British Petroleum Performance Analysis Report Prepared By: Neusa Rocha MSc Economics To: Accounting Lecturer Albert

lee and company shareholders

Introduction

The aim of this report is to analyse BP performance from 2006 to 2010 and also advise potential investors either or not to buy shares at the company. BP is one of the worlds leading international oil and Gas Company (www.bp.com) .BP is doing amazingly well it is an excellent investment despite the economic crises in Europe. BP is very competitive company because of the nature of its industry.

Procedure

The company performance analyses profitability ratios, liquidity ratios, working capital ratios and solvency ratios was undertaken based on the company financial report for the period analysed. This report was meant to be prepared in a group that was divided in the following way, profitability ratio was meant to be done by Hanna, liquidity ratios by Zaida working capital ratios by Neusa and finally solvency ratios by Vanessa. The group name was synergy. Unfortunately am forced present the report on my Own.

Findings

Working capital ratios is formed by Debtors Days, Creditors and Inventory days. The aim of the ratios is to analyse the company capacity to pay or to take the payment from their customers and how long the company needs to sell their stock.

Profitability Ratio R.O.C.E. G.P. OP. EP. Net. Profit F.A 2006 179.74% 13.41% 19.58% 13.21% 3.53% 2007 28.77% 11.37% 20.50% 11.11% 3.54% 2008 31.28% 9,75% 17.92% 9.49% 5.44% 2009 19.68% 11.04% 23.63% 10.50% 3.53% 1010 3.81% 1.24% 32.34% 1.62% 3.31%

Liquidity Ratio Current Ratio Acid Test 2006 1.00 0.74 2007 1.04 0.69 2008 0.95 0.71 2009 1.14 0.75 2010 1.16 0.85

Working Capital Ratio Debtors days Creditors days Inventory Days 2006 82.3 days 53.1 days 36.8 days 2007 78.4 Days 48.8 days 48.2 days 2008 45.9 days 29.5 Days 22.9 days 2009 78.4 days 45 days 50.3 days 2010 5.8 days 44.9 days 44.2 days

Solvency

Gearing Interest Cover

2006 11.48% 35.64%

2007 14.18% 22.69%

2008 15.93% 22.16%

2009 19.99% 22.63%

2010 24.25% 4.12

According to the company working capital ratios analyses the company do not have cash flow problems. As the company debtors days time to repay their debts are within the average in UK the 60 days and has been decreasing 82.3 days in 2006, 78.4 in 2007, and reached its lowest average at 5.8 days in 2010. On the other hand the companys Creditors days enable to analyse the companys capacity to repay its creditors on time avoiding high interest rates payments. The average time to repay supplier in UK it is also 60 days, as the figures above show BP has been very consistent regarding payments to their supplier paying always before the 60 days . The Stock days ratio tell us the period of time that the company needs to sell its assets and also how long does the company needs to meet costumers request. In 2006 the company needed 36.8 days to sell their assents, increased to 48 in 2007 very considerate decrease in 2008 to 22 days and again increase

to 50 and 44 for 2009 and 2010 .Those figures are not as consistent as other companies figures because of the type of business the company . Lastly comparing the figures above to the profitability ratios we can conclude that the return of capital employed has made 28.77% in 2007 and increased to 31.28% profit from the capital invested. Those increases on the company ratios are as consequence of an increase on the commodity price that is reflected in the company with an increase in profitability, as the price increases the sale price also increases originating an increase in business .On the other hand the gross profit ratio has decreased though the years as consequence of an increase of the cost of the goods traded by the company

Conclusion/Recommendations

Using BP balance sheet and cash flow statement I was able to calculate the company performance such as profitability ratios, liquidity ratios, working capital ratios and solvency ratios. The balance sheet and cash flow statement are very important as they provide all the information needed to analyse the past, the present, and future of the company. The analyses of those ratios allowed me to conclude that BP is a very profitable company with an excellent control of their expenses, despite the nature of its business and the fact that it is specialised industry. Therefore I would strongly recommend people seeking investments to buy BP shares as they would have a quick return of capital.

Appendix 1

Debtor Days

2006 38692 / 265906 X 365 =53.1 days

2007 38020 /284365 X365 =48.8 days

2008 29261/361143 X 365 =29.5 days

2009 29531 /239272 X 365= 45.0 days

2010 36549/297107 X 365 =44.9 days

Inventory Days
2006 18915 / 187183 X 365 =36.8 days

2007 26554 /200766 X365 =48.2 days

2008 16821/266982 X 365 =22.9 days

2009 22605 /163772 X 365= 50.3 days

2010 26218/216211 X 365 =44.2 days

Creditors Days

2006 42236 / 187183 X 365 =82.35 days

2007 43152 /200766 X365 =78.4 days

2008 33644/266982 X 365 =45.9 days

2009 35204 /163772 X 365= 78.4 days

2010 46329/216211 X 365 =5.87 d

Reference/Bibliography

Revsine,L. , Collins, D. ,Johnson,W.1995. Financial Reporting and Analysis.3rd Ed. New Jersey: Pearson International Edition. McLaney,E., Atrill, P., 2007.Accounting: an Introduction.4th ed. Pearson Education Britton, A., Waterston, C., 2009. Financial Accounting . 5th Ed. Harlow: Pearson Education Dyson, J.,2007. Accounting for non accounting Students. 7th Ed. Harlow: Pearson Education Donnelley, R., 2011.BP Financial Operations. uk. Available from: www.bp.com (acessed 01 Dec 2011)