International Financial Management Strategies of British Petroleum

This report analyses the international financial management strategies of British Petroleum, including reasons for internationalisation, sources of finance, capital structure, and financial risk management.

BRITISH
PETROLEUM

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Analyses of reason of internationalisation of British Petroleum Corporation.......................1
Critically analyses reasons why BP may source for debt internationally, and, more
specifically, explain whether it would be more economically beneficial for the BP’s
management to consider taking advantage of interest rate parity in different countries........2
Critically analyses and evaluates BP Corporation’s sources of finance;...............................4
Critically analyses and evaluates BP Corporation’s capital structure....................................5
Critically analyses and evaluates the strategies that BP corporation has adopted in managing
their financial risks.................................................................................................................7
CONCLUSION................................................................................................................................8
References:.....................................................................................................................................10

INTRODUCTION
International financial management is defined as the management of finance in an
international business environment or making the money by the exchange of foreign currency. It
is not similar to the financial management because of several factors such as imperfect markets,
political situations, diversified opportunity sets, currency and many more. The selected
organisation for this report is British Petroleum which is a British multinational oil and gas
company having headquarters in London, England. It was founded by William Knox D'Arcy and
Charles Greenway in 1909. This company has almost 18700 service stations all over the world.
This report mainly deals with the International Financial Management Strategies under which it
include the reasons of BR corporation internationalised, sources of finance, capital structure of
British petroleum, strategies developed by the management of BP in order to manage the
financial risk along with the reasons why British Petroleum source for debt internationally.
MAIN BODY
Analyses of reason of internationalisation of British Petroleum Corporation
Internationalization refers to the designing and development of a product or service that
make able to easily localization for the targeted customers, which are different in culture,
language or region. In the terms of Economics, it is defined as the process of improving the
involvement of a business organization in international markets. Globalization is found as the
another name of internationalization. British petroleum is an international organization as they
are performing their business operations in several of countries. It has been found that there are
several reasons of internationalization of an organization. Some of them are given below: Increase sales and profitability: Expansion of British petroleum on global market
segment is referred to the improvement in overall revenue sales along with reducing the
operational cost as the process of internationalization work for attracting the large
number of customers. British Petroleum cover the most of customer bases by doing
expansion of their business in several countries. Along with the opportunity of
outsourcing, the management of British petroleum is able to minimize their cost along
with developing their management and operational efficiency. Greater Economies of Scale: British petroleum has expanded their products because the
organization is more likely to be accepted around the world. The expansion of British
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Petroleum through internationalization implies several benefits to the company by
achieving the better economies of scale. When British petroleum was working only in the
United Kingdom with their domestic market segment, it was not much profitable for the
organization. Internationalization provide several of opportunities to the British
petroleum organization as they had expanded their business by introducing new product
extension. Enter new markets and spread the risk: It has been found that the internationalization
help the organizations in gaining popularity in the countries where they are opening trade
obstacles and decrease the tariffs across the world. Internationalization of British
petroleum allows the organization to do modifications in their business along with
removing the risk of lower demand in the global market. Investment in innovation and
development of variant in products of British Petroleum is the only result of operations of
business in several of countries. This innovation and development of products also result
in the reduction of interest of people in a particular product. Attracting New talents: Another reason of internationalization of British Petroleum is to
accessing a broader talent pool. Employees with different culture help the organization in
providing the goods and services in a satisfactory manner as per their culture as it has
been found that the employees of different culture are able to develop the connection with
a wider base of costumes. Along with this, BP is able to make global work team which
result in the exploitation of domestic market resources by making the connection with
local suppliers.
 Saturation of Home Market and Competitors Move: Offset of market is the another
reason of expansion of British petroleum company in the international market. In addition
to this, first mover advantage helps in avoiding the local rivalry which also implies the
high returns on invested capital.
Why BP may source for debt internationally and explain whether it would be more economically
beneficial for the BP’s management
It has been founded that each and every company always look for the sources of funding
for the purpose of growing their business. Funding can also be said as financing which also
implies the practices of contributing the resources to finance a program, project or a need. British
2

Petroleum need fund for initiating for either short term or long term purposes. Below mentioned
are the several sources of Finance for British Petroleum: Retained Earnings: The aim of British Petroleum is to maximize the profit by selling oil
on the prices which give higher profit to them post office retained earning is found as the
best source of funding for British Petroleum. After earning the profits by selling oil the
organisation makes the plan to use the the earned capital along with the ways of
allocating that capital in an effective and efficient manner. That retained earnings of the
organisation are distributed among the stakeholders as the dividend. Along with this the
organisation also have option of reducing the number of shares outstanding by initiating a
stock repurchase campaign. It also provide the opportunity to the organisation to invest
the money in the new products new factories and doing partnership with the other
companies so that they can create a joint venture. British petroleum is using this source of
finance. As a result the Anglo Persian Oil Company formed to take over and finance an
oil field concession which was granted by the Iranlan government to an English investor. Debt Capital: Majorly all the companies can obtain adapt to finance a privately through
the bank loans. British petroleum also have option of new finance by issuing the debt to
the public. According to this source of finance the British petroleum issue some debt
security such as a promissory notes and corporate bonds in the exchange of a money.
Debentures, mortgages and leases are also the part of debt issues. After issuing these
securities, British Petroleum are considered as borrow worse because they are using the
cash of public in the exchange of those securities for the purpose of performing some
certain activities. After sometime the organisation have to be paid the amount along with
the interest to the security holder. The limitation of this is a source of finance to the
British petroleum is that the organisation have to make the payment of interest along with
the repayment of a principal amount on time. If the organisation is not able to make the
payment of borrowers it may result in the default or bankruptcy. It is necessary to pay the
interest to the borrower. But the interest paid on these securities is tax deductible for the
company. As a result this resource is less expensive as compared to other sources of
finance.
 Equity Capital: As per this source of finance the British petroleum have opportunity to
raise the funds from the general public in the exchange of providing ownership stake in
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the company in the form of shares which have been issued to the investors. After
purchasing the shares of organisation the individual can become the stakeholder and the
owner of organisation. This is a source of fund do not required to make the payment of
interest to the borrowers as in the debt capital. The huge disadvantage of equity capital
funding is that the profit earned by the organisation have been shared among all the
stakeholders. Along with this equity capital also provide several of rights to the
shareholders such as voting right. It means that the British petroleum is forfeits or dilutes
of its ownership control. It is considered as the most expensive form of source of Finance
and it do not provide any tax benefit to the organisation.
Critically analyses and evaluates BP Corporation’s sources of finance;
It has been founded that each and every company always look for the sources of funding for the
purpose of growing their business. Funding can also be said as financing which also implies the
practices of contributing the resources to finance a program, project or a need. British Petroleum
need fund for initiating for either short term or long term purposes. Below mentioned are the
several sources of Finance for British Petroleum:
 Retained Earnings: The aim of British Petroleum is to maximize the profit by selling oil
on the prices which give higher profit to them post office retained earning is found as the
best source of funding for British Petroleum. After earning the profits by selling oil the
organisation makes the plan to use the the earned capital along with the ways of
allocating that capital in an effective and efficient manner. That retained earnings of the
organisation are distributed among the stakeholders as the dividend. Along with this the
organisation also have option of reducing the number of shares outstanding by initiating a
stock repurchase campaign. It also provide the opportunity to the organisation to invest
the money in the new products new factories and doing partnership with the other
companies so that they can create a joint venture. British petroleum is using this source of
finance. As a result the Anglo Persian Oil Company formed to take over and finance an
oil field concession which was granted by the Iranlan government to an English investor.
4

 Debt Capital: Majorly all the companies can obtain adapt to finance a privately through
the bank loans. British petroleum also have option of new finance by issuing the debt to
the public. According to this source of finance the British petroleum issue some debt
security such as a promissory notes and corporate bonds in the exchange of a money.
Debentures, mortgages and leases are also the part of debt issues. After issuing these
securities, British Petroleum are considered as borrow worse because they are using the
cash of public in the exchange of those securities for the purpose of performing some
certain activities. After sometime the organisation have to be paid the amount along with
the interest to the security holder. The limitation of this is a source of finance to the
British petroleum is that the organisation have to make the payment of interest along with
the repayment of a principal amount on time. If the organisation is not able to make the
payment of borrowers it may result in the default or bankruptcy. It is necessary to pay the
interest to the borrower. But the interest paid on these securities is tax deductible for the
company. As a result this resource is less expensive as compared to other sources of
finance.
 Equity Capital: As per this source of finance the British petroleum have opportunity to
raise the funds from the general public in the exchange of providing ownership stake in
the company in the form of shares which have been issued to the investors. After
purchasing the shares of organisation the individual can become the stakeholder and the
owner of organisation. This is a source of fund do not required to make the payment of
interest to the borrowers as in the debt capital. The huge disadvantage of equity capital
funding is that the profit earned by the organisation have been shared among all the
stakeholders. Along with this equity capital also provide several of rights to the
shareholders such as voting right. It means that the British petroleum is forfeits or dilutes
of its ownership control. It is considered as the most expensive form of source of Finance
and it do not provide any tax benefit to the organisation.
Critically analyses and evaluates BP Corporation’s capital structure
It has been founded that each and every company always look for the sources of funding for the
purpose of growing their business. Funding can also be said as financing which also implies the
practices of contributing the resources to finance a program, project or a need. British Petroleum
5

need fund for initiating for either short term or long term purposes. Below mentioned are the
several sources of Finance for British Petroleum:
 Retained Earnings: The aim of British Petroleum is to maximize the profit by selling oil
on the prices which give higher profit to them post office retained earning is found as the
best source of funding for British Petroleum. After earning the profits by selling oil the
organisation makes the plan to use the the earned capital along with the ways of
allocating that capital in an effective and efficient manner. That retained earnings of the
organisation are distributed among the stakeholders as the dividend. Along with this the
organisation also have option of reducing the number of shares outstanding by initiating a
stock repurchase campaign. It also provide the opportunity to the organisation to invest
the money in the new products new factories and doing partnership with the other
companies so that they can create a joint venture. British petroleum is using this source of
finance. As a result the Anglo Persian Oil Company formed to take over and finance an
oil field concession which was granted by the Iranlan government to an English investor.
 Debt Capital: Majorly all the companies can obtain adapt to finance a privately through
the bank loans. British petroleum also have option of new finance by issuing the debt to
the public. According to this source of finance the British petroleum issue some debt
security such as a promissory notes and corporate bonds in the exchange of a money.
Debentures, mortgages and leases are also the part of debt issues. After issuing these
securities, British Petroleum are considered as borrow worse because they are using the
cash of public in the exchange of those securities for the purpose of performing some
certain activities. After sometime the organisation have to be paid the amount along with
the interest to the security holder. The limitation of this is a source of finance to the
British petroleum is that the organisation have to make the payment of interest along with
the repayment of a principal amount on time. If the organisation is not able to make the
payment of borrowers it may result in the default or bankruptcy. It is necessary to pay the
interest to the borrower. But the interest paid on these securities is tax deductible for the
company. As a result this resource is less expensive as compared to other sources of
finance.
 Equity Capital: As per this source of finance the British petroleum have opportunity to
raise the funds from the general public in the exchange of providing ownership stake in
6

the company in the form of shares which have been issued to the investors. After
purchasing the shares of organisation the individual can become the stakeholder and the
owner of organisation. This is a source of fund do not required to make the payment of
interest to the borrowers as in the debt capital. The huge disadvantage of equity capital
funding is that the profit earned by the organisation have been shared among all the
stakeholders. Along with this equity capital also provide several of rights to the
shareholders such as voting right. It means that the British petroleum is forfeits or dilutes
of its ownership control. It is considered as the most expensive form of source of Finance
and it do not provide any tax benefit to the organisation.
Critically analyses and evaluates the strategies that BP corporation has adopted in managing
their financial risks
The Efficient Markets Hypothesis (EMH) is an investment theory primarily derived from
concepts attributed to Eugene Fama’s research as detailed in his 1970 book, “Efficient Capital
Markets: A Review of Theory and Empirical Work.” There are three variations of the
hypothesis – the weak, semi-strong, and strong forms – which represent three different assumed
levels of market efficiency. Weak form: The weak form of the EMH assumes that the prices of securities reflect all
available public market information but may not reflect new information that is not yet
publicly available. It additionally assumes that past information regarding price, volume,
and returns is independent of future prices. Semi-strong form: The semi-strong form of the theory dismisses the usefulness of both
technical and fundamental analysis. The semi-strong form of the EMH incorporates the
weak form assumptions and expands on this by assuming that prices adjust quickly to any
new public information that becomes available, therefore rendering fundamental analysis
incapable of having any predictive power about future price movements.
 Strong form: The strong form of the EMH holds that prices always reflect the entirety of
both public and private information. This includes all publicly available information, both
historical and new, or current, as well as insider information. Even information not
publicly available to investors, such as private information known only to a company’s
CEO, is assumed to be always already factored into the company’s current stock price.
7

CONCLUSION
From the above report it has been concluded that the British petroleum is a company performing
business operations all over the world. The organisation is performing your business operations
in the international market full stop hands There are several of reasons of internationalisation of
British petroleum which have been discussed above. It has been found that every organisation
need financer for the purpose of performing their operations in an effective and efficient manner.
There are several ways of source of finance available for the British Petroleum Corporation.
Capital structure is defined as the distribution of debt and equity which make up the finances of
British Petroleum. It has been found it at British petroleum is using their souls of dabt
internationally. It is more beneficial for the management of British Petroleum. There are several
strategies have been analysed with British petroleum is using for the purpose of managing their
exposure to foreign exchange risk.
8

References:
Books and Journals
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Mechanical Characteristics of Ethanol Gasoline–Contaminated Clay. Journal of
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2019. SWOT analysis for the development of photovoltaic solar power in Africa in
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analysis of China. Energy Economics, 94, p.105086.
Lin, C.Y., Chen, H.C., Chang, H.J., Shen, H.L. and Lai, K.K., 2018, August. First movers or
latecomers? monitoring and development of core technology capability for solar thin-
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139-143).
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development path to deliver cost competitive microalgae-based fuels. Algal
Research, 45, p.101721.
Santoso, R., Hoteit, H. and Vahrenkamp, V., 2019, March. Optimization of energy recovery
from geothermal reservoirs undergoing re-injection: conceptual application in Saudi
Arabia. In SPE middle east oil and gas show and conference. OnePetro.
Sasic, S., Yokelson, H., Kotecki, T., Austin, S., Thacker, K. and Moore, R., 2020. Multivariate
calibration of total acid number in crude oils via near-infrared spectra. Energy &
Fuels, 34(6), pp.6974-6980.
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