BP and Shell Companies’ Financial Analysis

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The assignment focuses on the financial statement analysis of both BP and Shell companies. The focus of this research is to evaluate the financial performance of both Shell and BP Company. The research centered on the major financial statement ratios. Based on financial statement ratios, BP did financially better than Shell Company in terms of financial statement ratios during 2009.

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Shell

Profitability & Efficiency

In terms of return on total assets, the company generated a return on total assets for 2009 amounting to 4 percent. This means that the company’s net margin of $12,718.00 is 4 percent of the company’s total assets amounting to $292,181.00. The 2008 ratio of 9 percent is a better picture of the company when compared to the 2009 ratio (Maguire, 2007).

Further, the company generated a 2009 return on equity ratio of 9 percent. This means that the company’s net margin of $12,718.00 is only 9 percent of the company’s stockholders’ equity amounting to $138,135.00. The 2008 ratio of 21 percent is a better picture of the company as compared to the 2009 ratio (Maguire, 2007).

Furthermore, the company generated a 2009 return on capital employed of 10 percent. This shows that the company’s earnings before interest and taxes amounting to $21,562.00 is only 10 percent of the difference between the company’s total assets of $292,181.00 and current liabilities amounting to $84789.00. The 2008 ratio of 12 percent is a better picture of the company as compared to the 2009 ratio (Mayo, 2007).

In addition, the company generated a 2009 net margin ratio of 5 percent. This shows that the company’s net margin of $12,718.00 is only 5 percent of the company’s net revenues amounting to $278,188.00. The 2008 ratio of 6 percent is a better picture of the company as compared to the 2009 ratio (Mayo, 2007).

Further, the company generated an accounts receivable turnover for 2009 amounting to 394 percent. This means that the company’s net revenues of $278,188.00 is 394 percent of the company’s average accounts receivable of $70,684.00. The 2008 ratio of 559 percent is a better picture of the company as compared to the 2009 ratio (Mun, 2005).

Furthermore, the company generated a 2009 total asset turnover of 97 percent. This means that the company’s net revenues amounting to $278,188.00 is 97 percent of the company’s average total assets of $287,291.00. The 2008 ratio of 162 percent is a better picture of the company as compared to the 2009 ratio (Mun, 2005).

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Liquidity

In terms of the company’s 2009 liquidity, the company generated a 2009 current ratio of 1.14. This shows that the company’s current assets amounting to $96,457.00 is are 1.14 percent of the current liabilities of $84,789.00for the year 2009. The 2009 ratio shows a better picture of the company when compared to the 2008 ratio of only 1.10 (Mun, 2005).

Further, the company generated an acid test ratio for 2009 amounting to 0.81. This means that the total amount of company’s cash, receivables, and marketable securities is 81 percent of the company’s current liabilities of$84,789.00. The 2008 ratio of.92 is a better picture of the company as compared to the 2009 ratio (Mun, 2005).

Gearing Ratio

In addition, the company generated a 2009 debt to equity ratio of 112 percent. This shows that the company’s total debt of $154,046.00 is 112 percent of the company’s total equity of $138,135.00. The 2008 ratio of 1.19 is a better picture of the company as compared to the 2009 ratio (Mun, 2005).

Investor’s Ratio

In terms of earnings per share, the company generated a 2009 earnings per share figure of $2.04. The 2008 ratio of $4.27 is a better picture of the company as compared to the 2009 ratio (Mun, 2005).

BP

Profitability & Efficiency

In terms of return on total assets, the company generated a 2009 return on total assets of 7 percent. This means that the company’s net margin of $16,759.00 is 4 percent of the company’s total assets amounting to $235,968.00. The 2008 ratio of 9 percent is a better picture of the company when compared to the 2009 ratio (Niven, 2006).

Further, the company generated a 2009 return on equity ratio of 16 percent. This means that the company’s net margin of $16,759.00 is only 16 percent of the company’s stockholders’ equity amounting to $102,113.00. The 2008 ratio of 24 percent is a better picture of the company as compared to the 2009 ratio (Niven, 2006).

Furthermore, the company generated a 2009 return on capital employed of 16 percent. This shows that the company’s earnings before interest and taxes amounting to $26,426.00 is only 16 percent of the difference between the company’s total assets of $235,968.00 and current liabilities amounting to $67,653.00. The 2008 ratio of 22 percent is a better picture of the company as compared to the 2009 ratio (Niven, 2006).

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In addition, the company generated a 2009 net margin ratio of 7 percent. This shows that the company’s net margin of $16,759.00 is only 7 percent of the company’s net revenues amounting to $230,272.00. The 2009 ratio shows a better picture of the company compared to the 2008 ratio of only 6 percent (Robinson, 2008).

Further, the company generated an accounts receivable turnover for 2009 amounting to 814 percent. This means that the company’s net revenue of $239,396.00 is 814 percent of the company’s average accounts receivable of $29,396.00. The 2008 ratio of 1,234 percent is a better picture of the company as compared to the 2009 ratio (Robinson, 2008).

Furthermore, the company generated a 2009 total asset turnover of 103 percent. This means that the company’s net revenues amounting to $239,272.00 is 103 percent of the company’s average total assets of $232,103.00. The 2008 ratio of 105 percent is a better picture of the company as compared to the 2009 ratio (Robinson, 2008).

Liquidity

In terms of liquidity, the company generated a 2009 current ratio of 91 percent. This shows that the company’s current assets amounting to $67,653.00 is 91 percent of the current liabilities of $74,535.00 for the year 2009. The 2008 ratio of 95 percent shows a better picture of the company when compared to the 2009 ratio (Smith, 2007).

Further, the company generated an acid test ratio for 2008 amounting to 0.58. This means that the total amount of company’s cash, receivables, and marketable securities amounting to $43,046.00 is 81 percent of the company’s current liabilities of$74,535.00. The 2008 ratio of.66 is a better picture of the company as compared to the 2009 ratio (Smith, 2007).

Gearing Ratio

In addition, the company generated a 2009 debt to equity ratio of 131 percent. This shows that the company’s total debt of $133,855.00 is 131 percent of the company’s total equity of $102,113.00. The 2008 ratio of 148 is a better picture of the company as compared to the 2009 ratio (Smith, 2007).

Investor’s Ratio

In terms of earnings per share, the company generated the 2009 earnings per share figure amounting to $1.31. The 2008 ratio of $1.48 is a better picture of the company as compared to the 2009 ratio (Smith, 2007).

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Comparing the two Companies under liquidity ratio, BP’s current ratio of.91 is lower than Shell’s current ratio of 1.14 for the year 2009. BP’s quick ratio of.58 is lower than Shell’s quick ratio of.81 for the year 2009. In terms of profitability, BP’s return on total assets of.07 is higher than Shell’s return on total assets ratio of 0.04 for the year 2009. BP’s return on equity ratio of.16 is higher than Shell’s return on equity ratio of.09 for the year 2009. BP’s return on capital employed ratio of.16 is higher than Shell’s return on capital employed ratio of 0.10 for the year 2009. BP’s net profit margin ratio of.07 is higher than Shell’s current ratio of.05 for the year 2009. Overall, BP gave a better financial picture of the company compared to Shell’s financial performance.

BRIEFLY, both BP and shell did well during the years 2008 and 2009, some ratios indicate that BP performed better than Shell. However, Shell performed better than BP in other financial statement ratios. Overall, BP had more favorable financial statement ratios when compared to the financial statement ratios of Shell. Indeed, BP did financially better than Shell Company based on the analysis of their financial statement ratios during 2009.

References

Maguire, M (2007) Financial Statement Analysis. London, Grin Press.

Mayo, H. (2007) Investments: An Introduction. London, Cengage Press.

Mun, J. (2005) Real Options Analysis: Tools and Techniques for Valuing Strategic Investments and Decisions. London, J. Wiley & Sons.

Niven, P. (2006) Balanced Scorecard Step by Step: Maximizing Performance and Maintaining Results. New York, J Wiley & Sons Press.

Robinson, T. (2008) International Financial Statement Analysis Workbook. London, J. Wiley & Sons Press.

Smith, R. (2007) Business Process Management and the Balanced Scorecard. New York, N.Y: J. Wiley & Sons.

Stickney, C., (2009) Financial Accounting. London, Cengage Press

Weygandt, J. (2009) Managerial Accounting: Tools for Business Decision Making. London, J. Wiley & Sons

Appendix

BP Company

2009

LIQUIDITY RATIOS
Current Ratio = Current Assets
Current Liabilities
= 67,653.00
74,535.00
= 0.91
quick ratio = Cash + Receivables + Marketable Securities
Current Liabilities
= 43,046.00
74,535.00
= 0.58
Return on Total Assets = Net Income
Total Assets
= 16,759.00
235,968.00
= 0.07
Return on Equity = Net Income
Stockholders’ Equity
= 16,759.00
102,113.00
= 0.16
Return on Capital Employed = Earning before Interest & Taxes
Total assets – Current Liabilities
= 26,426.00
168315
= 0.16
Net Margin Ratio = Net Profit
Net Revenues
= 16,759.00
230,272.00
= 0.07
Accounts Receivable Turnover = Net Sales
Average Accounts Receivable
= 239,272.00
29,396.00
= 8.14
Total Asset Turnover = Net Sales
Average Total Assets
= 239,272.00
232103
= 1.03
Gearing Ratio = Total Debt
Total Equity
= 133,855.00
102,113.00
= 1.31
Investor’s Ratio = Earnings per share
= 88.49

Shell

2009

Current Ratio = Current Assets
Current Liabilities
= 96,457.00
84,789.00
= 1.14
Quick ratio = Cash + Receivables + Marketable Securities
Current Liabilities
= 69,047.00
84,789.00
= 0.81
Return on Total Assets = Net Income
Total Assets
= 12,718.00
292,181.00
= 0.04
Return on Equity = Net Income
Stockholders’ Equity
= 12,718.00
138,135.00
= 0.09
Return on Capital Employed = Earning before Interest & Taxes
Total assets – Current Liabilities
= 21,562.00
207,392.00
= 0.10
Net Margin Ratio = Net Profit
Net Revenues
= 12,718.00
278,188.00
= 0.05
Accounts Receivable Turnover = Net Sales
Average Accounts Receivable
= 278,188.00
70,684.00
= 3.94
Total Asset Turnover = Net Sales
Average Total Assets
= 278,188.00
287,291.00
= 0.97
Gearing Ratio = Total Debt
Total Equity
= 154,046.00
138,135.00
= 1.12
Investor’s Ratio = Earnings per share
= 2.04

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