Corporate Finance Harvard Case Solution & Analysis

1- Comparison of BP with the industry

Price Earnings Ratio

The Price Earnings ratio of the BP PLC is lower than the market average. The Price Earnings ratio of the BP PLC is 3.62, whereas, the P/E ratio of the industry is 14.13. The price earnings ratio is the valuation of the company stock price compared with its yearning. On the other hand, it can be analyzed that the organization price earnings ratio is improving as compared to the prior year. The price earnings ratio in the year 2013 is 2.38 where it has been increased to 3.621 in the year 2014, the increase is about 51.55%, whereas, the price earnings ratio of the company falls drastically from the year 2010-2013 with the decrease rate of 55.5%. The higher the price earnings ratio represents the market, i.e. how much investors are willing to pay to acquire the share of the company.

Enterprise Value-to-EBITDA 

The Enterprise value-to-EBITDA of the BP PLC is lower than the market average. The Price Earnings ratio of the BP PLC is 0.036% in the year 2014, whereas, the P/E ratio of the industry is 6%. Enterprise value-to-EBITDA is the indicator to determine the market value of the company. The acquirer look at the multiple potential acquire because it considers debt in making decision, whereas other multiple such as price earnings ratio does not take account of. On the other hand, it can be analyzed that the organization Enterprise value-to-EBITDA ratio is slightly improving as compared to the prior year. The price earnings ratio in the year 2013 is 0.035% where it has been increased to 0.036%  in the year 2014, the increase is about 5.11%, whereas, the Enterprise value-to-EBITDA ratio of the company fell drastically from the year 2010-2013 with the decrease rate of 3.26%.Higher price earnings ratio represents the market, i.e. how much acquirer of the company is willing to pay to acquire the company.

Operating Profit Margin

The operating profit of the BP PLC is above the market average. The operating profit of the BP PLC is 7.17% in the year 2014, whereas, the operating profit of the industry is 2.18%. Operating profit is the indicator to determine how much the company is generating its operating profit from its sale. On the other hand, it can be analyzed that the organization operating profit has been decreased as compared to the prior year. The operating profit in the year 2013 is 10.29% where it has been decreased to 7.17%  in the year 2014, the decrease is about 30.35%, whereas, the operating profit of the company falls drastically from the year 2010-2013 with the decrease rate of 32.8%.

Net Profit Margin

The Net profit of the BP PLC is above the market average. The operating profit of the BP PLC is 10.71% in the year 2014, whereas, the operating profit of the industry is 0.9%. Net profit is the indicator to determine how much the company is generating its net profit from its sale. On the other hand, it can be analyzed that the organization operating profit has been increased as compared to the prior year. The operating profit in the year 2013 is 6.18% where it has been increased to 10.71%  in the year 2014, the increase is about 70.20%, whereas, the operating profit of the company increases drastically from the year 2010-2013 with the decrease rate of 393.82%.

Return on Equity

The Return on equity of the BP PLC is above the market average. The Return on equity of the BP PLC is 3.2% in the year 2014, whereas, the Return on equity of the industry is 2.51%. Return on equity is the indicator to determine how much the company is generating profit from every single dollar invested by the shareholders. On the other hand, it can be analyzed that the organization Return on equity has been decreased as compared to the prior year. The Return on equity in the year 2013 is 19.1% where it has been decreased to 3.2%  in the year 2014, the decrease is about 83.29%, whereas, the Return on equity of the company decrease drastically from the year 2010-2013 with the decrease rate of 393.82%.

Current Ratio

The Current Ratio of the BP PLC is below the market average. The Current Ratio of the BP PLC is 1.37 in the year 2014, whereas, the Current Ratio of the industry is 1.44. On the other hand, it can be analyzed that the organization Current Ratio has been increased as compared to the prior year. The Current Ratio in the year 2013 is 1.33 where it has been increased to 1.37  in the year 2014, the increase is about 3.12%, whereas, the Current Ratio of the company is increased drastically from the year 2010-2013 with the increase rate of 22.8%..................................

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