Case study on the Annual report of Royal Dutch Shell
Teacher: Professor Eno L. Inanga
Student: Boy Theunissen
Study carefully the 2008 Summary Consolidated Financial Statements of Royal Dutch Shell plc. Comment critically on each of the following sections of the Financial Statement in comparison with the preceding year, 2007.
Every year a company has to make a annual review, just like Royal Dutch Shell and let it audit by a external auditor. In this review is stated how Shell’s financial position is at the moment, and in relationship to the previous years. In the case of Royal Dutch Shell this is 2006, 2007 and 2008. When we look at the actual situation of Royal Dutch Shell we must watch out with our conclusions because it is a snap-shot. When for example Shell gets paid from a debtor this could let to a major change to the liquidity of Shell. Not every aspect of the annual report is analyzed, the main focus is on the most important changes of the Statement of Income, Earnings per Share, Balance sheet, Summary of the Consolidated Changes of Statement in Equity and the Summary of the Consolidated Changes in Statement of Cash flow. What is obvious stated is that Shell has subsidiaries, but how much is not stated. These subsidiaries influence the annual report of Shell, but are not always clearly explained. In the Summary Business Review there is almost no information about these subsidiaries stated. When we look at the Independent Auditors Statement (2008) from PWC (the auditor from Shell), the next 2 sentences express clearly for who the Shell’s Annual Review is made: ‘This statement, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with section 251 of the Companies Act 1985 and for no other purpose’. ‘We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this statement is shown or into whose hands it may come save where expressly agreed by our prior consent in writing’.
(Summary Consolidated )Statement of Income.
The main goal from the statement of income is to inform investors about the company’s earnings and expenditures in a certain period of time, in relationship to the previous years. From all revenue’s, the expenditures (included taxes) will be subtracted and you will know the income attributable to the shareholders. If we only look at the Summary Consolidated Statement of Income we cannot say much about the actual amount of sales and future position of Shell. We can only look at the past and say how much the earnings of sales and costs were. How much actual products are sold we don’t know, we only know how much the earnings and costs of these sales where. In this way I don’t think that only looking at the Summary Consolidated Statement of Income is a good measure for an investment. The other main issue is that it is a Summary of the Consolidated Statement of Income, so all minorities from Royal Dutch Shell are included. When we look at the Summary of Business Review an explanation is given from the changes last year. The big difference is that the changes which have been reported are only about Shell and that the Summary of the Consolidated Financial Statement contains all minorities of Shell. In this way you have to look carefully at the Business Review. The main changes in the Summary Consolidated Statement of Income of Royal Dutch Shell are: Exploration & Production:
The earnings of Exploration & Production reported in 2008 ($ 20.841 million) where much higher than in 2007 ($ 14.963). We know how much the earnings where but not why they changed from 2007, therefore we have to look at the Summary of the Business Review. There is found that the changes in earnings are mainly caused by the increasing oil and gas prices. Gas...
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