Financial Ratio Analysis

Ratio Analysis of Chevron

and British Petroleum

Presented To: Dr.Vasudha Kumar, Assistant Professor,

IMS ,Lucknow University
Presented By - SIDDHARTH AGARWAL M.B.A (International
Business) Semester I
About the Presentation
This is the project about financial statement analysis
of two companies of the same industry. In this regard
the companies which were chosen to analysed are
Chevron and BP (British Petroleum) . Both the
companies are of Oil and Gas Industry and dealing in
energy based business for many years. The
companies are best in the market .
Financial Ratio Analysis
• Financial Ratio Analysis is the technique of comparing the
relationship (or ratio) between two or more items of financial
data from a company's financial statements. It is mainly used as
a way of making fair comparisons across time and between
different companies or industries.
Examples:
• Liquidity Ratio
• Solvency Ratio
• Profitability Ratio
• Turnover Ratio
Financial Statement Statement of
Income of Chevron and BP
BALANCE SHEET
 Liquidity Ratio

 Current Ratio
 Quick Ratio

• Current Ratio = Current Asset / Current Liabilities

Chevron BP

C.R= C.R=
(26078/22183) (72982/69052)

1.2 1.05

Interpretation: On seeing Current Ratio, its pretty clear that Chevron has $1.2 of Current
asset for each $1 of its liabilities. Thus, Chevron is more liquid and apparently in better
position to pay off its liabilities.
• Quick Ratio = (Current Asset- Inventories)/ Current Liabilities

Chevron BP

Q.R=(26078-5676)/22183 Q.R=(72982-155293)/69052

0.91 -1.19

Interpretation: On seeing Quick Ratio of these two

companies, BP has negative value , it means that BP
may not able to fully pay off its current liabilities in short
term.
 Solvency Ratio

• Debt to Equity Ratio • Interest Coverage Ratio

• Debt Equity Ratio = Debt / Equity (or) Long term Liability /Equity

Chevron BP

DER= (107064/132726) DER=(182086/85568)

0.8 2.12

• Interpretation: BP have high DE ratio ,which is sign of high risk, it means BP

using more borrowing to finance its operation. On the other hand, Chevron
does need to tap its debt.
• Interest Coverage Ratio = EBITDA / Interest Expense

Chevron BP

EBITDA $ $ (20,719)
(6,533)
Interest Expense $ 735 $ 2,031

Interest Cov. Ratio -8.9 -10.2

Interpretation: Both the companies have bad

interest coverage ratio
 Profitability Ratio
• Gross Profit Ratio • Net Profit Ratio

• Gross Profit Ratio = (Gross Profit/ Net Sales)

• Net Profit Ratio = (Net Profit/ Net Sales)

Chevron BP

EBITDA $ (6,533) $ (20,719)

Interest Expense $ 735 $ 2,031
Interest Cov. Ratio -8.9 -10.2
G.P.R 41.9% 15.4%
N.P.R/N.L.R 5.85% 11.06%

• Interpretation: Chevron have higher G.P.R than BP, it means Business by Chevron is
more healthier than BP, earning more profit at the end of the day Because there is
net loss, the profit margin calculation is irrelevant.
 Turnover Ratio
• Inventory Turnover Ratio = Cost of Good sold / Average Inventories
Average Inventories= (Opening Inventories + Closing Inventories)/2
Chevron BP

C.O.G.S $ 54,987 $ 1,55,293

Average Inventories $ 2,838 $ 77,647

Inv. Turnover Ratio 19.37 1.99

Interpretation : Chevron have a higher inventory turnover than BP, it means

Chevron selling goods quickly and there is considerable demand for their products.
Days Inventory of Chevron is 19
Days Inventory of BP is 182.5
Conclusion
• Depending on Investment Priorities (whether Dividend
Investors,Long Term Investor or Short Term Investors)
A. Dividend Investor: Chevron have more than doubled their
dividend in last 15 years, while increase at BP have been much
low. Thus, Chevron has a very good chance of keeping its
dividend.
B. Long Term Investor: For investor looking for appreciation and
yield over a longer term, Chevron is the best choice than BP.
C. Short Term Investor: This one comes down to how fast we
expect crude oil price to recover. Not recommend to invest any
of them