In this report, we can find the financial analysis of British petroleum. BP is one of the best companies which are providing the fuel and lot of turn over can be expected. British petroleum is global recognized and daily they are selling barrels of fuel and come across many new events. So by doing report on this, it will clearly give idea about the financial analysis ratio's, impacts on the events which will provide knowledge on the finance of current market.
British petroleum is one of the major petroleum companies over the past 50 years. As we all knew that they are the major suppliers of oil, petrol and Gas Company. It occupies the fourth position in revenue. British petroleum operates in 80 countries and from the last December it produce 3.8 millions of barrels of oil each day and giving service across 22,400 stations. In this report, you can see the developments from the last three years. This will give brief idea about the company profit, revenue and share. We can see different techniques used by BP to improve the company. Now the company is going in profit side this is because of giving good service in the fuel energy for the people.
Some of the main events of last 3 years by BP are discussed below which will tell the financial impact on the company.
In the year2008, company got record profit of 17 billion pound on oil surge. This is the biggest event happened in huge period of time. This is because company opened new oil wells and getting huge amount of production. This is a highly remarkable sign from company's point of view since its getting profit in large quantity, where the company assets, turnovers and profit margin is increased.
In 2009 they used different techniques to improve their production which majorly includes refining, marketing and exploration and production and got success over it. The exploration and production involves the exploration of natural gas and oil, later it is sent to refining and production. When we look at this, it's clearly saying that the company is going to get huge profit. The second impact is it as better competitive position for cash flow statements so the company is in good position. This increasing high trend profitability leads to company expansion and growth in the future.
The one more recently occurred event is British petroleum to sell four of its Gulf Mexican oil fields for 414million pounds. In this event we can see both profits and losses on the company. When we look at profit it's saying that the company is in better cash position. And the other is company can reinvest the money for the potential growth of the company and it may lead to company success. The loss is that The Company is going to loss 15 thousand barrels per day which affects the profit and turnover. Second the company may loss its present market share which will give bad impression on management.
Analysis
Financial analysis is defined as Funds effectiveness, stability and profitability of the company. The Financial ratios are essentially used to calculate the profit, loss and company position.
Here we are going to look at the financial ratios of British petroleum which will give idea on company turnover.
Profit margin: ∞. It will clearly tell the internal comparisons of the company. The ratio is directly proportional to the profit margin i.e. Low profit margin will tell lower safety of the company and vice versa.
In this company the profit margin is equal to 0.10 in both the years. So company management should increase their operating profit to get good margin.Added value is one of the best tool used to increase the profit margin which includes providing new products, good service at reasonable price.
Assets Turnover: The ratio is effectively used in financial analysis which clearly explains the sales produced for every pound of assets owned. It is sales divided by total assets. In the British petroleum company it was 1.58 in year 2008 and it decline to 1.01 in 2009 which is negative sign in financial market. The company should increase their net sales to get assets.
Return on assets: This ratio will tell how company profitability is relating to its total assets. It will give information about how company is efficiently using its assets to get more earnings. In the following company it's decreased by 0.02 which is once again bad impression on company management.
Debtor day: The ratio of debtors to the sale is called debtors day. Here if company is going to purchase share from person then long term is good and we can expect the profit for him, otherwise short term period is better.
In the following company its 45.05 in year 2009 which is comparatively worst to 2008 which is 29.57.The variation period is 15.47 which is worse for the share h olders. This can be improved by using short term period.
Creditor day: Creditors means company or organization purchases the goods from a person or organization on credits. In this case the long term is good for the company because they can sales the goods later and get profit. In the British petroleum company it is showing a wide variation for the following ratio in positive side of 32.46. So Company is going to get more time and it is giving back credits to its share holders.
Stock days: It is the ratio of average stock to the cost of stock. Here the short period is good for the company so the company can produce the goods quickly and sale it. In the chosen company the stock day ratio is not good because it's showing 14.28 more in the year 2009.Its telling that company is taking more days to clear the stock which builds pressure on company management.
Current ratio: current ratio will tell the ratio of current assets to the current liabilities and it is the tool used to calculate company liquidity. In the chosen company we can say that in the year 2009 its 1.14 where as in 2008, its 0.95.This is because slight increase in current assets in the year 2009.So now the company position is in good position in current ratio.
Quick ratio: This ratio will give idea to determine the company ability to meet the short time obligation by the conversion of current assets into cash. Which means we can expect more liquidity and when we look at the quick ratio of BP its increased by a bit. which is a best end result.If this countinue for the forth coming year then comapny is in more safer side.
Gearing ratio: It is the ratio of owner's equity to borrowed funds. It measures the financial leverage and calculating the owner fund versus creditor fund. Gearing ratio will help to get the liable position. A company with greater gearing ratio then it is going to suffer in business cycle because company must and should provide service for its debtors. If the greater proportion of equity is achieved then company can work with debtors for long time. In Bp Company the ratio is maintained for the constant from past 2 years and expected to continue for the next year which will make no obligation.
Return on equity: It will tell how well company is using its investment funds to make earnings growth. Company can use it for the expansion and growth in the future or return back the share holders. In the chosen company the Return on equity is not in good position its decreased by 0.7 which means worst in year 2009.
Earnings per share: It is the ratio which it tells the company getting profit after tax to number of share. Now the British petroleum is facing problem with it because its in negative way.It will indirectly affecting the share holder values.
Price earning ratio: This is the ratio which tells the current share price of company to earnings per share. For the present satiation direct proportion is good because higher the individual pay higher the amount he can get but we cannot predict it will continue for a long time. Presently the BP share holders are getting good profit compared to 2008 and it is increased by 2.08 which are good sign.
Interest coverage Ratio: Interest coverage ratio used to inspect the pay interest on outstanding debt of the company. This is calculated by the ratio of net profit before interest and taxes to periodic interest charges. When we look at company impact on this we can see the variation of 3.46 which is better on company's point of view.
Dividend per share: It is simply said as dividend paid to the equity share holder. Dividends can be profit distribution to the share holders. And in British petroleum it is slightly increased which is good for their share holders and they are expecting more in the upcoming year.
The Impact of events
As we are discussed in the background section the company increased their production by using the exploration, refining and production. This will help the company to produce more production and to get the profit. In the year 2009 company got overall 1.6 billion dollar profit in which the current ratio is telling that the profit can be easily turned into equity. That means company management is willing to reinvest the profit amount on the company. The price earning ratio is also good such that company is going to get better share price for its share. profit margin is slightly increased. In other cases the company is in worst position mainly on assets turnover, stock days return on equity. Finally creditors are in safer side.So the company management is wisely taken the decision on profit.The interest coverage ratio is also better.
In the year 2008,the company balance sheet is telling that company got record profit in second quarter of the year which is main event for the British petroleum company.The company reinvested the amount on the products for the further extensions.Company should increase the production by opening new oil wells where ever availabel.
When we look on other impact the company sell Mexican oil field which is an recent event. Now we have to wait for the balance sheet but the positive impact is company management as better cash flow and Company assets can be maintained easily. But the worst situation is company is losing the 15 thousand barrels every day and losing its market share. It will create problem for the company management which is bad for the share holders. So company should take decision in wise manner.
Conclusions
The company's position is good even though the company faces many ups and downs in the past three years.The company main intension is to provide good service and get profit.When we look at balance sheet at the end of the year,the result company is always getting profit which is positive sign for the company.The company is moving forward in everystep such as reinvestings, maintaing good relationship with creditors and debitors,expansions and growths.All the credits must go to the company management for this. The threat is that company is facing challenges with the shell,so company should not decrease the company value.When we look at weakness It increased price in UK which will get bad impression on company and still company can expand there attributs all arround the world.
Recommendations.
British petroleum is one of the best oil company in the world it should maintain the market leadership values and competations facing globally, the company should use new stratgic ideas.Some of the recommandations are:
Developing new methods and strategic ideas to gain maximum assets.
Supplychain management is going to be improved in greater extention.
Company can use more advertising power to increase the brand values.
Expansions can be done in few more places of the world.
Avoiding refinery explosions : company should use new technologies to improve it because already in 2006 company paid criminal charges for the leakage of crude oil in the Alaskan tundra.
British petroleum (BP) plc
Financial Analysis
Financial Ratios
Equations
2009
2008
Variation
*B/W
Profit margin
Operating profit/sales
0.10
0.09
0.1
B
Assets turnover
Net sales/Total assets
1.01
1.58
-0.57
W
Return on assets
Net profit/Total assets
0.07
0.09
-0.02
W
Debtor days
Debtors*365/sales
45.05
29.57
15.47
W
Creditor days
Creditors*365/sales
78.46
46.00
32.46
B
Stock days
Average stock*365/cost of sales
43.93
29.65
14.28
W
Current ratio
Current assets/current liabilities
1.14
0.95
0.19
B
Quick ratio
Current assets-stocks/current liabilities
0.76
0.71
0.05
B
Gearing
Debt*100/Debt+equity
0.42
0.42
0.00
B
Return on equity
Profit after tax /Equity
0.16
0.24
-0.07
W
Earnings per share(EPS)
Profit after tax/No. of shares
0.88
1.12
-0.24
W
Price earning ratio
Share price/earning per share
16.75
14.66
2.06
B
Interest coverage
ratio
Net profit before interest and tax/Periodic interest charges
11.00
7.56
3.46
B
Dividend per share
Total dividends/No. of shares
0.58
0.57
0.01
B
Note: *B/W =Best/Worst.
Income statements
2009
2008
Sales
239272
361143
Purchase
163772
266982
Profit Before Int.& Tax
24426
35239
Finance Cost
1110
1547
Net Profit Before Tax
25124
34283
Net Profit
16759
21666
Net Profit for BP Shareholder
16578
21157
Current Assets
67653
66384
Inventories
22605
16821
Debtors
29531
29261
Creditors
35204
33644
Current Liabilities
59320
69793
Long Term Debt
74535
66336
Total Assets
235968
228238
Share Equity
101613
91303
No. of share
18,935,691,000
18,962,517,000
Total Dividend
10899
10767
Earning per share
8.7549E-07
1.11573E-06
Share price
9.64
8.44
