Corporate Financial Management

Running Head: Corporate Financial Management
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Project Report: Corporate Financial Management

Corporate Financial Management 2
Executive summary
This report reflects the key understanding on the valuation methods and process to
identify the future value at spot. It is analysed that valuation process of an association relies
over the finance related aspects along with the non-financial components of the organization.
In this report, Royal Dutch shell has been taken and its financial and non-financial items have
been assessed to identify its true value in market. The ratio analysis has shown that company
has strong profitability in the market and could easily handle higher financial leverage.
Financial performance evaluation is one of the major elements for the investors and by using
the financial factors and items from the financial statement and annual report of the business,
it helps investors to assess the possible business sustainability and efficiency in market. In
case of Royal Dutch shell, below is the capital structure level of the company is also optimum
and it could be found that company could easily strengthen its debt funding to strengthen its
overall return on capital employed.

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Table of Contents
Executive summary..........................................................................................................2
Table of Contents..............................................................................................................3
Part A:...............................................................................................................................3
Introduction:.................................................................................................................3
Company overview:......................................................................................................3
Corporate governance:..................................................................................................4
Financial performance:.................................................................................................4
Profitability ratio:......................................................................................................5
Asset efficiency ratio:...............................................................................................7
Liquidity ratio:..........................................................................................................9
Capital structure ratio:............................................................................................11
Market structure ratio:............................................................................................13
Risk profile:................................................................................................................16
Optimality of capital structure choices:......................................................................18
Dividend policy:.........................................................................................................22
Prospects and fair valuation:.......................................................................................24
Conclusion/ Recommendation........................................................................................26
Part B:.............................................................................................................................27
Introduction:...................................................................................................................27
Literature review:............................................................................................................27
Application of theory:.....................................................................................................27

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Part A:
Introduction:
Valuation process of an association is a procedure wherein different components and
viewpoints are determined by the investigator, administrators and the organization’s
stakeholders to assess the presentation and the situation of the organization. There are
different factors in a corporate that has an effect over the overall performance of the
organization. Essentially, corporate administration of the organization, risk profile, capital
structure, market position, dividend factors, financial analysis and non monetary elements
have an effect over the situation of the organization.
Valuation process of an association relies over the finance related aspects along with
the non financial components of the organization (Reilly and Brown, 2011).
Company overview:
Royal Dutch shell is mainly a British company which has diversified its market into
overseas market. The company is running its business since a long time in oil and gas
industry. The market capitalization of Royal Dutch was highest in the year of 2013 in oil and
gas industry at international level. Home (2019) depicts that around 44000 service station are
owned by the company at international market. Main products consists natural gas,
petroleum, aviation fuel, oil equivalent etc. London stock exchange is the capital market of
Royal Dutch and all the dealing of stock of the company is considered by LSX. The study
explains that crisis in previous years have affected the financial performance at a bad level
but the management and strong policies of the business has helped the organization to
administer the performance again. Current marketing and non financial strategies of the
company is also strong. It helps the organization to improve the overall changes.

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Corporate governance:
Corporate governance is a set of various factors, policies, rules and regulations set by
an organization in order to manage the operations and run the activities for the betterment of
the society, environment, employee and other stakeholders of the business. Identification of
corporate governance factors and policies of an organization is one of the important factors
which must be focused by the stakeholders before analyzing the value of an organisation. If
an organization has better and strong corporate governance policies, it directly enhances the
worth of the business in market (Macintosh and Quattrone, 2010). It is essential for an
organization to launch and maintain few programmes for social welfares.
In case of Royal Dutch shell, it has been recognized that company has involved in
various projects for the betterment of social welfare. Royal ditch shell is operating its
business in oil and gas industry which harms the environment as well as the interest of the
employees of the business. In order to reduce the harm level, company has initiated
environment protection policy. Along with that, company has also proposed few policies for
the health care and insurance of employees of the company (Annual report, 2019). Corporate
social responsibility has been administered by Royal Dutch in better way in the market
(Home, 2019).
Financial performance:
Financial performance evaluation is one of the major elements for the investors of an
organization to measure the financial aspects and valuation of an organization. Financial
performance of an organization is evaluated through gathering the financial factors and items
from the financial statement and annual report of the business. It helps the related parties to

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identify how much strong the financial plot of the business is and how the company is going
perform in few upcoming years. A better financial position of an organization explains that
the overall worth of the business is improved and the investment into the organization would
offer better return (Kaplan and Atkinson, 2015). In cases of Royal Dutch shell, the ratio
analysis method has been conducted over the company to identify the financial position and
overall performance level of the company. Below is the financial analysis study of the
company:
Profitability ratio:
Profitability ratio is one of the financial ratio analysis method which focuses over the
total earnings of the business. In these ratios, it has been measured that how much profits
have been earn by the company against various financial independent factors likewise sales
level, capital employed, assets, equity etc. Profitability ratios are calculated to measure the
total profit generation capability and financial performance level of the business. In case of
Royal Dutch shell, below is the performance of the company:
Profitability Ratios: 2016 2017 2018
Return on Capital employed 2016 2017 2018
Operating profit / 3,138 3,530 5,766

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Capital employed (total assets - current
liabilities)
337,
450
327,
330
321,3
81
Answer: % 0.93% 1.08% 1.79%
Return on assets 2016 2017 2018
Net profit / 4,575 12,977 23,352
Total assets
411,
275
407,
097
399,1
94
Answer: 1.1% 3.2% 5.8%
Net profit margin % 2016 2017 2018
Net profit / 4,575 12,977 23,352
Sales Revenue % 233,591 305,179 388,379
Answer: 1.96% 4.25% 6.01%

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(Morningstar, 2019)
The profitability ratio table explains about increment in the profitability position of
business from 2016 to 2018. Company has managed to improve the ROCE level, ROA level
and net profit margin position in the market. The overall ratio analysis study explains that
overall performance of the company is enough compatible and would offer better returns. The
prediction explains that profitability level of the business would be stronger in near future.
Asset efficiency ratio:
Asset efficiency ratio is one of the financial ratio analysis methods which identifies
the cash conversion cycle of the business. In these ratios, it has been measured that how well
the assets and current operations of the company are managed with how much working
capital. Asset efficiency ratios are calculated to measure the overall daily operation
management capability of the business. In case of Royal Dutch shell, below is the
performance of the company:
Asset Efficiency Ratios 2016 2017 2018
Creditors turnover days 2016 2017 2018
Accounts payable/ 28,069 33,196 30,351
Cost of sales 216,001 276,322 343,504
Answer: (note the above needs to be x # days 47.43 43.85 32.25