Financial Ratio Analysis On Company Performance Commerce Essay

Financial Ratio Analysis On ac familiarity executing Commerce EssayCritically evaluating the fiscal analysis typeset of the two major UK based Companies BP plc and Royal Dutch oppress plc by calculating the ratios which seems to be an appropriate to bring- step forward the performance and the strategical financial focal point of the companies.BP PLC AT GlanceBP is one of the globes largest energy companies, providing its customers with fuel for transportation, energy for erupt and light, retail services and petrochemicals products for everyday items with Core BP Brands argonCastrolArcoAralAm PmWild bean cafStarting in 1908 with oil found in a rugged part of Persia after a long and delicate search. Still commencing its development in this 21st century with the semipermanent bears in Russia, the Gulf of Mexico, North America, Azerbaijan, Indonesia were it has a lot of oil and gas in the proverbial pipelines. The BP group operates across six continents, were products and ser vices ar on tap(predicate) in more(prenominal) than blow countries with 80,300 employees (at 31st Dec two hundred9).the sales and former(a) operating revenues comes to $239 one million million (2009).the emergence of service stations expanding to 22,400 with an active geographic expedition and production in 30countries. whip PLC at GlanceThe parent lodge of the casing group is Royal Dutch lecture plc, which is incorporated in England and Wales. Shell is a globular group of energy and petrochemical companies and headquarters are in The Hague, the canherlands, were Chief Executive Officer is Peter Voser.Its aim is to run the energy needs of society, in ways that are economically, socially and environmentally viable, now and in the future. The brand oils areShell chuck out -Shell Advance oils unique performance package is dedicated to bikes and bikers, backed by divisions of know-how and expertise in lubricants and biking experience.Shell Donax -Shell Donax Heavy Duty Transmission fluids. defend the fleet and reducing the maintenance courts.Shell HelixHYPERLINK javascriptvoid()-Shell Helix motor oil contains active cleansing agents that continuously clean and protect the engine, allowing it to operate at its full potential.Shell Retinax -The superior performance of Shell Retinax greases is recognised by many of the worlds conduct truck manufacturers, many choosing Retinax as their factory-fill grease of setoff choice.Shell Rimula -Shell Rimula is one of the worlds sinking brands of heavy duty diesel engine oils with top quartile brand preference in many of the markets in which they operate.Shell Rotella -Shell Rotella portfolio includes heavy duty diesel engine oils, coolants, multi grade oils, designed to stick out excellent performance for vehicles, farm implements and construction equipment.Shell Spirax -Shell Spirax is a leading brand of transmission and gear fluids.Shell Plc operates in above 90countries with 101,000 number of employ ees on sale of 145 billion litres of fuel. It produces 2% of worlds oil and 3% of worlds gas containing of 44,000 thousand shell service stations and above 35 refineries and chemical plants all over the world.What Is PIMS?Profit Impact of Marketing schema (PIMS) is a data base of the market profiles and affair settlements of major American and European companies developed with intention of providing empirical evidence of which business strategies lead to success with in particular industries. Data from the study is used to ruse strategies in strategic management and marketing strategy. The study identified some(prenominal) strategic variables that typically influence net incomeability. Some of the most important strategic variables studied wereMarket luckProduct qualityInvestment earnestnessService qualityThe PIMS project was started by Sidney Schoeffler working at GE in the 1960s, then picked up by Harvards Management Science impart in the early 1970s, and has been adminis tered by the American Strategic Planning base since 1975. It was initiated by senior managers at GE who wanted to know wherefore some of their business units were more profi dodge than others. With the help of Sidney Schoeffler they set up a research project in which from distributively one of their strategic business units reported their performance on dozens of variables. This was then expanded to extraneous companies in the early 1970s. The survey, between 1970 and 1983, involved 3,000 strategic business units (SBU), from 200 companies. Each SBU gave information on the market, within which they operated, the products they had brought to market and the efficiency of the strategies they had implemented. (http//www.economicexpert.com).The PIMS project analysed the data they had gathered to identify the options, problems, resources and opportunities faced by each SBU. accord to Tellis and Golder (1996) claim that PIMS defined markets too narrowly. Respondents described their ma rket very narrowly to give the appearance of high market share. This self reporting parti pris makes the conclusions suspect. They are also concerned that no defunct companies were included, leading to endurance markets. (http//www.economicexpert.com).PIMS Between BP PLC and SHELL PLCBP operates at the frontiers of the energy industry wit world class assets, technology, and capability it knew how to meet the energy needs and deliver the long- full term value. BP stays ahead of Shell in restructuring the efforts were the energy management sop up acknowledged more work is required and is to cut get along 5,000 jobs globally in an effort of re-align the business to better meet the operational challenges into the global economic recovery.Shells third quarter 2009 earnings, on a current cost of supplies basis were $2.99 billon compared to $10.9 billion a year ago were the CCS earnings per share decreased by 72%in the same quarter and the funds flow operating activities also call on the carpetd 42% from $12.6 billion (2009) to $7.35 billion (2008).When it comes to BP the profit fell to $4.98 billion compared to $10.03 billion an year earlier utilise the industry standard replacement cot profit calculation. The firm decrease the headcount by 3000 last year and is set to cut some other 5,000 jobs by the end of 2009.Despite shells good operating performance in this difficult environment it is embarked on an ambitious programme of stringent measures to further improvement of performance .BP shares the remain favoured relative to shell for most sully and holds investors requiring the exposure to the firms relative progress in 2009 to maintain a trend. (http//seekingalpha.com).Performance P/L Sheet of BP PLC and SHELL PLC for the years 2009-08.TransactionsBPShell2009200820092008Revenue239272361143278188458361Purchases163772266982203075359587 uncouth profit75500941617511398774Production and manufacturing expenses26954357092530125565Selling and administrative expe nses140382734411855518136 depreciation and amortization12106109851445813656Exploration expenses111688221781995Net Interest and other income5140262095694112579Finance cost13029565421181Profit/ outrage onwards tax25124342832102050820Taxation836512617830224344Profit/ deprivation after tax for financial year16759216661271826476Fair Calculations of ratios are as followsCalculation of Selected Ratios for Companies PerformanceUsing the financial information of the companies the few selected ratios are calculated and explained as follows 1)(ROCE) Return On Capital Employed = come with2009 YR2008 YRBP1522.35SHELL10.4829.67BP 2009= 15BP 2008 = 22.35Shell 2009=0.48Shell 2008=29.67Gross profit adjustment ratio tells the profit a company makes on its cost of sales or cost of goods sold. Here, BP shows an approx 7% beam in 2009 when compared to 2008. Shell shows a fall of 18% in 2009 which more compared to 2008.2) Gross Profit Margin = go with2009 YR2008 YRBP31.5526.07SHELL2721.55BP 2009 = 31. 55Bp 2008= 26.07Shell 2009 = 27Shell 2008= 21.55Gross profit margin ratio tells the profit a company makes on its cost of sales or cost of goods sold. Both the companies BP and Shell had show a result of 5.50% goods sold during 2009 which is quite better than the 2008.3) Mark up =Company2009 YR2008 YRBP46.1035.27SHELL36.9927.47BP 2009=46.10BP 2008= 35.27Shell 2009= 36.99Shell 2008= 27.47Mark-up is the amount, or percentage, a bargainer adds to the cost price of goods, in order to achieve a profit. The mark-up is the profit percentage based on the cost of goods sold. Both the companies have showed an cast up of 10% mark up price in 2009 than the previous year 2008.4) Current ration =Company2009 YR2008 YRBP1.1410.951SHELL1.1411.101BP 2009= 1.141Bp 2008= 0.951Shell 2009=1.141Shell 2008=1.101Measuring the both companys efficiency and short-term liabilities gives out the current ratio of working capital. In the year 2009 BP and SHELL shows an represent ratio of efficiency than the yea r 2008.5) ACID TEST RATIO =Company2009 YR2008 YRBP0.7610.171SHELL0.8110.921BP 2009 = 0.761BP 2008= 0.171SHELL 2009 = 0.811SHELL 2008 =0.921 pronto or liquidity ratio is also know to be dose test ratio. Working out with the current assets minus stock carve up by current liabilities gives the value of the companys liquidity. This tells whether company have short term assets to cover the immediate liabilities without selling inventory. BP had given a quick raise of 0.601 between 2008-09 than the SHELL.Analytical Methods SuitableHorizontal Analysis The analyzing of financial information for two or more years for a mavin company it is know as horizontal analysis. When comparing the amount in dollars computing percentage changes from year to year for all financial recital eternal sleeps, such as cash and inventory. Trend analysis involves calculating each years financial statement balances as percentages of the first year known as the base year. For example the below horizontal anal ysis table of the two companies are -Horizontal Analysis 2009/2008 (%)BPShellRevenue-33.75-39.31Purchases-38.66-43.53Gross profit-19.82-23.95Production and manufacturing expenses-24.52-1.03Selling, and administrative expenses-94.872.31 wear and tear and amortization10.205.87Exploration expenses26.539.17Net Interest and other income-98.04-44.82Finance be36.19-54.11Profit/loss before tax-26.72-58.64Taxation-33.70-65.90Profit/loss after tax for financial year-22.65-51.96Vertical Analysis The term vertical analysis applies because each years figures are listed vertically on a financial statement. The contribute on the income statement is net sales revenue, while on the balance sheet it is total assets. This approach to financial statement analysis, also known as component percentages. Common-size balance sheets and income statements can be more intimately compared, whether across the years for a single company or variant companies.Vertical Analysis 2009/2008 (%)BPShell2009200820092 008Revenue100100100100Purchases68.4573.9373.0078.45Gross profit31.5526.0727.0021.55Production and manufacturing expenses11.279.899.095.58Selling and administrative expenses5.8775.726.673.96Depreciation and amortization5.063.045.202.98Exploration expenses0.470.240.780.44Net Interest and other income2.1572.572.502.74Finance costs0.540.260.190.26Profit/loss before tax10.509.497.5611.09Taxation3.503.492.985.31Profit/loss after tax for financial year7.006.004.575.78http//www.economicexpert.com/a/Profit bear onofmarketingstrategy.htmlhttp//seekingalpha.com/article/170391-bp-stays-one-step-ahead-of-shell-in-restructuring-efforts