An Analysis of the Financial Situation of Bp P.L.C

Financial ratio analysis is a valuable tool that allows one to assess the success, potential failure or future prospects of the company (Bazley 2012). The ratios are helpful in spotting useful trends that can indicate the warning signs of

Financial leverage is the ability of the company to maneuver with financing options to meet the obligations (Investopedia, 2012). There are two leverage ratios that were analyzed for this financial statement 1) debt ratio and 2) debt-to-equity ratio.

Liquidity is important for any firm as it is an assessment of the ability to pay its' liabilities in the short term. There are two main liquidity ratios: the current and the quick ratio. The current ratios divides the current assets by the current liabilities to assess how many times the current assets can pay the current liabilities (Elliott and Elliott, 2011). Traditional ratios are usually in the region of 1.5, but this may vary depending on the industry and nature of the business (Elliott and Elliott, 2011). The current ratio is shown in table 1.

Liquidity ratios measures a company`s ability to provide enough cash to cover its short-term obligations. The most common liquidity ratios include; the current ratio and the quick ratio.

Liquidity ratio lets us know whether the company is able to pay their short-term and long-term obligations. It measures how well the company can raise cash or convert assets into cash. Companies like to use this ratio to compare it against its competitors or industry average. Liquidity ratios include current ratio, quick ratio, and working capital.

Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas. Financial ratios are important because they help investors make decisions to buy hold or sell securities.

Liquidity ratios are the measure of a company’s ability to meet its short term liabilities by converting its assets into cash without losing value. The results of the liquidity ratios depend on the outcome of Current ratio and quick ratio. In the appendix-I, in 2011 Target had better Current ratio

Financial ratios play a key role in determining how a company is doing financially either for the good or the bad. Financial Ratios can be used internally or externally to determine how financially stable a company is. For this assignment we will use three common ratios to determine how financially stable and how Under Armour is over the last three years.

Ratio analysis shows the correlation within certain figures of financial statements, like current assets and current liability, and is used for three types of company needs- within, intra- and inter-company. Association can be shown in proportion, rate, or percentage and can evaluate company’s liquidity, profitability, and solvency. Liquidity ratios show company’s ability to pay obligations and fulfill needs for cash; profitability ratios show wellbeing and success for the certain time period; and solvency ratios show company’s endurance over the years.

The paper illustrates that financial ratio analysis is an important tool for firm’s to evaluate their financial health in order to identify areas of weakness so as to institute corrective measures.

Financial ratios are great indicators to find a firm’s performance and financial situation. Most of the ratios are able to be calculated through the use of financial statements provided by the firm itself. They show the relationship between two or more financial variables that can be used to analyze trends and to compare the firm’s financials with other companies to further come up with market values or discount rates, etc.

Profitability ratios are used to assess a business’s ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For the majority of these ratios, a higher value relative to a competitor’s ratio or the same ratio from a previous period indicates that the company is doing well. The gross profit margin is a measurement of a company 's manufacturing and distribution efficiency during the production process. A company that boasts a higher gross profit margin than its competitors and industry is more efficient. KO has a gross profit margin of 63.86% compared to DPS’s 60.20%. I

Liquidity represents a company’s ability to pay its short-term obligations. In the following schedule is the calculation of the ratios that are indicators of the liquidity position of a company.

BP has spent over a century building and expanding its organization. It has been successful creating a very diverse portfolio to increase revenue. Instead of just relying on the energy sector for earnings, it has other avenues such as retail stores, credit cards, and lubricants to keep the money rolling in. Just as its product offerings are diverse, so are its geographical locations. Being located in multiple countries across the world allows BP to spread its risk over a greater area, and maintain substantial profits. Even when one or more areas are taking a hit financially, businesses in other areas are able to continue generating income. The company’s transparency has been another major strength that has gotten it through some rough times. BP has had some major accidents throughout the duration of its existence, which have caused some major blows to its image. However, regardless of how bad the outcome was, the corporation has become increasingly transparent with the details of the damage sustained, the issues that caused them, and what would be done to rectify the situations.

Ratio analysis is generally used by the company to provide some information on how the company has performed during that year, so that the parties involved including shareholders, lenders, investors, government and other users could make some analysis before making any further decision towards that particular company. As mentioned by Gibson (1982a cited in British Accounting Review, 2002 pg. 290) where he believes that the use of ratio analysis is such an effective tool to evaluate the company’s finance, and to predict its future financial state. Ratios are simply divided in several categories; these are the profitability, liquidity, efficiency and gearing.