Essay: Financial Performance of British Petroleum

Sample Essay

Words 1,453

Brief introduction

George Reynolds and his co-workers have suffered many hardships during the search of oil in Persia (British Petroleum 2009). After eight years of struggle, they become successful and laid the foundation of BP in 1908, which was previously known as the Anglo-Persian Oil Company (British Petroleum 2009). British Petroleum (BP) is one of the world’s largest Multinational Companies (MNCs), which mainly deals in the oil and gas sector. Now, company has its business operations almost in 100 countries, with 96000 employees and serving millions of customers across the globe (British Petroleum 2009). BP’s core business operation revolves around the exploration, refining and marketing of oil and gas. It provides fuel for transportation, heat and light to both corporate and consumer clients. Among the other key activates of BP are renewable energy and aluminium assets. Company has its strategic assets and main operating facilities in countries like United Kingdom (UK)-its home town, , Australia, Canada, United States, France and  Germany etc. (British Petroleum 2009).

Financial performance

British Petroleum is a financially strong company having market capitalization of 184.74 Billion Pounds and Enterprise Value (EV) of 211.1 Billion Pounds (msn money 2009). It shows that company has very well established financial position in the capital markets. The beta of the company is less than one (0.73) which shows that company’s stock is less vulnerable to the market fluctuation(msn money 2009). In other words, it has low systemic risk. Another indicator of the low risk of its stock is that there is only a change of 20.64% in the stock prices over the last fifty two weeks. Its stock price on 04 January, 2010 was trading at 59.15 pounds in the New York (NY) stock exchange (msn money 2009). Three months average volume of stock trading is 4.8 million. On 04 January, 2010, there were total 3.12 billion ordinary shares outstanding of the company, of which 11% were held by the institutions and 0.11% by insiders (msn money 2009). Company dividends yield in 2009 was almost 5.80 and the last five years average is 4.10% so there is only a fluctuation of 1.7% in the previous years (msn money 2009). Company has more than 0.8 pounds earnings per share between the years 2008 and 2009 because of the high prices of oil reaching to $144 per barrel which was the highest oil prices in history (Yahoo Finance 2009). However, this trend could not persist and oil prices declined sharply which hit the earning per of company as well and brought it to almost 0.5 pounds per share (see Figure 1). This negative trend continued in 2009 as shown in figure1. Stock prices have also shown a similar trend in the past five years as Earning per Share (EPS) and Dividends per share (DPS) have shown (see figure 1). During the period of 2005 to 2009, company has also paid an attractive dividend per share. Dividends payout ratio was 118% on 04 Jan, 2010, which means that company is paying huge portion of its earnings as dividends and keeping less amount for reinvestments purposes. It has paid 16.84 pounds per share on five years annual average as compared to the industry practices of 11.42 (msn.money, 2009), which is not considered a good strategy for the growth of the company. So management needs to pay attention towards this aspect of business.

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