Analysis And Evaluation Of Financial Performance Of BP Plc And Comparison With Competitors
Background of the Companies
Describe about the Evaluation and Analysis of Financial Performance of BP PLC.
This particular project mainly highlights on the analysis and the evaluation of the financial condition of the company BP Plc by comparing its financial situation with the other companies like – Cairn Energy Plc, Ophir Energy Plc, Tullow Oil Plc and Royal Dutch Shell “A”. The objectives of this project are – firstly, conduct a critical examination on the profitability of BP Plc and effectively compare its financial condition with other companies in his sector (Epstein and Lee 2012). Secondly, the aim is to investigate the solvency of the particular firm BP Plc by comparing it with the other companies of the same industry. Thirdly, the goal of this particular project is to critically measure and evaluate the liquidity of the firm BP Plc in comparison to its competitors (Drury 2013). Lastly, to access the management efficiency of the specified organization BP Plc in compared to its competitors in order to run the business effectively and efficiently.
BP Plc was previously known as Anglo-Iranian Oil Company in the year 1935 and later it is known as British Petroleum in the year 1954 (bp.com 2016). It is headquartered in London and it is considered as the leading organization in the field of natural gas and oil industry. In addition to this, the BP Plc is considered as the largest international company that is operated and regulated across every continent. In this project, the company BP Plc has been compared to other four companies of the same sector. One of them is Cairn Energy Plc, which is considered as one of the independent and leading natural gas and oil development and exploration companies in Europe (Cairnenergy.com 2016). This organization has developed and discovered several gas and oil reserves in various locations across the world (Gregoriou and Finch 2012). On the other hand, Ophir Energy Plc is another gas and oil exploration London based organization that is operated and regulated in both Asia and Africa. This has been founded in the year 2004 and is headquartered in London (Ophir Energy Plc 2016). In addition to this, Tullow Oil Plc is also considered as a multinational gas and oil exploration organization that has been founded in Ireland in the year 1985 (Tullowoil.com 2016). It is headquartered in London. Moreover, the company Royal Dutch Shell plc is an Anglo-Dutch multinational gas and oil organization that is commonly known as Shell. It is headquartered in Netherlands and has been incorporated in the U.K. The particular company has been formed due to the merger of the UK based Shell Transport and Trading on one and hand and Royal Dutch Petroleum on the other hand. Royal Dutch Shell Plc is considered as the seventh largest organization across the world as per the year 2016 (Royal Dutch Shell plc .com 2016).
Data Analysis
In order to analyze and evaluate the financial condition of the company BP Plc and also to compare the financial position of the particular firm with its four major competitors, the researcher has performed ratio analysis for each of the firm for six consecutive years i.e. from 2010 to 2015 (John 2012). Here, four types of ratios of each company have been calculated. These include – Solvency ratios, Efficiency ratios, Liquidity ratios and Profitability ratios. It has been found that under each type of ratio, there are various kinds of ratios (Groot and Selto 2013). Therefore, under Solvency ratio, Debt to Equity ratio and Equity ratio have been calculated. Under Efficiency ratio, Accounts Receivable turnover and Inventory Turnover ratios have been calculated. Under Liquidity ratios, Quick ratio and Current ratios have been calculated (Seal, Garrison and Noreen 2012). Lastly, under Profitability ratios, Return on assets and Return on capital have been calculated.
Profitability Ratios
Return on Capital
The return on capital ratio indicates the payment received from a particular investment, which is not counted as a taxable event (Bhimani 2012). The Formula for calculating Return on capital employed is given below:
Return on Capital Employed= EBIT/Capital Employed X 100
This ratio has been calculated separately for 5 companies for consecutive 6 years.
Figure 1: Showing the Return on capital Employed of five companies from 2010 o 2015
(Source: Royal Dutch Shell plc .com. 2016)
BP Plc
The table shows that the return on capital employed for the particular company is volatile. Thus, it increased to 67.2 in 2011 but reduced to 62.8 in 2012 and again it increased for two consecutive years 2013 and 2014 to 78.61 and 80.8 respectively (bp.com 2016). However, finally it reduced to 66.86 in the year 2015. The above graph indicates the volatility of the return on capital ratio of the particular company (Drury 2012). This indicates the financial strength of the organization.
Cairn Energy Plc
The table indicates that return on capital ratio increased continuously till 2014 from 0.005 to 0.021 though in 2012, the particular ratio of the company declined drastically (Cairnenergy.com 2016). Finally, in the year 2015, the ratio increased indicating a strong financial position of the firm. The graph indicates the financial condition of the firm clearly. The increasing trend of the ratio indicates the strong financial condition of the firm.
Ophir Energy Plc
The above table indicates that the return on capital ratio for the particular company is much volatile. As net operating profit is nil in 2011, the ratio decreased drastically. However, it increased to 0.02 in 2015, indicating a healthy financial condition (Ophir Energy Plc 2016). The graph indicates the volatility of the return on capital ratio. As the graph indicates a positive trend, it can be said that the firm has a healthy financial condition.
Profitability Ratios
Tullow Oil Plc
The table shows a constant growth in return on capital ratio, indicating a strong financial condition. The above graph indicates a positive trend. Thus, it can be said that the firm has a strong financial condition.
Royal Dutch Shell “A”
The table indicates a constant growth of the firm indicating a strong financial condition. The above graph indicates a positive trend of the particular ratio. This constant increase in return on capital of the firm implies its healthy financial position.
Comparing Trend
The Mean of Return on capital employed of all the companies for the latest year 2015 is 0.18. The only company BP Plc is above mean and other companies are below mean. The ROC of BP Plc is highest and Cairn Energy Plc is the lowest.
Return on Assets
Figure 2: Showing the Return on assets of five companies from 2010 o 2015
(Source: Royal Dutch Shell plc .com. 2016)
The formula of Return on Asset of the company is
Return on Assets= Net income / Total Assets
BP plc
Net income of the firm drastically reduced in the year 2015, thus the return on assets ratio has also got affected adversely in 2015. The above graph shows the high volatility of the firm indicating a poor financial condition.
Cairn Energy Plc
The table shows negative value of ratios indicating a poor financial condition of the firm. The graph shows that return on assets ratio of the firm has performed poorly for consecutive 4 years. This indicates the weak financial position of the firm.
Ophir Energy plc
The table shows negative values of the ratio, indicating a very weak financial condition of the firm. The graph indicates higher negative values compared to positive values and in 2015, the ratio decreased drastically (Peterson Drake and Fabozzi 2012). This implies a weak financial condition of the firm.
Tullow Oil Plc
This table also shows poor financial condition of the firm due to negative values of ratio for 3 consecutive years. The graph shows inverse pyramids indicating poor return on assets ratio of the firm. This also implies the weak financial condition of the firm.
Royal Dutch Shell
For this company also return on assets ratio is very poor indicating a weak financial condition. The graph indicates a weak financial condition of the firm.
Comparing Trend
The Mean of Return on Assets of all the companies for the latest year 2015 is -0.089. The only company Royal Dutch Shell has positive ROA and other companies including BP Global are below mean. The ROA of royal Dutch Shell is the highest and Cairn energy is the lowest.
Return on Capital
Liquidity Ratios
Quick ratio
The formula of quick ratio is
Quick Ratio= Quick Assets/ Current Liability
Figure 3: Showing the Quick ratio of five companies from 2010 to 2015
(Source: Royal Dutch Shell plc .com. 2016)
BP PLC
The table indicates a stable growth in quick ratio indicating a better financial condition. The graph indicates a constant growth of the ratio implying more capacity of the firm for making the assets liquid (bp.com 2016).
Cairn Energy plc
The table indicates the ratio decreased constantly indicating weak financial condition. The graph indicates a continuous decreased in the quick ratio indicating lesser capability of the firm to make its assets liquid. Thus, it denotes the weak financial condition of the firm.
Ophir Plc
The table indicates decreasing value. This implies weak financial position of the firm. The graph indicates a constant decrease in value indicating poor financial condition or liquidity of the firm.
Tullow Oil Plc
The table shows increase in values that is a healthy financial condition is represented. The graph indicates positive trend of quick ratio of the firm, thus it implies healthy financial condition of the firm.
Royal Dutch Shell “A”
For this firm, the ratio increases constantly, indicating a strong financial condition. The constant increase in quick ratio indicates a strong financial condition of the firm.
Comparing Trend
The Mean of Quick Ratio of all the companies for the latest year 2015 is 2.51. The only companies Cairn Energy and Ophir Energy are above mean and all other companies including BP Global are below mean. The quick ratio of Cairn energy is the highest and Royal Dutch Shell is the lowest.
Current ratio
Figure 4: Showing the Current ratio of five companies from 2010 o 2015
(Source: Royal Dutch Shell plc .com. 2016)
The formula of Current ratio
Current ratio= Current Assets/ Current Liability
BP PLC
The table indicates a growth in current ratio indicating high liquidity of the firm. The graph indicates positive trend, thus it indicates a better financial condition of the firm (bp.com 2016).
Cairn Energy plc
This indicates decrease in value indicating weak financial condition. The graph indicates value decreases with time, implies weak financial condition of the firm.
Ophir Plc
The decreasing value indicates weak financial condition. The graph indicates the value decreases with time, indicating poor financial condition of the firm.
Tullow Oil Plc
The constant increase in table values indicates strong financial condition. The constant increase in graph values indicates positive trend of the firm.
Return on Assets
Royal Dutch Shell “A”
The table shows volatile ratio values indicating strong financial condition of the firm. The graph shows volatility, though positive trend indicates strong financial condition of the firm.
Comparing Trend
The Mean of Current Ratio of all the companies for the latest year 2015 is 2.66. The only companies Cairn Energy and Ophir Energy are above mean and all other companies including BP Global are below mean. The current ratio of Cairn energy is the highest and Tullon Oil Plc is the lowest and that of BP Global lies in between them.
Efficiency Ratios
Accounts Receivable turnover
Figure 5: Showing the Accounts Receivable turnover of five companies from 2010 o 2015
(Source: Royal Dutch Shell plc .com. 2016)
BP PLC
The positive values indicates positive trend of the firm. The constantly positive values of the graph indicate as the turnover increases, it is better for the firm (bp.com 2016).
Cairn Energy plc
The table shows increase in values indicates growth for the firm. The graph indicates positive trend of the firm. This implies better financial condition of the firm.
Ophir Plc
The ratio in the table indicates a very volatile position of the firm. The graph indicates high volatility, indicating weak financial condition of the firm.
Tullow Oil Plc
The table indicates value decreases thus it represents weak financial condition. The graph indicates the ratio will decrease and thus a weak financial condition of the firm has been represented.
Royal Dutch Shell “A”
The constant increase in the values of the table indicates strong financial condition of the firm. The increasing value of the graph indicates a strong financial condition of the firm.
Comparing Trend
The Mean of Accounts receivable turnover ratio of all the companies for the latest year 2015 is 2.18. The only companies Royal Dutch Shell and Tullon Oil are above mean and all other companies including BP Global are below mean. The Accounts receivable turnover ratio of Royal Dutch Shell is the highest and Carin Energy is the lowest and that of BP Global lies in between them.
Inventory Turnover
Figure 6: Showing the inventory turnover of five companies from 2010 o 2015
(Source: Royal Dutch Shell plc .com. 2016)
Comparing the trend
The inventory trend have shown changes in each successive years in the last six years. The inventory ratio in the year 2015 is 5.27 which is an increase from 4. 84 in the last year.
Comparing Trend
BP PLC
The constant increase in value indicates a strong financial condition. The graph indicates a strong financial condition of the firm.
Cairn Energy plc
The values indicate a weak financial condition of the firm. The graph represents that the ratio is nearly zero in consecutive 5 years indicating a weak financial condition.
Ophir Plc
The values indicate a high volatility within the firm. The graph indicates volatility of the firm, representing a risky financial condition of the firm.
Tullow Oil Plc
The volatility of the firm is represented from the table. The graph does not represent a positive trend, thus it can be said that the firm has a weak financial condition.
Royal Dutch Shell “A”
The table value indicates a constant increase in ratio indicating strong financial condition. The positive trend of the graph represents strong financial position of the firm.
Comparing Trend
The Mean of Inventory turnover ratio of all the companies for the latest year 2015 is 5.26. Here, the ratios of all the companies except Royal Dutch Shell are above mean. The Inventory turnover ratio of Carin Energy is the highest and Royal Dutch Shell is the lowest and that of BP Global lies in between them.
Solvency Ratios
Debt to Equity ratio
Figure 7: Showing the Debt to Equity Ratio of five companies from 2010 o 2015
(Source: Royal Dutch Shell plc .com. 2016)
Comparing the trend – The trends in the current year have shown little improvements from the past years. In the year 2015 , it is 0.976528512 as compared to the 0.767410926 in the year 2014. Thus, it can be said that there has been very little alterations in the mean trends in the last six years.
BP PLC
The table indicates value increases as debt increases compared to equity. Thus it represents weak financial condition. The graph indicates increase in ratio indicating weak financial condition of the firm.
Cairn Energy plc
The ratio decreases with time thus it indicates strong financial condition of the firm. The graph represents decrease in value indicating strong financial condition.
Ophir Plc
The table indicates sudden rise in value in 2015 indicating weak financial condition. The graph indicates a sudden increase in value in 2015, indicating weak financial condition.
Tullow Oil Plc
The constant increase in value indicates weak financial condition. The graph indicates continuous increase in value since 2013, indicating a weak financial condition.
Royal Dutch Shell “A”
The constant increase in value indicates weak financial condition. The graph indicates continuous increase in value since 2013, indicating a weak financial condition.
Comparing Trend
The Mean of debt to equity ratio of all the companies for the latest year 2015 is 0.97. The only companies Royal Dutch Shell and Tullon Oil are above mean and all other companies including BP Global are below mean. The debt to equity ratio of Tullon Oil is the highest and Carin Energy is the lowest and that of BP Global lies in between them.
Equity ratio
Figure 8: Showing the Equity Ratio of five companies from 2010 o 2015
(Source: Royal Dutch Shell plc .com. 2016)
BP PLC
The table indicates a constant ratio, indicating a strong financial condition. The constant value of graph indicates a strong financial condition.
Cairn Energy plc
The value increases with time indicating a strong financial condition. The increasing graph bars indicates a strong financial condition of the firm.
Ophir Plc
The table shows constant decrease in value indicating a weak financial condition. The graph bars indicate that the decreasing value decreases the financial strength of the firm.
Tullow Oil Plc
The decreasing value indicates the weak financial condition of the firm. The graph indicates the financial condition of the firm decreases with passage of time.
Royal Dutch Shell “A”
The constant decrease in the value indicates weak financial condition of the firm. The graph indicates the constant decrease in the value indicating a weak financial condition of the firm.
Comparing Trend
The Mean of equity ratio of all the companies for the latest year 2015 is 0.66. The only companies Royal Dutch Shell and Tullon Oil are below mean and all other companies including BP Global are above mean. The equity ratio of BP Plc is the highest and Tullon Oil is the lowest.
Chapter 5: Conclusion
Therefore, it can be concluded that the ratio calculations have helped the researcher to examine the profitability, liquidity and solvency of the firm BP Plc in comparison to its 4 major competitors. This data analysis also helped to access the efficiency of the management. This company is continuously investing their equity between the financial years 2010 to 2015 which is more stable in compare to the above-mentioned competitors. As the company is having higher growth opportunity in future period because of their constant stability and goodwill in the market.
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