholders) with the essential understanding
and facts approximately the company's finances. The informations received as a part of the
monetary evaluation can be utilized by the control and the company's authorities, inter alia,
for:
• making short and long-term decisions regarding corporate finances,
• controlling the company's activity in the existing economic conditions in comparison
with the adopted assumptions,
• becoming aware of how the company's property and financial situation is assessed by
creditors and contractors.6
Financial analysis is a process performed primarily on the basis of quantitative data,
which involves evaluating and interpreting the relationships between economic quantities and
how these quantities and relationships have changed over time. The results of the financial
analysis cannot be interpreted freely, but in relation to a certain basis. The figures for previous
periods, the average figures for the entire industry and the expected figures can serve as a
basis for reference.7
The fundamental steps of financial analysis are: 8
• preliminary analysis of financial statements, providing information on the company's
financial "architecture":
• vertical / structural analysis,
• horizontal / dynamical analysis,

5
M. Sierpińska, T. Jachna, Ocena przedsiębiorstwa według standardów światowych, Wydawnictwo Naukowe
PWN, Warszawa 2007, p. 16.
6
W. Bień, Zarządzanie finansami przedsiębiorstwa, Wydawnictwo Difin, Warszawa 2008, p. 81.
7
M. Zaleska: Ocena ekonomiczno-finansowa przedsiębiorstwa przez analityka bankowego. Warszawa: Szkoła
Główna Handlowa. Oficyna Wydawnicza, Warszawa 2002.
8
E. Dudek-Piechaczek, Analiza i planowanie finansowe, Helion, p 43.

6
 • analysis of the relationship between the sources of financing:
• the golden rule of the balance sheet (the company's debt may not
exceed the value of equity)
• the silver rule of the balance sheet (fixed assets should be financed with
equity)
• Indicative analysis of financial statements, enabling the examination of current trends
in the company's operations and its comprehensive financial assessment. The analyzed
ratios of the company's activity are examined according to four different areas:
profitability, liquidity, turnover and debt.9

1.2 Data sources for financial analysis

Analytical work in any of the financial analyzes can be divided into three main stages.
The preparation of the source materials is the first step, the next stage is the analytical work,
and the last stage is the calculation and presentation of the analysis results. The most
important and primary task under the first stage is the selection and verification of the source
materials. The correct choice of source information is crucial, it affects the quality of the
analysis carried out, in the case of incomplete data or poorly prepared materials, the
conclusions of the analysis may not be consistent with the current status and the adopted plan
of action ineffective.
There are two types of source materials, we divide them into record materials and non-
record materials. 10 Among the record materials, we distinguish11:
• documentation, which is the basis for entries in recording devices,
• entries in analytical and synthetic recording devices,
• reporting based on these provisions.
Non-record materials, which are mainly supplementary, are: 12
• developed postulated data, mainly financial plan and other economic plans,

9
J. Gad, Ekonomia finanse prawo gospodarcze. Podręcznik dla sędziów i prokuratorów. Uniwersytet Łódzki,
Łódź 2015 Chapter 6.
10
L. Bednarski, Analiza finansowa w przedsiębiorstwie, Polskie Wydawnictwo Ekonomiczne, Warszawa 1999,
p.33.
11
T. Banasik (2013). Financial analysis of economic health - Polish entities case, Wroclaw University of
Economics, Wrocław,p.24-25.
12
T. Banasik (2013). Financial analysis of economic health - Polish entities case, Wroclaw University of
Economics, Wrocław,p.25.

7
 • results of previous analyzes,
• materials from the conducted audits and controls,
• company materials and information.
Enterprise reporting is the typical inventory source material that is used in the analysis,
13
they are divided into material reporting and financial reporting. Financial analysis
considers account financial reporting, which, unlike factual reporting, is expressed in
monetary units furthermore is prepared on the basis of accounting records and calculations. In
the light of Art. 12 and 45 of the Accounting Act, each enterprise is obliged to prepare
financial statements as at a specific date, depending on the occurring events. 14
• closing the previous year,
• the entity ceases its activity, also in the event of liquidation, sale or bankruptcy
proceedings, as long as it has not been discontinued,
• before the day of changing the legal form,
• merger entry day,
• before the day of the division of the company,
• before the day the company is put into liquidation or bankruptcy,
• another balance sheet date specified in separate regulations - not later than within
3 months from the date of the occurrence of these events.
Financial statements has to be performed by limited liability companies and joint-stock
companies. It should included information on the financial and economic condition of the
companies, expected directions of development, size and type of equity and shares, the
condition and directions of changes in assets, staffing situation and payment possibilities.
Annual financial statements are of fundamental importance for the assessment of the
company's operations and the settlement of the achieved financial result. In accordance with
Article 45 of the Accounting Act, such a report should include: 15
• balance sheet (including assets and liabilities as at the beginning and end of the year
with supplementary data,

13
M. Gmytrasiewicz, A. Karmańska, Rachunkowość finansowa, Difin, Warszawa 2006, p.30-32.
14
Ustawa z dnia 29 września 1994 r. o rachunkowości. Sejm, Warszawa 1994, (Dz.U. z 2019 r. pos. 351).
15
Ustawa z dnia 29 września 1994 r. o rachunkowości. Sejm, Warszawa 1994, (Dz.U. z 2019 r. pos. 351).

8
 • profit and loss account (showing costs (operating and financial) and revenues,
extraordinary gains and losses, charges to the financial result, net profit or loss
together with supplementary data),
• additional information (including explanations about the components of the balance
sheet and the profit and loss account, the proposed profit distribution or loss coverage,
the methods used for valuation of the balance sheet and profit and loss account
components, and the characteristics of the composition of the company and
management bodies),
• cash flow statement (in companies obliged to do so, art. 64 section 1 of the
Accounting Act).
Apart from the above-mentioned elements, the annual financial statement should be
accompanied by a report on the unit's activity in the financial year, prepared by the company's
management board.16

1.3 Assumptions, structure of the financial statements

The balance sheet is a statement of assets and liabilities of an economic entity at the
beginning and end of the reporting period, prepared according to the principles of the so-
called full accounting. It belongs to the obligatory elements of the financial statements. It is
defined as a photograph of the company's financial components and their sources of financing
at a specific point in time. The balance sheet tells you about the resources that are controlled
by the entity and how they are obtained. 17

Table 1. Balance Sheet Structure.

16
Rozporządzenie Ministra Finansów z dnia 14 czerwca 1995 r. w sprawie szczegółowych zasad sporządzania
przez jednostki inne niż banki skonsolidowanych sprawozdań finansowych, Dz. U. 1995, nr 71, pos. 355.
17
G.K. Świderska, Jak czytać sprawozdanie finansowe, Difin/MAC, Warszawa 2013, p. 44.

9
Source: Own preparation based on: Ustawa z dnia 29 września 1994 r. o rachunkowości. Sejm, Warszawa 1994

The balance sheet of an economic unit should meet certain requirements, including:
completeness, reliability, verifiability, continuity, and transparency. 18 The requirement of
completeness of the balance sheet means that the balance sheet must include the necessary

18
B. Micherda Rachunkowość: aspekty teoretyczne i praktyczne, Wydawnictwo Naukowe PWN, Warszawa
2005, p. 92.

10
data on economic events that occur during the period under consideration. The balance sheet
reliability requirement is met if the presented results are consistent with the actual state of
affairs, both as to the type and value of the described events. The requirement for a balance
sheet to be verifiable refers to the ability to compare and verify balance sheet items with their
sources. The principle of balance sheet continuity means that the closing balance is both the
opening balance of the next period. On the other hand, when the balance sheet transparency
requirement is met, we can say that it is maintained only when the balance sheet has an
appropriate form of presentation, its items are grouped in terms of economic content, and their
recognition enables the analysis of the company's resources and their financing sources, and
orientation in the company's financial situation. 19 In accordance with the principle of balance
sheet balance, assets must always equal liabilities. 20
Assets are the total assets of the enterprise in terms of value and in accordance with
Art. 3 point 12 of the Accounting Act, these are: "property resources controlled by the entity
with a reliably determined value, arising from past events, which will result in an inflow of
economic benefits to the entity in the future". The assets of the balance sheet are ordered
according to the criterion of liquidity, i.e. ease of converting them into cash. 21 Fixed assets
are assets that provide the enterprise with benefits for a period longer than one year. They are
characterized by the fact that they are used for many operating cycles 22 and wear out
gradually. According to Article 3 para. 1 point 13 of the Accounting Act, fixed assets are
understood to mean such assets of the entity that are not classified as current assets. Current
assets contribute directly to making a profit through constant transformation, generating a
surplus of funds. Current assets are assets that are expected to be used, consumed or sold
within one accounting year. A characteristic feature of current assets is the possibility of
converting them into cash in a short time, thanks to high liquidity.
The assets of an economic unit may come from various sources of financing, some of
which may be own sources, and some may be external sources. Contrary to assets, sources of
financing assets, referred to as liabilities, appear only in terms of value and are ordered

19
E. M. Walińska, Bilans jako fundament sprawozdawczości finansowej w kontekście zmian współczesnej
rachunkowości, Oficyna Wolters Kluwer business, Warszawa 2009, p. 43.
20
Ustawa z dnia 29 września 1994 r. o rachunkowości. Sejm, Warszawa 1994.
21
L. Bednarski, R. Borowiecki, J. Duraj, E. Kurtys, T. Waśniewski, B. Wersty, Analiza ekonomiczna
przedsiębiorstwa, Wydawnictwo Akademii Ekonomicznej, Wrocław 2003, p. 89 – 91.
22
E. Walińska: Bilans jako fundament sprawozdawczości finansowej w kontekście zmian współczesnej
rachunkowości. Warszawa: Oficyna Wolters Kluwer Business, 2009. p. 73.

11
according to the maturity criterion of financial liabilities (repayment obligation). 23 Among the
sources of origin of funds from which assets can be financed, the main ones are: equity as
well as liabilities and provisions for liabilities. Pursuant to Art. 3 point 29 of the Accounting
Act, equity is the part of liabilities corresponding to the amount of the net asset value.
Liabilities according to the Accounting Act (art. 3 point 20) are " obligations to provide services of a
reliably determined value arising from past events, which will result in the use of already owned or future assets
of the entity".24

Apart from the balance sheet, one of the most important elements of the financial
statements prepared by all enterprises is the profit and loss account. If we compared the
balance sheet to the company's photo, then the profit and loss account can be called a kind of
film, which over time and the implementation of economic activity records how the financial
result (profit or loss) of the company is created. 25 It presents all types of income and the costs
associated with obtaining them. Pursuant to the Accounting Act, the company has a choice of
two forms of the profit and loss account: the calculation or comparative variant. In both
forms, the account is presented vertically, using the "ladder method".26 This method consists
in placing and subtracting from the net revenues from sales the costs of obtaining them and in
placing other operating revenues and costs, financial revenues and costs as well as
extraordinary losses and gains. The overall structure of the profit and loss account includes
four levels: 27
• operational,
• financial,
• initial distribution of the financial result.

Table 2. Profit and loss statement

23
J. Matuszewicz, P. Matuszewicz, Rachunkowość od podstaw, Finans – Serwis, Warszawa 2002, p. 377-388.
24
Ustawa z dnia 29 września 1994 r. o rachunkowości. Sejm, Warszawa 1994, (Dz.U. z 2019 r. pos. 351).
25
E.F. Brigham, J.F. Houston , Podstawy zarządzania finansami, t. 2, PWE, Warszawa 2005,p.68.
26
M. Sierpińska, T. Jachna, Ocena przedsiębiorstwa według standardów światowych, Wydawnictwo Naukowe
PWN, Warszawa 2007, p.53.
27
E. Dudek-Piechaczek, Analiza i planowanie finansowe, Helion, p 44.

12
Source: Own preparation based on: M. Sierpińska, T. Jachna, Ocena przedsiębiorstwa według standardów światowych,
Wydawnictwo Naukowe PWN, Warszawa 2007

The first level of the profit and loss account relates to the basic activity of the
enterprise related to the achievement of the objectives for which it was established and to
other activities of an operating nature, which include revenues indirectly related to operating
activities (e.g. sale of machines). The second tier includes income and expenses for financial
activities and financial investments. Financial activities are mainly related to raising funds to
finance the operating activities of the enterprise. Financial investments, on the other hand,
concern the acquisition of assets with the aim of obtaining economic benefits from the
increase in the value of assets or obtaining revenues, e.g. in the form of interest, dividends,
shares in the distribution of profits. This level of account reflects management's strategy for
selecting sources of finance and financial investments. The third level of the profit and loss

13
account is showing the so-called extraordinary, unpredictable events that are beyond the
control of the entity. The last level presents the initial breakdown of the financial result into
the part attributable to the budget and remaining in the enterprise for distribution. The initial
distribution of an entity's financial result is the result of its tax strategy. 28
The third important element of the financial statements is the cash flow statement.
This account is connected with the balance sheet and profit and loss account and is obligatory
for entities that are obliged to prepare financial statements. 29 This account collects
information on cash flows, i.e. information on events causing changes in the balance of cash
and cash equivalents in the enterprise. The cash flow statement is prepared on the basis of
data from the current and previous financial year. With the cash flow statement, you can
determine:
• “The amount of cash and cash equivalent,
• The amount of expenses and directions of using cash and cash equivalents.”

The cash flow statement shows flows from three areas of the company's activity:
• “Operating,
• Investment,
• Financial”.30
The operational part of the bill can be prepared by two methods: direct and indirect.
The method is selected by the head of the unit. However, one should remember about the
principle of continuous application of the adopted accounting principles and data presentation.
For no apparent reason, the method of drawing up the cash flow statement cannot be changed
in the next reporting period. In the direct method, the information is taken from the
accounting records, while in the indirect method, the volume of sales and operating costs is
adjusted, reducing them by the balance of receivables, inventories and other resources, such
as are not part of the company's investment and financial activities. 31
The general structure of the cash flow statement is presented in the table below.

28
M. Sierpińska, T. Jachna, Ocena przedsiębiorstwa według standardów światowych, Wydawnictwo Naukowe
PWN, Warszawa 2007, p.55-60.
29
Art. 45 ust. 2 ustawy z dnia 29 września 1994 r. o rachunkowości (Dz.U. z 2019 r. pos. 351).
30
E. Śnieżek, M. Wiatr: Przepływy pieniężne. Wolters Kluwer, Warszawa 2014, p.72.
31
L Bednarski, R Borowiecki, J Duraj, E Kurtys, T Waśniewski, B Wersty Analiza ekonomiczna
przedsiębiorstwa. Wrocław: Wyd. AE we Wrocławiu Posted: 1996, p.38.

14
Table 3. General structure of the cash flow statement

Source: Own preparation based on: E. Śnieżek, Skrócony rachunek przepływów pieniężnych. Rachunkowość – zamknięcie
roku 2008, Redakcja i Wydawca Rachunkowości Sp. z o.o., Warszawa 2008

1.4. Methods and techniques of assessing financial statements

The initial analysis of the balance sheet consists of both: vertical analysis (examination
of the share of balance sheet elements in the balance sheet total) and horizontal analysis
(examination of the increase in the value of balance sheet elements over time). 32 Horizontal

M. Sierpińska, [Link], Metody podejmowania decyzji finansowych. Analiza przykładów i przypadków,

32

PWN, Warszawa 2007p.65-76.

15
analysis is also called dynamics analysis. It consists in calculating the changes in the value of
individual elements over time. In horizontal analysis, the calculations are linked to statistical
methods - increments.33 The incremental analysis is divided into absolute (single and chain)
and relative (single and chain). We calculate absolute single-base increments in relation to the
base period by calculating the difference between the levels of the phenomenon:34

We calculate the absolute chain increments by counting the differences between

successive time levels of the phenomenon:

We calculate single-base relative increments to the base period by calculating the

quotient of the absolute increment to the phenomenon level in a given period: 35

We calculate the ratio of the chain relative increments to the previous level of the
phenomenon by calculating the ratio of the absolute increment compared to the level of the
phenomenon in the previous period:36

The results of the horizontal analysis should be read with great caution. Pay attention
to changes in the most important elements of the balance sheet: value of current and non-

33
S. Ostasiewicz, Z. Rusnak, U. Siedlecka, Statystyka. Elementy teorii i zadania, Wydawnictwo Akademii
Ekonomicznej im. Oskara Langego we Wrocławiu, Wrocław 2006, p.362-363.
34
S. Ostasiewicz, Z. Rusnak, U. Siedlecka, „Statystyka. Elementy teorii i zadania”. Wydawnictwo Akademii
Ekonomicznej im. Oskara Langego we Wrocławiu, Wrocław 2006, s.362-363.
35
S. Ostasiewicz, Z. Rusnak, U. Siedlecka, „Statystyka. Elementy teorii i zadania”. Wydawnictwo Akademii
Ekonomicznej im. Oskara Langego we Wrocławiu, Wrocław 2006, s.362-363.
36
S. Ostasiewicz, Z. Rusnak, U. Siedlecka, „Statystyka. Elementy teorii i zadania”. Wydawnictwo Akademii
Ekonomicznej im. Oskara Langego we Wrocławiu, Wrocław 2006, s.362-363.

16
current assets, tangible fixed assets, cash and its equivalents, investments and receivables,
liabilities, inventories, equity.
Another, vertical type of balance sheet analysis examines the structure of the property
and capital of an economic unit. Through research, we determine and analyze the structure of
assets and liabilities, as well as the structures of elements that make up the total financial
result of the enterprise. Vertical analysis of assets requires paying special attention to the
analysis of the structure of fixed and current assets as well as their components. The vertical
analysis of the balance sheet uses a number of indicators, such as:37
• The golden rule of the balance sheet:

this ratio should not deviate from 1 (fixed assets financed by equity),
• Silver balance sheet rule

the level of fixed capital should be higher than or equal to the fixed assets, Net
Working Capital / Total Assets, it shows the percentage of total assets that constitute
the security buffer and ensure the company's financial balance,
• Net Working Capital / Total Assets ratio; calculates the part of the assets constituting
the measures which constitute the safety buffer and ensure the financial balance of the
company,
• Net Working Capital / Current Assets, shows the proportion of net working capital
earning on the assets involved in the operational activity of the enterprise
• Net Working Capital / Inventories + Short-term receivables, the ratio should be at least
0.5, then we can determine what good condition of financing inventories and
receivables,
• The relation of the Net Working Capital / Revenues from Sales, in this way I calculate
how many groszy KON is required to engage in order to get PLN 1 of sales revenue.
The profit and loss account shows what financial operations were carried out in the
enterprise during a given period, most often it is a year. The preliminary analysis of
the profit and loss account covers 3 areas:38

37
P. Figura, „Wartości rekomendowane wskaźników wspomagania finansowego dla przedsiębiorstw z sektora
MSP”, Zeszyty Naukowe Uniwersytetu Szczecińskiego, Ekonomiczne Problemy Usług, nr 116, Szczecin 2015,
p. 387.
38
P. Sałdyka, Rachunek przepływów pieniężnych w praktyce. Techniki sporządzania. Wrocław:
„UNIMEX”, 2013, p. 16-20.

17
 1. Assessment and determination of changes in the sizes of streams that represent:
costs, sales revenues, financial result. We express these changes as a
percentage.
2. Examination of the structure of revenues and costs by determining the share of
each of the revenue groups (goods and materials, product sales, financial
revenues, other operating revenues, extraordinary profits) in total revenues.
Usually, the largest share are revenues that are related to the main activity of
the enterprise. The above groups of revenues correspond to the costs of
obtaining them (goods and materials, sold products, other operating costs,
extraordinary losses, financial costs). The structure of costs with dynamics
compared to the analogous revenue relations is one of the factors shaping the
financial result of the enterprise.
3. Examination of the relationship between different categories of the financial
result, the following relationships are established: 39
• “The ratio of profit on operating activities / profit on sales, if we obtain
a value below 100%, the result represents the percentage of profit lost
on operating activities,
• The ratio of gross profit / operating profit, if we get a value below
100%, the result shows what percentage of the operating profit was
allocated to financial costs as well as extraordinary losses,
• The ratio of gross profit / profit on sales, if we get the value of the ratio
lower than 100%, the result shows what part of the profit generated in
the main activity has been lost,
• The ratio of net profit / profit on sales, if we obtain the value of the ratio
lower than 100%, the result represents a part of the profit on sales
absorbed by operating, financial and extraordinary activities, as well as
income tax,
• The effective tax rate shows how much income tax is burdened on the
profit”.40
Cash flow analysis is used to obtain the characteristics of current and future
profitability as well as to determine the internal level of self-financing in order to determine

39
E. Dudek-Piechaczek, Analiza i planowanie finansowe, Helion, p 46.
40
J. Ostaszewski, Nowoczesne zarządzanie finansami firmy, InterFart, Łódź 2000, p. 13-16.

18
the current payment capacity. Cash flow is less prone to manipulation; therefore its
assessment outweighs the financial result, this analysis is considered a better indicator of
financial potential than the balance sheet. In order to obtain a complete assessment, it should
be considered against the background of the conclusions drawn from the analysis of other
financial statements. During the initial cash flow analysis, unlike the profit and loss account
analysis, we do not consider the specificity of the company and the industry in which it
operates, it is more important whether the balance of flows from a given activity is negative
or positive. We distinguish 8 cases that may occur in the enterprise: 41
“Case 1 It is very rare in practice, it is a company with very high financial liquidity,
usually such a company is preparing to undertake investments or mergers or undertake new
ventures.
Case 2 Most often it occurs in enterprises with long-term experience, which have high
profitability, finance investment activities, and which also allow them to settle their liabilities
with a financial surplus.
Case 3 Is recognized in two cases. The operating and investment activity of the
enterprise is positive. The second is the case when the current proceeds are not sufficient to
cover liabilities, then the company liquidates fixed assets to obtain new funds.
Case 4 is typical for developing enterprises, which are not able to cover their
development expenses from the generated profits, and therefore obtain external sources of
financing. This variant is considered to be the most desirable one, which proves that the
company has good prospects.
Case 5 characterizes enterprises that have temporary problems and do not generate
positive cash flows from operating activities in a given period. In order to maintain financial
liquidity, units use external sources of financing. If it is possible to obtain them, we expect an
improvement in the company's result.
Case 6 is a typical situation for young and growing enterprises. Such an enterprise has
negative operating flow, no cash because it is growing rapidly or is poorly managed.
Case 7 Describes companies that sell fixed assets to survive financial difficulties.

41
E. Siemińska, Metody pomiaru i oceny kondycji finansowej przedsiębiorstwa, Dom Organiza- tora TNOiK,
Toruń 2002, p. 133.

19
 Case 8 It characterizes enterprises which, despite the shortage of cash from operating
activities and debt repayment, conduct investments, it is associated with an unfinished
investment cycle.”42
The ratio analysis is an extension of the preliminary analysis of financial statements.
The analysis is quantitative and is based on ratios showing the relationships between specific
items included in the financial statements. The ratios are interpreted by referring their values
to the established norms and observing the change in their value over time. 43 The above
analysis will be described in detail in the next chapter.

42
M. Forfa, Przepływy pieniężne w zarządzaniu finansami przedsiębiorstw, Instytut Przedsiębiorczości,
Państwowa Wyższa Szkoła Informatyki i Przedsiębiorczości, Łomża 2009, p.31-33.
43
M. Sierpińska, T. Jachna, Ocena przedsiębiorstwa według standardów światowych, Wydawnictwo Naukowe
PWN, Warszawa 2007 p 144.

20
CHAPTER II THE MOT IMPORTANT RATIOS AND THEIR
ANALYSIS

2.1 Financial liquidity ratios as information about the company's solvency

Financial liquidity is understood as the ability to pay current liabilities on time, we

should not confuse it with solvency, which is the ability to cover total debts with the property
owned, long-term financial liquidity is most often referred to as solvency, also we can define
it as income balance. The difference between long-term and short-term financial liquidity is
basically that the enterprise does not have the money "on demond", the enterprise may not
have short-term financial liquidity, but on the other hand, it may show an equal income. 44
Financial liquidity is also not the liquidity of assets. The liquidity of an asset is determined by
the momentum and the ability to change successive elements into cash. financial liquidity
determines the rate of this change. The company's assets may cover current liabilities, but it
may also be so difficult to cash that it does not have financial liquidity.
We monitor financial liquidity by using the first group of ratios:45
• “current financial liquidity ratio,
• accelerated financial liquidity ratio ("quick ratio"),
• cash ratio,
• absolute liquidity ratio.”
We determine the current liquidity ratio using the formula below:

Based on current assets, using the current financial liquidity ratio, we can obtain
information about the company's ability to settle its short-term liabilities on time. Current
assets, i.e. property resources subject to conversion into cash in the balance sheet year

44
E. Dudek-Piechaczek, Analiza i planowanie finansowe, Helion, p 63.
U. Wojciechowska, Płynność finansowania polskich przedsiębiorstw w okresie transformacji gospodarki.
45

Aspekty mikroekonomiczne i makroekonomiczne, SGH, Warszawa 2001, p. 253-255.

21
(inventories, receivables, short-term prepayments) and cash and its substitutes. We can also
understand how a company can develop its operating activity by considering the level of net
working capital. The calculated ratio can be compared to the previous years and the ratios
achieved in other companies of a similar industry. To sum up, we obtain an improvement in
financial liquidity with an increase in the ratio, and a decrease in its deterioration. It can also
be compared to standard sizes. According to the standards, the range of 1.2-2.0 is treated as
the optimal level.46
Table 4 . Current financial liquidity ratios

Source: Own preparation based on Sierpińska, T. Jachna, Ocena przedsiębiorstwa według standardów światowych,
Wydawnictwo Naukowe PWN, Warszawa 2007 p. 147.

The above table is not an unambiguous assessment, the factors determining the level
of financial liquidity in the company should be taken into account, these are factors such as:
liquidity of current assets, the time structure of funding sources (timely, overdue), the
company's financial policy, the length of the operating cycle, etc.
Total current assets do not determine the capacity of a given enterprise, as they differ in the
degree of liquidity, i.e. the time they are converted into cash. Therefore, we also count on
Acid Test Ratio. We determine the Acid-Test Liquidity Ratio using the formula below:47

The quick ratio of 1.0 is considered satisfactory and shows the degree of coverage of
short-term liabilities with highly liquid assets, which means that the company can quickly
meet its current liabilities. None of the ratios can constitute a reference base, and there are
also differences in interpretation in the interpretation of the quick ratio. Most authors claim
that only the ratio higher than 1.0 reflects the company's ability to settle its short-term
liabilities. However, each company is different and depending on the specificity or time as
well as the financial politics, the level of the ratio varies.

46
U. Wojciechowska, Płynność finansowania polskich przedsiębiorstw w okresie transformacji gospodarki.
Aspekty mikroekonomiczne i makroekonomiczne, SGH, Warszawa 2001,
p. 253-255.
47
D. Wędzki, Analiza wskaźnikowa sprawozdania finansowego według polskiego prawa bilansowego, Wolters
Kluwer SA, Warszawa 2015, p. 128 – 129.

22
 Another described ratio is the cash ratio, it is determined according to the formula:

When calculating the above ratio, we consider only those assets that can be settled as
quickly as possible, so we can determine how many liabilities can be settled by assets that are
not related to the operational process, are in the form of cash or short-term investments as
substitutes. Despite the lack of cash in the account, financial liquidity is still possible. be kept
by the enterprise, especially when there is a guaranteed inflow of cash from regularly
collected receivables. only with a complete lack of cash in the company there are losses
resulting from the inability to conclude transactions and take advantage of the opportunities
on the market. Excess cash is also not a positive sign, it creates opportunity costs, so these
funds could be invested and generate income. Calculation of the cash ratio is important in an
environment of payment bottlenecks.48
Absolute liquidity ratio is called the more stringent cash ratio, we calculate it using the
formula:

There is no specific standard for the ratio level, it is compared over time. The ratios
calculated on the balance sheet recognition of current assets are not precise enough to
measure a realistic level of financial liquidity. Based on the stock values, the enterprise may
show a high degree of financial liquidity, however, the funds regulating liabilities may be
allocated to debts that are difficult to collect, overdue, disputed, uncollectible or difficult to
liquidate inventories of finished goods. Therefore, we use the operating cash flow liquidity
ratio, we obtain it by calculating:

We use the operating cash flow liquidity ratio to learn about the company's ability to
settle its current liabilities thanks to cash and other short-term financial assets. Because of its
calculations, we can assess how much the company is able to cover its current liabilities
immediately.49

2.2 Debt ratios as an important element of asset financing and the

effectiveness of capital involvement

48
G. Michalski, Wartość płynności w bieżącym zarządzaniu finansami. CeDeWu, Warszawa 2004 p.12-14.
49
A. Kusak, Płynność finansowa. Analiza i sterowanie. Wyd. Nauk. UW, Warszawa 2006, p.65.

23
 The analysis of the degree of indebtedness of the enterprise enables to assess the
financial arrangement of the enterprise in connection of the structure of capital and the
comprehensiveness of using the financial leverage. Consequently, it is often referred to as an
analysis of the company's financing structure. The ratios used to check the debt of an
company under analyse can be divided into two main groups:50
• the company's debt,
• ability to service the debt.
Each activity has the right to use both its own and external financing sources, they can be
both short-term and long-term. Because of the assesment of the level of indebtedness of the
enterprise, we can identify the origin of financing assets from various directions, as well as
their economy and action of the previously mentioned capitals. “Ratios used to measure the
company's assets financing structure:51
• general debt ratio,
• equity debt ratio,
• the ratio of the share of liabilities over 1 year in total liabilities,
• long-term debt ratio,
• tangible fixed assets debt ratio.”
The total debt ratio is calculated from the formula: 52

In accordance with the golden rule of financing, this ratio should remain at the level of
many enterprises, however, it is not able to keep this rule. They use foreign capital to ensure
their long-term development. According to Western standards, in a company where a balance
between foreign capital and equity has been maintained, this ratio should fluctuate in the
range of 0.57-0.67. An increase in liabilities in the total sum of financing sources may be
justified when the average interest rate on credits and loans is lower than the rate of return on
assets achieved by the enterprise. The size of the enterprise affects the level of debt. Large
companies have an advantage over small companies in terms of debt opportunities. Due to
their potential and the large size of the lenders, they are willing to make larger concessions, as
they are much more afraid of losing a large contractor than losing a small one. The level of

50
D. Wędzki, Analiza wskaźnikowa sprawozdania finansowego, Oficyna a Wolters Kluwer business 2009, p.
197.
51
M. Sierpińska, T. Jachna, Ocena przedsiębiorstwa według standardów światowych, Wydawnictwo Naukowe
PWN, Warszawa 2007, p. 167.
52
W. Gabrusewicz, Analiza finansowa przedsiębiorstwa – Teoria i zastosowanie, PWE Warszawa 2014, p. 342.

24
0.5 is optimal for this ratio, but many enterprises do not maintain this level, in order to ensure
their long-term development, they use foreign capital. When the balance between external
capital and equity has been maintained, this ratio should fluctuate in the range of 0.57-0.67.
The lower average interest rate on loans and advances on the rate of return on assets achieved
by the company justifies it increase in liabilities in the total sum of financing sources. The
size of the enterprise affects the level of debt. 53 Larger companies have an advantage over
small companies in terms of debt opportunities. Lenders also give way to larger entrepreneurs
because of the fear of losing a large contractor. 54

The above raio is a supplement to the enterprise debt level assessment ratio which
determines the degree of foreign capital involvement in relation to equity. It also allows you
to check to what extent the enterprise is able to cover liabilities with equity. Financial
institutions which grant loans are not granted by companies whose ratio exceeds its
reasonable level. Credit obligations exceeding the value of equity capital result in the fact that
banks are less willing to grant investment loans.
Another ratio is the share of liabilities over 1 year in total liabilities. We calculate it
using the formula:55

Long-term provisions, long-term liabilities, liabilities for deliveries over 12 months

and long-term accruals are classified as liabilities over 1 year, they are due in a period longer
than the balance sheet year. These liabilities should have a reasonable proportion to the total
amount of debts. Loss of financial liquidity is very possible with a high share of short-term
liabilities in total liabilities, also debts may increase due to the accumulation of interest, as
well as an increase in the level of debt and the loss of the company's ability to survive on the
market.
Long-term debt ratio it is set as the relation: 56

53
E. Dudek-Piechaczek, Analiza i planowanie finansowe, Helion, p 66.
54
W. Gabrusewicz, Analiza finansowa przedsiębiorstwa – Teoria i zastosowanie, PWE Warszawa 2014, p. 342.
55
D. Wędzki, Analiza wskaźnikowa sprawozdania finansowego, Oficyna a Wolters Kluwer business 2009, p.
197.
56
E. Dudek-Piechaczek, Analiza i planowanie finansowe, Helion, p. 68.

25
 The above ratio is the most important for assessing the level of debt. Long-term
liabilities refer to long-term loans and borrowings, issued bonds and other debts that have a
longer payback period than the balance sheet year. The debt ratio shows the structure of fixed
capital. Satisfactory its level is 0.5. The ratio higher than 1.0 indicates that long-term
liabilities are higher than equity. The desired debt ratio should be in the range of 0.5-1.0.
Firms avoid having a higher ratio of long-term liabilities to equity because they are then
considered too indebted.

2.3 Profitability ratios reporting the efficiency of the company's operations

The profitability ratio is the relation between the revenues achieved by the company
and the costs incurred, it is the basic measure that allows to determine the profitability of the
company in a given time, is the profitability analysis.57 Profitability ratios are also called
profitability ratios or rates of return. Both income and costs can be differently presented.
Teaoetically speaking, the more variants of the numerator and denominator, the better the
cognitive value. However, on the other hand, in practice, the whole range of profitability
ratios allows you to obtain the information that best describes the management of the
enterprise. Profitability analysis imposes comparison of the values achieved with the values
from the previous periods as well as with the planned ones. Comparing profitability with the
results of other enterprises in the class, especially with competitors, with the averages for a
given class, but also with the results of various fields of economic activity and the average
interest rate on the capital market is necessary because the profitability analysis indicates the
direction of capital investment. These comparisons are only the initial stage of profitability
assessment, the direction for changes in the analyzed relationships. The causal analysis of
profitability is necessary to obtain results serving the current management of the enterprise,
thanks to it we explain the differences between the analyzed values and the adopted basis for
comparisons and we are able to find the initial reasons for these differences. Profitability
ratios can be calculated statically and dynamically. 58

E. Nowak, Analiza sprawozdań finansowych, PWE, Warszawa 2008, p. 176.

57

M. Sierpińska, T. Jachna, Ocena przedsiębiorstwa według standardów światowych, Wydawnictwo Naukowe

58

PWN, Warszawa 2004,p.196-206.

26
 Profitability analysis is carried out in three areas of the company's activity:
• Return On Assets (ROA)
• Return On Equity (ROE)
• Return On Sales (ROS)
The ROA analyzes the net profit attributable to a given unit of financing sources
involved in the company's assets. It is a representation of the profitability of an asset. in other
words, it shows how effectively the assets are managed by the company. The return on assets
is primarily dependent on the profit and we express it as a percentage. To calculate the ROA
ratio, we need data from two elements of the financial statements: the balance sheet and the
profit and loss account. The best way is to take those from the end of the reporting period, e.g.
the last day of the year. We calculate ROA using the formula: 59

Generally, when the ROA level is higher and higher, then we have a better condition
of the company. Conversely, if the ratio shows a negative value, the enterprise loses, it does
not generate profit. For this and other ratios, the desired range of values does not exist. To
obtain conclusions, the results should be compared primarily:
• with previous ratio values,
• with the results achieved by the most important competitors,
• with the average value of the ratio in a given industry.
The return on equity (ROE) ratio approximates the rate of return that a firm will obtain
on its investment. It is one of the most popular ratios, it is also easily accessible, especially for
investors, because it helps them determine whether an investment is profitable. As in the case
of the ROA ratio, we also use data from the balance sheet and the profit and loss account to
calculate this ratio. We calculate the ROE value: 60

59
D. Wędzki, Analiza sprawozdań finansowych, Wolters Kluwer Polska, Kraków 2006, p 502.
60
A. Paździor, Biznes plan. Klucz do rozwoju przedsiębiorstwa. Lublin: WSPA, 2010, p. 45.

27
 In this case, higher return on equity is a positive sign of your company. As in the
previous ratio, there is also no more specific optimal level of profitability. The results should
be interpreted based on the changes in the ROE in the time intervals. Here, increasing the
ratio will mean increasing the company's financial security and development opportunities,
also the fact that the company has a competitive advantage, caused by a specific product,
proprietary technology or unique brand.
The return on sales ratio shows the relationship between the net profit in the entire
activity of the company and the net revenues from sales. Thanks to it, you can determine the
rate of profit that a given investment brings. This ratio is most often used to convey the
financial effects obtained from the sale of goods, products and services. Knowing the level of
the ROS ratio, we check the profitability of sales. Unlike in the earlier ratios, the first and last
items of the profit and loss account are used to calculate this ratio. We calculate the ROS
based on the formula:61

As with both of the earlier ratios, the higher the level, the better the company's
financial condition. But as with ROA and ROE, there is no optimal level we are aiming for.
Thus, the results are compared with those obtained in earlier reporting periods, as well as with
the results of competitors and the average values in a given industry. As in the earlier ratios,
the desired result is, of course, the excellent level of this ratios. They can prove the
achievement of more attractive prices, an increase in sales as well as a reduction in unit cost.
The ratio does not have to keep growing and we are also satisfied with the stable maintenance
of this ratio at a high level. However, declines should worry us, we should intervene to check
costs, review tax liabilities that consume an increasing part of revenues. 62
We use different profit categories to calculate profitability. The following quantities
are most often used:
• profit from operating activities; operating profit + depreciation,
• gross profit,
• net profit,
• net profit + depreciation,
• gross profit + interest, i.e. profit before interest with tax (EBIT),

61
M. Sierpińska, T. Jachna, Ocena przedsiębiorstwa według standardów światowych, Wydawnictwo Naukowe
PWN, Warszawa 2004, p.196-199.
62
D. Wędzki, Analiza sprawozdań finansowych, Wolters Kluwer Polska, Kraków 2006, p. 502.

28
 • gross profit + interest + depreciation (EBITDA)
• gross profit + interest + depreciation + leasing fees (EBITDAR)
• gross profit + interest + charge related to the exhaustion of natural resources +
depreciation (EBIT (D) DA)
• gross profit + interest + charge related to the exhaustion of natural resources +
depreciation + leasing fees (EBIT (D) DAR)63

2.4 Market value ratios as a connection between the financial statements

and the capital market

Investors like to use market value ratios, they help in making a good financial
decision. These ratios show the ratio of the company to the results achieved, they are the most
popular ratios because everyone has access to the data needed to calculate them, because the
information necessary to calculate the value of companies can be found on the Stock
Exchange website, thanks to which everyone can easily interpret them. Each of all ratios are
used differently, but if you combine all of information’s from each measures you will see
financial portrait of publicly traded companies, furthermore they are useful for management to
be sure what investors think of their company. We use market value ratios also for analysis
stock trends, to check our perspectives for development, or to ensure if stock is correctly
valuated. All ratios should be used in order to make right decision, calculating only few of
them may show a false picture of the investment. 64 The most important market value ratio is
book value per share,share shows the correlation between the total equity excluding the
shareholders’ preference shares, and the outstanding shares in the market. It is a full amount
of the contributed value plus operational profit and loss of a company. It allows to calculate
value of each share on the market. When you are buying share you can quickly check with
this ratio if market value of purchased share is low or high, in order to make the right
decision. The formula of book value per share is:65

63
M. Michalski, Ekonomia Menadżerska, Wydawnictwo AGH, Kraków 2009, nb 6, p. 119-128.
64
T. Siudek, Analiza finansowa podmiotów gospodarczych, Wydawnictwo SGGW, Warszawa 2004,
p. 194-195.
65
M. Michalski, Ekonomia Menadżerska 2009, nb 6, Wydawnictwo AGH, Kraków 2009, p. 119-128.

29
 Cash earnings per share (CEPS) are also known as operating cash flow. This market
value ratios determine a enterprise financial performance by analyzing cash flow to the
number of open shares. It is believed that it is similar to net profit measure and earnings per
share, but it is calculated diffrently, without non-cash components, so it is more reliable
among other market value ratios. It gives an real cash that a enterprose earns from each share.
Simmilar to anoteher financial ratios, the higest the value is desired. The cash earnings per
share of a company can be compared to another enterprises or business trends.66 There is two
ways to calcolate above ratio, you can calculate the earnings per share calculation or non-cash
expenses include depreciation, amortization, etc. The final result of both is not always
identical.

Dividend yield is essencial if you are want to invest in shares at the market place, is
allows you tu buy it with current market price and calculates the return on your investment. It
helps investors make right decision with their investment, this ratio measure the allocation of
cash dividends paid out to shareholders relative to the market value per share. Invariably the
higest value is desired, but to high value can lead to limiting the enterprise investment
opportunities. Dividend yield formula:67

Market value per share describe each shares value of given enterprise, it is one of the
most important ratio because its value has impact on another ratios. its is calculated by
dividing the total market value of the business by the total number of shares outstanding, thus
we know the price of each share in the market, so as the going price of a share. 68

66
E. Dudek-Piechaczek, Analiza i planowanie finansowe, Helion, Gliwice 2007, p 71
67
B. Jabłoński, Dividend policy and fi nancial liquidity of a company, Ukrainian Academy of Banking of The
National Bank of Ukraine, Sumy, Ukraina 2011, p. 107 - 113.
68
E. Dudek-Piechaczek, Analiza i planowanie finansowe, Helion, Gliwice 2007, p. 71.

30
 To determine the financial position of an enterprise on the market, we use market to
book ratio, it shows the relationship between the market value of a share and its book value,
thanks to which, by investing, we can easily distinguish both and check whether the share is
undervalued or overestimated in accordance with the capital status in the books. In simplified
terms, this ratio tells you how much you pay for each dollar of book value in your balance
sheet and expense report. We calculate it in two ways to get information about each share or
the total value of the company:69

The last but not least, price earnings ratio, it is used to check share's price contrasting
to another enterprises. Price earnings ratio is frequently used because it measure current price
of a share against the earnings the enterprise has reported in that financial period for each
share. We use below formule to calculate it : 70

2.5 Advantages and disadvantages of financial ratios

Ratio analysis is one of the simplest methods of determining the financial situation of
a given enterprise. Thanks to this analysis, it is possible to determine the stability of the
company and its financial liquidity. Such reports help to plan various business activities. It is
useful for managers, thanks to it, they make good operational decisions of the enterprise,
lenders to assess the self-financing ability of the enterprise, investors to check the profitability
of a given investment. This analysis has many advantages, it let us to evaluate enterprise's true
financial condition for all interested. It helps in effective operational activities, thanks to it we
can forecast and plan business activities, it also identifies trends in all items: profit, cost and
sales. This analysis simplifies the accounting information contained in the financial reports,
thanks to which managers and investors can easily understand what is happening in the
enterprise. By calculating various ratios, we measure the performance and profitability of the

69
M. Michalski, Ekonomia Menadżerska Wydawnictwo AGH, Kraków 2009, nb 6, p. 119-128.
70
E. Dudek-Piechaczek, Analiza i planowanie finansowe, Helion, Gliwice 2007, p. 73.

31
enterprise, making it easier for the enterprise to make decisions about funds and opportunities.
Thanks to it, the management board is able to spot weak points in every aspect of the business
and make such financial decisions so that the enterprise has better results. Enterprises can
compare themselves internally but also externally with the entire industry or a similar
company with the same activity, thanks to which we can recognize a given company as
effective or inefficient. 71
On the other hand, this analysis is not perfect and has some disadvantages. The data
included in the financial statements is not always available to the public, often some
limitations are imposed, which may not contain true information, then we may obtain false
results that translate into the quality of this analysis. When calculating all ratios, we rely on
data from the past, the current changes in the enterprise may drastically differ from the data
on which we work, then we again have a problem with a reliable assessment of the enterprise.
In the ratio analysis, we work with numbers, which limits us only to the quantitative aspect,
and in this analysis, we do not evaluate the qualitative aspects that may be equally important
and may have a positive impact on the enterprise. In fact, there is no one set for all formula
for a given ratio - often companies in the same industry use different data to determine the
same ratio, so the result can be very different. Ratio analysis ignores changes in the price level
as they are not included in the financial statements. Another disadvantage is window dressing,
management can manipulate the data in the financial statements to show better results and
hide problematic numbers, thus we cannot predict the actual financial situation. 72
To sum up the ratio analysis is an extension of the preliminary analysis of financial
statements, it assesses various economic aspects of the company's operations, it is applied
depending on the needs of recipients, they can choose any ratios. It allows for a specific
assessment of the enterprise, but before making any decision, the operational decision of the
enterprise, the purchase of shares, etc., other aspects should be considered, such as the current
activities in the enterprise, considering the quality, not only the quantity, and many more. 73

71
A., Ejsmont, D. Ostrowska Analiza wskaźnikowa działalności przedsiębiorstw - wybrane elementy,
Wydawnictwo Uczelniane Państwowej Wyższej Szkoły Zawodowej im. prof. Edwarda F. Szczepanika w
Suwałkach, Suwałki 2011,p.18-20.
72
A. Ejsmont, D. Ostrowska, Analiza wskaźnikowa działalności przedsiębiorstw - wybrane elementy,
Wydawnictwo Uczelniane Państwowej Wyższej Szkoły Zawodowej im. prof. Edwarda F. Szczepanika w
Suwałkach, Suwałki 2011, p.18-20.
73
E. Dudek-Piechaczek, Analiza i planowanie finansowe, Helion, Gliwice 2007, p. 61.

32
CHAPTER III FINANCIAL ANALYSIS OF PKN ORLEN

3.1 Characteristics of PKN ORLEN

Polski koncern Naftowy Orlen is the full name of a Polish joint-stock company. The
headquater is located Płock. This fuel and energy concern is the owner of numerous fuel
stations located all over Poland and around the world.74 Orlen was transformed from a state-
owned enterprise into a joint-stock company on June 29, 1993 then it was registered as
Mazowieckie Zakłady Rafineryjne i Petrochemiczne "Petrochemia Płock" Spółka Akcyjna in
the District Court in Płock on July 1, 1993 under the number RHB VIII 780. September 7,
1999 in by incorporation, Centrala Paliw Naftowych CPN S.A. joined the company, and then,
under the resolution of the General Meeting of Shareholders of April 3, 2000, registered in the
District Court in Płock on April 12, 2000, the company changed its name to Polski Koncern
Naftowy ORLEN Spółka Akcyjna . At the beginning of 2018, a letter of intent was signed to
start the process of absorbing Grupa Lotos by PKN Orlen, on July 19, 2022, the consent was
issued by the ministerial council for the merger of Grupa Lotos and PKN Orlen, and on
August 1, 2022, the formal takeover was finalized.75 The company is considered to be the
largest activity in the fuel and energy market in Central Europe. The group operates on the
markets of many countries, not only Poland, but also Germany, Lithuania, Malta, Sweden, the
Netherlands, Hungary, Estonia, the Czech Republic, Latvia as well as the USA, Canada and
Slovakia. The company's operations are divided into three operating segments - Downstream,
Retail and Upstream. The Downstream segment operates in 6 refineries of the group in
Poland, the Czech Republic and Lithuania. The Retail segment has 2,881 petrol stations in
European countries and more than 2,100 Stop Café Bistro and Stop Café points in total in
Poland, the Czech Republic and Lithuania. At the end of 2021, Orlen had 1,028 active retail
outlets of RUCH. The last segment is Upstream, under which exploration and production
projects are carried out in Poland and Canada. The total resources of PKN Orlen at the end of
2021 amounted to 171 million boe of crude oil and gas, and the average production in 2021
totaled 16,700 boe / d.

74
SPRAWOZDANIE NA TEMAT INFORMACJI NIEFINANSOWYCH GRUPY ORLEN I PKN ORLEN
S.A. ZA ROK 2021
75
Wikipedia, [Link]

33
3.2 Analysis of the most important elements of the financial statements
I will base my initial analysis of the financial statements on data from 2017-2021. I
will start with the balance sheet analysis, which consists of two parts: horizontal and vertical
analysis, I will present the results of the analysis and interpret them. The next stage of the
analytical part will be the analysis of the profit and loss account, I will present chain changes,
I will examine the shares of specific groups of revenues and costs, as well as the relationship
between the categories of the financial result. The last part of my analysis will be a
preliminary analysis of the cash flow statement in each of the three areas of PKN ORLEN
activity (operating, investment and financial).

A very large increase in the value of fixed assets attracts attention because it increased
by over 116%, which positively proves the company's development, as it increases its
production capacity. Another significant increase is the balance sheet total - at the end of
2017, this sum was almost 76% higher than the balance sheet total from 2021.
We also notice a significant, but negative change in cash and its equivalents (-54%),
which means a deterioration in financial liquidity. We notice a high increase in trade
receivables, which means that the company has not been paid some receivables quickly
enough, which explains the change in cash and its equivalents, if the situation does not
change, it may result in problems with solvency.
A large increase in current liabilities indicates new purchases, it is not considered a
bad change in advance as they may be acquisitions that will allow the company to develop.

34
To keep things under control, management should track debt-to-equity ratio and debt-to-asset
ratios
Throughout the period under analysis, we notice a significant increase in non-current
liabillities, which means that the company, wanting to save cash, bought goods on credit. To
assess this change, we should compare cash flow, the more stable a company's cash flow, the
more debt it can handle without increasing the risk of default.
A good sign is the change in the items equity (49%) and liabilities (112%), which
proves the development of the enterprise, however more than twice the increase in liabilities
than in equity means a negative change in the structure of financing the enterprise, under
which the share of equity in relation to to foreign property.

The ratio at level 1 means that fixed assets are financed by equity capital, the
presented analysis shows that this level has not been maintained for the last 3 years, although
many companies do not reach the level equal to 1, 23% is too much of an asset financed by
foreign capital, which means that there is a threat to the company.

The above ratio is correct when its level is 1 or higher. In the analysis carried out in all
the years considered, this ratio exceeds the value of 1, which proves that the fixed assets are
fully financed by fixed capital.

35
 The ratio determines what part of the assets are the means that constitute the safety
buffer and ensure financial liquidity. Throughout the analyzed period, the ratio is positive,
which is a positive sign, but it decreased over the entire period, which indicates a
deterioration in the company's financial liquidity.

The decrease in this ratio over the years proves the increasingly worse financial
liquidity of the enterprise, because this indicator shows to what extent the assets involved in
the operational activity of the enterprise are financed by net working capital.

When the ratio remains at 0.5, it is considered a good condition of financing

inventories and receivables. For the first three years it remained at a satisfactory level,
however, in the last two years, we notice a low level of financing of inventories and
receivables.

This Report shows how many pennies of net working capital need to be committed to
achieve PLN 1 of sales revenues. In this case, we observe a decrease in this ratio over the
years, which means that the company allocates less and less funds to generate revenues.

36
 The analysis of the dynamics of the profit and loss account shows us the improvement
of the enterprise, we can see that in the analyzed period the value of own sales costs
significantly decrease, and sales revenues also slightly decrease, however, not to the same
extent as the costs.
Most of the company's revenues are sales revenues, they remain at the level of 88% -
98% of total revenues. The analysis shows that over the years the company significantly
increased the share of operating income, and the financial profit remained minimal throughout
the period.
The main source of costs is the cost of sales and they remain at the level of 81% -91%,
however, we can see that during the period under examination these costs have decreased, we

37
notice a significant increase in selling costs, as well as general and administrative costs and
other costs.
The company's net profit is getting better every year, which proves its good financial
condition, but the increase in operating costs should be monitored.

Over the years, we can see an increase in the value of this indicator, which suggests an
increase in profit, it shows that the company is properly managed, but we can notice a
significant decrease in 2019-2020 from previous analyzes, we can conclude that it was caused
by an increase in selling costs.

Over the years, we see a slight change in this indicator, after analyzing the year 2020,
we notice a significant difference, 27% of the profit was absorbed by financial costs and
extraordinary losses.

The current value of the ratio informs us that the profit generated as part of the core
business has significantly increased over the last 3 years, which is a very positive sign for the
company.

38
 The increase in the ratio in recent years is a positive phenomenon, it informs us that
the net profit is increasing, so that it will not be absorbed by the results on the financial and
extraordinary levels, results on the remaining operating level and income tax.

This ratio reflects the burden on profit with future and current income tax. Over the
analyzed years, the value of this ratio changed significantly in 2020, the value was minimal
and in the following year it returned to the same value as 5 years earlier, which means a
higher income tax burden on profit.

The above table presents the situation in the cash flow statement in each of the three
areas of PKN Orlen activity (operational, investment and financial), thanks to which it is
possible to formulate a preliminary conclusion on the financial condition of the company. The
"+" and "-" signs used indicate successively generated surplus or shortage of funds. In all
analyzed years, the generated operating surplus is sufficient to cover the shortage of cash
flows from other types of activities, to conduct investments, and to settle liabilities to lenders
and owners. Over the analyzed years, we have noticed an increase in cash, resulting from the

39
growing revenues that are generated as part of the operating activities, which positively
reflects the financial situation of the company.
In its financial statements, the ORLEN Group measures the main groups of inventories
according to the weighted average cost of production or purchase price method. The first in,
first out (FIFO) method of expense is used to measure stocks of coal. In the case of the
average weighted cost of production method, the increase in crude oil prices, as compared to
the crude oil valuation according to the LIFO method, has a positive effect, and the decline
has a negative impact on the reported EBITDA results. The impact of rising crude oil prices
on the valuation of inventories included in the EBITDA result for 12 months of 2021
amounted to 4,246 million PLN.
As a result, the operating profit increased by depreciation before taking into account
the impact of changes in crude oil prices on the valuation of inventories (so-called EBITDA
LIFO) and impairment losses on assets amounted to 14,167 million PLN and was higher by
1,737 million PLN.
Changes in macroeconomic factors increased the results of the ORLEN Group by
3,643 million PLN and mainly included the impact of a higher Ural / Brent differential by
USD (1.3) / bbl, an increase in margins on light distillates, olefins, polyolefins, PTA, PVC
and fertilizers. Additionally, the results of the ORLEN Group were positively influenced by
the change in the valuation and settlement of CO2 forward contracts within a separate
transaction portfolio in the amount of 2,807 million PLN. In turn, negatively on the results
was affected by lower margins on middle distillates, and higher costs of own consumption
due to an increase in crude oil prices by $ 29 / bbl. In 2020, there was a significant drop in the
prices of crude oil and products, which had a positive effect on hedging transactions
recognized in other operating activities, mainly in the first quarter of 2020. The observed
increase in crude oil and product prices in 2021 resulted in a negative impact of the above-
mentioned transactions and the total impact of hedging transactions amounted to 1,555
million PLN. The total volume sales of the ORLEN Group for 12 months of 2021 increased
by 2% and amounted to 38 923 thousand tone. The largest decrease in sales was recorded in
the first quarter of 2021. The lack of a significant impact of the COVID-19 pandemic in the
first quarter of 2020 with the continued market restrictions in the first quarter of 2021 resulted
in a negative volume effect in the period of 12 months.
It should be noted that the impact of higher sales volumes in Q2, Q3 and Q4 of 2021
was positive, but did not compensate for the negative effect of lower volumes in Q1 2021.
The above changes in sales volumes decreased the results of the ORLEN Group by 621

40
million PLN. The impact of other factors amounted to 1,285 million PLN and included
mainly:
• 2 204 million PLN - positive impact of using historical layers of inventories.
• 1,598 million PLN - higher result of the ENERGA Group, mainly due to incomparable
recognition periods in the ORLEN Group consolidation.
• 320 million PLN - positive impact of revaluation of inventories to realizable prices (NRV).
The impact of the revaluation of inventories for 12 months of 2021 was positive and
amounted to 211 million PLN, compared to 109 million PLN in the corresponding period of
2020.
• 184 million PLN - statute of limitations of liabilities towards minority shareholders of
ORLEN Unipetrol.
• 156 million PLN - positive effect of the change in the ownership structure of Baltic Power.
• 4,062 million PLN - no profit on the bargain purchase of Energa shares from 2020.
• 1,685 million PLN - other items including revaluation of provisions for CO 2 emissions,
higher general and labor costs partially offset by higher wholesale margins.
The operating result increased by depreciation and amortization (so-called EBITDA)
for the fourth quarter of 2021 amounted to 5,470 million PLN, compared to 1,726 million
PLN in the corresponding period of 2020.
In Q4 2021, net impairment losses on property, plant and equipment and intangible
assets amounted to 90 million PLN and mainly related to energy assets in the Energa Group,
the retail and refining segment in the ORLEN Unipetrol Group and PKN ORLEN, and mining
assets in Poland. In turn, in the fourth quarter of 2020, the impact of property write-offs
amounted to 949 million PLN and mainly related to the mining assets of the ORLEN
Upstream Group in Poland and Canada, and refining assets in the Czech Republic and
Lithuania.
The impact of rising crude oil prices on the valuation of inventories included in the
EBITDA result in the fourth quarter of 2021 amounted to 1,251 million PLN, compared to
103 million PLN in the fourth quarter of 2020.

3.3 Ratio analysis based PKN ORLEN

I will start the indicators analyst with liquidity thay characterize the current assets, which are
the basis of the company's current operations. The analysis of financial liquidity monitors the

41
ability of the audited entity to settle the current liabilities resulting from its activities. Current
liabilities form part of liabilities that fall due in less than one year.
Financial liquidity can be tested on three levels, i.e. as an indicator of liquidity
current ratio, quick liquidity ratio and cash solvency ratio. In connection with the above, to
ensure the continuation of ongoing activities entities should make decisions that will ensure
the maintenance of financial liquidity. In the literature on the subject, a static measurement of
financial liquidity is possible by using the current financial liquidity ratio, the liquidity ratio
fast, cash ratio, covering respectively assets with the lowest, highest and highest degree of
economic liquidity. In relation with the above, the current ratio is measured as follows76:

The measure of this ratio provides information about the entity's ability to settle
current (short-term) liabilities using current assets. In addition, the obtained result of this ratio
presents the level of net working capital on the basis of which an entity can develop activities
of a nature operational. Nevertheless, an increase in the value of this ratio compared to the
previous period means an improvement in terms of liquidity and vice versa. The most the
desired value of this indicator fluctuates in the range 1.2-2.0. Too low level current liquidity
may indicate the existence of problems with the settlement of liabilities held by the entity. In
turn, when the measure of this indicator is higher than optimal, it can be presumed that the
entity manages its own ineffectively assets and is characterized by the phenomenon of excess
financial liquidity. If the audited entity records the current liquidity ratio in the range of 1.2-
2.0, testifies it is about the desired level of wealth management77.

Figure 1. Current liquidity ratio in 2017-2021 for PKN Orlen SA

76
M. Jerzemowska, Analiza ekonomiczna w przedsiębiorstwie, Polskie Wydawnictwo Ekonomiczne,
Warszawa 2006, s. 145-147.
77
E. Jantoń-Drozdowska, A. Woźniak-Mikołajewicz, Analiza finansowa jako narzędzie zarządzania
przedsiębiorstwem, Wydawnictwo Naukowe Uniwersytetu im. Adama Mickiewicza, Poznań 2017, s. 118.

42
Source: Own study based on the financial statements of PKN Orlen SA.

The value of the quick liquidity ratio in the case of PKN Orlen SA in the analyzed period was
at the desired level with slight deviations from the trend and fluctuated in the range 1.43-1.7.
In the analyzed period, the value of liquidity the current one increased noticeably, ie by
almost 19%. This proves that there are no difficulties in meeting the current obligations of the
entity.

The desired level of this ratio should be between 1.2 and 2.0. The surveyed enterprise
in most of the surveyed years maintains the desired level, which indicates the company's
ability to pay off its current liabilities by liquidating its fixed assets, but in 2020 the ratio
dropped to a very low value, which made the enterprise unable to pay its current liabilities.

43
 The company aims for a ratio of 1, which means the company's ability to pay its
current liabilities on the basis of the most readily available funds from current assets,
excluding inventories. ORLEN achieved this level only in the first, one out of five years
surveyed, which means a bad trend for the company.

The cash solvency ratio informs what part of the short-term liabilities the company can
cover from the directly available means of payment. A higher level of the ratio is desirable.
The decrease in this ratio over the last few years proves the difficulties in the settlement of
liabilities by the enterprise.

The desired level of this ratio is 1, which is the number of times the company can
repay its current debts with cash generated in the same period. In the analyzed period, the
company was not able to generate such cash flows, which indicates that it did not obtain
enough cash to pay off its current liabilities.
The analysis of debt ratios will help in identifying the sources of financing the
company's assets, their structure and effectiveness. This is the next step in the ratio analysis.

This ratio should be as small as possible, in the examined enterprise the ratio remains
at the level of 0.5, it is not a bad condition, but it may mean deterioration of the company's

44
financial credibility and excessive credit risk. In the analyzed years, the ratio has a growing
tendency, which proves the company's increasing debt.

As in the previous ratio, the desired ratio level is as low as possible. The problem has
been visible from the beginning of the analyzed years, and the ratio has an upward tendency.
In 2021, the ratio was higher than 1, which means that the company is not able to cover its
debt with total equity.

The value of this ratio should remain at the level of 0.5, it informs about the possibility
of repayment of long-term liabilities from the possessed equity. At PKN ORLEN, the level
remains at the appropriate level, which does not mean any threats or disturbing signals as to
the possibility of repayment of liabilities from equity.
Then present the relationship between the company's revenues and costs incurred - this
is a profitability analysis.

The above ratio indicates the company's ability to generate profits and the
effectiveness of managing its assets. In the surveyed company, we notice a slight downward
trend, but in 2021 it is approaching the value at the beginning of the surveyed years, which
means a positive change.

45
 There is no optimal level of ROA, we compare the level of the ratio over the years. As
in the previous indicator, we observe a downward trend, but in 2021 the ratio reaches a value
higher than in 2017, which is a positive sign.

The high value of this ratio is characteristic mainly for companies with a well-known
brand, so customers choose it more often even if they have more expensive products and
services, thanks to which profitability increases. PKN ORLEN has a similar level for all
years, in 2018-2020 the ratio decreased, however, in 2021, the probability improved
significantly.
The next ratios analyzed are the market value ratios, these ratios are used by current
and non-traditional investors to evaluate the current share price of a public company.

This ratio measures the net asset value investors receive when purchasing shares. The
ratio tends to increase, which is a positive sign for investors and the company.

46
 A market indicator that determines the share of earnings per share, so the higher its
value, the better the company's valuation. At the beginning of the analyzed years, PKN
ORLEN has a decreasing tendency, however, in 2021 the indicator increases significantly,
which is a positive sign for the company.

Another indicator is dividend yield, thanks to which we obtain information about what
part of the profit is paid as dividends. The smaller the ratio, the greater part of the profit is
retained in the enterprise, then the low values of this ratio often indicate that the enterprise's
development is financed. Based on the ORLEN analysis, we can conclude that in 2020 the
company reached the level of 6%, which is relatively high for the remaining years.

The P / E ratio is calculated by dividing the market price of one share by the net profit
per share, it determines whether the purchase of a given security is profitable. A low level of
the ratio is desirable, which informs the investor that the investment is profitable because the
company achieves considerable profits while having a low market valuation.

3.4 Summary of the empirical part

PKN Orlen processes crude oil into unleaded gasoline, diesel oil, heating oil, aviation
fuel, plastics and petrochemical products. The company manages seven refineries in Poland,
the Czech Republic and Lithuania. Orlen's total processing capacity is approximately 28
million tonnes of crude oil per year. The company has a network of nearly 2,800 fuel stations
located in Poland, Germany, the Czech Republic and Lithuania. It also has licenses for land

47
and sea exploration of crude oil and natural gas throughout the country. One of the company's
priorities is the recognition and production of gas from unconventional deposits. The adopted
development direction is the transformation of PKN Orlen into a multi-utility company
engaged in the energy sector 78.
Based on the analysis, we can conclude that the financial condition of PKN ORLEN
S.A. in the analyzed period (2017-2021) was good. Orlen records a regular increase in assets
overall. In the years 2017-2021, we note a significant increase in the company's assets. This is
evidenced by Fr. enterprise development. Very big changes can be noticed in the category of
investments in subsidiaries belonging to the capital group in which the event was held
dynamic growth of development investments. This is due to the fact that Orlen is trying to
strengthen its position both on the domestic market and in neighboring countries, especially in
The Czech Republic and the Baltic States. In 2017-2021, there was a faster increase in assets -
durable, i.e. the one planned for long-term use and decisive for increasing the production
capacity of the entire concern from Płock. Starting in 2017, when the average price of a
barrel of crude oil increased by USD 10.5, ORLEN's position continued to be favorable
despite such a large increase79. The positive financial situation was probably influenced by the
high pace of economic development in the countries where the Orlen Group operates. In the
following year, the price of crude oil increased by 32%, which in turn had a negative impact
on refining and petrochemical margins, despite an increase in sales revenues (15%) compared
to the previous year, this situation resulted in a decrease in net profit and thus an increase in
the company's debt.
In 2019, we saw a marked slowdown in the global economy. Factors such as the
decline in global oil demand, customs wars, the US-Iran conflict and the apparent decline in
the prospects of emerging economies and the euro area negatively affected the activity
conducted in the fuel sector. Despite this, Orlen has generated a profit of PLN 26.2 billion in
the last 5 years. In October 2017, in the peak form of Orlen, a single share was worth 134

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PLN. In the worst moment of 2020, it was a modest PLN 37. Currently, the shares remain at
the level of approx 60 PLN 80.
Changes in macroeconomic factors had a positive effect on the results of the ORLEN
Group by 2,480 million PLN and mainly included the impact of a higher Ural / Brent
differential by 1.6 USD, an increase in margins on light and medium distillates, olefins,
polyolefins, PTA, PVC and fertilizers and the valuation and settlement of CO 2 forward
contracts as part of a separate transaction portfolio in the amount of PLN 984 million.
Additionally, the effect of hedging transactions is recognized
in other operating activities amounted to 261 million PLN and was mainly due to the
lack of a negative outflow of the above-mentioned transactions from the fourth quarter of
2020. The results were negatively affected by lower margins on heavy refining fractions,
higher costs of own consumption as a result of an increase in crude oil prices by 36 USD and
the effect of unfavorable price relationships between electricity and natural gas quotations 81.
The bigest volume sales of the company on the ending of the year 2021 increased by
7% to over 10 thousand. tones because of 0.1 higher volumes in the refining segment.
Petrohemical sales were lower by 7% because of lower values in Poland.
Fuel sales in the retail segment increased by 9%, mainly in Poland, the Czech
Republic and Germany, with lower sales in Lithuania. Sales of hydrocarbons in the mining
segment decreased by 7% as a result of an unplanned shutdown of technical infrastructure
(fire) at the main hydrocarbon customer in Canada and in Poland due to technical problems.
The above changes in sales trends in individual operating segments resulted in a positive
volume effect in the amount of 125 million PLN.
The negative impact of other factors amounted to 1,074 million PLN and mainly
included the effect of revaluation of inventories to realizable prices (NRV) of 358 million
PLN, revaluation of provisions for CO2 emissions, higher general and labor costs and lower
retail margins. The above negative effects were partially compensated by the positive impact

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of the use of historical layers of oil and product inventories in the amount of 239 million PLN
and higher wholesale margins 82.
In the fourth quarter of 2021, the COVID-19 pandemic continued to affect the global
economy and the situation in the country, causing disturbances in the economic and
administrative system. The market environment of the Group was still characterized by
uncertainty as to the further course of the pandemic and the scale and distribution over time of
the secondary effects of the "rebound" from the pandemic recession, manifested in high
volatility of demand, prices of refining and petrochemical products and raw materials,
including oil, energy and emission allowances CO 2, affecting the margins achieved in all
operating segments. Since the outbreak of the COVID-19 pandemic in the European Union,
efforts to stop unfavorable climate change have significantly accelerated. The acceleration of
the energy transition has had a negative impact on the outlook for global demand for fossil
fuels, including crude oil and liquid fuels.
The deep, albeit short-lived, global recession caused by the pandemic and the
acceleration of the energy transformation had a strong impact on the global refining industry,
whose processing capacity turned out to be significantly too high in relation to the current and
expected demand and requires reduction. To enforce it, refining margins have fallen well
below the cut-off points for processing and will remain under pressure until the refining
capacity is properly adjusted. From the surplus assessed in the period 2020-2025 at 4.5 mbd, a
power reduction of 3.7 mbd was reduced or announced by mid-December 2021 83. The largest
volume of shutdowns occurred in North America and the Asia-Pacific region and improved
refining fundamentals in these regions. In Europe, the performed and declared capacity
reduction applies to ten refineries with a total potential of nearly 0.9 mbd. Global capacity,
estimated at approximately 1.0 mbd, remains to be reduced, of which 0.8 mbd is allocated to
Europe. The increase in demand for crude oil and liquid fuels related to the current rebound in
the global economy, observed since the beginning of the second quarter of 2021, combined
with the seasonal effect, improved refining margins, temporarily easing the pressure to reduce
refining capacity. However, the improvement in margins was limited by the unexpected,
dynamic increase in oil prices to nearly $ 80 / bbl. The reason for the strong increase in prices

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since the second half of the fourth quarter is the unexpected demand for liquid fuels from the
energy sector, caused by high gas prices. The strong increase in energy costs exerted upward
pressure on the market prices of refining products, but the improvement in market margins
was not related to the improvement in the economic situation of the refinery 84.
The petrochemical industry turned out to be the beneficiary of the pandemic, as the
demand for its products increased significantly and, consequently, the petrochemical margins
increased. The acceleration of the energy transformation led to an increase in demand for
natural gas, and the lack of supply reserves triggered hyperbolic increases in the prices of this
raw material, which, together with the rising prices of emission allowances after the
publication of the Fit for 55 climate package, led to strong increases in energy prices. In the
opinion of the Group, this is a temporary situation which, after recognizing gas as a necessary
transition fuel in the process of energy transformation in Europe, will lead to an increase in
gas-based energy capacity and ease the price pressure85.
The analysis of the structure of assets allows to assess how the given balance sheet
components constitute the percentage the entire balance sheet total. In the analyzed period, a
certain regularity is noticeable - it is decreasing the share of current assets in the balance sheet
total and the percentage of fixed assets increases. Means the fact that the company
immobilizes its assets to a greater extent (in relation to the balance sheet total).
There is a particularly positive trend in the area of tangible assets - in 2018, the
percentage of this component in relation to the balance sheet total increased to 50% in total
fixed assets to reduce the share in the structure to 49% (2019) and 48% in the following years
(2020). It is probably related to subsequent investments increasing the capacity production
(e.g. infrastructure).
In the Orlen concern, in the analyzed years, among the three main components of
liabilities, i.e. equity, long-term and short-term liabilities the highest the dynamics was
recorded by equity, 20% on average year on year growth. On the other hand, the lowest
dynamics was found in the area of liabilities long-term. The increase in dynamics in the equity
category resulted from the accumulation of retained earnings, as the share capital did not
change. The company did not organize any new share issues.

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 The value of Orlen's aging side grew, it will not fry with trade even in a pandemic-19.
In 2018, the company invested 4.5 billion PLN, in the following year also 4.5 billion PLN and
finally as much as 7.5 billion PLN in 2020.
In 2021, despite the ongoing COVID-19 pandemic, PKN ORLEN strengthened its
position and maintained its financial ratios on a safe level. The concern achieved record
profits operating EBITDA LIFO of 14.2bn PLN. Positive segments of the Concern
contributed to the development of results in 2021 86.
The generated profit combined with a stable financial situation confirmed by a safe
level of indicators debt allowed for a 0.9bn PLN higher level investment outlays. The Group
spent 9.9 billion PLN on investments, and the projects included, among others, construction
of the installation Visbreaking in Płock, expansion of the plant's production capacity olefins in
Płock, expansion of fertilizer production capacity in ANWIL, modernization of existing assets
and connection new customers in the Energa Group, construction of a glycol installation
propylene (Trzebinia), Research and Development Center (Płock), preparations for the
construction of a wind farm in the Baltic Sea, launching another 300 alternative refueling
points (about 500 in total). In line with the ORLEN2030 strategy in 2021, acquisition
processes were also continued.
PKN ORLEN, as adopted in November 2020 with the strategy until 2030, he returned
to the dividend payout path from before the COVID-19 pandemic, which means the payout
at the level of min. PLN 3.50 per share compared to PLN 1.0 in 2020 years and to maintain or
increase this level in subsequent years. The dividend payout at this level reflects good current
liquidity and financial situation of the Concern 87.
In 2021, the Concern was once again awarded the title of The World's Most Ethical
Company 2021 and Top Employer Poland 2021.
The current financial situation of the PKN ORLEN Group remains stable. Working
capital increased by PLN 4,416 million compared to the end of 2020, which was mainly
related to the increase in crude oil and product prices, which translated into the value of

86
[Link]
publikacje/sprawozdania/2021/dokumenty/fy2021/Sprawozdanie%20na%20temat%20Informacji%20Niefinanso
wych%20Grupy%20ORLEN%20i%20PKN%20ORLEN%20S.A.%20za%202021%[Link]
87
[Link]
publikacje/sprawozdania/2021/dokumenty/fy2021/Sprawozdanie%20na%20temat%20Informacji%20Niefinanso
wych%20Grupy%20ORLEN%20i%20PKN%20ORLEN%20S.A.%20za%202021%[Link]

52
inventories, receivables and liabilities 88. The Group is not currently identifying, nor in the
next 12 months, any liquidity problems. He also does not see the risk of failure to meet loan
agreements or other financing agreements.
The Group undertakes optimization activities involving, inter alia, on obtaining long-
term financing for green projects and sustainable development projects and financing for
selected investment projects in the project finance formula without recourse or with limited
recourse to PKN ORLEN and the Group (i.e. financing directly from the special purpose
vehicle) and assumes maintaining a safe level of net debt and financial ratios included in
financing agreements. The Orlen Group has sufficient sources of financing to implement
previously planned strategic development and investment projects and acquisitions in
accordance with the schedule.
Summing up, the analysis shows the impact of the effects of Orlen's long-term strategy
of building production capacity and network distribution in the entire Central European region
and the government's policy from 2016-2017 to fight the VAT gap and fight mafia fuel, which
improved the sales results of the largest market players in Poland.

88
[Link]
publikacje/sprawozdania/2021/dokumenty/fy2021/Sprawozdanie%20na%20temat%20Informacji%20Niefinanso
wych%20Grupy%20ORLEN%20i%20PKN%20ORLEN%20S.A.%20za%202021%[Link]

53
Conluscions
The financial statement is the basic element of the functioning of management units. It
includes an ordered set of numerical data concerning the management and financial situation
of this entity, being at the same time the final element in the financial accounting cycle.
“Preparation financial statements, in accordance with Art. 4 sec. 3 point 5 of the Act of
September 29, 1994. on accounting 89 is at the same time an obligatory element of the entity's
operations.”
“On the legal level, attention should be paid to the elements it must contain any
financial report. They are indicated in Art. 45 sec. 2 u.o.r. balance sheet, bill profit and loss
and additional information including an introduction to the financial statements financial as
well as additional information and explanations. In addition to those obligatory for all units
subject to u.o.r. unit components replaced in art. 64 sec. 1 u.o.r. they are also obliged to be
included in the financial statements also changes in equity and cash flow statement, except for
an open-end investment fund and a specialized open-end investment fund, which do not
prepare a cash flow statement.”
Not only appropriate legal regulations are necessary for the preparation of an
appropriate financial statement. Its quality features are not without significance, which
undoubtedly include: comprehensibility, usefulness, credibility and comparability. All these
four qualities are extremely important when it comes to preparing financial statements.
However, some of them are of more formal significance, while others are substantive. It
certainly belongs to the first category include credibility and comparability, as in the event of
failure any of these premises, the report will contain formal errors.
Comprehensibility, on the other hand, is essential from the perspective of the people
who are recipients of the financial statements, in particular executives and managers, or
potential investors interested in investing in data undertaking. The last and most important
feature of the financial statements for the activities of a given entity is its suitability. This
feature is essentially absent makes it impossible to make any decisions concerning its
activities.
The audit of the financial statements is carried out by a statutory auditor who must
have appropriate characteristics. Such a person, in accordance with Art. 56 sec. 1 of the act

89
Dz. U. z 2013 r., poz. 330 ze zm..

54
of May 7, 2009 on statutory auditors and their self-government, entities authorized to audit
financial statements and on public supervision 90 when performing financial audit activities, it
is primarily obliged to maintain honesty, objectivity, professional competence, due diligence
and confidentiality. Failure by the statutory auditor to comply with the principle of
impartiality and independence, art. 66 sec. 6 u.o.r. sanctions the invalidity of such
examination by virtue of laws.
The financial statement of an entity is an essential element in the process making
decisions. However, it is worth placing them in the right part of the financial analysis in the
enterprise. There are two types of it: internal analysis and external analysis. The first one
relates primarily to the analysis of the current activity and uses the current data available for
the given entity, and it concerns mainly non-financial measures.
This analysis is largely related to controlling, that is, the combination of various
elements of the structure of the company necessary for business activity in order to build a
logical system to help the management in making decisions of both operational and strategic
nature, most often relating to the financial area of the economic operator.
Due to the fact that the analysis of the financial statements is retrospective and is
based on the results already achieved, it is necessary to consider whether it is advisable to use
it for the purposes of the future decision-making process. There is an analysis a process that
mainly relates to data from previous periods. Results this is due to the fact that a certain set of
input is needed to enable this more precise forecasts for the future. Therefore, it should be
borne in mind that, despite the use of data from the past, the financial statements make it
possible to draw conclusions as to the company's further operations and indicate the directions
of future decisions made by the managerial and managerial staff.
The financial statement as the main element of the external analysis of the company in
the ex post expression is to answer primarily the most important questions, namely, is the
enterprise profitable, are there any indications that it is necessary to reduce the scope of the
conducted activity, or even its cessation in the near term. It is it that gives us the overall
picture of the situation enterprises and indicates areas of activity that may require
improvement. Its most important useful elements in the decision-making process are certainly
the balance sheet, profit and loss account and, in the case of some entities, also the cash flow
statement. The balance is primarily supposed to fulfill the information function about the

90
5 Dz. U. z 2009 r. Nr 77, poz. 649 ze zm.

55
resources of enterprises, i.e. their equipment with assets fixed assets and current assets as well
as their sources of financing in the form of equity or foreign.
Both the balance sheet and the profit and loss account form an internally coherent
whole, which provides important information for the management of the enterprise in the
decision-making process, however, the data provided by them is incomplete and not give a
complete picture of the functioning of the subject. An indispensable element that completes
this whole is the cash flow statement. In particular, it is complementary to the profit and loss
account, which admittedly shows the total result activity of a given enterprise, both in the
sphere of operational, investment and financial activities, however, it does not indicate the
division into revenues and expenses, including bound, but only the total sum.
The cash flow statement is a very important part of the financial statements, especially
due to one principle of its preparation, namely: in contrast to the balance sheet and the profit
and loss account, when it is created, there is no applying the accrual principle, and much more
important from the point of view of a given economic entity - the cash principle.
Thanks to this approach to economic events, the cash flow statement can be used
where the balance sheet and the profit and loss account has some imperfections.
In conclusion, it should be said that the financial statements play a significant role
in the decision-making process in economic entities, while fulfilling not only an informational
but also a direct control function related to the assessment of the effects of the actions taken.
However, in order to make optimal decisions and achieve the intended goals both in the long
term and in the and in terms of day-to-day operations, use not only the balance sheet and
profit and loss account, but primarily the cash flow statement. Application these three
elements when analyzing the situation of the entity will certainly contribute to increasing its
potential in relation to competitors using them to a limited extent.
The key of ratio analysis is the correct selection of indicators for the company's
operations. The ratio analysis does not consist in calculating each indicator for the enterprise,
because in order for the indicator analysis to present the true and current financial condition of
the enterprise, it must be applied depending on the needs and a dedicated group of recipients.
The ratio analysis can be used at all levels of enterprise management, including - is used by
managers (when making decisions relating to the efficient functioning of the company,
shareholders of companies (at the time of making investment decisions), lenders (at the time
of making decisions on financing), as well as by all direct and indirect associates of a given
company. he purpose of the ratio analysis is to present the relationship between different
items of the financial statements - mainly from the balance sheet and profit and loss account

56
levels - and different reports. The indicators included in the analysis come from 4 groups
relating to different areas of the company's financial condition:
• financial liquidity ratios
• debt ratios
• profitability ratios
• performance indicators.
In the current economic system associated with competitiveness, where the availability
of quantitative data increases significantly, the use of ratio analysis is the basic and commonly
used tool for assessing the financial condition of an activity. In this study, an index analysis
(analysis of liquidity, debt, turnover and profitability) of one of the companies listed on the
Stock Exchange, ie PKN Orlen SA, was performed. The selection of the unit was dictated
primarily by all the availability of quantitative data, as well as the strong position of this
companies in the structure of Polish enterprises. The purpose of this thesis is to present the
most important measures of the ratio analysis, enabling the assessment of the activities of
PKN ORLEN S.A. in 2017-2021 using financial reporting on the one hand and taking into
account market trends on the other.
As part of a reliable and effective examination of the financial and property condition
of organizational units, it is important to use the ratio analysis as one of the quantitative tools
allowing the assessment and presentation of various aspects resulting from the conducted
activity.
Ratio analysis instantaneous unit is an extension of the preliminary analysis and
enables comparability of the phenomenon in a different time perspective. Survey of the health
of the current units of Europe Required places for places, assessing a characterized group, so
that the final assessment the activities of the activities of all of them. Only selected measures
are analyzed poses a great probability of an inaccurate threat, in the same ineffective balance
of the situation.
The basic element enabling the ratio analysis constitutes the above-mentioned
financial statements. Pursuant to the Accounting Act, the financial statements include the
balance sheet, profit and loss account, additional information, and sometimes also a statement
of changes in equity (fund) and a cash flow statement referred to in the literature on the
subject as cash-flow. Therefore, the assessment of the financial situation of the audited entity
can be defined as an interpretation of an entity's financial potential using data resulting from
the financial statements. Conducting a complete assessment of the activity performed as part

57
of the ratio analysis involves focusing around four segments, i.e. profitability (profitability),
operational efficiency, liquidity financial and debt (financial support). Apart from the basic
groups of indicators monitoring the financial situation of an entity, there are also other
measures used in the ratio analysis, i.e. capital market ratios. Everyone of the above indicators
is the relationship between related quantities, which illustrate the state of one of the four areas
or shape conclusions in relation to the examined entity as a whole. However, it is important
that an effective assessment of the activity as part of the ratio analysis is possible only by
making a total assessment of all of them indicators.
The ratio analysis enables the comparability of financial data both in the current and
future period. Nevertheless, when practicing it, one should remember to follow the basic
principles dictated by financial analysis.
Due to its simplicity, the ratio analysis as a quantitative tool is one of the most
frequently used methods of assessing the financial situation. Applying her in economic
practice, it enables financial management, and what is more - it is an important tool of early
warning against the occurrence of undesirable events in this regard. In other words, the
correct application of the ratio analysis protects the entity against loss of liquidity, excessive
indebtedness and a decrease in profit.
Examination of the financial condition requires a thorough analysis of the activities of
a given unit, primarily in the area of profitability, liquidity, debt and operational efficiency.
Thanks to this, the management of the entity is able to estimate the level of profit, the ability
to settle current liabilities, the amount of debt, and efficiency units. The above information
provides knowledge about the strictly basic and at the same time the most important
components taken into account when assessing the financial situation of the entity.
Therefore, only the combined use of these measures, then conducting an index
analysis on their basis allows for a reliable assessment of the financial condition.
PKN Orlen thanks to the merger of CPN at the turn of the century by the decision of
the then government, Petrochemia Płocka became a great market player, which already in
2005 began a great expansion in Central Europe. Moreover, PKN Orlen made excellent use of
the synergy effect with foreign expansion. As the conclusions of the company's financial
analysis show, its good streak continues to this day.

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1. Ustawa z dnia 29 września 1994 r. o rachunkowości. Sejm, Warszawa 1994, (Dz.U. z
2019 r. pos. 351).
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szczegółowych zasad sporządzania przez jednostki inne niż banki skonsolidowanych
sprawozdań finansowych, Dz. U. 1995, nr 71, pos. 355.

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publikacje/sprawozdania/2021/dokumenty/4q2021/PKN_ORLEN_220127_2021w4%
20-%20RAPORT%20IVQ2021_PL.[Link]
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publikacje/sprawozdania/2021/dokumenty/fy2021/Sprawozdanie%20na%20temat%20
Informacji%20Niefinansowych%20Grupy%20ORLEN%20i%20PKN%20ORLEN%2
0S.A.%20za%202021%[Link]

60
61
Attachments

Attachment 1 Profit and loss statement of PKN ORLEN S.A. in 2017-2021

Consolidated statement of profit or loss and other comprehensive income Consolidated statement of profit or loss and other comprehensive income
2017 2018 2019 2020 2021

Sales revenues 8 6 180 1 31 341

Sales revenues 9 5 364 1 09 706 1 11 203 Cost of sales ( 76 667) ( 110 789)
revenues from sales of finished goods and services 7 2 915 9 1 014 9 3 009 Gross profit on sales 9 513 2 0 552
revenues from sales of merchandise and raw materials 2 2 449 1 8 692 1 8 194 Distribution expenses ( 7 226) ( 8 507)
Cost of sales ( 81 766) ( 97 265) ( 97 301) Administrative expenses ( 2 314) ( 2 615)
cost of finished goods and services sold ( 61 266) ( 80 781) ( 81 266) Other operating income 1 0 078 7 911
cost of merchandise and raw materials sold ( 20 500) ( 16 484) ( 16 035) Other operating expenses ( 6 226) ( 3 998)

Gross profit on sales 1 3 598 1 2 441 1 3 902 (Loss)/reversal of loss due to impairment of trade receivables ( 66) ( 86)

Distribution expenses ( 4 327) ( 4 745) ( 6 355) Share in profit from investments accounted for using the equity method 1 49 6 13

Administrative expenses ( 1 537) ( 1 590) ( 1 806) Profit from operations 3 908 1 3 870
Other operating income 1 243 2 150 1 246 Finance income 8 52 7 89
Other operating expenses ( 568) ( 1 152) ( 1 717) Finance costs ( 1 889) ( 968)

(Loss)/reversal of loss due to impairment of financial instruments - ( 16) ( 41) Net finance income and costs ( 1 037) ( 179)

Share in profit from investments accounted for under equity method 2 48 1 27 1 36 (Loss)/reversal of loss due to impairment of loans and interest on trade receivables ( 15) ( 8)

Profit from operations 8 657 7 215 5 365 Profit before tax 2 856 1 3 683
Finance income 1 760 1 413 8 90 Tax expense ( 31) ( 2 495)
Finance costs ( 1 700) ( 1 517) ( 901) Net profit 2 825 1 1 188
Net finance income and costs 60 ( 104) ( 11)

(Loss)/reversal of loss due to impairment of financial instruments - ( 1) ( 2) Other comprehensive income:

Profit before tax 8 717 7 110 5 352 which will not be reclassified subsequently into profit or loss ( 59) 1 19
( 1 544) ( 1 506) ( 1 054)
fair value measurement of investment property - 16
Tax expense
as at the date of reclassification
current tax ( 1 329) ( 1 181) ( 1 000) actuarial gains and losses ( 68) 1 24
deferred tax ( 215) ( 325) ( 54) gains/(losses) on investments in equity instruments at fair value through other comprehensive income ( 5) 6
Net profit 7 173 5 604 4 298 deferred tax 14 ( 27)
which will be reclassified into profit or loss 1 37 3 53
Other comprehensive income: hedging instruments ( 675) 1 37
which will not be reclassified subsequently into profit or loss ( 13) ( 24) ( 35) hedging costs 2 55 ( 650)
actuarial gains and losses ( 15) ( 5) ( 21) exchange differences on translating foreign operations 4 81 7 66

gains/(losses) on investments in equity instruments at fair value through other comprehensive income - ( 23) ( 20) share in other comprehensive income of investments accounted for using the equity method - 1

deferred tax 2 4 6 deferred tax 76 99

which will be reclassified into profit or loss 1 36 4 62 1 05 78 4 72
hedging instruments 9 29 12 ( 148) Total net comprehensive income 2 903 1 1 660
hedging costs - 38 1 15
exchange differences on translating foreign operations ( 618) 4 15 1 38 Net profit attributable to 2 825 1 1 188

deferred tax ( 175) ( 3) - equity owners of the parent 2 755 1 1 122

1 23 4 38 70 non-controlling interest 70 66
Total net comprehensive income 7 296 6 042 4 368

Total net comprehensive income attributable to

2 903 1 1 660

Net profit attributable to equity owners of the parent 2 840 1 1 587

7 173 5 604 4 298
equity owners of the parent 6 655 5 556 4 300 non-controlling interest 63 73
non-controlling interest 5 18 48 ( 2)
Net profit and diluted net profit per share attributable to equity owners of the parent (in PLN per share) 6.44 26.00
Total net comprehensive income attributable to 7 296 6 042 4 368
equity owners of the parent 6 717 5 937 4 370
non-controlling interest 5 79 1 05 ( 2)

Net profit and diluted net profit per share attributable to equity owners of the parent (in PLN per share) 15.56 12.99 10.05

Attachment 2 Balance sheet of PKN ORLEN S.A. in 2017-2018

62
Consolidated statement of financial position
31/12/2017 31/12/2018

ASSETS
Non-current assets
Property, plant and equipment 2 9 071 3 1 390
Intangible assets 1 272 1 323
Investments accounted for under equity method 7 15 6 50
Deferred tax assets 49 70
Derivatives 3 03 1 61
Other assets 3 30 3 38
3 1 740 3 3 932

Current assets
Inventories 1 2 440 1 4 362
Trade and other receivables 9 518 1 0 479
Current tax assets 80 1 14
Cash and cash equivalents 6 244 4 192
Non-current assets classified as held for sale 75 2 02
Derivatives 4 34 5 24
Other assets 1 33 3 36
2 8 924 3 0 209

Total assets 6 0 664 6 4 141

EQUITY AND LIABILITIES

EQUITY
Share capital 1 058 1 058
Share premium 1 227 1 227
Hedging reserve 3 31 3 61
Revaluation reserve 5 ( 15)
Exchange differences on translating foreign operations 3 34 7 09
Retained earnings 2 9 242 3 2 387
Equity attributable to equity owners of the parent 3 2 197 3 5 727
Non-controlling interests 3 014 12
Total equity 3 5 211 3 5 739

LIABILITIES
Non-current liabilities
Loans and bonds 6 688 8 598
Provisions 9 02 1 055
Deferred tax liabilities 1 095 1 445
Derivatives 75 42
Other liabilities 3 11 3 66
9 071 1 1 506
Current liabilities
Trade and other liabilities 1 4 469 1 3 697
Liabilities from contracts with customers - 2 31
Loans and bonds 3 17 1 193
Provisions 6 73 1 019
Current tax liabilities 2 90 4 73
Derivatives 3 13 1 93
Other liabilities 3 20 90
1 6 382 1 6 896
Total liabilities 2 5 453 2 8 402
Total equity and liabilities 6 0 664 6 4 141

Attachment 3 Balance sheet of PKN ORLEN S.A. in 2019

63
Consolidated statement of financial position
31/12/2019

ASSETS
Non-current assets
Property, plant and equipment 3 2 363
Intangible assets 1 600
Right-of-use asset 3 952
Investments accounted for using the equity method 6 78
Deferred tax assets 51
Derivatives 3 10
Long-term lease receivables 13
Other assets 3 10
3 9 277

Current assets
Inventories 1 5 074
Trade and other receivables 9 669
Current tax assets 2 62
Cash and cash equivalents 6 159
Derivatives 2 43
Short-term lease receivables 12
Other assets 4 68
Non-current assets classified as held for sale 38
3 1 925

Total assets 7 1 202

EQUITY AND LIABILITIES

EQUITY
Share capital 1 058
Share premium 1 227
Hedging reserve 3 28
Revaluation reserve ( 33)
Exchange differences on translating foreign operations 8 47
Retained earnings 3 5 169
Equity attributable to equity owners of the parent 3 8 596
Non-controlling interests 11
Total equity 3 8 607

LIABILITIES
Non-current liabilities
Loans and bonds 8 185
Provisions 1 113
Deferred tax liabilities 1 474
Derivatives 2
Lease liabilities 3 380
Other liabilities 1 61
1 4 315
Current liabilities
Trade and other liabilities 1 5 132
Lease liabilities 6 18
Liabilities from contracts with customers 2 46
Loans and bonds 4 22
Provisions 1 236
Current tax liabilities 1 24
Derivatives 2 66
Other liabilities 2 36
1 8 280
Total liabilities 3 2 595
Total equity and liabilities 7 1 202

Attachment 4 Balance sheet of PKN ORLEN S.A. in 2010-2021

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Consolidated statement of financial position
31/12/2020 31/12/2021

ASSETS
Non-current assets
Property, plant and equipment 4 9 625 5 5 379
Intangible assets and goodwill incl.: 2 515 4 829
goodwill 1 36 5 79
Right-of-use asset 5 252 5 586
Investments accounted for using the equity method 7 58 1 125
Deferred tax assets 6 85 7 18
Derivatives 1 79 3 43
Other assets 4 19 7 26
5 9 433 6 8 706

Current assets
Inventories 1 2 279 1 8 410
Trade and other receivables 9 640 1 5 041
Current tax assets 4 49 1 29
Cash 1 240 2 896
Derivatives 4 40 1 149
Other assets 5 67 4 23
2 4 615 3 8 048

Total assets 8 4 048 1 06 754

EQUITY AND LIABILITIES

EQUITY
Share capital 1 058 1 058
Share premium 1 227 1 227
Hedging reserve ( 16) ( 430)
Revaluation reserve ( 37) ( 20)
Exchange differences on translating foreign operations 1 328 2 111
Retained earnings 3 8 036 4 7 761
Equity attributable to equity owners of the parent 4 1 596 5 1 707
Non-controlling interests 7 93 8 71
Total equity 4 2 389 5 2 578

LIABILITIES
Non-current liabilities
Loans, borrowings and bonds 9 430 1 3 742
Provisions 2 264 1 905
Deferred tax liabilities 2 003 2 060
Derivatives 1 38 7 05
Lease liabilities 4 501 4 876
Other liabilities 3 70 5 86
Liabilities from contracts with customers 11 9
1 8 717 2 3 883
Current liabilities
Trade and other liabilities 1 4 023 1 9 811
Lease liabilities 7 13 6 79
Liabilities from contracts with customers 4 42 7 19
Loans, borrowings and bonds 4 930 1 429
Provisions 2 299 6 201
Current tax liabilities 66 8 55
Derivatives 2 70 4 61
Other liabilities 1 99 1 38
2 2 942 3 0 293
Total liabilities 4 1 659 5 4 176
Total equity and liabilities 8 4 048 1 06 754

Attachment 5 Cash Flow statement of PKN Orlen S.A. divided into areas of activity in 2017-2021
Net cash flow from activities: 2017 2018 2019 2020 2021
Operational 8 050 4 980 9 319 7 247 13 295
Investment -3 925 -3 798 -3 994 -8 495 -9 739
Financial -2 832 -3 237 -3 363 -3 711 -2 006
Cash and cash equivalents at the end of the period 6 244 4 192 6 159 1 240 2 896

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