Sample MBA Coursework

Executive summary

Direct Logistics has been operating well in recent years. As per its five-year forecast,

it will invest surplus funds in a lucrative company. Using the CORE-Framework,

[COMPANY NAME] is analysed for the year 2018 to 2021.I

t is observed that the profitability-ratio in 2021 was higher than the previous years

because of greater sales in 2021. The company’s revenue decreased by 6.95% from

2018 to 2019. Revenue and other income dropped drastically (35.07%) from 2019 to

2020. However, from 2020 to 2021 it was an improvement in this falling number even

if revenue decreased by 10.52%.

The covid-19 outbreak may end up at this loss. But the balance sheet and the ratios

analysis showed that the internal and external financing goes well and it can settle its

debts. So, [COMPANY NAME] would not be a great investment choice for Direct

Logistics at present.

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 TABLE OF CONTENTS

EXECUTIVE SUMMARY ........................................................................................................................ 1

1. INTRODUCTION ............................................................................................................................ 3
2. CORE ANALYSIS FOR [COMPANY NAME]. ................................................................................... 3
2.1. CONTEXTUAL ANALYSIS .................................................................................................................. 3
2.1.1 External Environmental Context ............................................................................................ 3
2.1.2 Internal Environmental Context ............................................................................................. 6
2.2 HORIZONTAL ANALYSIS OVERVIEW................................................................................................... 7
2.2.1 Income Statement-Trend Analysis ........................................................................................ 8
2.2.2 Balance Sheet-Trend Analysis .............................................................................................. 8
2.3 RATIO-ANALYSIS ............................................................................................................................. 9
2.3.1 Profitability-Ratios ................................................................................................................. 9
2.3.2 Liquidity-Ratios ...................................................................................................................... 9
2.3.3 Efficiency-Ratios .................................................................................................................... 9
2.3.4 Gearing-Ratios .................................................................................................................... 10
2.4 EVALUATION OF THE FINDINGS ....................................................................................................... 10
2.4.1 Profitability-Evaluation ......................................................................................................... 10
2.4.2 Liquidity-Evaluation ............................................................................................................. 10
2.4.3 Efficiency- Evaluation .......................................................................................................... 10
2.4.4 Gearing-Evaluation .............................................................................................................. 11
3. RECOMMENDATION ....................................................................................................................... 11
4. CONCLUSION .................................................................................................................................. 11
REFERENCES ...................................................................................................................................... 12
APPENDICES ....................................................................................................................................... 13
APPENDIX 1. [COMPANY NAME]’S PESTLE ANALYSIS ...................................................................... 13
APPENDIX 2. [COMPANY NAME]’S INCOME STATEMENT 2019 TO 2021 .............................................. 14
APPENDIX 3. [COMPANY NAME]’S BALANCE SHEET 2020 AND 2021 .................................................. 15
APPENDIX 4. [COMPANY NAME]’S INCOME STATEMENT 2018 TO 2019 .............................................. 16
APPENDIX 5. [COMPANY NAME]’S BALANCE SHEET 2018 AND 2019 .................................................. 17
APPENDIX 6. [COMPANY NAME]'S RATIOS ........................................................................................ 18

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1. Introduction

[COMPANY NAME], headquartered in London, England is one of the prime oil/gas

companies in terms of revenue and profitability and spreads across eighty countries,
providing fuel for transportation, petrochemicals products.

The company is operated by 65,900 employees with a net income of around US$ 8.4
billion (BP, 2022). The primary object of this report is to examine micro/macro-
environmental factors, financial positions and understand the liabilities and assets
position of [COMPANY NAME].

2. CORE Analysis for [COMPANY NAME].

Core Analysis that includes context, overview, ratio and evaluation, gives a proper
view of the company including its financial information, strategies etc.(Aniemena et
al., 2018).

2.1. Contextual Analysis

Context refers external/internal environmental factors that are responsible for the
profitability of the organization (Star et al., 2021).

2.1.1 External Environmental Context

Though, BP incurred massive revenue, it was declining in last 3 years. Below analysis
is showing the reasons.

Porter’s Five Forces Analysis

Substitution threat – High

The use of alternative levels of fuels like biofuels, renewable energy makes many
industries to replace the petroleum product usage at large. Companies have typically
worked to improvise on the alternative usages of petroleum products, particularly the
fossil fuels, which are non-renewable energy sources (Hobbs 2019). Hence this is a
high threat for BP. This further minimized, through higher coal prices where alternate
products are difficult to make (annualreports.com. 2021 pp-186).

Bargaining Power of suppliers – Low

The main suppliers are the engineers that work in the oil field, suppliers of oil from the
field, and other technicians (Shafiee 2018). The power is medium terms of bargaining
power of the suppliers since BP’s own edge over the suppliers as they are unwilling to
lose potential businesses and some countries possessing oil are also their suppliers
supplying curial oil products. Further, having over 40,000 suppliers to work with, the
power is limited for them whenever anyone increases the price. The other suppliers
are contacted to source materials (annualreports.com. 2021 pp-15).

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Power of buyers - High

The bargaining power of the buyers is higher and possesses a significant aspect on
the consumption of oil products from various companies. This is because there are
various companies that offer the same products at affordable prices, and the low
switching costs of the customers make their power to be higher. This is followed by
gross demand made by the developed countries that pose a significant amount of
bargaining power in terms of consumption over major petroleum producers like BP
since their consumption patterns change frequently.

Rivalry – High

The competition is huge, and the rivalry level is high. The major competitors of BP are
Shell, Texaco, Petro China, Gulf coast, and many other top petroleum companies in
the world (Chawla 2018). The rivalry is higher since it includes different things that
need to consider, such as distinguishing the products, scaling economies,
fixed/variable costs of production, demand levels, and various other things. This
competition rate is further intensified by developing sufficient market competition
where the supply chain development for driving low-carbon emission products
increases elegantly (annualreports.com. 2021 pp-58).

Entry barriers – Low

This threat is low as the industry is highly capital-intensive, particularly because the
fixed costs are high (Vassiliou 2018). Companies that have been working for more
than hundred years have a good reputation, and it isn’t easy to replace their name
drastically.

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PESTLE Analysis

A PESTLE analysis also can be used to analyse and evaluate the external factors that
can impact BP (Investopedia, 2021) as below.

Also refer Appendix 1 for details.

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2.1.2 Internal Environmental Context

The main strategy of BP surrounds the making of resilient hydrocarbons, higher

experience, and mobility by doubling the adjusted EBITDA and production of
petroleum products that emit low-carbon energy.

Thus, the pricing strategy is about using the competitive pricing strategy. BP's recent
change includes the acquisition of Archea Energy and further looking to expand the
Tanguhh PSC extension diligently. Recently, Russia-Ukraine war has led to the stop
of operating on Russian soil after 30 years where a thorough process has been
undertaken for the military operation, particularly with the Rosneft, a state-owned
corporation where BP, due to this war, had stated that they could not continue
(Shahvar 2022).

Here is a SWOT analysis of BP to analyse its internal and external environmental

factors.

Strength:

BP has a higher market share, and quality operation strengthens it and increases its
strength. The brand name is strong, making it visible worldwide, with a huge
geographical reach (Shafiee 2018).

Weakness:

The production rate is declining, and maturity reaching is also lagging, particularly in
handling environmental hazards (Hobbs 2019). The company has faced significant
financial and legal challenges related to environmental incidents, such as when oil was
spilled out in Mexico region (BP, 2022).

Opportunities:

An increase in fuel prices and a rising population make their opportunity to improvise
for the petroleum products. Further, discovering more oil refineries will also improvise
their operational perspective, and investing in alternative business cause the
opportunity of diversifying the business (Vazirov 2022).

Threat:

Government regulation and high competition increase their threat levels. The
environmental regulation of shifting towards using the renewable source that hampers
the environment less is diligently increasing (Osadiya 2019).

The reduction in oil prices in regard to the temperature, was also creating certain
threats to their financial aspects when the analysis was carried on, and it showed in
2030, the prices would be higher than BP's own oil prices (annualreports.com. 2021
pp-30).

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2.2 Horizontal Analysis Overview

BP is one of the largest players in the energy market. As of 31st December 2018, the
company successfully expanded its operations in eighty countries worldwide.
However, by the end of 2021, the company effectively expanded its operation and
earned a profit of $ 7.6 billion (annualreports.com, 2021). This helps BP to raise their
shareholders to return from a loss of 20.3 billion earlier in 2020. This section analyses
the changes resulting in their respective financial statement to answer the question
related to profitability, variances etc. Based on such analysis, it is observed that some
of its financial ratios, like the profitability ratios, have improved from 3.12% to 5.17%
in 2021. This improvement was due to their effective strategies in the current year,
2021, compared to its previous years (annualreports.com. 2021, page 3). The values
computed in the following sections are based on their respective financial statements
from 2018 to 2021.

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2.2.1 Income Statement-Trend Analysis

With respect to the above analysis, it is noticed that the trend in total revenue and
other income of BP has fallen by 6.95% in 2019 from 2018 and subsequently
decreased by 35.07% and 10.52%, respectively, in the years 2020 and 2021.
Therefore, such analysis provides convincing evidence that though the company
earned a positive return in the current year, 2021, the amount of total revenue and
income obtained by the company is much lower than its previous year's profit trend.
The net profit of [COMPANY NAME] also fell by 56.25% in 2019, followed by a fall of
594.73% and 140.94% in 2021. All such evaluations reflect a fall in the profit-earning
trend of BP from 2018 to 2021.

2.2.2 Balance Sheet-Trend Analysis

Based on company’s balance sheet for the year 2021 to 2018, the amount of changes
effected in the asset and liability holding of the company is computed in the above
table. So, its total asset value increased by 1.97% in 2019 from 2018, followed by a
subsequent increase of 7.24% in 2021. However, during the year 2020, its non-current
asset balance has fallen by 8.66% between 2018 and 2019. Such a fall in their current
and non-current asset figures also resulted in an overall fall in the company's total
assets by 7.44%.

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Apart from such an analysis, table 4 also highlights an increase in their total liabilities
balance by 7.67% in 2019 from 2018, followed by an increase of 8.10% in 2021 from
2020. Though in the year 2020, BP reduced its current liability by 17.24%, such a
reduction didn't help management to increase the company's total assets and equity
value.

2.3 Ratio-Analysis

Financial ratio analysis is essential in effectively examining an entity's financial health.

Refer to appendix 6 for calculation details.

2.3.1 Profitability-Ratios

2.3.2 Liquidity-Ratios

2.3.3 Efficiency-Ratios

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2.3.4 Gearing-Ratios

2.4 Evaluation of the Findings

2.4.1 Profitability-Evaluation

To examine the profitability condition of [COMPANY NAME], net-profit-margin-

ratio/return-on- capita-employed-ratio/Return-on-Assets-ratio (Husain & Sunardi,
2020) are used. BP’s net profit ratio increases that reflects the growth of the profitability
condition from 3.15% in 2018 to 5.17% in 2021 (Table 3). Such an analysis also
reflected a fall in their profitability position and resulted in a 19% loss in the year 2020.
Still, [COMPANY NAME]’s strategy seems effective in increasing its net profitability
position in the current year, 2021, from its previous year's position. BP's Return on
capital and Return on its asset ratio have also fallen from 9.06% to 8.72% and 3.39%
to 2.95% from the year 2018 to 2021, respectively. This fall is due to the increase in
the current liability balance of the company than its profit and asset percentage.

2.4.2 Liquidity-Evaluation

Since liquidity analysis reflects an entity's financial efficiency in meeting its short-term
obligations or liabilities, it helps to increase the confidence of the investors and other
stakeholders operating with such an organization. Thus, the ratio used in liquidity
analysis includes current and quick ratios (Madushanka and Jathurika, 2018). From
table 4, BP’s current ratio has improved from 1.05 times to 1.14 times. That is from
105% to 114% in 2021. This reflects that BP's financial efficiency has improved during
the year 2021. Though its quick ratio also reflects a similar improvement, the
company's liquidity ratio is still lower than a standard ratio of 2 and 1 times, depending
on the industry. The main reason for such an improvement is due to the increase in
the assets balance of the company.

2.4.3 Efficiency- Evaluation

The efficiency position of an entity is measured by examining the number of days and
times the management was effective in generating cash inflows from organizational
operations (Chawla, 2018). Analysis in table 5, shows BP’s efficiency has improved
from 166 times approx. in 2018 to 6.05 times in 2021. As a result, [COMPANY NAME]
now requires fewer days, approximately two days, for rotating its trade and accounts
receivables for generating sales compared to 45 days in 2018. Such an improvement
resulted due to the change in respective credit holding policies and internal strategies
in 2021 (annualreports. com, 2021, page 179).

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2.4.4 Gearing-Evaluation

Debt to equity, gearing, and shareholders’ equity to total asset ratio of [COMPANY
NAME] shows that the company's long-term financial ability has deteriorated from
177.87% times in 2018 to 217.64% in 2021 (D SOUZA, 2019). Similarly, the
company's gearing ratio has also improved from 64.01% in 2018 to 68.52% in 2021
(Table 6). This gain reflects that now [COMPANY NAME] had 68.52% more debt
liability than 64.01% in 2018. Further, the equity ratio of [COMPANY NAME] reflects a
26.27% equity in the current year, 2021, compared to the value of its total assets.
However, compared to its earlier years, it also has declined from 35.24% in 2018.
Therefore, it reflects lower financial risk in terms of debt and equity holding, however,
the equity ratio has fallen, reflecting a worse scenario for the company's shareholders.

3. Recommendation

It is recommended that investing in [COMPANY NAME] would not be a wise decision

for Direct Logistic. But can invest at its own risk. This is because the company's overall
profitability has certainly declined despite the liquidity ratios having improvised,
followed by an improved level in the efficiency ratio. It is evident that the gearing ratio
decreased from 5% in 2018, profitability also decreased from 9.06%. Thus, it may be
hard for the company to operate diligently with its investment.

4. Conclusion

The research concludes that the financial position has improvised drastically despite
of increasing competition. [COMPANY NAME] has firmly established itself as the
leading company in the petroleum industry, offering higher petroleum products. The
company has diligently addressed improving its assets by reducing the liability aspects
and improving its financial position in the year 2021 compared to its previous year's
(2018,2019 and 2020) performance.

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References
Aniemena, C., Plc, B.P. and Vera, F., (2018), September. RTA assisted production forecasting in
shale reservoir development. In Unconventional Resources Technology Conference, Houston, Texas,
23-25 July 2018 (pp. 2808-2822). Society of Exploration Geophysicists, American Association of
Petroleum Geologists, Society of Petroleum Engineers.

annualreports.com. (2021). Annual Report BP Ltd [2019 to 2021].

https://www.annualreports.com/Company/bp-plc

Black, B.C., (2020). Crude reality: petroleum in world history. Rowman & Littlefield Publishers.
https://books.google.com/books?hl=en&lr=&id=PyP_DwAAQBAJ&oi=fnd&pg=PR7&dq=british+petrole
um++history&ots=hLlHAQPoFT&sig=jqRvotm3TxxxXTdJQon7Kcpugok

BP at a glance: What we do: Home (2022) bp global. bp global. Available at:

https://www.bp.com/en/global/corporate/what-we-do/bp-at-a-glance.html (Accessed: December 28,
2022).

Chawla, G.K., (2018). SUCCESSFUL COMPANIES'PERFORMANCE IN TODAY'S VOLATILE

MARKETS. Journal of Business and Behavioral Sciences, 30(1), pp.27-37.
https://doi.org/10.7275/R5MK6B3R

D SOUZA, K.A.V.I.T.H.A., (2019). A STUDY ON RATIO ANALYSIS AT IMICRO SYSTEM.

http://hdl.handle.net/123456789/11066

Hobbs, G., (2019). British Imperialism and Oil: A History of British Petroleum, 1901-2016 (Doctoral
dissertation, SOAS University of London). http://eprints.soas.ac.uk/32458/

Husain, T. and Sunardi, N., (2020). Firm's Value Prediction Based on Profitability Ratios and Dividend
Policy. Finance & Economics Review, 2(2), pp.13-26. https://doi.org/10.38157/finance-economics-
review.v2i2.102
Investopedia (2021). PESTLE Analysis. Retrieved from https://www.investopedia.com/terms/p/pestle-
analysis.asp
Madushanka, K.H.I. and Jathurika, M., (2018). The impact of liquidity ratios on
profitability. International Research Journal of Advanced Engineering and Science, 3(4), pp.157-161.
http://irjaes.com/wp-content/uploads/2020/10/IRJAES-V3N4P297Y18.pdf

Osadiya, T.T., (2019). A critical review of a multinational corporation's corporate social responsibility
practice: a case study (Doctoral dissertation, Anglia Ruskin University).
http://arro.anglia.ac.uk/id/eprint/705885/

Shafiee, K., (2018). Machineries of oil: An infrastructural history of BP in Iran. MIT Press.
https://books.google.com/books?hl=en&lr=&id=CW9RDwAAQBAJ&oi=fnd&pg=PR5&dq=british+petrol
eum++history&ots=SlUxrwifT7&sig=QhQE6xWsWrT9iHfapbdj5IWGw34

Shahvar, S., (2022). Persian petroleum: oil, empire and revolution in late Qajar Iran: by Davoudi,
Leonardo, London, IB Tauris-Bloomsbury Publishing Plc, 2021, x+ 219 pp., illustrations, maps; 24
cm,£ 76.50 (hardback),£ 26.09 (paperback), and£ 61.20 for Ebook, ISBN 9781838606862.
https://www.tandfonline.com/doi/full/10.1080/13530194.2022.2037666

Star, N., (2021). State Courts Decide State Torts: Judicial Federalism & the Costs of Climate Change:
A Comment on City of Oakland v. [COMPANY NAME] (9th Cir. 2020). Harv. Envtl. L. Rev., 45, p.195.

Vassiliou, M.S., (2018). Historical dictionary of the petroleum industry. Rowman & Littlefield.
https://books.google.com/books?hl=en&lr=&id=_YlZDwAAQBAJ&oi=fnd&pg=PR7&dq=british+petrole
um+company&ots=a0n6sMM7Fq&sig=fds_tA4LkZRafgCE3qAU8vQnUPU

Vazirov, N., (2022). The development of Azerbaijani Oil & Gas industry from the origins to recent
FDIs. The Case of British Petroleum. http://dspace.unive.it/handle/10579/21691

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Appendices

Appendix 1. [COMPANY NAME]’s PESTLE Analysis

PESTLE(Political/Economic/Sociocultural/Technological/Legal-Environmental)
analysis is applied to understand the external-forces that may impact an
organization. Here is a brief PESTLE analysis for [Company Name], a multinational
oil and gas company:

Political:

BP operates in countries around the world and is subject to a range of political

influences. For example: In the United States, BP has faced political backlash for its
role in the Deepwater Horizon oil spill in 2010, leading to stricter regulations on
offshore drilling (BP, 2022).

In Russia, BP has faced challenges related to its partnerships with state-owned oil
company Rosneft and the economic sanctions imposed on Russia by the US and
European Union (BP, 2022).

Economic:

BP is impacted by changes in global economic conditions, such as:

Fluctuations in oil and gas prices, which can affect the profitability of BP's operations
(BP, 2022). Exchange rates, which can impact the value of BP's assets and earnings
in different currencies (BP, 2022). The demand for energy, which can affect the
demand for BP's products.

Sociocultural:

BP's operations and products are influenced by social and cultural factors, such as:
Consumer attitudes towards environmental sustainability and the use of fossil fuels.
For example, there has been increasing public pressure for BP to transition to more
sustainable energy sources and reduce its environmental impact (Source:
Greenpeace, (BP, 2022).

Societal values and expectations related to corporate responsibility and ethical

behaviour. For example, BP has faced criticism for its lobbying efforts and
relationship with the government in countries like Indonesia (BP, 2022).

Technological:

BP is constantly looking for new ways to extract and process oil and gas, and is
impacted by technological changes in the energy industry.

For example, BP has invested in technologies like offshore wind energy, electric
vehicle charging infrastructure, and carbon capture and storage (BP. 2022).

13
Legal:

BP must adhere to a range of laws and regulations, including Environmental

regulations, such as those related to the extraction and processing of oil-gas/waste-
management/emissions. Health-safety regulations, to ensure the safety of its
employees and the public. Anti-corruption laws, to prevent unethical behaviour such
as bribery (BP, 2022).

Environmental:

BP's operations have significant environmental impacts, including the extraction and
processing of oil and gas, which can release greenhouse-gases/pollutants in the air
or in the water body.

BP is subject to a range of environmental regulations, including those related to the

management of waste and emissions, and the protection of natural habitats and
resources.

BP has also committed to reducing its environmental footprint and transitioning to

more sustainable energy sources. For example, the company has set a goal to
become a net-zero company by 2050 or sooner, and has invested in technologies
like offshore wind energy and carbon capture and storage (BP,2022)

Appendix 2. [COMPANY NAME]’s Income statement 2019 to 2021

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Appendix 3. [COMPANY NAME]’s Balance sheet 2020 and 2021

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Appendix 4. [COMPANY NAME]’s Income statement 2018 to 2019

16
Appendix 5. [COMPANY NAME]’s Balance sheet 2018 and 2019

17
Appendix 6. [COMPANY NAME]'s Ratios
Profitability Ratios

Net Profit Margin 2018 2019 2020 2021

Profit (loss) for the year ($m’s) 9578 4190 -20729 8487

Total Revenue ($m’s) 303738 282616 109078 164195

Net Profit Margin (%) = Profit (loss) for the year /
Total Revenue 3.15% 1.48% -19.00% 5.17%

Return on Capital Employed 2018 2019 2020 2021

Profit Before interest and tax ($m’s) 19378 11706 -21740 18082

Total Assets ($m’s) 282176 295194 267654 287272

Total Current Liabilities ($m’s) 68237 72202 59753 79928

ROCE (Return on Capital Employed (%)) = 9.06% 5.25% -10.46% 8.72%
Profit Before interest and tax / Total
Asset – Total Current Liabilities

Return on Assets 2018 2019 2020 2021

Net profit (loss) ($m’s) 9578 4190 -20729 8487

Total Assets ($m’s) 282176 295194 267654 287272

Return on Assets = Net profit (loss)/Total
Assets 3.39% 1.42% -7.74% 2.95%

Liquidity Ratios
Current Ratio 2018 2019 2020 2021

Current Asset 71310 74594 71656 90938

Current Liabilities 68237 72202 59753 79928

Current Ratio = Current Asset /
Current Liabilities 1.05 1.03 1.20 1.14

Quick Ratio 2018 2019 2020 2021

Quick Assets 53322 53714 54783 67227

Inventories 17988 20880 16873 23711

Current Liabilities 68237 72202 59753 79928

Quick Ratios = Quick Asset / Current Liabilities

Where Quick Asset = Current Asset–Inventories 0.78 0.74 0.92 0.84

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Efficiency Ratios
Efficiency Ratio 2018 2019 2020 2021

Trade and other receivables 1834 2147 17948 27139

Total Sales 303738 282616 183500 164195

Trade and other receivables turnover ratio = Total Sale /
Trade and other receivables 165.62 131.63 10.22 6.05
Trade and other receivables turnover days = Trade and other receivables
turnover ratio / 365 0.45 0.36 0.03 0.02

Gearing Ratios

Debt to Equity Ratio 2018 2019 2020 2021

Total Debt 180628 194486 182086 196833

Total Equity 101548 100708 85568 90439

Debt to Equity Ratio = Total Debt / Total Equity 177.87% 193.12% 212.80% 217.64%

Gearing Ratio 2018 2019 2020 2021

Debt 180628 194486 182086 196833

Debt + Equity 282176 295194 267654 287272

Gearing Ratio = Debt / Debt + Equity 64.01% 65.88% 68.03% 68.52%

Equity Ratio 2018 2019 2020 2021

Total shareholders’ equity 99444 98412 71250 75463

Total Assets 282176 295194 267654 287272

Equity Ratio = Total shareholders’ equity/ Total Assets 35.24% 33.34% 26.62% 26.27%

19