RISK MANAGEMENT ANALYSIS OF PT BUKIT ASAM TBK

Prepare to fulfil assignment of financial statement analysis subject.

Name : Muhammad Rakan D.A.

NIM : 1402224203

Class : AK-46-INT

Introduction

PT Bukit Asam Tbk (PTBA), a leading coal mining company in Indonesia, was
founded in 1938 and plays a vital role in providing national energy and contributing to
the country's economic development. Currently, PTBA has several coal mining sites in
South Sumatra and Jambi, as well as several subsidiaries engaged in energy, logistics, and
trading.

Risk management, the process of identifying, analyzing, and evaluating risks faced
by a company, and developing strategies to address them, is crucial for PTBA. Risks can
stem from various sources, such as commodity price fluctuations, changes in government
regulations, natural disasters, and work accidents.

As a company operating in the inherently high-risk mining industry, PTBA faces

various potential losses and opportunities that can significantly impact its operations and
finances.

Risk disclosure and risk management by PT Bukit Asam Tbk

The Company is committed to implement appropriate strategies and business

processes to identify and manage risks related to the Company’s activities. This aims to
minimize the possibility of risks occurring and the impacts arising from risks, which affect
the Company’s targets, to provide maximum benefits to shareholders and stakeholders.

In 2023, there were several main risks faced by the Company listed on the
Company’s Risk Profile namely:

1. Risk related to Health, Safety, & Environment (HSE).

HSE risks cover all aspects that can impact the health & safety of workers
as well as environmental pollution around the Company. This risk can have a
further impact on lost opportunities in running the Company’s business, reduced
reputation, sanctions from regulators, as well as increased costs that must be
incurred, for example for handling incidents, increasing insurance premiums, and
compensation that must be paid.
2. Risk related to project.
This risk is related to failure in completing the project in terms of cost, time
schedule, and quality. In 2023, there were several strategic projects being carried
out to support the achievement of strategic targets in accordance with the
Company’s Long-Term Plan, including the Sumsel-8 CFPP project which COD
started on October 7, 2023.
3. Risk related to marketing & sales.
This risk is related to the company’s capacity to access current and
potential customers effectively and efficiently. This risk can occur due to limited
coal transportation capacity that transports the Company’s coal from Tanjung
Enim to Kertapati Barging Port and Tarahan Port as well as the Company’s
limitations in terms of applicable regulations. In 2023, there were two issues
related to coal sales becoming the Company’s focus, namely the risk of the inability
to achieve coal sales volume and regulations regarding coal DMO compensation
through Management Agency Partners (MIP) which have not yet been issued and
implemented.
4. Risk related to Security Threats.
This risk is related to individual or group actions that threaten the
Company’s operations. Mining Without a Permit (Penambangan Tanpa Izin / PETI)
is crucial for the Company since it can threaten the Company’s operations and
have an impact on reducing coal reserves in the Mining Business License (Izin
Usaha Pertambangan / IUP) area owned by the Company.
5. Risk related to capacity.
This risk is related to insufficient or excess capacity, which threatens the
Company’s ability to generate competitive profit margins. Regarding capacity risk,
PTBA’s focus is related to coal transportation capacity which has the potential to
not be able to support sales targets in 2023. This was caused by coal
transportation via train is the Company’s main mode of transportation to send
coal to ports/barging port for further delivery to Buyer.
6. Risk related to regulation changes.
These risks are related to laws and regulations that threaten the Company’s
ability to execute essential transaction, agreement and contract or implement
other specific strategies and activities. There are permits that are considered
crucial to obtain to help the Company carrying out mining operational activities in
accordance with the mining sequence that has been carried out.
7. Market risk
i. Risk related to foreign exchange.
Currency risk is the risk of fluctuations in the value of financial
instruments due to changes in foreign currency exchange rates.
A portion of the Group’s revenue and operational expenditure is
denominated in US Dollars. Foreign currency exchange risk arises from
future commercial transactions, and assets and liabilities which are
recognised in a foreign currency.
Management has set up a policy to require companies within the
Group to manage their foreign exchange risk against their functional
currency. Foreign exchange risk is managed by the Group by entering sales
transactions in US Dollars, to keep sufficient amounts of cash and other
assets, such as receivables denominated in US Dollars, that will be used to
settle lease liabilities denominated in US Dollars.
 ii. Risk related to price.
The Group is exposed to market risks related to the price volatility
of commodity prices traded on world coal markets. However, the Group’s
financial assets and liabilities are not exposed to price volatility because
the settlement of financial assets and liabilities is based on the prices
stipulated in the coal sales and purchase agreements which are
determined at the time of delivery.
The Group is exposed to security price risk from investment which
comprises financial assets at fair value through other comprehensive
income. To manage price risk arising from investments in debt securities,
the Group performs an analysis of the coupon rates offered on bonds and
the required rate of return which is generally expected by the market. The
performance of the Group’s available–for sale investments is monitored
periodically.
iii. Risk related to Interest rate.
The Group’s interest rate risk arises from bank borrowings and time
deposits. The Group’s interest rate risk arises from longterm borrowing
denominated in Rupiah. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk.
The Group analyses its interest rate exposure on a dynamic basis.
Various scenarios are simulated taking into consideration the refinancing
of existing positions, and alternative financing. Based on the above
scenarios, the Group manages its cash flows interest rate risk by
refinancing borrowings at a lower interest rate.
8. Credit Risk
The Group analyses its interest rate exposure on a dynamic basis. Various
scenarios are simulated taking into consideration the refinancing of existing
positions, and alternative financing. Based on the above scenarios, the Group
manages its cash flow interest rate risk by refinancing borrowings at a lower
interest rate.
Management is confident in its ability to maintain minimal exposure to
credit risk given that the Group has clear agreements with customers, binding
agreements primarily in place for coal sales transactions and historically low levels
of bad debt.

Analyzing short-term liquidity risk of PT Bukit Asam Tbk

Short-term liquidity is the ability to fulfil the short-term obligation to suppliers,

creditors, etc.

1. Current Ratio
The current ratio is the division between current assets and current
liabilities to determine the company's ability to meet its short-term obligations.

Current Assets
Current Ratio =
Current Liablities
Expressed in million rupiah.
Fiscal Year 2019 2020 2021 2022 2023
Total Current Assets 11.679.884 8.364.356 18.211.500 24.432.148 15.148.356
Total Short-term Liabilities 4.691.251 3.872.457 7.500.647 10.701.780 9.968.101
Current Ratio 249% 216% 243% 228% 152%

Analysis:

Current Ratio
300%
250%
200%
150%
100%
50%
0%
2019 2020 2021 2022 2023

30.000.000

25.000.000

20.000.000

15.000.000

10.000.000

5.000.000

-
2019 2020 2021 2022 2023

Total Current Assets Total Short-term Liabilities

In general, the current ratio considered ideal is above 100%. This indicates that
the company has sufficient current assets to meet its short-term obligations.
In the case of PT Bukit Asam Tbk, its current ratio during the period 2019 to 2022
has always been above 100%. This shows that the company has a good ability to meet its
short-term obligations with its current assets.
However, in 2023, PT Bukit Asam Tbk's current ratio will decrease to 152%.
Although still above 100%, this decline needs to be watched out. This decrease can be
caused by several factors, but in PT Bukit Asam Tbk can certainly have a significant
decrease in total current assets, especially in time deposits.
 2. Quick Ratio
Quick ratio, also known as fast liquidity ratio, is one of the liquidity ratios
used to measure a company's ability to meet its short-term obligations with the
most liquid assets. The most liquid assets are those that can be easily converted
into cash in a short period of time. The quick ratio is calculated by dividing the
most liquid current assets (cash, Short-term Investment, and net accounts
receivable) by short-term liabilities or current liabilities.
In general, the quick ratio that is considered ideal is above 100%. This
indicates that the company has the most liquid assets sufficient to meet its short-
term obligations.
𝑪𝒂𝒔𝒉 𝒂𝒏𝒅 𝑪𝒂𝒔𝒉 𝑬𝒒𝒖𝒊𝒗𝒂𝒍𝒆𝒏𝒕𝒔 + 𝑺𝒉𝒐𝒓𝒕 𝑻𝒆𝒓𝒎 𝑰𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕𝒔 + 𝑨𝒄𝒄𝒐𝒖𝒏𝒕 𝑹𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆
𝑸𝒖𝒊𝒄𝒌 𝑹𝒂𝒕𝒊𝒐 =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

Expressed in million rupiah.

Fiscal Year 2019 2020 2021 2022 2023
Cash and cash equivalents 4.756.801 4.340.947 4.394.195 7.030.343 4.138.867
Trade receivables, net 2.482.837 1.578.867 3.099.840 3.509.912 3.797.292
Total Short-term Liabilities 4.691.251 3.872.457 7.500.647 10.701.780 9.968.101
Quick Ratio 154% 153% 100% 98% 80%

Analysis:

Quick Ratio
200%

150%

100%

50%

0%
2019 2020 2021 2022 2023

In the case of PT Bukit Asam Tbk, its quick ratio during the period 2019 to
2020 has always been above 100%. This shows that the company has a good ability
to meet its short-term obligations with the most liquid assets.
However, in 2021, PT Bukit Asam Tbk's quick ratio dropped to 100%. This
suggests that the company has sufficient ability to meet its short-term obligations
with the most liquid assets but does not have a large room for maneuver.
This decline in the quick ratio continues in 2022 and 2023, with the value of
the quick ratio in 2023 only 80%. This indicates that the company has a limited
ability to meet its short-term obligations with the most liquid assets.
 3. Short-term liquidity risk conclusion
In general, PT Bukit Asam Tbk's ability to meet its short-term obligations
with current assets and the most liquid assets decreased during the period 2021
to 2023. This decrease needs to be watched out for and further analysis needs to
be carried out to find out the cause and take the necessary steps to correct it.

Analyzing long-term solvency risk of PT Bukit Asam Tbk

The analysis of long-term solvency risk highlights a firm’s ability to make interest
and principal payments on long-term debt and similar obligations as they come due.
1. Debt Ratios
Debt ratios are financial metrics used to assess the proportion of a
company's funding that comes from debt compared to its total assets or equity.
These ratios provide insight into a company's financial leverage and its ability to
meet its debt obligations. Higher debt ratios generally indicate a greater risk of
default, as the company relies more heavily on borrowed funds.
i. Liabilities to assets ratio

Expressed in million rupiah.

Fiscal Year 2019 2020 2021 2022 2023
Total Liabilities 7.675.226 7.117.559 11.869.979 16.443.161 17.201.993
Total Assets 26.098.052 24.056.755 36.123.703 45.359.207 38.765.189
Liabilities to assets ratio 29% 30% 33% 36% 44%

Analysis:

Liabilities to assets ratio

50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2019 2020 2021 2022 2023

In general, the ideal DAR varies depending on the industry and

economic conditions. However, in general, the DAR considered ideal is
below 50%. This indicates that the company has a reasonable proportion
of debt compared to its total assets.
 In the case of PT Bukit Asam Tbk, its DAR during the period 2019 to
2023 has increased consistently. This shows that the company is
increasingly reliant on debt to fund its operations. But this is a natural thing
because PT Bukit Asam Tbk is a company engaged in the coal industry and
if the Company has a large debt, it is natural. Based on the calculation of
the ratio of debt to assets, PT Bukit Asam Tbk still has a good ratio because
it remains below 50% even though PT Bukit Asam Tbk is a debt-oriented
company.
But this increase in DAR needs to be watched out for because it can
increase the company's solvency risk. If the company has difficulty in
meeting its debt obligations, this can result in financial failure.

Conclusion

PT Bukit Asam Tbk (PTBA), a leading coal mining company in Indonesia has a vital
role in providing national energy and contributing to the country's economic
development. As a company operating in the inherently high-risk mining industry, PTBA
faces various potential losses and opportunities that can significantly impact its
operations and finances, such as, among others, Health, Safety, &; Environment risk,
project risk, sales & marketing risk, security threats risk, capacity risk, changes regulation
risk, market risk, and credit risk. The risk has been disclosed in their annual report along
with the risk mitigation measures.
The analysis of PT Bukit Asam Tbk's financial statements aims to assess the
company's financial health and identify potential risks and opportunities that may be
faced. Based on the analysis of liquidity and solvency ratios, PT Bukit Asam Tbk (PTBA)
shows potential financial risks that need to be watched out for. The decline in the current
ratio and quick ratio during the period 2021 to 2023 indicates a decrease in the company's
ability to meet its short-term obligations. This is exacerbated by a consistent increase in
the Debt to Asset Ratio (DAR) during the period 2019 to 2023, indicating high solvency
risk.
PTBA needs to take strategic steps to increase liquidity and lower its solvency risk,
such as accelerating the collection of accounts receivable, improving debt collection
efficiency, seeking long-term funding, increasing equity through the issuance of new
shares, or retained earnings, and conducting further analysis to determine the causes of
declining profitability and determine appropriate corrective measures.
It is important to remember that this analysis is based solely on the information
presented in PT Bukit Asam Tbk's financial statements. For a more complete analysis, it
is necessary to conduct further analysis of PT Bukit Asam Tbk's overall financial
statements and consider other qualitative factors such as economic conditions, industry,
and competition.
References

Annual Report PT Bukit Asam Tbk Tahun terbit 2023

Annual Report PT Bukit Asam Tbk Tahun terbit 2022
Annual Report PT Bukit Asam Tbk Tahun terbit 2021
Annual Report PT Bukit Asam Tbk Tahun terbit 2020
Annual Report PT Bukit Asam Tbk Tahun terbit 2019

Wahlen, J. M., Baginski, S. P., & Bradshaw, M. T. (2022). “Financial reporting,

financial statement analysis, and valuation” (10th ed.). Cengage Learning.