Calculation and Ineterpretation of Financial Ratio of Bp and Shell Between 2009 to 2011

Topics: Financial ratio, Generally Accepted Accounting Principles, Balance sheet Pages: 4 (657 words) Published: April 15, 2013
ANNUAL REPORT: BRITISH PETROLEUM (BP)
RELEVANT ACCOUNTING RATIOS
* LIQUIDITY
* EFFICIENCY
* PROFITABILITY
HORIZONTAL TECHNIQUE - (It provides one with a way to compare your numbers from one period to the next, using financial statements from at least two distinct periods.) LIQUIDITY RATIOS
* Current Ratios: (Difference between current assets and current liabilities) * Acid – Test Ratios: (Current asset less inventories to current liabilities) CURRENT RATIO
Current Ratio = Current Assets /Current Liabilities|

| 2010 $000| 2009$000|
Current Assets| 89,725| 67,653|
Current Liabilities| 82,832| 59,320|
| 1.1: 1| 1.2 : 1|
The ratio indicates the company (BP) has more current assets than liabilities. Different industries have different level of expected liquidity. Whether the ratio is considered adequate coverage depends on the type of business, the components of its current assets, and the ability of the company to generate cash from its receivables and by selling inventories. ACID-TEST RATIOS

Quick Asset = Current Assets - Inventories
Acid-Test Ratio = Quick Assets /Current Liabilities|

| 2010$000| 2009$000|
Current Assets| 89,725| 67,653|
Inventories| (26,218)| (22,605)|
Quick Assets| 63,507| 45,048|
Current Liabilities| 82,832| 59,320|
| 0.8 : 1| 0.8 : 1|
The traditional rule of thumb for this ratio has been 1:1. Anything below this level requires further analysis of receivables to understand how often the BP turns them into cash. It may also indicate the BP needs to establish a line of credit with financial institution to ensure the company has access to cash when it needs to pay its obligations. EFFICIENCY RATIOS

* Receivable Turnover
* Average Collection Period
* Accounts Payable Turnover
* Average payment Period
RECIEVABLE TURNOVER RATIOS
Receivable Turnover Ratio = Sales/Receivable|

| 2010$000| 2009$000|
Sales| 297,107| 239,272|...
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