# Please this is a resit so please try your best for the student to pass this time thanksPetroleum Energy, Economics and Finance in Oil and Gas(EDUQUAL/07/02-L7DIP IN OIL & GAS MGMT) Learning Outcomes...

Kushal answered on Nov 12 2021
1. Financial Statements
We will analyse financial statements of British Petroleum and try to perform a comparative analysis across the competitors as well. British Petroleum operates in upstream and downstream segments both. In the upstream segment, it majorly involves oil and natural gas exploration, field development and production, as well as midstream transportation, storage and processing. The Downstream segment has global manufacturing and marketin
g operations.
1.1 As far as the key ratios are concerned, we need to consider the Net profit margin, EBITDA Margin, debt to Equity ratio, and return on equity. For all the calculations, we have used the 2018 financial statements.
Net Profit Margin – This ratio tell how much is the company making after taking all the expenses into account.
Net profit Margin = Net Income / Total Sales = 3.2%
Net Income = \$ 9,457 MM
Total Sales = \$ 298,756 MM
EBITDA Margin – This ratio does not consider the fixed assets and the capital structure of the company and calculates the profit that firms make before the depreciation, taxes and interest expenses.
EBITDA Margin = EBITDA / Total Sales = 11.4%
EBITDA = \$ 34,131 MM
Total Sales = \$ 298,756 MM
As compared to the industry, the
Debt to Equity – This ratio explains us how much leverage the firm has undertaken. This also explains the risk associated with the firm.
Debt to equity = Debt / Equity = 0.66
Debt = \$ 65,799 MM
Equity = \$ 99,423 MM
Return On Equity – This ratio explains us how much income the firm is earning over the equity amount invested in the firm.
Return on Equity = Net Income / Equity
Net Income = \$ 9,262 MM
Equity = \$ 98,968 MM
Source- Thomson Reuters
1.2 Limitations of the financial statements and its analysis
There are majorly three types of financial statements – 1. Income statement, 2 Balance Sheet, 3. Cash Flow Statement.
Income statement tells us what was the sales and profit and all the expenses that the firm incurred in the given financial year.
Balance sheet tells us how much assets and liabilities the firm has undertaken.
Cash flow statement is for the purpose of understanding the cash transactions that took place during the given financial year.
Limitations of the financial Statements –
The financial statements can be manipulated and the earnings can be managed. This could lead the shareholders to believe that the firm has been performing exceptionally well for the short term.
Financial statements might not be comparable across companies, due to the different accounting policies undertaken by the firms.
Intangible assets are not recorded, which could be significant in the value of a firm.
1.3 Comparative performance of the financial statements -
As compared to the industry, British petroleum has been underperforming in all the metrics. The industry median net profit margin comes around 6.6%, EBITDA margin comes around 28.2% and debt to equity is far lesser than that of British Petroleum 0.38.
British petroleum has been underperforming in all these metrics as compared to the peers and has been doing so historically due to its strong government backing.
2. Costing Methods-
2.1 Different costing methods for the cost accounting in Oil and Gas industry
Activity Based costing – Here the costs are allocated to the amount of activities needed and the costs incurred for those activities rather than equally dividing the costs across product lines. This is used when we need to understand the profitability of the different lines.
Process Costing – The costs are calculated for the each process separately and where the standardised goods are produced in a continuous flow. Units pass through the same process and overheads are apportioned.
Job Costing – Job costs are not related to the particular periods. Every job in the costing is different and not necessarily the same operations will be carried out to get to the output or the same materials will be utilized. No averaging of the costs take place. This typically has been used in the large firms producing and manufacturing a variety of items involving the different operations and materials.
Batch Costing-
Here each batch is treated as a cost unit and for each batch the costs are accumulated and ascertained over for the each batch. This is majorly used in the readymade garments, pharma industries, toys, tires and tube industries.
2.2 Marginal Costing in decision making –
This accounting is used only in the short term when you are not taking the fixed costs into account and only variable costs are considered in the contribution...
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