Comprehensive Financial and Ethical Analysis of BG Group's Operations

This report offers a comprehensive financial analysis of the BG Group, examining its capital structure, risk and return on shares, and pricing efficiency. The analysis, based on data from the Dutch Shell acquisition, reveals that the company maintained a balanced capital structure, with approximately 50% equity and 50% debt. The report calculates the average return and risk coefficient of the shares, comparing them to risk-free rates. Furthermore, it assesses the pricing efficiency by comparing the market price to the intrinsic value of the shares. The report also evaluates the ethical scores and compares the company to its competitors, highlighting its sound corporate governance practices. References include annual reports and financial websites.

Running head: ACCOUNTING AND FINANCIAL MANAGEMENT
Accounting and Financial Management
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1Accounting and Financial Management
Table of Contents
1. Evaluation of the capital and ownership structure of the BG Group...........................................2
2. Risk and return of the shares.......................................................................................................3
3. Pricing efficiency.........................................................................................................................4
4. Ethical scores and competitors of the company..........................................................................5
5. References and bibliography.......................................................................................................7

2Accounting and Financial Management
1. Evaluation of the capital and ownership structure of the BG Group
Capital structure is the combination of different sources of capital in financing the net
assets of the company. Equity share capital or capital raised by the issue of common stock is an
important such source of financing. On the other hand, capital raised by issue of debentures or
any other debt securities are known as borrowed capital or debt capital. For a sound capital
structure there must be an optimal combination of debt and equity in the total capital structure of
the company (Zeitun and Tian 2014).
BG Group was a British multinational company dealing in oil and gas. The operations of
the business was mainly controlled from their head quarter located at Reading, United Kingdom.
In 2015 Dutch Shell expressed an interest to acquire the business of the BG Group completely
and the acquisition was completed in the year 2016. Therefore, for the analysis of the capital
structure of the company the information can be taken from the annual report and financial
statement of the Dutch Shell.
It can be observed from the consolidated financial statement of the Dutch Shell Company
that, the total assets for the year 2018 was $399.19 billion which is financed by, current liabilities
or short term financings, long term loans and equity shares or common stocks. It can be observed
that, there are a total of $77.81 billion of total current liabilities, $118.85 billion of noncurrent
liabilities and $198.65 billion of equity capital. Hence, almost 50% of the assets are financed by
the equity capital, 20% of the assets are financed by the noncurrent debts and the remaining 30%
is financed by traded credits and other short term finances. Following pie chart can be used to
better present the components of capital structure of the company or the means of financing and
its weightage (Zeitun and Tian 2014).

3Accounting and Financial Management
Total current liabilities 77.81 20%
Total noncurrent liabilities
118.8
5 30%
Total Equity
198.6
5 50%
It can be observed that 50% of the capital constitutes equity share capital and the rest
50% is financed by the debt capital. Therefore, they are having a decent solvency as well as a
short term liquidity. It can be concluded that, they are having a sustainable capital structure
taking advantage of a medium degree of leverage.
2. Risk and return of the shares
Based on the daily adjusted closing share price for the last five years starting from 1st
January 2015 to 31st December 2019, the risk and return of the shares of Dutch Shell can be
computed. Based on daily share price changes, the daily return in percentage has been computed
and to make a conclusion about the return of the shares of the Dutch Shell, an average of the

4Accounting and Financial Management
daily return has been considered. On the other hand, to measure the risk of the shares of the
Dutch Shell, the standard deviation is considered as the measure for the risk coefficient or
volatility of the share price of the Dutch Shell (Reports.shell.com 2020).
Average return 0.02%
Risk coefficient 0.01
The average return from the shares for the last five years is 0.02% and the volatility or the
risk coefficient of the share is 0.01. Hence, the shares are less volatile in nature and in the same
way returns from the shares are also lower. Compared to risk free rate of 1.91% for a risk
coefficient of a complete zero, the return from the shares of the Dutch Shell is not satisfactory
(Reports.shell.com 2020).
3. Pricing efficiency
Pricing efficiency is the reflection of the financial performance and financial position of
the company on its share price. The pricing efficiency of the company can be analyzed through
the net assets or assets backing method. As on the 31st December 2018, the share price of the
company was $54.76. The value per share computed using the assets backing method can be
compared with this price to analyze the pricing efficiency of the company (Reports.shell.com
2020).
Total assets $ 399,194,000,000
Less: Total Liabilities $ 196,660,000
Net assets available to equity shareholders $ 398,997,340,000
Number of outstanding shares $ 8,300,000,000
Intrinsic value per share $ 48.07
Market price $ 54.76

5Accounting and Financial Management
As on 31st December 2018 total assets was $399.19 billion and after deducting all the
noncurrent and current liabilities, the remaining net assets of the company is $198.646 billion.
Therefore, the intrinsic value of shares is $48.07. Hence, there is a difference between the market
price of the shares and the intrinsic value or the assets backing value of the shares. Therefore it
can be concluded that there is an inefficient pricing of the shares of the Dutch Shell in the market
(Finance.yahoo.com 2020).
4. Ethical scores and competitors of the company
Royal Dutch Shell is a well-known and renowned multinational company in the oil and
gas industry having its presence globally. They have some good corporate principles and practice
which helped them to become a sustainable company in the industry. Hence, their sound ethical
practices and policies made their stakeholders to become attracted to the company and invest in
the company. Their good corporate governance practices always addressed the needs and
concerns of their shareholders and the corporate social responsibility initiatives helped the
society in improvement in social well-being. There are various other competitors in the industry

6Accounting and Financial Management
such as Chevron, BP, and Exxon Mobil and so on. Those competitors are also having a good
market share in the industry but the sound corporate governance policies practices made the
Royal Dutch Shell superior to the others (Almumani 2014).

7Accounting and Financial Management
5. References and bibliography
Almumani, M.A., 2014. Determinants of equity share prices of the listed banks in Amman stock
exchange: Quantitative approach. International Journal of Business and Social Science, 5(1),
pp.91-104.
Finance.yahoo.com. 2020. Yahoo is now part of Verizon Media. [online] Available at:
https://finance.yahoo.com/quote/RDS-A?p=RDS-A [Accessed 6 Jan. 2020].
Parry, I.W., Evans, D. and Oates, W.E., 2014. Are energy efficiency standards
justified?. Journal of Environmental Economics and Management, 67(2), pp.104-125.
Reports.shell.com. 2020. Disclaimer - Shell Annual Report 2018. [online] Available at:
https://reports.shell.com/annual-report/2018/consolidated-financial-statements/balance-
sheet.php [Accessed 6 Jan. 2020].
Robb, A.M. and Robinson, D.T., 2014. The capital structure decisions of new firms. The Review
of Financial Studies, 27(1), pp.153-179.
Zeitun, R. and Tian, G.G., 2014. Capital structure and corporate performance: evidence from
Jordan. Australasian Accounting Business & Finance Journal, Forthcoming.