USING FINANCIAL ANALYSYSIS TO ASSESS A BUSINESSES FOOTING - Free Essay Example

British Petroleum is one of the largest companies providing energy. The company operates across six different continents, their products and services are also available in more than hundred countries in the world. The company yearly make a huge return on investments for its share holders. Bp is a growing local oil company into a world energy group. BP has employed over 80,000 people all around the world. BACKGROUND British petroleum 2007 to 2009 British Petroleum starts mango production offshore Trinidad On November 17, 2007 British Petroleum started the natural gas production from the mango field. The mango field is 35 miles south east of Galeota point in water depth of some 235 feet. British Petroleum in Trinidad and Tobago holds 100 percent interest in the field. The field is developed by a single unmanned platform with a capacity to produce from a well. The gas is exported through a pipeline which is 26 inches in diameter. The mango platform is the second to be built to the same size and standard as the cannon balls platform. The 860 tonne mango jacket and 890 tonne topside were built at the Trinidad offshore fabrications (TOFCO). 2008 Energy utilization rises as supplies hold-up but free energy markets do work On June 11th , 2008 the quality of world energy market was high and its price was unstable. This had a great impact on the supply and demand on the energy products. British Petroleum shows that the worlds fossil fuel resource has enough energy to sustain world growing population in spite of this issue. The weak point in the supply of the oil and rising demand outside the OECD also makes the work harder for the energy supply industry. The downfall in the production of oil in the OECD shows the issue that resources are not a constraint globally, but the recourse with British petroleum oil are limited. This is because of the barriers like political factors, taxes plays an vital role in this. Despite of high energy prices, the world energy market produces reliable energy supply. The statics in the year 2007 shows the market do work, the consumers and produces respond to changes in the energy prices. 2009 British petroleum discovered giant oil at its Tiber prospect in the deepwater US Gulf Of Mexico On 2nd September 2009 the Tiber well is located around 400 kilometres in south east of Houston and is in 4,132 feet of water . The depth of the Tiber well is about 35,055 feet which is 10,685 meters exactly which makes is the one of the deepest wells ever made by the oil and gas company. This well found oil in different lower territory reservoirs. The review will be needed to determine the size of the Tiber well discovery. The British petroleum has already discovered Kaskidas well and this Tiber is the discovery of British petroleum. Ratio Analysis for British petroleum PROFITABILITY Analysis of profitability for the company British petroleum for profit margin, Return of share holders funds (ROSF) and Return of capital employed (ROCE) 2009 2008 2007 Profit Margin 10.21 9.34 10.85 Return on shareholders funds (ROSF) 24.73 37.55 33.74 Return on capital employed (ROCE) 14.34 21.88 21.08 PROFIT MARGIN Profit margin is ratio of profitability calculated as net  income  divided by revenues, or net profits divided by sales. The profit margin of BP in the year 2007, 2008 and 2009 is 10.85, 9.34 and 10.21 respectively. Comparing the profit margin in the year 07 and 08 there is a decrease in the profit to 1.51 and comparing with 08 to the next year there is a increase in the profit up to 0.87. Even though there is increase in the profit in the year 2009, 2007 profit margin is higher compared to the last year. Return on shareholders funds (ROSF) ROSF ratio is a measure of profitability. ROSF of BP in the year 2007, 2008 and 2009 is 33.74, 37.55 and 24.73 respectively. When we compare the ratio of the year 2007 which is 33.74 to the year 2008 which is 37.55 there is increase in the ratio up to 3.81 percent. Comparing the ratios of 2008 and 2009 there is a great downfall up to 12.82 percent. When comparing the ratio of the year 2009 to 2007 the result remains the same which is, the ratio has decreased. Return on capital employed (ROCE) The ROCE ratio compares the net profit (before interest and taxation) generated by company to the long term capital invested in the company during the same period. ROCE of BP in the year 2007, 2008 and 2009 is 21.08, 21.88 and 14.34 respectively. On comparing the ratios of the year 2007 which is 21.08 and the year 2008 which is 21.88 there is a slight increase in the ratio percentage which is 0.8 percent. But when comparing 2008 ratio with the next year there is a big downfall to the ratio in 2009 which is 14.34 percent and difference in the ratios between these two years is 7.54 percent. Conclusion It is to be noted that the company has a growth in all the three ratios from the year 2007 to 2008, but from the year 2008 to the next year which is 2009 there is decrease in all the three ratios. This makes us clear that the company is going down in the profitability compared to the previous two years. Ratios Ratios are useful indicators for the companys performance and financial conditions. Ratios can analyse and predict the future of the company. Now we shall analyse the ratios of BP for liquid ratio, gearing ratio, current ratio and share holders liquid ratio. 2009 2008 2007 Liquid Ratio 0.76 0.71 0.69 Gearing Ratio 82.42 89.52 77.22 Current Ratio 1.14 0.95 1.04 Share holders Liquid Ratio 1.38 1.40 1.67 Liquid ratio Liquid Ratio is a ratio which measures companys capability to pay short term bills. Liquid ratios of BP in the year 2007, 2008 and 2009 are 0.69, 0.71 and 0.76. As we compare the ratios of the year 2007 and 2008 there is an increase in the ratio up to 0.02. And comparing the year 2008 with next year, there is an increase again in the ratio, but the ratio which has increased between these two years is more (0.05) compared to 2007 and 2008. Gearing Ratio Gearing Ratio in the year 2007 is 77.22 but when compared to the year 2008 which is 89.52 there is good increase in the gearing ratio which is 12.3 percent. But when comparing the ratio of the year 2008 to the next year 2009 which is 82.42 the ratios have been decreased by 7.1 percent. When we compare the ratios for the year 2009 and 2007 we can find that there is a increase in ratio by 5.2 percent. Current ratio Current ratio of BP in the year 2007 is 1.04 when comparing this ratio to the year 2008 which is 0.95 there is a decrease in the current ratio up to 0.09. When we compare the ratio of the year 2008 to the next year 2009 which is 1.14, we can see there is an increase by 0.19. Now comparing the ratios of 2009 and 2007, here also we can find that ratio has increased from the year 2007 to the year 2009. Share holders Liquid ratio Here are the share holders liquid ratio for three consecutive year 2007, 2008 and 2009 which is 1.67, 1.40 and 1.38 respectively. When comparing 2007 and 2008 ratios we can see that the ratios have been decreased by 0.27. And the comparing 2008 ratio with the very next ratio which is 2009 we can see that the ratios have been declined again up to 0.02. When comparing 2007 and 2009 ratios we can see there is decrease in the results. Conclusion All the four ratios are act in four different ways for three years comparison. For Liquid ratio the ratios are gradually increasing from 2007 to 2009. In Gearing ratio the ratios increase from 2007 to 2008 and then it decreases from there. For Current ratio the ratios decreases from the year 2007 to 2008 and then it increases. For Share holders Liquid ratio the ratios gradually decreases. Turn over Turnover is the annual sales of the company. 2009 2008 2007 Turnover 152,417 253,088 146,238 When comparing the turnover for BP for the year 2007 (146,238) and 2008 (253,088) we can see that the company has improved in that year the turnover has been improved. But comparing the next two years which is 2008 (253,088) and 2009 (152,417) it is to be noted that there is downfall in the companies turnover. Current Event since 2009 Balance Sheet In 20th April 2010 there was a explosion and fire in BP oil rig which took place in deepwater horizon in Gulf Of Mexico. After this incident took place eleven workers was reported missing and around seventeen workers was injured. And three days after this incident it is found that the oil is leaking from the well. US coast guards found that oil which leaks from the well is around 5000 barrels of crude oil per day. This is around 430,000 dollars per day. This event will give a big impact on this years balance sheet because the company has lost good will, there will be big loss in companys profit margin and turn over because of the loss of 5000 barrels per day. There will also bring down all ratios because of explosion and oil spill and workers missing. BP after this event has lost its good will. Conclusion In conclusion the analysis of the ratios says the year 2008 is the best year compared to the three years (2007, 2008, and 2009). Except for profit margin, share holders liquid ratio and current ratio compared to the previous year it has decreased to an extent. And in this years (2010) balance sheet will go down to an extent because of the explosion and fire in the oil rig and even issue of workers in oil rig has been missing after the explosion. The companys shares will go down and the company will also lose its good will. The companys profit margin and turn over will go down because of the oil spill which consumes around 5000 barrels of crude oil per day.