BP plc Financial Analysis: Profitability and Liquidity (2019-2022) Case Study

Examining BP plc Revenue Growth and International Accounting Standards

Introduction

British Petroleum Company plc is one of the largest oil and gas companies, offering fuel, lubricants, petrochemicals, and energy to its customers. The company trades petrochemical products, Petroleum, crude oil, and other retailing and wholesaling services. The business operations of BP plc include refining, manufacturing, supply, trading transportation, and marketing. The company operated its major business within Europe, Asia, and North America. In the energy business sector, BP plc is considered a super measure as it provides the energy business on a worldwide basis. As per the market data British petroleum company has a stock proportion of 506.30 GBX, which is the 1.99% increased situation referred to following the London stock exchange (bp.com, 2023). The issues that have been faced by BP plc are mentioned as an identity crisis. Investors are seeking profits from fossil fuel, however, BP plc and its similar competitor companies such as Shell plc, and TotalEnergies SE, provides a mixed bag of renewable unit and accretive oil. At that time American energy farms offered more direct exposure regarding oil profits. It has been referred that BP plc can't be green enough due to this crisis and climate change issue (bloomberg.com, 2023). It is also noticed that this identity crisis of the company has affected the price-earning proportion ratio and business trading aspect. BP plc Trading five times as compared to its most common comparative company’s 8 and 9 times trading. As per the market research, it has been stated that BP plc faces huge issues regarding the traumatic exit from Russia and the disastrous Gulf of Mexico oil spill.

The company has promised shareholders to be able to generate an earnings proportion of 51 billion dollars - 56 billion dollars within the financial year of 2030. As per the financial situation discussion, it has been referred to as BP plc’s total revenue valuing at 195970 million pounds in the financial year of 2022, which indicated increased sales growth of 70.86% from the previous year 2021 by 38%. However, it has been noticed that the company's net income valuation decreased in 2022 due to those identified business operational issues. BP plc achieved a net loss in 2022 with an outing of 2019 million pounds. The net income of the company was 5501 million pounds in the financial year 2021. Hence, it has been noticed that the identified issues have been going to decline in the financial efficiency and profit-earning capacity of BP plc. On the other hand, in the financial year 2020, the company faced a huge declining revenue growth and loss due to the pandemic effect. The revenue of the financial year 2020 is mentioned as amounting to 82617 million pounds straight from the financial year of 2019 amounting to 218224 million pounds. Additionally, the net income growth of BP plc was mentioned as declining in 2020. Net income valuation earned in 2019 amounting to 3156 million pounds declined to -15834 million pounds. As per the market research, it has been seen that BP plc is under huge losses due to the covid 19 pandemic hit (theguardian.com, 2021). The pandemic affects the demand for transport fuels and it usually affects oil prices on a global market basis. The global workforce cut their prices and there is a huge reduction in the shareholders' dividends. The company report and market data research explain that for BP plc, the last quarter of the financial year 2020, was mentioned as a brutal year as the company faced a huge fall in the share valuation and entire business operations fell. After facing the Mexico disaster, BP plc has been taking decisions on the usability of technology based on biofuel as an alternative energy source.

International accounting standards and financial regulations

Competitive advantages discussion of BP plc

The proper maintenance of the accounting standards and principles leads to business ethicality and achieving a core valuation of the business in future aspects. Rules and regulations regarding International accounting standards and financial regulations help the company to achieve competitive advantages and provide strategic growth in the same market evaluation. Implementation of the accounting standards and maintenance of rules and principles mentioned in the financial regulation helps BP plc to standardize its business operation and increase its core valuation in terms of the other competitive companies in the oil and gas industry (Tenney and Kalenkoski, 2019). The rules of IFRS Refers that there are once accounting standards maintenance rules and regulations that have governed types of business transactions and financial events in a preferably proper manner (Son et al. 2019). This maintenance has been mentioned that IFRS Provides various developed and structured reporting guidelines for financial statement preparation. The further development of IFRS rules and regulations maintained by the International accounting standards board. The International accounting standards 41, provides the accounting treatment that helps a company's assets growth, degeneration, production, and procreation. The international financial reporting standards have been designed to maintain the accounting transparency and credibility of the financial transaction of the company in terms of making the proper financial decisions (Valencia et al. 2019). IFRS Standard includes business combinations, share-based payment, financial instruments, consolidated financial statement preparation, joint agreements, insurance contracts, fair value measurements lease, regulatory deferral accounts, and others. The proper maintenance of these mentioned accounting standards is going to increase business compatibility and business development preferably.

The company British Petroleum is using the cost reduction strategy to control the financial inflows of the company. Additionally, the company has also used a marketing strategy research, and development strategy for continuous development of the production to meet the initial target of the company (Rashid, 2021). BP plc mainly focused on and maintained the corporate strategy based on the transition growth engine investment along with the energy system. The core values of the company have been creating a stronger relationship with the local community and providing strong support towards greater transparency and capacity-building evaluation of the company. BP plc Uses an innovation strategy that provides extensive use of alternate energy sources and production and Exploration of oil and gas. The core value of the company is using renewable energy sources to maintain the excellent factor in the oil and gas industry. BP plc is using the core valuation that includes safety measures, respect, business excellence, courage, and teamwork (Migliaccio and Tucci, 2020). These core valuations provide the business strategy to deliver good business operations to the consumers and provide a growing long-term valuation to its shareholders. BP plc provides a business model that has convenience and mobility for companies' products and consumers. BP PLC maintains its commitments to its respective stakeholders. International accounting and financial regulations provide the rules for the complete maintenance of business ethics and share a fair valuation in preparation for the financial statement. BP plc has been using these strategic implementations regarding business evaluation maintenance and maintaining business ethicality. This factor has helped the company to increase its competitive advantages and maintain the business code valuation for the business and its stakeholders (Leske et al. 2021). International accounting and financial regulations provide the proper maintenance of the operating cash flows and capital expenditures that are going to reflect positively on research and development aspects and maintain the internal business capabilities. In this preference, it has been reflected that BP plc uses the accounting standards as it has been helping the company to maximize its research and development by maintaining financial resources accordingly.

BP plc invested 247 million dollars in research and development of the energy sources and meeting the business targets and satisfying the shareholders. The company uses 5.8 GW of developed renewable energy resources due to having the proper maintenance of the business ethicality and core valuation (Kovacova et al. 2019). Using the key auditing terms, BP plc has increased the business expansion scope in global aspects and proper accountability of maintaining the key principles of accounting standards guided the company following the demand of the stakeholders. BP plc Has the main strength as it's the biggest company in the energy sector and it has a huge geographical reach. The company has used the 25% cut on the fixed cost for the proper infrastructure of the refinery and maintenance of the business development factors. The main factors of accounting and financial principles include the proper revenue structure and cost structure along with maintenance of the debt and equity valuation of the company (Kamaluddin et al. 2019). These factors are going to help BP plc towards increasing its competitive advantages in future aspects.

Business data and financial information

BP plc’s profitability discussion

In the recent year 2022, BP plc has been facing huge losses due to its exit from Mexico. Additionally, the pandemic effect has declined the company's earnings potential in the financial year 2020. This discussion has referred to the company's financial profit earning capacity declining in 2022 and 2021 concerning 2021 and 2019. The pandemic situation declined the entire energy industry's business growth due to the certain shutdown. This situation affected BP plc's revenue valuation from the financial year 2019 amounting to 218224 million pounds to 82617 million pounds in 2020 (Kadim et al. 2020). It has been noticed that the company's revenue growth declined by a huge factor and this has affected the net earning proportion of the company. BP plc's net earnings valuation was mentioned as 3156 million pounds in 2019 that was declined by -15834 million pounds (bp.com, 2023). With the help of the net profit margin ratio, a company can measure its current profit-earning situation and point out the lack of points and improvement areas. The net profit margin of BP PLC was mentioned as 1% in 2019 which declined to -19% in 2020 and after that net margin ratio declined from 5% to -1% from 2021 to 2022. This demonstration has been critically assessed that BP plc's profit earning situation is affected usually due to having a certain amount of declining revenue growth (Jihadi et al. 2021). This analytical situation indicated the company to consider a sales improvement strategy to improve a certain amount of net loss proportion. However, the analytical situation of BP plc for 2021 mentioned that BP plc’s Revenue improved by amounting to 114694 million pounds. This situation also indicated that companies net earnings omitted the previous net loss situation and achieved net income amounting to 5501 million pounds.

Table 1: Profit earnings growth

This overall discussion has mentioned that BP plc's net profit ratio proportion also improved from -19% to 5%. However, it has been also noticed that due to the exit of Mexico, the company's net income proportion declined from 5501 million pounds to -2019 million pounds in the financial year 2022. This issue has affected the net income approaches but the revenue valuation of the company increased in the financial year 2022 and 2021 by amounting to 195970 million pounds (Islami, and Rio, 2019). It has been also noticed that BP plc's cost of goods sold increased in the financial year 2021 to 2022, amounting to 98647 million pounds to 151996 million pounds. This increased proportion has been indicated towards the net loss proportion of the company after having the increased revenue valuation. The company has provided a commitment to its shareholders regarding the improvement of the net earnings proportion to the very next year (Ichsan et al. 2021). This profitability ratio analysis is going to help the company to point out its improvement areas to meet the commitment and maintain the core values of the business. On the other hand, the profitability ratio of BP plc is mentioned as the operating profit ratio indicated as 6%, 0%, 7%, and 17% from the financial year discussion of 2019 to 2022. On the other hand, the gross profit margin ratio is mentioned as 9%, 0%, 14%, and 22% from 2019 to 2022 (bp.com, 2023). This critical discussion regarding profit earning capability measurement guides the company to take the financial improvement decision-making by involving the preferred recommendations for resolving the identified business issues.

Liquidity discussion

BP plc’s financial reporting discussion has mentioned that there are increased liabilities valuation notices from the financial analysis of 2019 to 2022. The company has been faced with financial issues due to the covid-19 effect attack and exit from Mexico. In the previous section, the details of these two major issues have been briefly discussed. However, this section has been mentioned that the effect on the liquidity proportion of the company along with the financial efficiency aspects of BP plc for the financial year of 2019 to 2022 discussion. The most efficient liquidity proportion measurement tool used for describing the affected areas of BP plc. Current ratio proportion and quick ratio going to describe the relationship among changes in the Assets and liabilities proportion of the company (Ginting, 2019). The current ratio of BP plc is mentioned as 1.01, 1.22, 1.15, and 1.01 from the financial year of 2019 to 2022. This entire situation mentions that the current ratio shares a criterion that if a company's liquidity ratio proportion is near about 1:1 it will be indicated as an efficient financial situation and having an optimized liquidity proportion of the company. On the other hand, the quick ratio proportion of BP plc is mentioned as, 0.73, 0.94, 0.86, and 0.80 respectively for 2019 to 2022.

Table 2: Assets growth

In this critical analysis of the liquidity situation of BP plc, it has been addressed that the current ratio declined after the financial year of 2019. As it has been addressed that the liability proportion of the company increased duly from financial 2019 till 2022 which impacted negatively on the company's financial situation aspects. On the other hand, it has been seen that BP PLC's inventory valuation increased accordingly, which indicates that the company's purchase proportion is higher than the sales proportion. This financial factor also mentions that there is an unfavorable effect on the company's cash balance regarding the increased inventory proportion. This liquidity disruption of BP plc can be developed by including a Debt control strategy and proper budgeting allocation strategy (Fardilha, 2022). These strategies are going to help the company to manage its liquidity production and control the increased liabilities value along with a reduction of the excess inventory proportion. These strategic implications guide the company regarding resolving those identified issues and meeting the shareholder's commitments.

Gearing situation discussion

To address the gearing situation of the company, the most common measurement tools that have been used to evaluate the debt, equity, and earnings proportion relation, are mentioned as debt to equity ratio and interest coverage ratio. This ratio analysis indicated the connection between companies' total long-term liabilities situation along with the equity proportion and earning valuation. The critical discussion of BP plc's debt-to-equity evaluation situation is mentioned as there are fluctuating total liabilities valuation notices from the period of 2019 to 2022. In this period, the highest debt allocation was noticed in the financial year 2022. On the other hand, it is indicated that in the financial year 2020, earnings before taxation amounted to zero (Desiyanti et al. 2019). This critical discussion regarding companies gearing situation mentions that in the time of the pandemic BP plc field to achieve the earning proportion due to the sudden shutdown of transportation. On the other hand, to meet shareholders' commitment, other product development companies raised money from external sources, which increased the total liabilities valuation in 2022. BP plc's debt-to-equity ratio is mentioned at 1.93, 2.13, 2.18, and 2.47 levels from 2019 to 2022. In this aspect, BP plc's interest coverage ratio is mentioned as 6.34, 0, 5.44, and 21.73 for the financial year of 2019 to 2022 (bp.com, 2023).

Table 3: Equity proportion

Price earnings situation and dividend growth

The financial situation discussion provided that BP plc's profit earning situation, and financial efficiency proportion has been in a critical situation due to having huge losses faced in the recent year. In this context, it has been referred to as BP plc's earnings per share proportion also being critical. This earning capacity has been measured using the EPS ratio, and it has been provided the share valuation proportion of the company (Carreras Simó, and Coenders, 2020). The EPS ratio proportion of BP plc is mentioned as 0.15, -0.78, 0.27, and -0.10 from the financial year of 2019 to 2022. This segmentation has stated that due to BP plc's net income proportion declining for having the endemic effect and exit of Mexico, it has been also affected negatively by the share of an outstanding proportion of the company in 2022. On the other hand, as per the market research, the share price proportion of BP plc is mentioned as 37, 20, 26, and 36 from the financial year of 2019 to 2022. This share price fluctuation BP plc guided towards the company's lack of position earnings aspects. It has been also denoted that the company faced issues regarding financial health aspects that have been declining the overall financial efficiency of the company (Balasubramanian and Natarajan, 2019). On the other hand, it has been noticed that the company provided a declining dividend evaluation proportion from the financial year of 2019 to 2022. From the financial year 2019, BP plc provided a dividend of 0.61, after that it declined to 0.31 in times of the covid-19. In the financial year 2021, BP plc increased its dividend proportion to 0.32 and after that provided a 0.36 proportion level of dividend to its shareholders. This entire situation, analyzing the company's financial efficiency, earnings growth, and share proportion evaluation, has been suggested to BP plc to use referred strategies for improving the identified lack points.

Table 4: Earnings per share growth

Figure 1: Dividend growth

Problem-solving and recommendation

The identified problems of BP plc have been recovered by including the Debt control strategy, within the financial proportion of the company. This strategy has helped the company to control the excess debt proportion. The debt control strategy provides the three key points that are going to help the company to improvise its financial situation. It has been also provided that this strategy refers to maintaining budgeting proper financial planning and guidance through reduction of the financial risk. The purpose of debt management ensures that there is an implication strategy that provides for meeting the possible cost of the company and fulfilling all the financial needs accordingly (Alexakis et al. 2019). This strategy has also reduced the financial risk of the company. In these preferences, it has been mentioned that these strategies are going to provide a way to meet the optimized capital structure. This optimized capital structure helps to maintain the debt and equity proportion in an equal manner. In this aspect, it has been referred to that BP plc committed to its shareholders regarding an increment in the earning proportion within the next year. This strategy is going to guide them to control the debt and accessible equity. It has been mentioned that this equal debt and equity proportion maintenance provide them a positive aspect, as this internal and external source of funding is going to help the company regarding meeting the research and development proportion. Moreover, this strategic implication improvises the financial statement proportional situation of BP plc and helps them to meet financial obligations in the next year.

Conclusion

The entire report has been addressing BP plc's lack of positioning due to the pandemic attack and business issues that occurred during the exit of Mexico. This report has covered the issues and it provides the improvement points for future reference. During the pandemic time, BP plc has faced a huge loss and increased cost of sales proportion along with increased debt valuation. Due to that aspect, it has been recommended to the company regarding a debt control strategy to recover the excess debt proportion of the company. It has been also mentioned that BP plc's dividend distribution proportion is in a good position but the share outstanding proportion is fluctuating. The report covers the strategic implications of financial and accounting standards for the maintenance of core business valuation. Covid 19 situation created a sudden shutdown of transportation that has been heated over the pricing proportion of BP plc's products. This huge loss has been affected negatively and declined the entire business operations of BP plc. The company has decided on net earnings improvements for its stakeholders. Due to that, it has been suggested to include a debt control strategy as it has helped to maintain the financial factors of the company.

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