Jessica Lu, Lisa Pachucki, and Alex Smith Business 101-017 25 October 2012 Financial Case Study for

BP Part One: Financial Statement Research (numbers in thousands) Category Sales Cost of Goods Gross Profit Net Income (or loss) Inventory Cash Total Current Assets Long Term Debt Total Equity Total Assets 2010 Data $297,107,000 $280,826,000 $16,281,000 (-$3,324,000) $26,218,000 $18,556,000 $94,212,000 $44,995,000 $94,987,000 $272,262,000 2011 Data $375,517,000 $309,673,000 $65,754,000 $26,097,000 $25,661,000 $14,067,000 $97,584,000 $38,606,000 $111,465,000 $293,068,000 Percent Change 26.39% 10.27% 303% 885% (-2.12%) (-24.2%) 3.58% (-14.2%) 17.35% 7.64%

INCOME STATEMENT: http://finance.yahoo.com/q/is?s=BP+Income+Statement&annual

BALANCE SHEET: http://finance.yahoo.com/q/bs?s=BP+Balance+Sheet&annual Part Two: Financial Statement Analysis (Ratios)

Ratio Current Ratio 2010 (Current Assets/Current Liabilities) Current Ratio 2011 (Current Assets/Current Liabilities) Debt to Equity 2010 (Total Liabilities/OE) Debt to Equity 2011 (Total Liabilities/OE) Return On Investment 2010 (Net Income/OE) Return On Investment 2011 (Net Income/OE) Inventory Turnover 2010 Cost of Goods Sold = Net Income = $26,097,000 Owners Equity = $111,465,000 Inventory = $26,218,000 10.711 X 23% Total Liabilities = $177,275,000 Total Liabilities = $181,603,000 Net Income = (-$3,324,000) Total Stockholders Equity = $94,987,000 Total Stockholders Equity = $111,465,000 Owners Equity = $94,987,000 -3% 163% 187% Current Assets = $97,584,000 Current Liabilities = $84,318,000 1.157 X Ratio Component Current Assets = $94,212,000 Ratio Component Current Liabilities = $83,879,000 Solution 1.123 X

(Cost of Goods Sold/Inventory) $280,826,000 Inventory Turnover 2011 Cost of Goods Sold = Inventory = $25,661,000 12.068 X

(Cost of Goods Sold/Inventory) $309,673,000 Profit Margin 2010 (Net Income/Sales) Profit Margin 2011 (Net Income/Sales) Net Income = $26,097,000 Sales = $375,517,000 .0695 % Net Income = (-$3,324,000) Sales = $297,107,000 (-.0112%)

Ratio Current Ratio 2010

BP 1.123 X

Exxon Mobile 0.941 X

Industry Ratios 1.70 X

Current Ratio 2011

1.157 X

0.9414 X

1.80 X

Debt to Equity 2010

187%

106.01%

146.505%

Debt to Equity 2011

163%

114.42%

138.71 %

ROI 2010

-3%

20.74%

8.87%

ROI 2011

23%

26.59%

24.795%

Inventory Turnover 2010

10.711 X

18.014 X

14.87 X

Inventory Turnover 2011

12.068 X

20.42 X

16.58 X

Profit Margin 2010

(-.0112%)

7.95%

2.00%

Profit Margin 2011

.0695 %

8.44%

4.20 %

Part Three: Interpretive Analysis 1 What is meant by liquidity? Did the company experience an increase or a decrease in liquidity over the two year period evaluated? What impact do these liquidity figures have on the companys long term and/or short term performance? Liquidity refers to how fast an asset can be turned into cash. Liquidity ratios measure how fast an asset can be turned into cash in order to pay short term debts. Liquidity can be analyzed by looking at the current ratio, which is assets over liabilities. The total current assets should be more than the total current liabilities. In looking at the current ratios for the two years, the company experienced an increase in liquidity. The current ratio can tell whether or not a company is considered a safe risk for lenders granting short-term credit. A company with a current ratio of two or more is said to be at safe risk.

2 What is meant by Profit Margin? Did the company experience an increase or decrease in profit margin over the two year period evaluated? What impact do these Profit Margin figures have on the companys long term and/or short term performance? Profit margin is the amount of money leftover after the cost of running the business is subtracted from the revenue taken in by the business. The company experienced an increase in profit margin over the two years. In 2010, the company had a negative profit margin ratio which means the company did not make any profit, they actually lost money. However, in 2011, the company improved drastically and had a positive profit margin ratio which means they actually made money the following year. The higher the profit margin is each year, the better of a chance the company has in staying in business longer. They would have better long term performance because they would have more money to improve the company which could result in more and more profit. If the profit margin is fairly low each year or even negative, the less of a chance the company has in staying in business. They might be able to run the company short term but it will not last in the long run. 3 What is measured in a Debt to Equity ratio? Did the company experience a change in its leverage over the two year period evaluated? What impact do these Debt to Equity figures have on the companys overall long term and short term performance? Debt to Equity ratios measure the companys financial leverage. To calculate it, one uses the total liabilities, and divide that by the total equity. Debt to equity is an indication of how the company is financing its assets, between debt financing and equity financing. A company with a high debt to equity ratio is one that is aggressively financing its growth with debt financing. BPs debt to equity ratio decreased slightly from 2010 to 2011. This means that from 2010 to 2011, BP decreased the amount of debt financing it was employing. In terms of long term and short

term performance, in the short term, if the company uses a large amount of debt to finance its operations, it will generate more revenue, which would benefit the shareholders. However, in the long term, using too much debt to finance increasing operations, the company will be overcome with debt, and may go bankrupt. 4 How does inventory and inventory turnover affect liquidity? experience and increase or decrease in inventory turnover? Liquidity refers to how fast assets can be turned into cash. The inventory turnover ratio measures how fast inventory moves through a firm and gets converted into sales. A company wants to sell inventory fast in order to get more cash. Cash and inventory are both assets. In terms of liquidity, cash is more liquid than inventory. Inventory turnover increased between the years 2010 and 2011. Did the company