International Financial Management: A Case Study of BP Corporation

This report provides a comprehensive analysis of BP Corporation's international financial management strategies. It examines the reasons behind BP's internationalization, highlighting diversification, competitive advantage, talent acquisition, market entry, and economies of scale. The report also assesses the impact of country risks on BP's investment opportunities, considering economic and political threats and offering guidance on risk mitigation. Furthermore, it evaluates BP's sources of finance, including debt financing options like bank loans and bond offerings, and analyzes the corporation's capital structure. Finally, the report critically examines the strategies BP has adopted to manage its financial risks, providing a thorough overview of the company's international financial operations. Desklib provides various study tools and solved assignments for students.

International Financial
Management A2
Group Report

Lecturer: Taye Osadiya
Students :
• Irena Naydova 1816779 (Introduction and Critically analyses
reasons why BP corporation internationalised)
• Dragan Natsevski1817167 (Introduction and Critically
analyses how country risk may affect BP`s investments
opportunities in host countries)
• Monika Ivanova 18172321( Critically analyses and evaluates
BP Corporation`s sources of finance )
AndrijanaNatsevska 1817168 (Critically analyses and evaluates BP
Corporation`s capital structure, Critically analyses and evaluates
the strategies that BP Corporation has adopted in managing their
financial risks and conclusion )

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
Critically analyses reasons why BP corporation internationalised...........................................................3
Critically analyses how country risks may affect BP’s investments opportunities in host countries........5
Critically analyses and evaluates BP Corporation’s sources of finance....................................................7
Critically analyses and evaluates BP Corporation’s capital structure.......................................................8
Critically analyses and evaluates the strategies that BP Corporation has adopted in managing their
financial risks...........................................................................................................................................9
CONCLUSION.............................................................................................................................................10
REFERENCES..............................................................................................................................................11

INTRODUCTION
International financial management often refers to international financing, is the
administration of financial in an internationally commercial setting, i.e., selling and earning
money through into the exchanging of different currency. International bank operations assist
firms in connecting with international commercial partners such as clients, providers, and loans.
Federal agencies and non-profit organizations use it as well. Global financial markets have a
distinctive look and characteristics than domestic money system. Competent global financial
administration may assist the firm in obtaining the same quality and productivity in all countries;
therefore, maintaining in the marketplace without IFM might be tough. This report based on
throughout its 1998 combination with the Amoco Corporation of the United States, the British
petrochemical company had become one of the world's biggest oil businesses. On April 14,
1909, BP was incorporated as the Anglo-Persian Oil Company, Ltd. In 1935, it was rebranded
the Anglo-Iranian Oil Company, Ltd., and in 1954, it was rebranded the British Petroleum
Corporation Limited. The Anglo-Persian Oil Firm was created to manage over and fund a
petroleum concessions awarded by the Iranian regime to William Knox D'Arcy, an Englishman
businessman. In this report consist of five topics in regard of international strategies of British
Petrochemical.
MAIN BODY
Critically analyses reasons why BP corporation internationalised
Internationalization refers to the process of developing a product so that it may be
consumed in a variety of countries. This method is used by companies that seek to expand their
international presence beyond their home market since they know that customers in other nations
may have diverse motivations or habits from their own. Internationalization has now been one of
the most important aspects of a company's successful operation and future prospects. It is critical
for a company to be internationally competitive in order to stay competitive locally. On the other
hand, if a corporation isn't successful inside its home nation's territory, internationalization is
unlikely to occur.
In the face of growing competition, internationalization appears to be intimately tied to the
question of sustainability. In latest days, the marketplace environment has become more

aggressive and transnational. As a consequence, joining a foreign market needs a thorough
evaluation of one's own state's and other government's competence in the international market.
The key reasons why BP believes internationalisation is a smart option are as follows:
 It offers complete independence from global business cycles in the sector.
 Authorization to expand into a new market
 Assists in improving an industry's original objective
 Increases production efficiency and decrease costs by increasing resource management
are an important.
Smaller businesses, on the other hand, may find it challenging to grasp worldwide financial
patterns whilst attempting to react to fresh business opportunities. A drive to expand is linked to
a desire to internationalise. In this respect, BP Corporation's size is not always a roadblock on its
way to extending far beyond its native nation. Other factors for company internalisation have
been identified:
Diversification: BP Corporation uses growth and expansion as a tactic to get a competitive edge
over its rivals. When BP enters regions where its competitors do not, for example, they often
profit from a first-mover advantage, making it possible to create considerable brand awareness
with consumer’s top of the competition. Firms might profit from foreign businesses by getting
access to technologies and industrial plants that can significantly simplify their job.
Competitive advantage: Many companies grow globally in order to diversification their
resources, which can actually shield a BP' corporation profitability from unexpected
catastrophes. Global corporations, for instance, may be necessary to offset for poor development
in one sector by achieving success in another. BP Corporation can also use overseas markets to
promote innovative products that can help them keep a healthy stream of revenue.
Attracting new talents: Firms may tap into a broader depth of potential by going worldwide.
Individuals who are fluent in a number of cultures and traditions are more suited to deal with a
wider range of customers. Additionally, by dealing with small manufacturers, it allows firms to
establish global teams with local store expertise and the capacity to utilize home marketplace
essential supplies.

Enter new markets: Internationalization is also appealing since countries all over the world are
lowering taxes and reducing import tariffs. Businesses might distribute their activities
internationally to reduce the likelihood of demand decreasing in numerous locations. Firms with
operations in various countries can engage in research & innovation and manufacture a variety of
products and services, which can safeguard businesses against full indifference in a particular
product or service.
Greater economies of scale: Some companies may want to expand their product lines since they
are more widely accepted throughout the world. Internationalization may aid businesses in a
range of industries by simply taking advantage of those opportunities. This is especially true for
companies that engage in smaller, regionally focused sectors. Internationalization can also be
used to identify or use future business developments, commodities, or trademarks.
Critically analyses how country risks may affect BP’s investments opportunities in host countries
In international business, political risk arises from a variety of circumstances that might
harm a business' profitability or complicated its business plan. Additional political changes might
make it difficult for a company to exchange foreign currency, trade or acquire products or
services, or protect in-country interests. Investment opportunities in some of the BP retirement
savings asset classes are not cash deposits, are not assured by any organisation, such as the
relevant investment advisor or any of its associates, BP, the plan board member, the plan
financial planners, or the strategy record keeper and are subordinate to market volatility that
could lead to the loss of superintendent.
In BP Corporation, political risk arises from a number of contexts which might impact a
business’ success or hamper its marketing strategy. Commercial factors including exorbitant
interest rates, along with changes in society like as civil unrest, were among the major concerns.
Political actions, such like expropriating a business profits, make it tough to rise sufficient,
reducing a firm's resource chain's responsibility to sustain manufacturing capacity. Certain
political upheavals may make it difficult for a company to exchange foreign currency, sell or
duties on imports and suppliers, or protect in-country interests. These and many other
repercussions of political risk, as per Aon, a supplier of managing risk, insurance, and insurance
services, might lead to higher operational expenses, industrial restrictions, and capital inflows.

BP Corporation launching international subsidiaries must be aware of elements that
increase riskiness. A transition in a country's political system, for instance, or a quick
degradation or development in a nation's market situation, for instance, can have an impact on
the business climate. Risk premiums can also be triggered by anticipated federal regulatory
changes or the continual expectation of parliamentary improvements. The same may be said for
multilateral institutions' responses to trade talks. Furthermore, political volatility, whether current
or imminent, poses a substantial danger to a nation's economic landscape.
The two categories of dangers that a country encounters are economic and political threats.
Economic hazards are associated with a nation's financial status and ability to repay loans.
Governments having a high loan ratio, for instance, may struggle to obtain money to fund
themselves, resulting in a recession in their city's community. The authorities of a nation and
how their actions influence commerce are tied to political risks. Struggling politicians who
advocate for nationalisations, for particular, might put investors in certain key industries in
jeopardy.
Therefore, even if a nation is dangerous does not imply that investors should avoid it.
When it comes to risk, perhaps more risk equals more possible profit. A nation undertaking
economic change, for example, may be hazardous in the short term, but its lengthy prospects
may be stronger as a consequence. Risk can still be included in a balanced portfolio to boost
future gains for foreign buyers. Here are several pointers to consider before making more risky
for BP corportaion:
Maintain a diverse portfolio: A varied portfolio can help reduce the consequences of a
single stock's rapid decline. Aim for no and over 5% of a company's equity to be held by any
particular investment.
Put money where take a chance: Buying call options or purchasing index put options, for
example, can assist protect against a market slump. These are choices for experienced traders to
think about.
Maintain an eye on things: Keep a closer eye on finances at all times. In global markets,
especially dangerous ones, things can change quickly, so keep an eye out for any black clouds
well before storm comes.

Critically analyses and evaluates BP Corporation’s sources of finance
BP Plc is evaluating a variety of debt financing alternatives, involving bank loans and a
corporate bond offering of up to $10 billion, to obtain cash as it confronts a massive oil disaster.
Creditworthiness agency Standards & Poor's recently reduced BP BP.LBP.N, hindering any
attempts to boost financing. According to a source, BP is considering all options, along with a
bank credit line. According to the source, a bond sale might take place as soon as next week.
Blackstone Group, Goldman Sachs, Morgan Stanley, Credit Suisse, and UBS are among the
firms advising the corporation, according to insiders. Every one of the institutions refused to
comment on the situation.
Large corporations can receive transfer the funds by utilizing the various sources of funds,
which are divided into two categories: internally and externally funding. Internally sources of
funds include retained earnings, divestitures, lower inventory, and long-term payment terms for
suppliers and prompt debt recovery for borrowers. The external financing options, but at the
other extreme, are divided into three categories: lengthy, moderate, and short term financing.
Stocks, convertible notes, line of credit, and endowments are lengthy sources of finance, whilst
moderate resources include lease option, renting, and bank loan for intermediate and long,
comprising loan from a bank, debtors, and banking loan/overdraft.
This demonstrates that the marketplace offers a variety of financing solutions via which
businesses can obtain funds quickly, but financial institutions must evaluate specific financial
factors when approving a loan request.The following are some of the areas that should be
regarded:
Debt situation: The lending institution should analyses the firm’s debt position to determine
whether or not present debt surpasses the stated limit. This financial element aids lending
organizations in determining the company's worth, which is utilized as the basis for approving
loan applications. The ability of a company to pay off lengthy obligations and obtain more loans
can be determined by looking at its debt situation. This data can also be used to assess the mix of
debt and equity utilized in equity funding in the capital structure, as well as to reimburse pressure
on the state in order to establish its ability to service the debt on term as well as long viability.

Liquidity: Level equivalent to a company's capacity to repay its debts on schedule. The
accessibility of cash or liquid assets is revealed during an assessment of liquidity status, which
contributes in establishing the capabilities to fulfill loan installments once they are required. This
economic sector is crucial for lending institutions to evaluate when evaluating a loan request to
determine whether the company has sufficient liquidity to pay back the loan on schedule.
Market reputation and risk: Other monetary sector that is heavily correlated to economic
standing is marketplace repute and risk, as excellent market reputation and reduced risks suggest
a lower probability of nonpayment. Risk reflects the degree of risk in the firm's concerns and
operations transactions, whereas evaluated based is crucial to examine for the commercial bank
to assess the reliability in relation to the credit record.
Profitability Growth: Profitable expansion must be evaluated by a lending organisation because it
is one of the crucial accounting sectors that reflects the earnings potential and competence of the
business. It may be simple for borrowing companies to determine solvency in the intermediate
term by evaluating profit earnings and the quantity to be loaned. The power to make massive
profits by effectively utilizing resources in an effective way is critical in the profitability growth
field. The borrowing company will assess the lender's ability to repay the loan amount plus
interest within the specified time frame based on the important financial sectors. It takes into
account all of the criteria that go into deciding whether or not to approve a loan request,
including profit, lengthy stability, indebtedness position, historical good credit, risk, and
projected growth.
Critically analyses and evaluates BP Corporation’s capital structure
Borrowing, in addition to ownership, is an essential component of a corporation's
economic framework and helps to its development. It is an appealing choice for managers
seeking finance since it has a lower borrowing cost than stock. Interest payments, on the other
hand, can have a negative influence on a financial statement. Whenever corporations employ
borrowed funds for commercial enterprises, common stockholders can add the remaining income
made by the borrowed capital.

The debt-ratio is used by lenders to measure how much economic power a firm has. BP's total
assets are $263.32 billion, resulting in a debt-to-asset ratio of 0.31. A debt-to-asset ratio greater
than one shows that a significant percentage of debt is covered by resources..
On this premise, the lending organization's primary goal is to provide a loan to a borrower with
sufficient financial resources and a high ability to repay short-term loans by the due date, which
does not meet the usual ratio of 2:1. On the other hand, BP Corporation has adequate liquidity in
comparison to the industry average, making a ten-year loan from a bank to the business risk-free
for the lending institution. BP's evaluated based is excellent, as evidenced by growing net sales.
Long-term, granting 10% of total assets (300,193,000*10%), i.e. 30,019,300 (Yahoo finance) for
10 years is beneficial. In comparison to the previous year, the company's profitability has
decreased as its expenses have climbed.
Critically analyses and evaluates the strategies that BP Corporation has adopted in managing
their financial risks
Financial management is a constant problem whether operating a beginning or an established
company. It's not just about controlling working capital and saving for cloudy weather when it
comes to minimizing financial burden. From human resource department to processes, a
financial risk response plan must take into account all aspects of the firm. Several firms make the
frequent error of not addressing financial risk management as a constant effort. BP corporation
face financial risk when operate their business activities so for this apply different strategies to
managing risk such as:
Diversify of investments: The importance of diversity in money planning cannot be overstated.
Although it will not stop anyone from incurring losses in a sharp downturn, it will assist you in
avoiding financial devastation. Maintaining a very well investment strategy minimizes expenses
by dividing assets across BP Company's multiple financial products; think of it as a kind of free
investment insurance that defends against massive problems.
Exit strategy for every investment: They can't guarantee that an acquisition will be made at the
greatest cost, if they're smart, they can keep track of how much revenue they're losing. The best
way to do so is to extract enthusiasm from the circumstance. Therefore, if they buy a stock,

shares, or anything else, they should have exit options in sight. The most effective approach to
do so is to set predetermined best features in both profits and losses in BP.
Keep debt minimum: Financial distress means less money people can acquire in the future. They
will not only have more self - determination when they get elderly when they prevent heavy
debt, but they will also escape the constraints that prohibit them from ever achieving financial
independence.
Have a second source of income: Diversification is vital not just for their holdings, but also for
their earnings. Establishing a new source of income is the greatest way to protect yourself against
losing your job unexpectedly. Perhaps they might set up a side business in their leisure moments
doing something they enjoy. Furthermore, if they're lucky, they might well be able to discover a
way to supplement their income without having to leave the property.
CONCLUSION
In modern environment, worldwide financial management, often known as international
finance, is a very well phrase. It basically refers to financial administration in a global business
setting. Due to the obvious various aspects involved, such as currencies, political events,
imperfect marketplaces, and diverse possibility groups, it differs from money planning. The
business also raised its moderate gas production forecast, predicting that total production would
climb by 1-2 % to 2015, from a 2008 low of $60 per person, and expressed reports are generated
in additional expansion out to 2020. Group Chief Executive Tony Hayward, speaking ahead of
BP's yearly approach demonstration to the banking industry, said the corporation had established
positive trend in its business lines and had created efforts to minimize expenses and improve
objective and subjective business results over the previous years.

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