BP & Royal Dutch Shell: A Financial Reporting & Ratio Analysis

This report provides a detailed financial analysis of British Petroleum (BP) and Royal Dutch Shell, two major players in the oil and gas industry. It examines their financial performance using various ratios, including profitability, liquidity, efficiency, and gearing ratios, over several years to assess the impact of the financial crisis on their market share and financial position. The analysis reveals changes in key metrics such as return on shareholder funds, operating profit margin, current ratio, receivable collection period, and earnings per share. The report also touches upon the strategies adopted by both companies to manage their performance and financial stability in the face of economic challenges. The study uses the annual reports of the companies to do the analysis. Desklib is a great platform for students to find similar assignments and study resources.

Running Head: Financial Reporting and management accounting
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Financial Reporting and management accounting

Financial Reporting and management accounting
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Contents
Introduction.......................................................................................................................3
Case Overview..................................................................................................................3
Company overview...........................................................................................................4
British Petroleum..........................................................................................................4
Royal Dutch Shell.........................................................................................................4
Financial performance of the companies..........................................................................5
British petroleum Limited.............................................................................................5
Royal Dutch Shell Limited.........................................................................................12
Financial crisis impact....................................................................................................20
Literature review.............................................................................................................20
Findings and Summary of study.....................................................................................22
Conclusion......................................................................................................................22
References.......................................................................................................................23
Appendix.........................................................................................................................26

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Introduction:
Financial evaluation and assessment on an organization is always done by the
management of the company and stakeholder of the company to evaluate and find the
position of the company in the industry. This study evacuates about the financial position of
the company in context with the inventors perspective, shareholder perspective, debt holder
perspective, bond holders perspective, suppliers and customers perspective and other
stakeholder perspective of the company. It evaluates that how the better strategy could be
planned for the company to manage and enhance the profitability and solvency level of the
company.
Financial evaluation is a study which includes various methods to evaluate about the
financial performance of an organization such as ratio analysis, capital assets pricing method,
trend analysis, industry analysis, dividend growth models, price earnings model etc. these
methods make it easy for the professionals to evaluate the performance of the company.
Further, the case studies, economy position of the country, annual reports of the company etc
also assist the company to make and manage a better conclusion about the position of the
company.
In this report paper, the study has been conducted on two companies which are
BRITISH PETROLEUM and ROYAL DUTCH/SHELL CORPORATIONS to evaluate their
financial performance ad impact of financial crisis on their market share and financial
position.
Case Overview:
BRITISH PETROLEUM and ROYAL DUTCH/SHELL CORPORATIONS are one
of the biggest corporations of Europe market. Both of these companies are performing and
operation their business in the market very well. But due to financial crisis, the position of the
companies has been affected and it has directly impacted on the financial position of the
company. The technological advances, profits, innovative products etc of both the companies
are quite attractive and managing the performance of the company every well.
In this study, financial position of both the companies has been evaluated and it has
been found that how the position has been impacted due to the financial crisis in the market.
The report explains that the company has faced few issues due to the financial crisis and

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though, currently few new strategies have been made by both of the companies to manage the
performance and the financial level of the company. In this paper, those strategies have been
studied and eventually, the study on literatures has also been done to evaluate the
performance of the company and the changes into the financial structure of the company.
The impact of financial crisis was quite higher on UK economy rather than other
economies due to various factors. The manufacturing base of UK is not much bugger and on
the other hand, the previous growth of the economy has been fuelled by financial activities
and financial services only which includes high retail sales which directly depend on the
credit sales.
Company overview:
British Petroleum:
British petroleum is an international company which headquarter is in England. The
company is operating its business under oil and gas industry. The company is one of the
seven largest oil and Gas Company in worldwide. The market capitalization of the company
is quite large and it has around 18000 service stations worldwide. The main products of the
company are natural gas, aviation fuels, petroleum, petrochemicals, oil equivalents etc. the
company is mainly listed in the London stock exchange. The company is performing in a
great manner in the market (Home, 2018). Though, it has been recognized that due to the
economy changes and the financial crisis, the profitability level and the turnover of the
company has been affected. Further, it has also been found that the current strategies of the
company are quite competitive.
Royal Dutch Shell:
Royal Dutch Shell is an international company which headquarter is in London,
England. The company is operating its business under oil and gas industry. The company was
the largest oil and Gas Company in worldwide in 2013. The market capitalization of the
company is quite large and it has around 44000 service stations worldwide. The main
products of the company are natural gas, aviation fuels, petroleum, petrochemicals, oil
equivalents etc. the company is mainly listed in the London stock exchange. The company is
performing in a great manner in the market. Though, it has been recognized that due to the
economy changes and the financial crisis, the profitability level and the turnover of the

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company has been affected (Home, 2018). Further, it has also been found that the current
strategies of the company are quite competitive
Financial performance of the companies:
Further, the financial position, place and performance of the company have been
evaluated and it has been found that the financial crisis has impacted on the financial position
and market stock position of the company. the financial performance of both the companies
have been evaluated through analyzing the ratio analysis study on both the companies and it
has been found that how both the companies have been affected:
British petroleum Limited:
Profitability ratio:
Profitability ratio study has been done on British petroleum limited to evaluate the
financial position and performance of the company and through the study it has been found
that the profitability level of the company in terms of return on shareholder funds has been
reduced to 0.12% in 2016 from 3.39% in 2014 and 9.78% in 2012 due to the financial
position and crisis of the company (Hillier, Grinblatt and Titman, 2011). It explains that the
company has faced huge loss due to the changes into the economy and fear of the investors.
Figure 1: Return on shareholder funds
Further, the operating profit margin ratio of the company has been evaluated. It
explains about the lower profitability position of the company and at the same time, it

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explains that the 2015 was the worst year for the company in terms of profitability as in 2014,
the position of the company has been affected a lot (Annual report, 2016). Though, few
changes have helped the company to manage it back.
Figure 2: Operating profit margin
Further, the gross profit margin ratio of the company has been evaluated. It explains
about the average profitability position of the company was quite higher before the financial
crisis. Following graph explains about the changes:
Figure 3: Gross profit margin
2016 2015 2014 2013 2012
Profitability

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Return on
shareholder
funds
NPAT/
Total equity 0.12% -6.67% 3.39% 18.14% 9.78%
Operating
profit margin
Operating
net profit /
Sales -1.23% -4.24% 1.38% 7.63% 4.84%
Gross Profit
Margin
Gross Profit
/ Sales 13.56% 10.69% 13.77% 17.75% 15.74%
(Morningstar, 2018)
Liquidity ratio:
Liquidity ratio study has been done on British petroleum limited to evaluate the
financial position and performance of the company and through the study it has been found
that the liquidity level of the company in terms of current ratio has been reduced to 1.16 in
2016 from 1.37 in 2014 and 1.43 in 2012 due to the financial position and crisis of the
company. It explains that the company has faced huge loss due to the changes into the
economy and fear of the investors in 2014. And currently, company is required to enhance
the current assets level so that it becomes easy for the company to pay off the short term debt.
Figure 4: Current ratio
Further, the quick ratio of the company has been evaluated and it has been found that
the quick ratio level of the company has been reduced to 0.86 in 2016 from 1.08 in 2014 and
1.07 in 2012 due to the financial position and crisis of the company. It explains that the

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company is required to enhance the quick assets level so that it becomes easy for the
company to pay off the short term debt in current situation (Horngren, 2009).
Figure 5: Acid Test ratio
Liquidity 2016 2015 2014
201
3
201
2
Current ratio
Current
assets/current
liabilities 1.16 1.29 1.37 1.33 1.43
Acid test ratios
Current assets-
Inventory/curre
nt liabilities 0.86 1.03 1.08 0.93 1.07
(Annual report, 2014)
Efficiency ratio:
Efficiency ratio study has been done on British petroleum limited to evaluate the
financial position and performance of the company and through the study it has been found
that the efficiency and working capital management level of the company in terms of
receivable collection period has been enhanced to 43.28 in 2016 from 32.78 days in 2014 and
36.07 days in 2012 due to the financial position and crisis of the company. It explains that the
cash turnover ratio for operations and short term of the company has been enhanced.

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Figure 6: Receivable collection period
Further, that the payable payment days have been enhanced to 48.82 days in 2016
from 27.23 days in 2014 and 33.14 days in 2012 due to the financial position and crisis of the
company. It explains that the cash turnover ratio for operations and short term of the
company had been managed by the company.
Figure 7: Payable payment days
Lastly, that the inventory turnover days have been enhanced to 39.95 days in 2016 from
21.68 days in 2014 and 31.09 days in 2012 due to the financial position and crisis of the

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company. It explains that the cash turnover ratio for operations and short term of the
company should be managed by the company (Damodaran, 2011).
Figure 8: Inventory days
Efficiency 2016 2015 2014 2013 2012
Receivables
collection period
Receivables/
Total sales*365 43.28 37.46 32.78 37.36 36.07
Payables
collection period
Payables/ Cost of
sales*365 48.82 30.45 27.23 52.82 33.14
Inventory days
Inventory/ cost of
goods sold *365 39.95 25.58 21.68 32.74 31.09
(Annual Report, 2015)
Gearing ratio:
Gearing ratio study has been done on British petroleum limited to evaluate the capital
structure position and performance of the company and through the study it has been found
that the gearing ratio of the company in terms of non bearing debt and equity has been
enhanced to 0.35 in 2016 from 0.34 in 2014 and 0.14 in 2012. It explains that the gearing
ratio of the company has been managed by the company.

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Figure 9:
Gearing Ratio
Gearing
Ratios 2016
201
5 2014 2013
201
2
Gearing
Noncurrent interest
bearing debt /
noncurrent interest
bearing debt +
equity (Bromwich
and Bhimani, 2005) 0.27 0.24 0.18 0.17 0.14
Investment ratio:
Investment ratio study has been done on British petroleum limited to evaluate the
investment position and performance of the company and through the study it has been found
that the earnings per share of the company has been reduced to 0.04 in 2016 from 1.23 in
2014 and 3.65 in 2012. It explains that the investment position of the company has been
reduced.

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Figure 10: Earnings per share
Further, the price earnings ratio of the company is quite higher. Though, it has been
evaluated that the company is not a good opportunity to invest for the investors in current
position.
Investment ratio 2016 2015 2014 2013 2012
Earnings per
share
NPAT/ Number
of ordinary shares
0.04 (2.12) 1.23 7.43 3.65
Price earnings
ratio
Market price per
share / earnings
per share 888.31
The above evaluation on British Petroleum explains that the various changes have taken
place into the position of the company in last few years. It explains that the company is
required to make new policies and strategies to manage and enhance the performance.
Royal Dutch Shell Limited:
Profitability ratio:
Profitability ratio study has been done on Royal Dutch Shell Limited to evaluate the
financial position and performance of the company and through the study it has been found
that the profitability level of the company in terms of return on shareholder funds has been