Financial Statement Analysis:
A company's financial statements and ratios are good indicators of its performance over the years. This report specifically compares the ratios for 2004 and 2005, with some additional insight into 2003, 2002, and 2001.
The current ratio has increased by 0.0534 from 0.9900 to 1.434. As the current ratio is a measure of liquidity and ability to meet short-term debt requirements, BP was more able to meet their short term debt obligations in 2005 than 2004. From 2001 to 2003 the current ratios were 1.0767, 0.9733, and 0.9600 respectively. In 2001, 2002, and 2004, BP's current liabilities were greater than current assets, indicating that BP may have faced some difficulty in meeting short-term debt obligations during these years. In 2003 and 2005 the current ratios were greater than 1, representing that BP's current assets were greater then its current liabilities for the year. BP's current ratios are less than the industry average, which simply means that there are other companies that are more successful at meeting short term debt obligations than BP for the industry. The industry median for the current ratio is 1.26.
The quick ratio has increased by 0.0246 from 0.7467 to 0.7713. Quick ratios are a measure of the financial strength or weakness of a company and gives insight into how liquid a company is. BP had a higher quick ratio in 2005 than 2004 which translates into being more able to pay liabilities in 2005. The quick ratio was even higher in 2003 at 0.8471; demonstrating that BP was more liquid in 2003. The ratios were lower in 2001 and 2002 indicating a lower ability to liquidate. The quick ratio for BP was lower than the industry average. This shows that BP's competitors are more liquid then BP is.
BP's inventory turnover ratio has decreased in 2005 from 18.1589 in 2004 to 12.5293 (approximately 31 %). The inventory turnover indicates how much of the inventory is left over in a year and how long it would take to sell excess inventory. This ratio can be a measure of efficiency; a lower ratio indicates that BP is better able to meet the needs of its customers without wasting funds by holding excess supply. On the other hand, a higher ratio could indicate strength in the sales of the firm or ineffective buying. In BP's case, the prior is more likely because the of the firm's position as one of the top performers in its industry. In previous years, BP's inventory turnover ratio has been even higher than it is now at levels such as 22.9838, 17.6983, and 20.0199 from 2001 to 2003. The average of 20.234 indicates that BP had a better position in previous years than in more recent years. The industry median for this ratio is 16.2, meaning higher levels of excess inventory and lower sales for BP's competitors.
The days sales outstanding (DSO) has increased by 1.3389 from 59.7913 in 2004 to 61.1302 in 2005. DSO is the average number of days that a company takes to turn a sale into revenue. The higher a DSO ratio, the longer it takes for the company to collect money on sales. Therefore, an increase in DSO is not a positive change for any company. In turn, the increase from 2004 to 2005 indicates a weakening of BP's position. BP's DSO was higher in 2002 (63.9002) and 2003 (67.1514), and the decrease from those levels is a positive reflection on BP status.
The fixed asset turnover (FAT) for BP decreased by 0.0902 from a level of 2.9464 in 2004, to 2.8562. FAT shows how well your company uses its fixed assets to generate sales revenue. Fixed assets include furniture, equipment, buildings, copyrights, licenses, patents, and basically anything that cannot be resold. Fixed assets also depreciate over time. A higher FAT ratio is better so a decrease in the FAT ratio of BP is not a positive change. If plotted on chart, you would be able to see the general trend in the FAT for the company is in a positive direction over the past 5 years, this; trend reflects positive changes. The total asset...
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