Financial Performance Analysis of

British Petroleum (BP) & Royal Dutch Shell

Financial Management and Entrepreneurship

MBA 1 (Group – B)

Name : Indika Asoka Dissanayake

ID : 0016DKEDKE1018

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Table of Contents Page
1. Introduction............................................................................................................................. 3
1.1. Company Overview ......................................................................................................... 3
1.2. Market Share ................................................................................................................... 3
1.3. Competitors ..................................................................................................................... 4
2. Comparison of Financial Performance ................................................................................... 5
2.1. Revenue ........................................................................................................................... 5
2.2. Net Income ...................................................................................................................... 5
2.3. Current Ratio ................................................................................................................... 6
2.4. Quick Ratio...................................................................................................................... 6
2.5. Working Capital .............................................................................................................. 7
2.6. Debt / Equity Ratio .......................................................................................................... 7
2.7. Gross Profit Margin ......................................................................................................... 8
2.8. Net Profit Margin ............................................................................................................ 9
2.9. Return on Equity ............................................................................................................. 9
2.9.1 Reasons for Low return on Equity ...................................................................... 10
2.9.2 How to Increase Return on Equity ...................................................................... 10
2.10 Return on Total Assets ................................................................................................... 10
3 References ............................................................................................................................ 11
4 Appendix .............................................................................................................................. 12

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 1. Introduction
This report provides information obtained from annual reports through ratio analysis, regarding the
profitability, liquidity and financial stability of British Petroleum Limited (BP) years 2014-2018.
This report will pay particular attention to the market capital, liquidity and credit management,
management and debt management, and will highlight major strengths and weaknesses while
offering some explanation for observed changes. The report will comment on the prospects of the
company and make recommendations that would improve British Petroleum Limited’s (BP) current
performance. These observations do have limitations which will be noted.
1.1. Company Overview
British petroleum is one of the world’s largest energy companies, providing its customers with fuel
for transportation, energy for heat and light, retail services and petrochemical products for everyday
items (BP at a Glance2010). BP is the world’s second biggest oil firm by market value. BP had
grown to become a global energy company
BP is the world's eighth-largest company by revenue.

1.2. Market Share

Below chart indicates that BP Market capitalisation from 2014 to 2018

BP operates in more than 80 countries and it explores oil and gas in more than 25 countries. It has
85,900 employees around the world and it produces over 3 million barrels of oil equivalent a day.
It possesses 20,700 retail sites and has proved reserves of 17,000 million barrels of oil equivalent.
The largest division of the company is BP America, headquartered in Houston, Texas which is the
second largest oil and gas producer in the U.S.A.

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1.3 Competitors

“ConocoPhillips is a top competitor of BP. ConocoPhillips is a Public company that was founded
in 1875 in Houston, Texas. ConocoPhillips operates in the Oil & Gas Exploration & Production
industry. Compared to BP, ConocoPhillips has 60,700 fewer employees. “

“Anadarko is seen as one of BP's biggest rivals. Anadarko was founded in 1959, and is
headquartered in The Woodlands, Texas. Anadarko is in the Oil & Gas Exploration & Production
industry. Anadarko generates $282.2B less revenue vs. BP.”

“Shell is seen as one of BP's top competitors. Shell was founded in The Hague, Zuid-Holland in
1907. Shell competes in the Oil & Gas Refining & Marketing industry. Compared to BP, Shell
generates $101B more revenue.” (www.owler.com – 2019)

Revenue (USD Market Capital

Company Name Employees
Billion) (USD Billion)
British Petroleum 74,000 295.50 150.505
ConocoPhillips 13,300 38.70 72.87
Anadarko 4,700 13.40 35.94
Shell 84,000 396.60 277.142

According to the above limited information, can be identified Royal Dutch Shell as a main
competitor of the BP,

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 2. Comparison of Financial Performance

2.1 Revenue

Revenue (USD Million) - British Revenue (USD Million) - Royal

Petroleum Dutch Shell
400000 500000
358678
431344
300000 303738 400000 396556
225982 244582 300000 311870
200000 272156
186606 240033
200000
100000 100000
0 0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Revenue is the income gererathed from slaes of goods or services, This is total business turnover
with out deducting any expenses or costs
After comparing revenues of both the companies, can be identified year wise revenuues are higher
BPs competitor Shell, moreover there is sharp decline of revenues in 2015 – 2016 period in both
companies

2.2 Net Income

Net income calculates as below
Net Income = Total Revenue - Total Expenses

Net Income (USD Million) - British Net Income (USD Million) - Royal
Petroleum Dutch Shell
10000 25000
9382 23352
8000 20000
6000 6484 15000 14874
12977
4000 3778 10000
3388
2000 5000 4575
1939
0 114 0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Above graphs indicates that net income of Royal Dutch Shell Company always higher than BP, and BP
records their lowest net income in year 2014 (114m USD) and Shell records their lowest net income
between reporting period at 2015 (1939m USD)

“Between mid-2014 and early 2016, the global economy faced one of the largest oil price
declines in modern history. The 70 percent price drop during that period was one of the three
biggest declines since World War II” (www.worldbank.org)

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 2.3 Current Ratio

Current Ratio - British Petroleum Current Ratio - Royal Dutch Shell

2.00 1.30
1.50 1.44 1.20 1.21 1.20
1.40 1.29 1.19 1.13 1.13 1.15
1.00 1.10
1.03
0.50 1.00
0.00 0.90
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Current ratio is a liquidity and efficiency ratio that measures company ability to pay its short
term liabilities with current assets. Current assets like cash, cash equivalents, and marketable
securities can easily be turned into cash in the short term.
Current Ratio = Current Assets
Current Liabilities

A higher current ratio is always positive for company than a lower current ratio because it shows
the company can more easily make current debt payments.
According to the above charts that shows both BP and Shell current ratios are not significantly
higher. But Shell position is little better than BP

2.4 Quick Ratio

Quick Ratio - British Petroleum Quick Ratio - Royal Dutch Shell

1.20 0.95
1.13
1.00 1.01 1.02 0.92
0.89 0.90 0.90 0.90
0.80 0.81
0.60 0.85
0.40 0.82 0.81
0.80
0.20
0.00 0.75
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Quick ratio or Acid Ratio measures of ability of a company to pay its current liabilities, Cash,
cash equivalents, short-term investments or marketable securities, and current accounts
receivable are considered quick assets.
Quick Ratio (Acid Ratio) = Cash + cash equivalents +marketable securities + Receivable
Current Liabilities
Higher quick ratio is favourable for company because it shows there are more quick assets than
current liabilities, quick ratio 1 indicates that company

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 As per above two charts shows that BP quick ratio getting lower and lower from 2015 – 2018,
this can be happens because of BP sales are decreasing, However Shell increasing its Quick ratio
over past three years from 2016 – 2018

2.5 Working Capital

“Working Capital can be positive or negative, depending on how much of current debt the
company is carrying on its balance sheet. In general terms, companies that have a lot of working
capital will experience more growth in the near future since they can expand and improve their
operations using existing resources. On the other hand, companies with small or negative
working capital may lack the funds necessary for growth or future operation. Working Capital
also shows if the company has sufficient liquid resources to satisfy short-term liabilities and
operational expenses.” (www.macroaxis.com)

Working Capital (US$ Million) - Working Capital (US$ Million) -

British Petroleum Royal Dutch Shell
30000 23647 30000
22410
19669
20000 15878 20000 15637
13566 12744
9459 10242
10000 3073 10000
0 0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Comparison of both BP & Shell indicates that BP Working capital shows negative trend, that
may significantly affected to future growth of BP. Even it will be create troubles in future
company operations.
However Shell company working capital showing growth trend since year 2016, and it is helping
company to expand their business, researches can be avoided financial risks
Finally, Shell Company is in better position than BP

2.6 Debt / Equity Ratio

The debt to equity ratio shows the percentage of company financing that comes from creditors
and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans)
is used than investor financing (shareholders).

Debit Equity Ratio - British Petroleum Debit Equity Ratio - Royal Dutch
0.60 Shell
0.55 0.56
0.50 0.51 0.60
0.44
0.40
0.34 0.40 0.43
0.30 0.37 0.37
0.20 0.23
0.20 0.21
0.10
0.00 0.00
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

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 Debit to Equity Ratio = Total Liabilities
Total Equity
British Petroleum equity ratio shows growth trend that indicates company relying on bank loans
and increasing financial risks over last five years
Comparing with BP, Shell operating their business well, shows that equity ratio showing
negative trend over last two years (2017 – 2018)
Conclusion is Shell is more preferable for investors

2.7 Gross Profit Margin

The gross profit is important because it shows management and investors how profitable the
core business activities are without taking into consideration the indirect costs. In other words,
it shows how efficiently a company can produce and sell its products. Higher
Profit margin can be defined as the percentage of revenue that a company retains as income after
the deduction of expenses.

Gross Profit Margin (%) - British Gross Profit Margin (%) - Royal
Petroleum Dutch Shell
4.00 40.00
3.09
2.00 19.97 18.90
1.39 15.58 16.40 15.40
1.05 20.00
0.00 0.06
2014 2015 2016 2017 2018
-2.00 0.00
-2.87
-4.00 2014 2015 2016 2017 2018

Charts indicates that, BP struggling to make profits from their operations, even records negative
percentage in year 2015 after that hardly growing percentage over years but still unable to
increase it significantly, there is possible reasons for that such as
I. Lower prices in the market
II. Strong Competition
III. Industry Changes
In the other hand Shell maintain positive trend even Shell profit margins significantly higher
than BP, possible reasons for that would be
I. Revenue Increases
II. Expense decreases
Finally in investor point of view Royal Dutch Shell in good position at the market

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 2.8 Net Profit Margin
Net profit margin can be defined as net Income as a portion of total sales revenue.

Net Profit Margin (%) - British Net Profit Margin (%) - Royal Dutch
Petroleum Shell
5.00 6.00
2.65 4.65
4.00 3.81
1.05 1.71 2.89
0.89 2.78
0.00 2.00
2014 2015 2016 2017 2018
0.00
-4.63 2014 2015 2016-0.79 2017 2018
-5.00 -2.00

A higher margin is always better than a lower margin because it means that the company is able
to translate more of its sales into profits at the end of the period.
In terms of Net Profit Margin still Shell Company is better than BP, however both companies
shows decline in year 2016
Shell Company able to convert more of its sales to profit, reasons probably
 Higher sales volume
 Approaching various type of markets
 They are producing unique products and therefore pricing is high
 Their sales costs are comparatively less than sales volume

2.9 Return on Equity

“Return on equity can be defined as the amount of net income returned as a percentage of
shareholders equity. Return on equity measures a corporation's profitability by revealing how
much profit a company generates with the money shareholders have invested.”

Return on Equity - British Petroleum Return on Equity - Royal Dutch Shell

10.00 10.00
7.75
5.00 8.00 8.35
4.40 7.73
7.03
2.36 2.24 6.00
0.00
2014 2015 2016 2017 2018 4.00 4.00
-5.00
2.00
-10.00 -9.53 0.00
-2.00 2014 2015 2016-1.14 2017 2018
-15.00

According to these two charts shows that BP shareholders getting less equity than Shell,
however both companies recorded negative ROE in year 2016.
2.9.1 Reasons for Low Return on Equity
I. Revenue and profits are low and company face a tough time growing the
business.
II. Business is not very efficient in generating profit

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 2.9.2 How to Increase return on Equity
I. Increasing Net Profit Margin
II. Improve Asset Turnover
III. Manage Idle Cash

2.10 Return on Total Assets

Return on assets can be defined as an indicator of how profitable a company is relative to its
total assets. Calculated by dividing a company's operating earnings by its total assets.

Return on Total Assests (%) - British Return on Total Assests (%) - Royal
Petroleum Dutch Shell
4.00 6.00
3.28
2.00 1.62 4.00 4.15 3.74
0.96 3.57
0.81
0.00 2.00 1.84
2014 2015 2016 2017 2018
-2.00 0.00
-0.55
-3.58 2014 2015 2016 2017 2018
-4.00 -2.00

ROA of Shell is better than BP, and even higher than BP, however both companies registered
negative ROA on year 2016.
As a conclusion Shell performance is better than BP

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 References
1. H., C., 2008. Financial Reporting and Analysis. South-Western Pub.
2. A., G., 2015. Financial Accounting: The Impact On Decision Makers. Cengage Learning.
3. Robert, L., Ratios made simple: a beginner's guide to the key financial ratios. Harriman
House,.
4. Troy, L., 1995. Almanac of Business and Industrial Financial Ratios. NYIF
5. Agtarap-San, D., 2007. Fundamentals of Accounting: Basic accounting principles
simplified for accounting Students. AUTHORHOUSE, United States.

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 Appendix
Table - 01

British Petroleum - Financial Figures

Description 2014 2015 2016 2017 2018

Revenue (USD Million) 358678 225982 186606 244582 303738

Net Income (USD Million) 3778 6484 114 3388 9382
Earnings Per Share (US $) 5.60 3.12 1.16 0.60 4.72
Quick Ratio 1.01 1.13 1.02 0.89 0.81
Current Ratio 1.40 1.44 1.29 1.19 1.13
Debit / Equity Ratio 0.34 0.44 0.51 0.55 0.56
Profitability
Gross Profit Margin (%) 1.05 -2.87 0.06 1.39 3.09
Net Profit Margin (%) 13.17 13.16 9.35 13.88 15.93
Return on Equity 7.75 2.36 -9.53 2.24 4.40
Return on Total assets (%) 3.28 0.96 -3.58 0.81 1.62
Return on Investment (%) 5.89 1.70 -6.47 1.45 2.83
Total Current Assets (US$ Million) 87262 70602 67813 74968 71310
Total Current Liabilities (US$ Million) 63615 54724 58354 64726 68237
Working Capital (US$ Million) 23647 15878 9459 10242 3073

Table - 02

Royal Dutch Shell - Financial Figures

Description 2014 2015 2016 2017 2018

Revenue (USD Million) 431344 272156 240033 311870 396556

Net Income (USD Million) 14874 1939 4575 12977 23352
Earnings Per Share (US $) 4.72 0.60 1.16 3.12 5.60
Quick Ratio 0.82 0.90 0.81 0.92 0.90
Current Ratio 1.13 1.15 1.03 1.21 1.20
Debit / Equity Ratio 0.23 0.21 0.37 0.43 0.37
Profitability
Gross Profit Margin (%) 15.58 16.40 15.40 19.97 18.90
Net Profit Margin (%) 2.78 3.81 -0.79 2.89 4.65

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 Return on Equity 7.03 8.35 -1.14 4.00 7.73
Return on Total assets (%) 3.57 4.15 -0.55 1.84 3.74
Return on Investment (%) 5.91 6.89 -0.87 2.79 5.57
Total Current Assets (US$ Million) 99778 93358 86569 95404 97482
Total Current Liabilities (US$ Million) 86212 70948 73825 79767 77813
Working Capital (US$ Million) 13566 22410 12744 15637 19669

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