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t earnings were $1,334 million compared to $5,881 million a year ago. Earnings compared to the second quarter 2008 reflected the impact of significantly lower oil and gas prices on revenues, lower oil and gas production volumes, higher exploration expenses and non-cash pension charges, which were partly offset by lower royalty and tax expenses”.

(2nd quarter results 2009, www.shell.com )

Comparison of Shell with BP

§ Revenue Growth: Shell and BP revenue over the last three years is shown in the graph:

Growth in Revenue in $ Million

Shell and BP revenue showed a consistent growth over a period of 3 years. In 2008 Shell revenue 26.9% higher than BP. Which shows that Shell growing consistently as Shell revenue were higher 25.2% & 19.9% from BP in 2007 &2006 respectively.

(Appendix)

a. Profitability Ratios

“The profitability of a company is important and a key measure of its success. The figures shown in the profit and loss account mean very little themselves. However, by expressing them as a percentage of sales they become much more useful. The figures can then be compared with previous years or with other similar companies”.

(Student Accountant ACCA Magazine, “Christopher”, 1999.)

Gross Profit Margin: Gross profit margin shows earning on sales of a company. In the 2nd quarter of 2009 the gross profit margin has fallen 62% compared to last year’s 2nd quarter results. An indication of high profit margin is that the company earned well on sales by keeping overhead cost in control. Gross profit margin of 2008 is lower than previous years.

Net Profit: Shell net profit margin dropped by 3.2% to 5.8% in 2008 from 9% in 2007. And margin in 2006 was 8.3%.BP net profit margin dropped by 1.5% to 5.9% in 2008 from 7.4% in 2007. The 2006 margin was 8.4%.

(Appendix)

Growth in Net Profit Shell and BP (%)

The profit margin is mainly used as an internal comparison tool. As there are different levels of expenditure involved it is therefore sometimes difficult to accurately compare the net profit ratio for different entities. As compared to BP Shell’s net profit margin dropped by a higher percentage in 2008.On the other hand if we see the year 2007 the Shell profits are higher than the BP.

Return on Average Capital Employed: ROACE reflects the ability of the company to utilize the resources i.e. capital in generating revenue. Capital employed consists of total equity, currant debt and non-current debts. The published segment level contains the computation and calculation of the tax rate and the minority interest components. The strong income generation is the only reason for change in ROACE from18% to 24% between 2006 and 2008.

“There is a significant decrease in the capital employed from 24% to 18% in 2008 as compare to 2007. A significant decrease in income attributable to shareholders is partly offset by an increase in capital employed, resulted in a decrease in ROACE of 6.0% in 2008(18%) compared to 2007 (24%). The 2006 figure was 23%”.

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