International Finance and Accounting
Introduction
International finance and accounting involve the global aspects of accounting that includes matters like principles of accounting and practices of reporting accounting information in different nations. Other elements include foreign exchange risks, international and regional harmonization, and patterns of development of accounting. Accounting is purposed for communicating the financial position of the organization to the government, banks, investors, and managers (Procházka, 2018). The users of accounting information can evaluate the financial health of the company through the financial statements. Countries have come up with diverse economic traditions, languages and culture as far as international finance and accounting are concerned.
Additionally, they have come up with different practices of accounting. On the other hand, in a world that is increasingly becoming globalized, the differences are not ideal for the smooth running of worldwide commerce. This paper aims at examining the performance of BP as far as the year ended 2018 is concerned.
From the desert to the deep sea, from retail to rigs, BP delivers products and services in the energy sector to people across the globe. It provides the client with energy for transport, heating and lighting, running machines in the industries and lubricants for reducing friction in engines. The demand for petroleum products is expected to increase significantly. The increase can be attributed to the need for energy for supporting industries, as well as infrastructure. Taking all scenarios into consideration, the GDP across the world is projected to increase by more than half in twenty years to come. BP has a varied selection across geographies, resource types and businesses. Having renewable, downstream, and upstream companies, together with trading capabilities that are appropriately established, assists in mitigating the effect of the cycles of commodity pricing. The geographical reach of the corporation provides them with access to new resources and growing markets, and to diversify acquaintance to geopolitical dealings.
Performance
The performance of BP in 2018 showed that profits had doubled thanks to strong growth in the output of oil and gas following a significant shale acquisition in the United States. Record utilization of its fields in oil and gas, as well as the capacity for refining, assisted the company in sealing what was a change year as the disaster of Deepwater Horizon in 2010 eased. However, while the revenue of the organization beat forecasts, there was an increase in debt and the speed of its share buyback arrangementdecelerated in the last quarter after it paid 10.5 billion dollars BHP acquisition. The shares of the company increased by more than 3.3 per cent in early trade. The rise was the highest since December of the previous year.
The Chief Executive Officer of the company, Bob Dudley, said that they now have a high trail top score of capital discipline, efficient execution, as well as safe and reliable performance. The company realized substantial gains despite a severe drib in crude prices at the end of the accounting period, which wiped out most returns in the costs of the share throughout 2018. Uncertainty over the position for the prices of oil and anxieties over worldwide financial growth are expected to carry on to weigh on the oil industry. The demand for the barrel was projected to increase by 1.3 to 1.4 million barrels daily, a similar trend witnessed in 2017. Capital expenditure reached 15.1 billion dollars in 2018Production increased to 3.7 million barrels of oil equivalent daily after the company completed BHP acquisition. The production of the firm increased by 8.2% from 2017. Gearing, the ratio between the market value of BP and debt, increased to 30.3 % at the end of 2018 from 27.4 % in 2017. Net debt was 44.1 billion dollars at the end of the accounting period.
Short-term Liquidity
Liquidity can be referred to as the ability of the company to collect short-term assets that are capable of paying short-term liabilities. A company has to sell enough products and receive cash. The chairman added that his priority is to ensure that the board help in sustaining and evolving this culture by engaging effectively with the stakeholders. The board of BP has changed significantly in the recent past. Enough to finance the operations of the organization. BP doubled its profit; thus, it was able to fund its operations in 2018. The current ratio of BP slightly improved in 2018 as compared to the previous year. The quick rate of the company recovered from 2017 to 2018. Additionally, the cash ratio of the firm grew in 2018 as compared to a year earlier.
Working Capital
The working capital can be referred to as the capital of a company that is used in its daily operations (Singh et al., 2017). It is a measure of the ability of the company to cover its liabilities in the short-run. It is merely the difference between the current assets and the current liabilities of an organization. The working capital of BP increased in 2018 as compared to 2017. The increase indicates that the firm did not experience difficulties in financing its day-to-day operations. The working capital of the corporation is stable. Research has revealed that working capital can either be negative or positive. It all depends on the amount of non-fixed debt the company is having on the financial statement. Generally, firms with too much working capital will experience significant growth in the future since they can improve and expand their operations utilizing the resources it currently has. However, firms with negative or small working capital may experience the scenario of insufficient funds that are required for growth and expansion
Corporate Governance
Corporate governance can be referred to as the system used by organizations to control and direct its day-to-day activities (Du Plesis, 2018). The board of directors manages the organization. The role of the shareholders in governing the company is to appoint the auditors and the directors and to ensure the ruling of the firm is being made in the best way possible. The board directors of BP is accountable for the oversight and direction of the organization. It works on behalf of the shareholders and is answerable to them as far as the operations of the company are concerned. The board of directors of BP believes that good governance entails the understanding of roles and responsibilities, as well as proper utilization of different procedures and skills.
Helge Lund had been the chairman of the board. He says that the experience he has had working for the company has confirmed the values and cultures of BP he came with. Based on the time he has been in the company, the courage, excellence, respect, and safety are genuinely lived and embedded. He added that the culture of the organization is humble, responsible and grounded. In other words, it is a culture where individuals have the strategy and confidence in the day-to-day activities, but not arrogance or complacency, and with a strong willingnessto develop and to learn. These features provide an effective combination for maintaining the operations safely. Additionally, the functions have helped in earning the stakeholders” trust, as well as embracing the opportunities and challenges that are presented by the energy transition.
Financing of BP
BP is financed by both equity and debt. In the field of finance, the investment can be referred to as the ownership of assets that might have liabilities such as debt. On the other hand, debt can be defined as a sum of money that is owed. In 2018, BP managed to build up is levels of total debt from 53, 372 million dollars to 58, 687 million dollars, which is comprised of both short-term and long-term debt. With the increase in debt, the corporation’s short-term and cash investments stand at 23,528 million dollars for investment.
Additionally, the corporation has produced cash of 10,691 million dollars from operations in the same financial year. The money produced lead to an operating cash to a ratio of 18.22 per cent of total debt, indicating that the obligation of the company is not covered by operating cash appropriately. Besides, the rate can also show a sign of efficiency in operations as a substitute to return on assets.
The level of current liabilities stands at 58,354 million dollars, which indicates that the corporation has maintained a safe phase of non-fixed assets to offset its obligations. In general, the ratio is reasonable for oil and gas firms. The rate is understandable because there is a considerable cash buffer without necessarily leaving a lot of capital in a low-return atmosphere. BP is a significantly greatly levered firm with a debt-to-equity ratio of 65.69 per cent. This is common for big corporations since payments of interests on debt are taxable. In other words, debt is an inexpensive source of capital in comparison to equity. As a result, larger-cap firms tend to enjoy low-cost capital since they are readily available sources of finance, offering an advantage over small firms. Regardless of how high is the debt of the company, if it can offset the payments of interest quickly, it is regarded as efficient with its utilization of excess leverage. It is understood that a corporation should have earnings before interest and tax of minimum three times the size of total interest In the case of BP, the ration of 9.43x indicates that attention is catered for appropriately.
Conclusion
The paper has examined BP for the year ended in 2018. Comparing it with the performance of the previous year, 2017, it is right to say that the corporation is moving in the right direction. The profit of the company has increased significantly. The increase does not only indicate that the continuity of the company is guaranteed, but it will also maintain its market share in the sector.
On the other hand, the board of directors of the company have to come up with strategies of ensuring the satisfaction of the shareholders is met. The board is answerable to the shareholders; thus; it has to work in a way that ensures their satisfaction is guaranteed. The study noted that there are still some loopholes that have to be filled for the corporation to meet its goals and objectives.
Bibliography
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate governance. Cambridge University Press.
Procházka, D., 2018. The Impact of Globalization on International Finance and Accounting. Springer.
Singh, H.P., Kumar, S. and Colombage, S., 2017. Working capital management and firm profitability: a meta-analysis. Qualitative Research in Financial Markets.
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