Running head: ENVIRONMENTAL SCAN AND FINANCIAL ANALYSIS 1

Environmental Scan and Financial Analysis

Student’s Name

Institution
ENVIRONMENTAL SCAN AND FINANCIAL ANALYSIS 2

BP oil company

BP p.l.c. is a unified oil and gas corporation whereby it owns a gas and oil firm and has

interest in the OJSC Oil company Rosneft. The company has various segments which are

inclusive of Rosneft, Downstream, Upstream and several other corporates and businesses (BP

PLC (BP.L). Company Profile). All these segments are involved in various activities such as oil

and natural gas exploration, shipping and treasury functions and others. This paper aims at

carrying an environmental scan and financial analysis on the BP oil company.

Environmental Scan

While carrying the environmental scan, factors which act as both strengths and weakness

of the company will be assessed to understand the both the external and internal factors which

have effect on the company.

Based on the company’s current activities, it is observable that it has a strong brand,

product diversity and fits well in the global operations. These factors have been enhanced by the

fact that the more emerging markets, new oil discoveries in various companies and also

alternative forms of energy. Nevertheless, the company is being faced with a damaged

reputation, declining production and the cost of environmental hazards are continually

increasing. These threats face the company while there is strong and increased competition on it,

more regulations being enacted in the industry and unstable oil/gas prices. It is important to note

that the industry is more regulated as a result of the high risks to the environment and this has

resulted to the compliance costs going up whereas the volatility of the gas and oil prices makes it

difficult to have a long-term plan.

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Financial Analysis

Financial information source: BP Company Financials Nasdaq

Dupont identity

DuPont identity is calculated through the ROE equation given by;

Net income/sales x Sales/Assets x assets/shareholder’s equity

9,578,000,000/298,756,000,000 X298,756,000,000/282,176,000,000 x

282,176,000,000 /99,444,000,000 = 0.032 x 1.06 x 2.84 = 0.0963

Current ratio; Current assets/ current liabilities

71,310,000,000/68,237,000,000 = 1.05

Quick ratio; (Current assets – inventory)/current liabilities

(71,310,000,000 – 17,988,000,000)/68,237,000,000 = 0.78

Inventory holding period; Cost of goods sold/average inventory

252,169,000,000/17,988,000,000 = 14.02

Average collection period; Account receivables turnover/365 days or

(Net revenues/average receivables)/356

(9,578,000,000/25,497,000,000)/365 = 0.00103

Debt ratio; Total debt/total assets

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182,732,000,000/282,176,000,000 = 0.65

Dividend yield; Annual dividend/ share price

N/A

Required rate of return based on the capital asset pricing model

Risk free rate of return + beta (market rate of return – risk free rate of return)

1.1885 + 0.49*6% = 4.13

Free cash flow; Operating cash flow – capital expenditures

22,873,000,000 – 16,707,000,000 = 6,166,000,000

Market value added; Shares Outstanding x Current Share Price – Shareholder’s Equity

922,159,000 x 43.08 - 99,444,000,000 = -59,717,390.28

Economic value added; Net Operating Profit After Taxes (NOPAT) - Invested Capital *

Weighted Average Cost of Capital (WACC)

9,578,000,000 – 21,571,000,000 x 3.32/100 = 8,861,842,800

Executive Summary of The Process of Capital Budgeting

The process of capital budgeting also known is also known as the process of evaluating

the investment proposals which happens to be long term. Any individual or business is advised

to use the process with an aim of determining whether the project is worth pursuing (Rossi,

2015). While carrying out any form of capital budgeting, below are the steps;
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The first step is always to have the future expected cash flow (inflows and out flows) of a project

estimated, secondly, these cash flows are examined to verify whether the project will create any

value after deducting the all the cost expenditure. The verification is important because it is the

main step which is used to determine whether the project should be determined (Rossi, 2015).

The verification process can be seen in the case study above noting that the ratio analysis is

calculated to assess, not only the profitability of a firm but also its efficiency in carrying out

various operations. An example is the current ratio and the quick ratio which are used to assess

the capability of the firm in catering for it short term obligations. Capital budgeting helps any

investor to ensure that any project he or she will invest will result to good returns.

An Executive Summary of Cost-Volume-Profit Analysis

A cost volume analysis is considered to be an analysis of three variables which are

inclusive of volume cost and profit. The main aim of carrying out this analysis is to explore the

relationship which exist amongst revenue, cost and the activity level which mainly result to

profit. This analysis mainly measures the variation of cost when compared to profit. One of the

scenarios which has been used on the case study above to imply a cost-volume-profit analysis is

the economic value added (Said, 2016). The major aim of calculation is to establish the

economic value added to the products which the company sell as finished goods which was

possible by subtracting the cost form the net profit after deducting taxes. The major benefit of

incorporating this analysis is to enable the decision makers have a detailed snapshot of the

entities activities before making any decision (Said, 2016). They are able to make informed

decisions which pertains the products or services which the company sell. A cost volume profit
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analysis is important because it aligns the required information for any stakeholder while in the

process of making a decision.

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References

BP PLC (BP.L). Company Profile form Reuters. Derived on 5/2/2019 from

https://www.reuters.com/finance/stocks/company-profile/BP.L

BP Company Financials. Company’s financial statement from Nasdq. Retrieved on 5/2/2019

from https://www.nasdaq.com/symbol/bp/financials?query=income-statement

Rossi, M. (2015). The use of capital budgeting techniques: an outlook from Italy. International

Journal of Management Practice, 8(1), 43-56.

Said, H. A. (2016). Using Different Probability Distributions for Managerial Accounting

Technique: The Cost-Volume-Profit Analysis. Journal of Business and Accounting, 9(1),

3.