The paper 'BP Company Financial Analysis" is a good example of a finance and accounting case study. BP is a public limited company which was founded in 1908 as Anglo-Persian Oil Co. It has its registered office in London England and operates in the oil and gas industry and has a worldwide operation. The company main products are petroleum and natural gas. The company produces around 3.2 million barrels per day with an equivalent reserve of 17.9 billion barrels. The company has a total asset value of US$ 305.690 billion and total equity value of US$130.407 billion.
BP PLC recent financial statements recorded a revenue of US$ 396.217 billion with an operating income of US$ 31.769 billion with US$ 23.758 billion attributable to ordinary shareholders. The company reported a net cash flow of US$ 22.52 billion. Profitability Ratios Profitability ratios refer to financial ratios utilized to evaluate the company’ s effectiveness in making use of the invested assets to generate earnings over the financial periods. The higher values of the company’ s reported profitability ratio indicate that the business is advancing and worth of investment. The BP Company profitability ratios are discussed under profit margin, return on equity as well as return on assets. Profit margin ratio Profit margin ratio is a profitability ratio describing the company’ s effectiveness in making use of its investments to generate earnings which are relative to the sales.
Profit margin ratio unveils the company’ s financial ability to gather for its operating expenses as well as generating surplus earning from sales of goods and services. The higher the company’ s profit margin indicates the viability of the company in converting its sales into actual earnings. Net profit margin = Profit Margin Ratio Years in US$ Millions Year 2013 2012 2011 2010 EBIT 31,769 19,769 39,815 -3,702 Sales 379,136 375765 375,517 297,107 Profit Margin Ratio 8% 5% 11% -1% BP’ s company profit margin ratio indicates a growing trend in the company ability to generate earnings attributable to the shareholders through sales.
The companies reveal an increasing trend from -1% in the financial year 2010 while an increase to 11% in the subsequent year 2011. Subsequently, BP’ s company profitability margin decrease towards 2012 to 5% while an increase in 2013 to 8%. This shows that company management has enhanced quality control initiatives to enhance profitability. Return on Assets The return on assets refers to profitability ratio indicating the company’ s ability to effectively use the invested assets in generating earnings attributable to the company’ s shareholders.
Return on assets is the main company’ s profitability index which describes in detail the number of company’ s earnings in each dollar of the assets invested. The higher the company’ s return on assets describes management efficiently utilizing company assets to generate earnings. X Return on Assets Ratio Amounts in US$ Millions Year's 2013 2012 2011 2010 EBIT 31,769 19,769 39,815 -3,702 Total Assets 305,690 300,466 293,068 272,262 Return on Assets Ratio 10.39% 6.58% 13.59% -1.36% BP Company’ s return on assets ratio reveals a fluctuating trend wherein financial year 2012 leads with 13.59%.
The company’ s profitability increases from -1.36% to 13.59% in the year 2011 while decreases to 6.58% towards 2012. In 2013 the company’ s reveals that management facilitates control of its assets to enhance profitability. However, this describes that management needs to enhance managerial control on the assets to promote profitability. Efficiency Ratios BP Company’ s efficiency ratios refer to the financial ratios utilizes in measuring the adeptness and effectiveness of the company in proficiently making use of the internal assets and mitigating the financial liabilities to increase its financial health. The efficiency ratios unveil the management initiatives of the company in enhancing advance competence in complying with the predetermine measures in enhancing the company’ s operational incentives over the financial period.
BP Company efficiency ratios include asset turnover and the day’ s inventory turnover.
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