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“ROACE is defined as the sum of the current and previous three quarters’ income adjusted for interest expense, after tax, divided by the average capital employed for the period. In the 2nd quarter or 2009 the ROAC stands at 8.3% way below the 25.8% in the 2nd quarter of 2008”.

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

On the other hand BP utilization of its capital resources was showing a sorry picture. BP ROCE has moved in a range of 16% to 19% between 2006 and 2008. BP’s ROCE was 19% in 2006, and then reduced to 16% in 2007, followed by an increase of 1% to stand at 17%. This was due to lower income attributable to shareholders in 3 years time. This increase in 2008 was due to some increase in income attributable to shareholders.

(Appendix)

ROCE Shell and BP (%)

The drop in oil price in the second half of 2008 had a significant impact on earnings. The strengthening of the dollar against other main currencies reduced the impact of Shell’s investment plans on capital employed.

b. Efficiency Ratios

Debtor Days Shell’s receivable days has fallen from 76 days in 2007 to 65 days in 2008. The figure for 2006 was 68 days. This was due to the effective and better controlled credit policy.

(Appendix)

BP on the other hand, showed increase in its collection to 30 days in 2008 from 49 days in 2007. The 2006 figure stands at 53 days. All this reflected an aggressive and comprehensive credit control policy and ability to collect from customers.

(Appendix)

Creditors Days The payment to creditors from Shell showed improvement in payment to creditors in 2008 if we compare the figures to last three years. As creditors days reduced to 78 days in 2008 from 93 days in 2007, while the figure in 2006 was 87. This improvement shows that company has liquidity to pay off its debts and also helped in making stronger relationship with creditors, which could be Suppliers, lenders.

(Appendix)

BP’s creditor’s days showed reduction over a period of 3 years i.e. from 82 days in 2006 to 78 days in 2007 and more improved to 46 days in 2008 which showed a good sign for the company.

(Appendix)

c. Liquidity Ratios

Current Ratio “As short-term creditors prefer a high current ratio since it reduces their risk. The current ratio measures the adequacy of current assets to meet the company’s short-term liabilities as they fall due. Traditionally, a current ratio of 2:1 or higher was regarded as appropriate for most businesses to maintain creditworthiness. However, more recently a figure of 1.5:1 is regarded as a norm”.

(Kaplan Financial, Paper F7 Study Text)

Current ratio for Shell in 2008 was 1.1 and remained Constant between 2006 and 2007 to stand at 1.2. This shows better position for Shell and its ability to pay short term liabilities as they fall due.

(Appendix)

BP current ratio was also healthy between 2006 and 2007, but in 2008 the ratio was below 1 which may be not a good sign for short term 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。