Financial Analysis of British Petroleum (B P)
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Financial Analysis of British Petroleum (B P)
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Financial Analysis of British Petroleum (B P)
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FINANCIAL ANALYSIS OF BRITISH PETROLEUM (B P)
The decision to buy a business is avery important one, especially from abuyers perspective .The
prospective buyer has to consider various factors very cautiously. The factors include; inventory
purpose of the company (mission) and vision, the financial conditions of the company, legal
aspects and many others. For this case we are going to look at the financial factors one has to
consider.
British petroleum is one of the world’s leading and integrated oil and gas companies.
Financial Performance of B P.
Liquidity Ratios
Current Ratio
Looking at British Petroleum’s ratio in 2008 was .951 % with a steady increase in 2009
of 1.14%. They jumped only a little bit more to 1.15% the following year of 2010. This ratio
could have been higher in 2010 had it not been for the Gulf of Mexico Oil Crisis.
2010
2009
2008
BP
1.15%
1.14%
0.95%
Exxon
0.94%
1.06%
1.47%
Industry
0.99%
0.99%
0.99%
BP’s current ratio improved from2011 to 2012 but slightly deteriorated in 2013
Quick
Financial Analysis of British Petroleum (B P)
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The quick ratio for BP in 2008 was .71%, with an increase to .75% in 2009. They had a
ratio of .84% in 2010. These ratios were around the same levels of the competition and the
industry as a whole. Exxon had 1.23% in 2008, .83% in 2009 and finally only .73% in 2010.
2010
2009
2008
BP
0.84%
0.75%
0.71%
Exxon
0.73%
0.83%
1.23%
Industry
0.75%
0.69%
0.71%
BP’s quick ratio improved consistently from 2011 to 2013
Asset Management Ratios
Inventory Turnover
This was the ratio of inventory turnover.
2010
2009
2008
BP
11.33%
10.58%
21.82%
Exxon
29.53%
26.88%
40.98%
Industry
52.34%
48.92%
45.87%
2010
2009
2008
BP
2.69%
2.20%
3.55%
Exxon
1.92%
2.23%
3.93%
Fixed Asset Turnover
Financial Analysis of British Petroleum (B P)
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Industry
1.98%
1.89%
1.73%
BP fixed asset turnover for 2008 is 3.55%, 2009 was 2.20% and 2010 2.69% this shows a drastic
drop in investing in some of their plants and so forth from 2008 to 2010. However, in 2010 there
was an obvious increase when dealing with the oil spill in the gulf and containing that mess.
There is chance of this increasing if they build other refining centres in the near future. Exxon
went from almost 4% in 2008 to 2.23% in 2009 and 1.92% in 2010 this means that their
investment in fixed capital dropped from the years this could be due to less investment in their
depreciation and such. Total Asset Turnover
The total asset turnover ratio for BP in 2008 is 1.60%, 2009 is 1.01% and increased to 1.09% in
2010. The higher the number the better for the company, so by decreasing in 2008 to 2009 it
reflected bad on it.
2010
2009
2008
BP
1.09%
1.01%
1.60%
Exxon
1.26%
1.33%
2.09%
Industry
1.50%
1.42%
1.68%
Debt Management Ratios
Total Debt to Total Assets
Financial Analysis of British Petroleum (B P)
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2010
2009
2008
BP
23%
18%
22%
Exxon
5%
4%
4%
Industry
12%
18%
15%
This ratio measures the different companies financial risks where you can determine how much
of the assets were financed out of pocket upfront or through debt such as loans. From 2008 to
2010, BP is growing more in revenue than debt. 2010’s total debt to assets percentage increased,
because of the oil spill in 2010, when they had to pay for the cleanup. Less debt, more profit. As
compared to Exxon’s 2010 that is at 5%, concluding that over half of their assets were taken out
by long term or short term loans. They might be paying back everything periodically, but it
shows that Exxon is not able to pay upfront for certain assets, like BP is. The overall industry
was closer in their debt in 2009, but due to the oil spill in 2010, BP’s debt was much higher than
the industry average
Profitability Ratios
Operating Margin
The operating margin of BP in 2008 was about 9.76 cents per dollar before interest and taxes.
2009 BP made about 20 cents for every dollar sold and in 2010 due most likely to the oil spill BP
made only a cent per every dollar made.
2010
2009
2008
Financial Analysis of British Petroleum (B P)
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BP
Exxon
1.23%
19.96%
9.76%
13.87%
11.37%
17.26%
22%
43%
37%
Industry
Profit Margin
BP has a much lower profit margin in 2008 than Exxon which means that Exxon was beating
them in sales and revenue. In 2009 the tides turn and BP is higher just a little over the
competition. In 2010 with the oil spill BP is far below profit compared to both the industry and
Exxon.
2010
2009
2008
BP
1%
7%
5.9%
Exxon
7%
6%
9%
10%
12%
11%
Industry
BEP
Basic earning power of BP is close to the industry average for 2008 but decreases to 11% in
2009 before dropping lower in 2010. This shows how they are far below the competition of
Exxon on the three years from 2008-2010.
2010
2009
2008
Financial Analysis of British Petroleum (B P)
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BP
1.3%
11%
15%
Exxon
17%
15%
36%
Industry
19%
22%
16%
.
. How has it performed in the last years? /Is it going to increase profit?
On the positive side the super major reported a reserved replacement ratio of 129% for 2-13
increasing from 79% in 2012.
B P has shown great steps in recovering from the oil spillage. Though not at its formidable best
of profit maximization due to the significant costs it is enduring in rebuilding itself and
purchasing assets so as to achieve its vision to be back to fully of nits feet by 2013.
.
Which are the positive aspects of the industry?
As seen in their financial statement, in 2013 BP continued the program of renewal they began
following the crisis of 2010.The measures taken to secure and reshape the group took hold. As
this report shows, BP is stronger and safer as a result.
Which are the negative aspects of the industry?
Health Effects from British Petroleum Oil Spill
The BP oil spill caused numerous problems within the ocean ecosystem and has continued to
cause problems even after some time has passed. Issues such as genetic damage, liver disease,
Financial Analysis of British Petroleum (B P)
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and cancer can occur within the wildlife among other aquatic life defects. Reproductive and
developmental defects, as well as immune impairments have occurred and are still being
documented as of 2012.
In conclusion, from the above research, I would consider buying B P or even going into a joint
venture with them as their financial health seems to be of stable and consistent nature.
Its liquidity is greater than one generally meaning that it has the capability to pay its current
liabilities from its current and cash assets, whereas it has still been making a net profit on
aggregate over the past few years.
References
Available from http://www.stockanylysis.org accessed on 29th April 2014
Annual reports and financial statements of BP for 2011, 2012 and 2013
10k statements of BP for fiscals for above periods under review
Available from http://www.bp.com/en/global/corporate/investors/anual-reporting.htmlaccessed
on 29th April 2014