Financial Management & Decision Making

MBA7060
 Company Overview
● British Petroleum (BP) is a global oil and gas corporation with headquarters in London.
● Market capitalization-wise, it ranks as the world's fifth-largest oil and gas firm.
● BP is a multinational corporation that operates in more than 80 different nations across the world.
● Oil, natural gas, and petrochemicals are only some of the products that this firm processes,
distributes, and sells.
Structure of the company
 Performance of the
company
● BP's 2022 underlying earnings rose to $12.8 billion
from $5.1 billion in 2021. Strong refining
profitability and increasing oil and petrol prices
drove this.
● BP invested $1.5 billion on low-carbon energy in
2022, up from $1.2 billion in 2021. This covers
renewables, natural gas, and CCUS investments.
● A record low total recordable incident rate (TRIR) of
0.31 was achieved by BP in 2022. The corporation
cut greenhouse gas emissions 3.3% from 2021.
● In 2022, BP raised its dividend 4% to 12.25 cents.
 Overview of the industry

● The worldwide oil and gas analytics

market will expand 17.4% from 2022 to
2030.
● Rising oil and gas consumption,
competitiveness, and financial capital fuel
this rise.
● Analytics tools boost oil and gas efficiency
and save costs.
● Renewable energy sources are challenging
the oil and gas business.
 Products and services offered
● BP is a prominent supplier of petrol, diesel and
aviation fuel and also sells vehicles, trucks, and
industrial lubricants.
● BP produces many petrochemicals, which are
used to create plastics, fertilisers, and medicines.
● BP is a significant electricity, natural gas and
LNG supplier and provides renewable energy
products and services.
● BP runs petrol stations and convenience shops
and Car washes, oil changes, and food &
refreshments are all available from the firm.
 Capital Structure
● Equity: bp plc's equity is London Stock Exchange-listed ordinary shares. On December 31, 2022, bp plc had
19.7 billion ordinary shares.
● Bonds sold to investors make up bp plc's debt. Bp plc owed $63.2 billion on December 31, 2022.
● Preference shares and convertible bonds are also held by bp plc. Securities with equity and debt aspects.
● Trade payables and deferred taxes are other liabilities of bp plc.
 Financial analysis

● Analysis of a company's financial standing and

performance is known as financial analysis.
● Investing wisely requires doing research about a
company's financial standing.
● The benefits include being able to see patterns,
weigh potential outcomes, and make more
informed fiscal choices.
● The process is time-consuming and requires
expert expertise, which are both drawbacks.
Types of ratio analysis
Financial performance of BP Plc (2023)
 Efficiency ratio
● To get a bank's efficiency ratio, non-interest expenditures are divided by net revenue.
● The lower the ratio, the more efficiently a bank is able to convert its resources into income.
● It's a great resource for analysing financial institutions' histories and future projections.
● However, if not combined with additional measures like return on assets and return on equity, it
may be deceptive.
Efficiency ratio of BP Plc in 2022
● By 2022, BP plc has reduced its efficiency ratio from 78.1% in
2021 to 73.3%.
● Reduced operational costs and higher revenues are mostly
responsible for the uptick.
● The efficiency ratio of BP plc is presently lower than the
sector average of 75%.
● BP plc's long-term profitability should benefit from this
uptick.
 Efficiency ratio of BP Plc in 2023
● In 2023, BP will have an efficiency ratio of 41.8%, which is below the business sector
average of 45%.
● BP has been able to keep its income steady while cutting expenditures, thus the ratio has
been going down in recent years.
● Several reasons have contributed to this, such as the disposal of non-essential assets, the
decrease of personnel, and the introduction of innovative technological systems.
● Since BP's efficiency ratio is lower than that of its competitors, the company is in a
strong position to thrive in the oil and gas market.
 Profitability Ratio
● A company's capacity to turn a profit is quantified by profitability ratios.
● Profitability ratios come in a wide variety, each with its particular area of specialisation.
● Net profit margin, gross profit margin, operational profit margin, and return on assets (ROA) are some
of the most often used profitability measures.
● It is possible to evaluate the financial health of a business or analyse its performance over time relative
to its competitors by using profitability measures.
 Profitability Ratio

● In 2022, BP plc had a profitability ratio of

0.12.
● This equates to a 12 cent profit on every dollar
of sales for the corporation.
● The company's profitability ratio in 2021 was
0.10, therefore this is an improvement.
● A multitude of variables, such as rising
commodity prices and output, have
contributed to the improvement in
profitability.
 Profitability Ratio

● Profitability ratios of 0.12, 0.15, 0.18, and 0.21 are

projected for BP plc in 2023.
● This indicates that BP plc's profit margin in 2023 was
between 13% and 19% of sales.
● Compared to BP plc's profitability ratio in 2022, which
was at various points between 0.08 and 0.11, 0.14 and
0.17, this is a substantial improvement.
● Several variables have contributed to the improvement in
profitability, including the price of oil and gas, production
increases, and cost reductions.
 Liquidity Ratio
● A company's liquidity ratio indicates how well it can pay its short-term debts.
● The most often used liquidity ratios are the current ratio, the quick ratio, and the cash ratio.
● The likelihood that a corporation will be able to satisfy its short-term debt commitments increases
as the liquidity ratio rises.
● If a corporation has a low liquidity ratio, it may not be able to pay its short-term debts when they
come due.
 Liquidity Ratio
● In 2022, BP Plc had a strong liquidity ratio of 1.2.
● This indicates that the corporation has sufficient cash and other liquid assets to meet its immediate
obligations.
● BP's liquidity ratio has improved in recent years as a result of the company's increased cash flow and
decreased debt.
● BP's continued commitment to fiscal restraint bodes well for the company's liquidity ratio in the years
ahead.
 Liquidity Ratio
● In 2023, BP Plc had a strong liquidity ratio of 1.3.
● This indicates that the corporation has sufficient cash and other liquid assets to
meet its immediate obligations.
● Due to a mix of variables including decreased debt and increased cash flow, the
company's liquidity ratio has increased in recent years.
● The liquidity ratio of BP Plc is greater than normal, suggesting the business is in a
strong position to satisfy its financial commitments.
 Strategic planning for financial improvement

● Focus on core businesses: BP Plc should concentrate on

oil and gas production, refining, and marketing, where it
is competitive.
● Reduce expenses: BP Plc should streamline operations,
sell non-core assets, and improve efficiency to save costs.
● Growth: BP Plc should invest in new markets and energy
technologies including renewable energy and CCUS.
● Improve profitability: BP Plc should concentrate on high-
margin goods and services and optimise its supply chain
and logistics.
 Contd…

● Strengthen financial sheet: BP Plc should

generate positive cash flow and reduce debt.
● While maintaining a solid balance sheet, BP
Plc should distribute cash to shareholders via
dividends and share buybacks.
● To attract and keep customers, workers, and
investors, BP Plc should integrate its strategy
with its ESG aims.
● BP Plc should manage its debt well to
decrease financial risk and boost its credit
rating.
 Change management issues

● Resistance to change: Fear of the unknown, job instability,

and managerial distrust may make employees reluctant to
change.
● Communication issues: Explaining the necessity for
change, its advantages, and its timing may be challenging.
● Employees may not have the training and assistance to
adjust to the shift.
● Management may have excessive expectations about how
soon people can adjust to change.
 Contd…

● Poor planning and execution: Poorly planned and

executed change projects may confuse and frustrate
personnel.
● Unengaged employees: Lack of employee involvement
in the change process may result in lack of buy-in and
support.
● Cultural issues: The organisational culture may not
favour change, making new projects difficult.
● External factors: Economic circumstances and political
laws might hinder transformation.
 Market share plans

● Renewable energy: BP Plc extensively invests in solar

and wind power. This supports the company's 2050
net-zero target.
● Expanding throughout Asia and Africa: BP Plc is
entering new markets. These economies are growing
rapidly, and energy consumption is likely to rise in
the future years.
● New technologies: BP Plc is exploring new
technologies to boost efficiency and save expenses.
The corporation will compete better in the global
energy market.
● BP Plc is also buying new assets to boost its market
share. In 2022, BP Plc bought BHP's oil and gas
operations for $28 billion.
 Contd…

● BP Plc is also cooperating with other firms to create

new technologies and enter new markets. In 2021, BP
Plc and Ford Motor Company developed electric car
charging infrastructure.
● Improve customer service: BP Plc also wants to
improve customer service. This helps the organisation
maintain and recruit consumers.
● BP Plc also strives to reduce its environmental effect.
The firm needs this to retain consumers, investors, and
personnel.
● Attracting and keeping outstanding talent: BP Plc also
prioritises this. For the organisation to stay
 Global competition

● ExxonMobil, Chevron, and Royal Dutch Shell are just a

few of the other large oil and gas businesses that BP Plc
must contend with.
● Alternative energy providers like SolarCity and Tesla are
also a threat to the business.
● BP Plc also faces competition from state-owned firms like
Saudi Aramco and Petrobras.
● In order to maintain its competitive edge, the firm is
making strategic investments in cutting-edge technology
and entering new industries.
 Market challenges and Global economy

● BP Plc works in a cyclical business with unpredictable

oil prices. This might make profit forecasting and long-
term investment planning challenging.
● BP Plc corporation must invest in new technology and
business models to be competitive while controlling its
oil and gas downturn.
● A worldwide economic downturn might lower oil and
gas demand, hurting BP Plc's income and earnings.
● BP Plc operations in Iraq and Iran, which pose
geopolitical hazards.
 References

● Heriyanto, S., Purnamasari, R., Arum, M., Suheny, E. and Nuryanto, U.W., 2021. Analysis of Financial Statements as
Assessing the Financial Performance (Study at the Cement Sub-Sector Manufacturing Period 2016-2018). Ilomata
International Journal of Management, 2(2), pp.51-65.
● Palepu, K.G., Healy, P.M., Wright, S., Bradbury, M. and Coulton, J., 2020. Business analysis and valuation: Using financial
statements. Cengage AU.
● Saputra, F., 2022. Analysis Effect Return on Assets (ROA), Return on Equity (ROE) and Price Earning Ratio (PER) on Stock
Prices of Coal Companies in the Indonesia Stock Exchange (IDX) Period 2018-2021. Dinasti International Journal of
Economics, Finance & Accounting, 3(1), pp.82-94.
● Husna, A. and Satria, I., 2019. Effects of return on asset, debt to asset ratio, current ratio, firm size, and dividend payout ratio
on firm value. International Journal of Economics and Financial Issues, 9(5), pp.50-54.
 References

● https://www.bp.com/en/global/corporate/investors/results-reporting-and-presentations/annual-r
eport/glossary.html
● https://www.bp.com/en/global/corporate/investors/results-reporting-and-presentations/annual-r
eport.html
● https://www.annualreports.com/Company/bp-plc
● https://www.macrotrends.net/stocks/charts/BP/bp/financial-statements
● https://www.wsj.com/market-data/quotes/UK/XLON/BP/financials
● https://www.statista.com/topics/1967/bp-plc/
● https://www.statista.com/statistics/264185/bp-group-revenue-since-2003/
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