Financial Analysis

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Financial Analysis

Introduction

The following paper will deal with the financial performance of one of the leading oil and gas company Royal Dutch Shell plc, is also known as Shell Plc Measured by its revenues and scope, the Shell plc is the largest energy company in the world. Furthermore, it is also considered as one of the largest company in the world.

The Shell plc deals with all the activities and process involved with gas and oil, including researching exploration, refining production as well as marketing of oil and gas.

Discussion

FINANCIAL ANALYSIS

Financial Analysis is the process of assessing the financial position of a company by analysing is stability, viability and profitability. One of the primary objectives of financial analysis is to recognize changes in financial trends, to help measure the progress made by an enterprise and identify a relationship to draw a logical conclusion on the performance of the company. Another major aspect of a financial analysis is comparing the performance of the company with its competitors. (Source: CFR Online)

TREND ANALYSIS

To determine the financial strength and weaknesses of a company; analysing its Balance Sheet and Statement of Income will give a thorough account of its performance. Similarly, the financial position of Royal Dutch Shell is scrutinized using various ratios over the period of three years from December 31, 2008 to December 31, 2010.

PERFORMANCE & PROFITABILITY RATIOS:

Performance & profitability ratios show a company's overall efficiency and performance. These ratios represent the firm's ability to translate its capital employed into sales and these sales dollars into profits at various stages of measurement. Ratios that give you an idea about returns represent the firm's ability to measure the overall efficiency of the firm in generating returns for its shareholders (Collin, www.crfonline.org, 2011).

Net Profit Margin:

This ratio deals with the profit after tax of the company. (Key Business Ratios, D&B)

Net profit margin of the company has been quite variable during the period under review. Profits had declined by 52% in FY 2009; the prime reason behind the drop was the recession that gripped the world near end of 2008. The oil industry saw a massive fluctuation, as Walker, A., BBC News, (2009) pointed out that crude oil prices dropped drastically from around $150 a barrel to $40, before settling in the mid of August 2009 to around $70. This caused a decline in NP margin by 21% from fiscal year 2008. During the FY 2010, margin has increased to 5.32% showing a corresponding increase of 21%.

The major reason contributing towards the increase in margin is the rise in revenue by 32%. It was due to the fact that realised oil and gas prices had increased significantly with average per barrel price of $79.45 compared to previous year whereby it was $61.75 per barrel. Other than that overall earning of the upstream business had increased by 91% and also the downstream business earnings had also increased significantly to $2,950 mn whereas the previous year it was around $295 mn. ...