EC221 Individual Report CORPORATE ANALYSIS OF BRITISH AMERICAN TOBACCO 1 Table of Contents INTRODUCTION .................................................................................................................................... 2 ANALYSIS ............................................................................................................................................. 3 LIQUIDITY RATIOS ................................................................................................................. 3 Current Ratios. ............................................................................................................... 3 Acid test Ratios ............................................................................................................. 3 Operating Cash Flow to Current Liabilities ................................................................. 4 PROFITABILITY RATIOS ......................................................................................................... 5 Gross Profit Margin ....................................................................................................... 5 Operating Profit Margin ................................................................................................ 6 Net profit Margin ............................................................................................................ 6 Return on Capital Employed. ....................................................................................... 7 Return on Equity ............................................................................................................ 7 Cash Return on Capital Employed. .............................................................................. 8 EFFICIENCY RATIOS .............................................................................................................. 9 Inventory Turnover ........................................................................................................ 9 Receivables turnover .................................................................................................... 9 Payables Turnover ...................................................................................................... 10 GEARING RATIOS ................................................................................................................ 11 Debt to Equity Ratio .................................................................................................... 11 Interest Cover Ratio .................................................................................................... 12 CONCLUSION ..................................................................................................................................... 13 REFERENCES ..................................................................................................................................... 14 ...

1. EC221 Individual Report
CORPORATE ANALYSIS
OF BRITISH AMERICAN
TOBACCO
1
Table of Contents
INTRODUCTION
...............................................................................................
..................................... 2
ANALYSIS
...............................................................................................
.............................................. 3
LIQUIDITY RATIOS
...............................................................................................
.................. 3
Current Ratios.
...............................................................................................
................ 3
Acid test Ratios
...............................................................................................
.............. 3

2. Operating Cash Flow to Current Liabilities
................................................................. 4
PROFITABILITY RATIOS
...............................................................................................
.......... 5
Gross Profit Margin
...............................................................................................
........ 5
Operating Profit Margin
...............................................................................................
. 6
Net profit Margin
...............................................................................................
............. 6
Return on Capital Employed.
....................................................................................... 7
Return on Equity
...............................................................................................
............. 7
Cash Return on Capital Employed.
.............................................................................. 8
EFFICIENCY RATIOS
...............................................................................................
............... 9
Inventory Turnover
...............................................................................................
......... 9
Receivables turnover
...............................................................................................
..... 9
Payables Turnover
...............................................................................................
....... 10

3. GEARING RATIOS
.......................................................................................... .....
................. 11
Debt to Equity Ratio
...............................................................................................
..... 11
Interest Cover Ratio
...............................................................................................
..... 12
CONCLUSION
...............................................................................................
...................................... 13
REFERENCES
...............................................................................................
...................................... 14
APPENDICES
...............................................................................................
....................................... 15
APPENDIX 1
...............................................................................................
......................... 15
2017-2016 Financial Data
............................................................................................
15
2017-2016 Relevant Notes
.......................................................................................... 18
2015-2014 Financial Data
............................................................................................
19
2015-2014 Relevant Notes
.......................................................................................... 22

4. 2013 Financial Data
...............................................................................................
...... 23
2013 Relevant Notes
...............................................................................................
..... 26
APPENDIX 2
...............................................................................................
......................... 27
Financial Ratio Calculations
....................................................................................... 27
Industry Averages
...............................................................................................
........ 35
APPENDIX 3
...............................................................................................
......................... 36
British American Tobacco’s Expansion Efforts
....................................................... 36
2
Introduction
This report aims to develop an understanding of the corporate
performance of British
American Tobacco (hereafter noted as BAT), the worlds 3rd
largest tobacco company
(Passport, 2018a). A sufficient examination of BAT’s past five
fiscal years will

5. provide the transparency needed for potential acqui rers to make
their evaluations.
“Financial ratios have little significance in isolation” (Watson
& Head, 2009 p.47),
therefore, averages of BAT’s three biggest competitors will
contribute to this report
as a comparison; Philip Morris International Inc., Imperial
Brands PLC, and Japan
Tobacco (see Appendix 2). China National Tobacco Corporation
(CNTC), although
holding the biggest global share (45.3%) of the tobacco industry
(IBIS World, 2018a),
will be excluded from this report due to the inaccessibil ity of
their financial accounts.
3
Analysis
Liquidity Ratios
According to Goel (2016, p.19) the primary purpose of liquidity
ratios is to provide
information about a firm’s ability to adhere to short-term
financial obligations.
Current Ratios measure a company’s ability to pay current
liabilities with their
current assets.

6. Figure 1 shows that BAT has had a current ratio greater than
one from 2013-2016.
However, in 2017 BAT’s current ratio decreased to 0.9
indicating that they may not
have the current assets available to pay their short-term
financial obligations. The
current ratio is taken from the balance sheet that only shows a
snapshot of the
company’s financial position at any given time, thus, when
analysing this ratio
conclusions are limited. The main observation to make from
comparing the industry
benchmark and BAT’s current ratios is that there is no
correlation.
Acid test Ratios are similar to the current ratios; however, they
exclude inventory,
which may be difficult to quickly liquidate and arguably not
classed as a current
asset.
0.85
0.90
0.95

7. 1.00
1.05
1.10
1.15
2013 2014 2015 2016 2017
Cu
rr
en
t R
at
io
Year
Figure 1: Current Ratio Over Five Fiscal Years
BAT Benchmark
4
Figure 2 would indicate that four of the leading companies in
the tobacco industry
cannot pay their short-term liabilities with current assets.
Further research into the
tobacco industry shows that the acid test ratio is redundant for
many reasons. Firstly,
due to the historical nature of the balance sheet and the large

8. volume of units sold
by companies in this industry. At any point in time the current
assets will change
significantly because of the high sales volume. For example, in
the 2018 fiscal year
BAT sold, 3.9 billion pouches of snus, 189 million vapour units,
and 451 billion
cigarettes (BAT, 2018). Secondly, Figure 10 (p.9) shows that
the industry average
does sell its inventory within one year, therefore classifying
inventory as a current
asset.
Operating Cash Flow to Current Liabilities helps potential
acquirers understand
how well a company can deal with current liabilities in the short
term from their net
operational cash flows.
0.30
0.35
0.40
0.45
0.50
0.55
2013 2014 2015 2016 2017O
pe
ra

9. tin
g
Ca
sh
F
lo
w
to
C
ur
re
nt
Li
ab
ili
tie
s
Ra
tio
Year
Figure 3: Operating Cash Flow to Current Liabilities
Over Five Fiscal Years
BAT Benchmark
0.50

10. 0.52
0.54
0.56
0.58
0.60
0.62
0.64
0.66
2013 2014 2015 2016 2017
A
ci
d
Te
st
R
at
io
Year
Figure 2: Acid Test Ratio Over Five Fiscal Years
BAT Benchmark

11. 5
The most obvious finding from Figure 3 is that BAT’s ability to
pay its liabilities with
its cash flow is usually greater than the industry average, with
2017 being the only
recent year that it has a lower ratio. Technically all of the
tobacco companies
presented in Figure 3 do not generate enough cash to pay off
their current liabilities,
however this does not necessarily mean they have poor financial
health. From
tobacco industry analysis it is clear that in recent years there
has been large
investments into electronic cigarette products as a growing
number of consumers
switch to a healthier, smokeless tobacco option. For example,
BAT launched Vype in
August 2013 (Tobacco Tactics, 2018), consequently increasing
their liabilities.
Profitability Ratios
Profitability ratios help to measure how profitable a firm is and
how effective their
management are regarding generating return (Goel, 2016, p.19)
Gross Profit Margin reveals the percentage of revenue after
subtracting out the
cost of the goods.

12. BAT’s Gross profit margin is significantly higher than the
industry average. BAT may
have such a high profit margin for a number of reasons; they
have a high market
share allowing economies of scale to reduce costs, they produce
more higher priced
products such as electronic cigarettes allowing a higher price
mark-up, and/or they
may have higher perceived value based on their corporate image
helping them to
charge higher prices (Brassington & Pettit, 2013, pp. 255).
25%
35%
45%
55%
65%
75%
85%
2013 2014 2015 2016 2017
G
ro
ss
P
ro
fit
M

13. ar
gi
n
Year
Figure 4: Gross Profit Margin
Over Five Fiscal Years
BAT Benchmark
6
Operating Profit Margin measures the percentage of revenue
after deducting all
costs associated with the operating activities. Operating costs
include raw materials
and wages but excludes interest or tax.
Figure 5 shows the difference between BAT and the benchmark
has been closed by
an average of 24.9% from the gross profit margin. This
indicates that BAT has larger
operational costs (see appendix 2). This may be due to BAT
having a bigger
organisation, with 55 factories in 48 countries (BAT, 2019a).
Despite this reduction,
BAT still has a significantly larger operating profit margin,
which is attractive to
potential acquirers.

14. Net profit Margin is the percentage of revenue that is net profit.
10%
15%
20%
25%
30%
35%
40%
2013 2014 2015 2016 2017
O
pe
ra
tin
g
Pr
of
it
M
ar
gi
n
Year

15. Figure 5: Operating Profit Margin Over Five Fiscal
Years
BAT Benchmark
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
2013 2014 2015 2016 2017
N
et
P
ro
fit
M
ar
gi
n
Year
Figure 6: Net Profit Margin Over Five Fiscal
Years

16. BAT Benchmark
7
The first thing to mention when looking at Figure 6 is the large
spike that BAT has in
2017. This is due to their acquisition of Reynolds American in
July of 2017 (BAT,
2017). This is significant knowledge for a potential acquirer,
however, it should be
seen as an anomaly because in 2018 BAT’s net profit drops
back down from
£37,704 million to £6,210 million. In general, BAT has a
significantly larger net profit
margin than the industry average.
Return on Capital Employed measures how efficiently a
company generates profits
from its capital.
BAT has a lower return on capital employed compared to the
average and its ratio is
decreasing at a faster rate than the average. This shows that
BAT produces less
profit per investment in capital than its competitors which could
be due to expansion
efforts from BAT between 2013 and 2017 (Shown in Appendix
3). These activities
increase equity and non-current liabilities, consequently making
this ratio decrease.

17. Return on Equity measures how effective management is at
creating profits from
the company’s assets.
0%
5%
10%
15%
20%
25%
30%
35%
2013 2014 2015 2016 2017
Re
tu
rn
o
n
Ca
pi
ta
l E
m
pl

18. oy
ed
Year
Figure 7: Return on Capital Employed
Over Five Fiscal Years
BAT Benchmark
8
Figure 8 shows that BAT has a consistently higher and return on
equity which is
attractive for potential acquirers. BAT is more efficient in
transforming equity into
profits.
Cash Return on Capital Employed provides an evaluation of the
cash profits of a
company as a proportion to the funding required to generate
them.
-40%
-20%
0%
20%

19. 40%
60%
80%
100%
2013 2014 2015 2016 2017
Re
tu
rn
o
n
Eq
ui
ty
Year
Figure 8: Return on Equity Over Five Fiscal
Years
BAT Benchmark
0%
5%
10%
15%
20%

20. 25%
30%
35%
2013 2014 2015 2016 2017
Ca
sh
R
et
ur
n
on
C
ap
ita
l E
m
pl
oy
ed
Year
Figure 9: Cash Return on Capital Employed
Over Five Fiscal Years
BAT Benchmark

21. 9
Figure 9 shows that BAT’s cash return on capital employed has
been declining from
2013 to 2017. This may suggest that BAT’s ability to run
efficiently is decreasing and
therefore their ability to turn capital invested into cash profits
is declining. In 2017
BAT’s cash return on capital employed falls below the industry
average, but again
this is most likely due to the large acquisition of Reynold
America causing their non-
current liabilities and equity to significantly increase and thus
decreasing this ratio.
Efficiency Ratios
Efficiency ratios indicate how well a firm manages its current
assets and liabilities
(Watson & Head, 2014, p.49)
Inventory Turnover shows how long it takes for a company to
sell the inventory that
it holds.
BAT has a very high inventory turnover rate compared to the
industry average,
meaning that it takes longer for them to turn their inventory into
cash. The difference
between BAT and the benchmark may be due to the types of
inventories held. For
example, it may take longer to convert more expensive e-

22. cigarettes into cash than
normal cigarettes which are much cheaper. However, a higher
inventory turnover is
unattractive as it may suggest overstocking and weaker
inventory management.
Receivables turnover shows the number of days that it takes for
a company to
collect money owed. It can give an indication into a company’s
credit strategy when
lending to customers.
150
200
250
300
350
400
450
500
550
600
2013 2014 2015 2016 2017
D
ay
s
Year
Figure 10: Inventory Turnover Over Five Fiscal Years
BAT Benchmark

23. 10
BAT has a high receivables turnover compared to the industry
average showing that
they might be extending their credit policy too long. On the
other hand, a high
receivables turnover ratio could suggest that the directors of
BAT are manipulating
the financial accounts to increase the perceived sales and entice
investors.
Conversely, it could be possible that BAT genuinely has strong
customer
relationships and there is enough trust for them to extend their
credit periods this
long.
Payables Turnover measures the rate at which a firm pays off its
suppliers and
short-term debts.
50
70
90
110
130
150

24. 170
190
210
2013 2014 2015 2016 2017
D
ay
s
Year
Figure 12: Payables Turnover Over Five Fiscal Years
BAT Benchmark
30
35
40
45
50
55
60
65
70

25. 2013 2014 2015 2016 2017
D
ay
s
Year
Figure 11: Receivables Turnover Over Five Fiscal
Years
BAT Benchmark
11
From 2014 to 2015 BAT extended the time it takes to pay its
suppliers and again
from 2016 to 2017. This can suggest two situations inside BAT.
Either they have
negotiated longer credit periods with their suppliers, or they are
under financial
stress. The fact that BAT’s payables turnover increases at
different times to the
industry average shows that the increase is not due to industry
pressures.
Gearing Ratios
McLaney (2014, p.59) describes gearing ratios as being
‘concerned with the relative
sizes of funds provided by share-holders, on the one hand, and
by long-term
lenders, on the other hand’.

26. The Debt to Equity Ratio presents the degree to which a
company funds its
business operations by either creditor’s funds (long-term debt)
or shareholders’
funds (equity).
The industry benchmark for this ratio is a negative figure. This
is because Philip
Morris International has a negative debt to equity ratio over the
5 years because they
are going through a process of borrowing debt to repurchase
shares. This report
highlights this as an anomaly, which distorts an accurate
comparison between BAT
and its peers, therefore, Figure 13 also shows an industry
benchmark excluding
Philip Morris International. BAT had a larger and increasing
debt to equity ratio than
the industry average (excluding PMI) from 2013 to 2015 which
can be viewed as a
riskier investment as leveraging large amounts of debt can mean
it is harder to meet
interest payments. From 2015 to 2017 Figure 13 shows BAT
rapidly decreasing its
leveraging, which is due to expansion efforts. This is a
promising change for
potential acquirers.
-1.00
-0.50
0.00

27. 0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2013 2014 2015 2016 2017
D
eb
t t
oE
qu
ity
R
at
io
Year
Figure 13: Debt to Equity Ratio Over Five Fiscal
Years
BAT Benchmark Benchmark (Ex. PMI)
12
The Interest Cover Ratio can highlight significant concerns

28. within a business. It
shows how easily a company can pay the interest payments on
its debt.
BAT has a lower interest cover ratio compared to the industry
average meaning that
they have less funds to pay the interest payments on their debt.
The debt to equity
ratio highlighted potential concerns with BAT’s high leverage,
and Figure 14
reinforces that. In 2017 BAT can only pay off its interest
payments 5.8 times with
their operating profit. Whereas the industry average in 2017 is
21.2.
0.00
10.00
20.00
30.00
40.00
50.00
60.00

29. 70.00
2013 2014 2015 2016 2017
In
te
re
st
C
ov
er
R
at
io
Year
Figure 14: Interest Cover Ratio Over Five Fiscal
Years
BAT Benchmark
13
Conclusion
Conducting a corporate analysis of BAT against its industry
peers from 2013 to 2017
presents significant information about BAT’s financial health.
There are some
financial ratios that show potential warning signs, however,
with further research into
BAT’s business activities it becomes clear that in these five

30. fiscal years they have
been expanding, launching new products and acquiring other
companies. These
expansionary efforts have had a significant impact on BAT’s
profitability and gearing
ratios making them as a company seem less desirable then their
industry peers. BAT
do, however, have much larger profit margins than the industry
average and thus
show a greater ability to generate returns. With all ratios and
industry analysis
considered, this report reveals that BAT is a profitable fast-
growing company. Yet, it
also shows that BAT should be approached with caution by
potential acquirers as
the recent business activities make their future corporate
success relatively
uncertain.
14
References
BAT, (2019a) ‘Our Company’ [Online]. Available at:
https://www.bat.com/globalcompany [Accessed 21 April 2019]
BAT, (2019b) ‘Our History - a timeline’ [Online]. Available at:
https://www.bat.com/history [Accessed 27 April 2019]
BAT, (2018) ‘2018 key Group statistics’ [Online]. Available at:
https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWe

31. bLive/DO6LMNZV
[Accessed 21 April 2019]
BAT, (2017) ‘BAT Completes Acquisition of Reynolds’
[Online]. Available at:
https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWe
bLive/DOAPKCXS
Accessed 21 April 2019
BAT, (2016) ‘British American Tobacco launches glo™ – a
new-to-world Tobacco
Heating Product – in Japan’ [Online]. Available at:
https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWe
bLive/DOAFGKR3
[Accessed 24 April 2019]
Brassington, F & Pettitt, S. (2013) Essentials of Marketing. 3rd
Ed, Essex: Pearson
Education Limited
Goel, S. (2016) Financial Ratios. 1st Ed, New York: Business
Expert Press
IBIS World (2018a) ‘Major Companies’ [online]. Available at:
http://clients1.ibisworld.co.uk.ezproxy.brighton.ac.uk/reports/gl
/industry/majorcompa
nies.aspx?entid=440 [Accessed 10 April 2019]
McLaney, E. (2014) Business Finance: Theory and Practice.
10th Ed, Harrow,
England: Pearson
Passport (2018a) ‘British American Tobacco Plc in Tobacco
(World)’ [online].
Available at:
http://www.portal.euromonitor.com.ezproxy.brighto n.ac.uk/port

32. al/analysis/tab
[Accessed 10 April 2019]
Tobacco Tactics (2018) ‘E-cigarettes’ [Online]
http://www.tobaccotactics.org/index.php/E-cigarettes
[Accessed: 26 November 2018]
Watson, D. & Head, A. (2009) Corporate Finance Principles and
Practice. 5th Ed,
Edinburgh Gate: Pearson Education M.U.A
British American Tobacco, (2017) Annual Report and Form 20-
F 2017. London: BAT
British American Tobacco, (2015) Annual Report 2015. London:
BAT
British American Tobacco, (2013) Annual Report 2013. London:
BAT
15
Appendices
Appendix 1
2017-2016 Financial Data
(British American Tobacco, 2017)

33. 16
17
18
2017-2016 Relevant Notes
(British American Tobacco, 2017)
19
2015-2014 Financial Data
(British American Tobacco, 2015)
20

34. 21
22
2015-2014 Relevant Notes
(British American Tobacco, 2015)
23
2013 Financial Data
(British American Tobacco, 2013)
24
25
26

35. 2013 Relevant Notes
(British American Tobacco, 2013)
27
Appendix 2
Financial Ratio Calculations
Current Assets
÷
Current Liabilities
=
Current Ratio
BAT
2013 9,518.00 8,436 1.13
2014 9,132.00 8,769 1.04

36. 2015 9,814.00 9,006 1.09
2016 12,359.00 11,856 1.04
2017 13,966.00 15,544 0.90
Imperial
Brands
2013 8,248 10,984 0.75
2014 7,183 7,735 0.93
2015 7,468 9,141 0.82
2016 7,534 10,125 0.74
2017 6,896 10,878 0.63
Philip Morris
International
2013 16,852.00 17,066.00 0.99
2014 15,484.00 15,112.00 1.02
2015 15,804.00 15,386.00 1.03
2016 17,608.00 16,467.00 1.07
2017 21,594.00 15,962.00 1.35
Japan
Tobacco Inc.
2013 1,210,552.00 1,112,867.00 1.09
2014 1,696,507.00 1,360,098.00 1.25
2015 1,795,313.00 1,265,920.00 1.42
2016 1,605,169.00 1,356,574.00 1.18
2017 1,705,370.00 1,478,623.00 1.15
Current Assets
-

37. Inventory
÷
Current
Liabilities
=
Acid Test
BAT
2013 9,518.00 4,042.00 8,436 0.65
2014 9,132.00 4,133.00 8,769 0.57
2015 9,814.00 4,247.00 9,006 0.62
2016 12,359.00 5,793.00 11,856 0.55
2017 13,966.00 5,864.00 15,544 0.52
Imperial Brands
2013 8,248 3,239.00 10,984 0.46
2014 7,183 2,875.00 7,735 0.56
2015 7,468 2,842.00 9,141 0.51
2016 7,534 3,498.00 10,125 0.40
2017 6,896 3,604.00 10,878 0.30
Philip Morris
International
2013 16,852.00 9,846.00 17,066.00 0.41
28

38. 2014 15,484.00 8,592.00 15,112.00 0.46
2015 15,804.00 8,473.00 15,386.00 0.48
2016 17,608.00 9,017.00 16,467.00 0.52
2017 21,594.00 8,806.00 15,962.00 0.80
Japan Tobacco
Inc.
2013 1,210,552.00 473,042.00 1,112,867.00 0.66
2014 1,696,507.00 587,849.00 1,360,098.00 0.82
2015 1,795,313.00 563,820.00 1,265,920.00 0.97
2016 1,605,169.00 558,846.00 1,356,574.00 0.77
2017 1,705,370.00 612,954.00 1,478,623.00 0.74
Net Cash Flows from
Operating Activities
÷
Current
Liabilities
=
Operating Cash Flow
to Current Liabilities
BAT
2013 4,436.00 8,436 0.53
2014 3,716.00 8,769 0.42
2015 4,720.00 9,006 0.52
2016 4,610.00 11,856 0.39

39. 2017 5,347.00 15,544 0.34
Imperial
Brands
2013 2,352.00 10,984 0.21
2014 2,502.00 7,735 0.32
2015 2,747.00 9,141 0.30
2016 3,157.00 10,125 0.31
2017 3,065.00 10,878 0.28
Philip
Morris
International
2013 10,135.00 17,066.00 0.59
2014 7,739.00 15,112.00 0.51
2015 7,865.00 15,386.00 0.51
2016 8,077.00 16,467.00 0.49
2017 8,912.00 15,962.00 0.56
Japan
Tobacco
Inc.
2013 466,608.00 1,112,867.00 0.42
2014 543,696.00 1,360,098.00 0.40
2015 468,432.00 1,265,920.00 0.37
2016 376,549.00 1,356,574.00 0.28
2017 419,212.00 1,478,623.00 0.28

40. 29
Gross Profit
÷
Sales
=
Gross Profit Margin
BAT
2013 11,912.00 15,260.00 78.1%
2014 10,883.00 13,971.00 77.9%
2015 9,887.00 13,104.00 75.5%
2016 10,974.00 14,751.00 74.4%
2017 15,772.00 20,292.00 77.7%
Imperial
Brands
2013 5,529.00 28,269.00 19.6%
2014 5,181.00 26,460.00 19.6%
2015 5,171.00 25,289.00 20.4%
2016 5,956.00 27,634.00 21.6%
2017 6,427.00 30,247.00 21.2%
Philip
Morris
International

41. 2013 20,807.00 80,029.00 26.0%
2014 19,331.00 80,106.00 24.1%
2015 17,429.00 73,908.00 23.6%
2016 17,294.00 74,953.00 23.1%
2017 18,316.00 78,098.00 23.5%
Japan
Tobacco
Inc.
2013 1,220,804.00 2,120,196.00 57.6%
2014 1,197,208.00 2,019,745.00 59.3%
2015 1,332,828.00 2,252,884.00 59.2%
2016 1,270,854.00 2,143,287.00 59.3%
2017 1,296,094.00 2,139,653.00 60.6%
Operating Profit
÷
Sales
=
Operating Profit
Margin
BAT
2013 5,526 15,260.00 36.2%
2014 4,546 13,971.00 32.5%
2015 4,557 13,104.00 34.8%
2016 4,655 14,751.00 31.6%
2017 6,476 20,292.00 31.9%

42. Imperial
Brands
2013 1,958.00 28,269.00 6.93%
2014 2,019.00 26,460.00 7.63%
2015 1,988.00 25,289.00 7.86%
2016 2,229.00 27,634.00 8.07%
2017 2,278.00 30,247.00 7.53%
Philip
Morris
International
2013 13,515.00 80,029.00 16.9%
2014 11,702.00 80,106.00 14.6%
2015 10,623.00 73,908.00 14.4%
2016 10,815.00 74,953.00 14.4%
2017 11,503.00 78,098.00 14.7%
2013 532,360.00 2,120,196.00 25.1%
2014 499,880.00 2,019,745.00 24.7%
30
Japan
Tobacco
Inc.
2015 565,229.00 2,252,884.00 25.1%
2016 593,239.00 2,143,287.00 27.7%
2017 561,101.00 2,139,653.00 26.2%

43. Net Profit
÷
Sales
=
Net Profit
Margin
BAT
2013 4,199.00 15,260.00 27.5%
2014 3,393.00 13,971.00 24.3%
2015 4,522.00 13,104.00 34.5%
2016 4,839.00 14,751.00 32.8%
2017 37,704.00 20,292.00 186%
Imperial
Brands
2013 961.00 28,269.00 3.40%
2014 1445.00 26,460.00 5.46%
2015 1723.00 25,289.00 6.81%
2016 669.00 27,634.00 2.42%
2017 1447.00 30,247.00 4.78%
Philip
Morris
International
2013 8,576.00 80,029.00 10.7%

44. 2014 7,493.00 80,106.00 9.4%
2015 6,873.00 73,908.00 9.3%
2016 6,967.00 74,953.00 9.3%
2017 6,035.00 78,098.00 7.7%
Japan
Tobacco
Inc.
2013 351,518.00 2,120,196.00 16.6%
2014 368,626.00 2,019,745.00 18.3%
2015 490,242.00 2,252,884.00 21.8%
2016 425,773.00 2,143,287.00 19.9%
2017 396,749.00 2,139,653.00 18.5%
Operating
Profit
÷
Equity
÷
Non-Current
Liabilities
=
Return on
Capital
Employed
BAT

45. 2013 5,526 6,935.00 11,510.00 0.30
2014 4,546 5,814.00 11,584.00 0.26
2015 4,557 5,032.00 17,477.00 0.20
2016 4,655 8,406.00 19,511.00 0.17
2017 6,476 61,026.00 64,468.00 0.05
Imperial
Brands
2013 1,958.00 5639.00 11,645.00 0.11
2014 2,019.00 5463.00 12,693.00 0.11
2015 1,988.00 5696.00 15,297.00 0.09
31
2016 2,229.00 5742.00 16,862.00 0.10
2017 2,278.00 6226.00 13,886.00 0.11
Philip
Morris
International
2013 13,515.00 -6,274.00 27,376.00 0.64
2014 11,702.00 -11,203.00 31,278.00 0.58
2015 10,623.00 -11,476.00 30,046.00 0.57
2016 10,815.00 -10,900.00 31,284.00 0.53
2017 11,503.00 -10,230.00 37,236.00 0.43
Japan
Tobacco
Inc.

46. 2013 532,360.00 1,892,012.00 847,658.00 0.19
2014 499,880.00 2,622,503.00 722,106.00 0.15
2015 565,229.00 2,521,524.00 770,790.00 0.17
2016 593,239.00 2,528,041.00 859,759.00 0.18
2017 561,101.00 2,842,027.00 900,833.00 0.15
Net Profit
÷
Equity
=
Return on
Equity
BAT
2013 4,199.00 6,935.00 0.61
2014 3,393.00 5,814.00 0.58
2015 4,522.00 5,032.00 0.90
2016 4,839.00 8,406.00 0.58
2017 37,704.00 61,026.00 0.62
Imperial
Brands
2013 961.00 5639.00 0.17
2014 1445.00 5463.00 0.26
2015 1723.00 5696.00 0.30
2016 669.00 5742.00 0.12
2017 1447.00 6226.00 0.23

47. Philip
Morris
International
2013 8,576.00 -6,274.00 -1.37
2014 7,493.00 -11,203.00 -0.67
2015 6,873.00 -11,476.00 -0.60
2016 6,967.00 -10,900.00 -0.64
2017 6,035.00 -10,230.00 -0.59
Japan
Tobacco
Inc.
2013 351,518.00 1,892,012.00 0.19
2014 368,626.00 2,622,503.00 0.14
2015 490,242.00 2,521,524.00 0.19
2016 425,773.00 2,528,041.00 0.17
2017 396,749.00 2,842,027.00 0.14
Cash Flows from
Operating
Activities ÷
Equity
+
Non-Current
Liabilities =
Cash Return on
Capital

48. Employed
BAT
2013 5,366.00 6,935.00 11,510.00 0.29
2014 4,634.00 5,814.00 11,584.00 0.27
32
2015 5,400.00 5,032.00 17,477.00 0.24
2016 4,893.00 8,406.00 19,511.00 0.18
2017 6,119.00 61,026.00 64,468.00 0.05
Imperial
Brands
2013 3,120.00 5639.00 11,645.00 0.18
2014 2,832.00 5463.00 12,693.00 0.16
2015 2,827.00 5696.00 15,297.00 0.13
2016 3,420.00 5742.00 16,862.00 0.15
2017 3,568.00 6226.00 13,886.00 0.18
Philip
Morris
International
2013 -2,407.00 -6,274.00 27,376.00 -0.11
2014 -2,407.00 -11,203.00 31,278.00 -0.12
2015 5,389.00 -11,476.00 30,046.00 0.29
2016 1,490.00 -10,900.00 31,284.00 0.07
2017 3,762.00 -10,230.00 37,236.00 0.14
Japan
Tobacco

49. Inc.
2013 569,804.00 1,892,012.00 847,658.00 0.21
2014 707,703.00 2,622,503.00 722,106.00 0.21
2015 581,310.00 2,521,524.00 770,790.00 0.18
2016 555,557.00 2,528,041.00 859,759.00 0.16
2017 531,587.00 2,842,027.00 900,833.00 0.14
Inventory
÷
Cost of Sales
X 365 =
Cash Return on
Capital
Employed
BAT
2013 4,042.00 3,348.00 440.66
2014 4,133.00 3,088.00 488.52
2015 4,247.00 3,217.00 481.86
2016 5,793.00 3,777.00 559.82
2017 5,864.00 4,520.00 473.53
Imperial
Brands
2013 3,239.00 22,740.00 51.99
2014 2,875.00 21,279.00 49.32

50. 2015 2,842.00 20,118.00 51.56
2016 3,498.00 21,678.00 58.90
2017 3,604.00 23,820.00 55.23
Philip
Morris
International
2013 9,846.00 10,410.00 345.22
2014 8,592.00 10,436.00 300.51
2015 8,473.00 9,365.00 330.23
2016 9,017.00 9,391.00 350.46
2017 8,806.00 10,432.00 308.11
Japan
Tobacco
Inc.
2013 473,042.00 899,392.00 191.97
2014 587,849.00 822,538.00 260.86
2015 563,820.00 920,056.00 223.68
2016 558,846.00 872,433.00 233.80
33
2017 612,954.00 872,433.00 265.22

51. Trade
Receivables
÷
Sales
X
365 =
Receivables
Turnover
BAT
2013 2,208.00 15,260.00 52.81
2014 2,071.00 13,971.00 54.11
2015 2,355.00 13,104.00 65.60
2016 2,696.00 14,751.00 66.71
2017 3,306.00 20,292.00 59.47
Imperial
Brands
2013 2,899.00 28,269.00 37.43
2014 2,761.00 26,460.00 38.09
2015 2,454.00 25,289.00 35.42
2016 2,671.00 27,634.00 35.28
2017 2,539.00 30,247.00 30.64
Philip
Morris
International

52. 2013 3,853.00 80,029.00 17.57
2014 4,004.00 80,106.00 18.24
2015 2,778.00 73,908.00 13.72
2016 3,499.00 74,953.00 17.04
2017 3,738.00 78,098.00 17.47
Japan
Tobacco
Inc.
2013 387,837.00 2,120,196.00 66.77
2014 448,402.00 2,019,745.00 81.03
2015 406,387.00 2,252,884.00 65.84
2016 396,934.00 2,143,287.00 67.60
2017 431,199.00 2,139,653.00 73.56
Trade
Payables
÷
Cost of
Sales
X
365 =
Payables
Turnover
BAT
2013 814.00 3,348.00 88.74

53. 2014 764.00 3,088.00 90.30
2015 1056.00 3,217.00 119.81
2016 1281.00 3,777.00 123.79
2017 2298.00 4,520.00 185.57
Imperial
Brands
2013 7,303.00 22,740.00 117.22
2014 6,957.00 21,279.00 119.33
2015 6,795.00 20,118.00 123.28
2016 7,991.00 21,678.00 134.55
2017 8,104.00 23,820.00 124.18
2013 1,274.00 10,410.00 44.67
2014 1,242.00 10,436.00 43.44
34
Philip
Morris
International
2015 1,289.00 9,365.00 50.24
2016 1,666.00 9,391.00 64.75
2017 2,242.00 10,432.00 78.44
Japan
Tobacco
Inc.
2013 312,741.00 899,392.00 126.92
2014 419,764.00 822,538.00 186.27

54. 2015 373,032.00 920,056.00 147.99
2016 377,933.00 872,433.00 158.12
2017 395,733.00 872,433.00 171.23
Long-Term
Debt
÷
Equity
=
Debt to Equity
BAT
2013 11,510.00 6,935.00 1.66
2014 11,584.00 5,814.00 1.99
2015 17,477.00 5,032.00 3.47
2016 19,511.00 8,406.00 2.32
2017 64,468.00 61,026.00 1.06
Imperial
Brands
2013 7,857.00 5639.00 1.39
2014 9,462.00 5463.00 1.73
2015 12,250.00 5696.00 2.15
2016 12,394.00 5742.00 2.16
2017 10,196.00 6226.00 1.64
Philip
Morris

55. International
2013 24,023.00 -6,274.00 -3.83
2014 26,929.00 -11,203.00 -2.40
2015 25,250.00 -11,476.00 -2.20
2016 25,851.00 -10,900.00 -2.37
2017 31,334.00 -10,230.00 -3.06
Japan
Tobacco
Inc.
2013 270,399.00 1,892,012.00 0.14
2014 101,001.00 2,622,503.00 0.04
2015 215,938.00 2,521,524.00 0.09
2016 339,036.00 2,528,041.00 0.13
2017 346,955.00 2,842,027.00 0.12
Operating Profits
÷
Interest
=
Interest Cover
BAT

56. 2013 5,526 570.00 9.69
2014 4,546 571.00 7.96
2015 4,557 596.00 7.65
35
2016 4,655 641.00 7.26
2017 6,476 1,114.00 5.81
Imperial
Brands
2013 1,958.00 1,463.00 1.34
2014 2,019.00 1,059.00 1.91
2015 1,988.00 1,209.00 1.64
2016 2,229.00 1,984.00 1.12
2017 2,278.00 1,360.00 1.68
Philip Morris
International
2013 13,515.00 978.00 13.82
2014 11,702.00 1,068.00 10.96
2015 10,623.00 1,045.00 10.17
2016 10,815.00 1,052.00 10.28
2017 11,503.00 1,050.00 10.96
Japan
Tobacco Inc.
2013 532,360.00 8,703.00 61.17
2014 499,880.00 7,050.00 70.90
2015 565,229.00 3,538.00 159.76
2016 593,239.00 6,788.00 87.40

57. 2017 561,101.00 11,035.00 50.85
Industry Averages
The industry averages were calculated by finding the mean
average of the financial ratios
from Imperial Brands, Philip Morris International and Japan
Tobacco Inc. British American
Tobacco was not included in the average as that would made the
industry average figures
closer to that of British American Tobacco’s ratios, making the
comparison less effective.
2013 2014 2015 2016 2017
Current Ratio 0.94 1.07 1.09 1.00 1.05
Acid Test Ratio 0.51 0.61 0.65 0.56 0.61
Operating Cash Flow to Current Liabilities 0.41 0.41 0.39
0.36 0.37
Gross Profit Margin 34.4% 34.3% 34.4%
34.6% 35.1%
Operating Profit Margin 16.3% 15.7% 15.8%
16.7% 16.2%
Net Profit Margin 10.2% 11.0% 12.6% 10.5%
10.4%
ROCE 0.32 0.28 0.28 0.27 0.23
ROE -0.34 -0.09 -0.03 -0.12 -0.07
Cash Return on Capital Employed 0.09 0.08 0.20 0.13
0.15
Inventory Turnover 196.40 203.56 201.82 214.39
209.52
Receivable Turnover 40.59 45.79 38.33 39.97
40.56
Payables Turnover 96.27 116.35 107.17 119.14
124.62

58. Gearing Ratio 0.69 0.79 0.86 0.84 0.74
Debt to Equity -0.76 -0.21 0.01 -0.03 -0.43
Interest Cover 25.44 27.92 57.19 32.93
21.16
36
Appendix 3
British American Tobacco’s Expansion Efforts
(BAT, 2019b)
BUSI 304
Health Policy Article and Letter Assignment Instructions
These instructions cover the article and letter due in weeks 2
and 6. You will address an issue related to a specific legislative
policy that affects healthcare in a written article that follows
current APA format that you would follow for a paper. Then,
you will use your findings to compose a letter that you could
send to a legislator. The article must include the following:
· Description of the legislative policy with a negative or
positive impact on healthcare or public health
· Explanation of why the policy is harmful or helpful to
healthcare and ultimately to the delivery of quality patient care
· Impact of the policy from a cost perspective
· Recommendation(s) for policy revision or replacement
The article must be 400–500 words, cite at least 2 peer-

59. reviewed journal articles for support, integrate a biblical
worldview, and follow current APA format. The article you
write in weeks 2 and 6 must address a different legislative
policy.
In addition to the article, you will compose a letter for those
concerned about the issue addressed in the article to personalize
and send to the appropriate legislator(s). The letter must outline
the issue and recommendation(s) for policy revision or
replacement and seek the endorsement of the legislator(s). The
letter must be 200–250 words and follow current APA format
contained after the reference page.
EC221
Assignment 3
Individual Report
Royal Dutch Shell
Tutor: …………..
Course code: EC221
Student: ………….

60. Student No. ……….
Seminar group: …..
Word count: 1821
2
Table of Contents
Introduction
...............................................................................................
............................................. 3
Finance Analysis
...............................................................................................
....................................... 3
Profitability ratios
...............................................................................................
................................ 3
ROCE
...............................................................................................
................................................. 3
Net Profit Margin
...............................................................................................
............................. 4

61. Efficiency ratios
...............................................................................................
.................................... 4
Receivable Turnover
...............................................................................................
........................ 4
Payable Turnover
...............................................................................................
............................. 5
Gearing/ Financial Risk ratios
...............................................................................................
............... 6
Gearing ratios
...............................................................................................
................................... 6
Cash Interest Cover
...............................................................................................
.......................... 7
Liquidity ratios
...............................................................................................
..................................... 7
Current Ratio
...............................................................................................
.................................... 7
Operating Cash Flow to Current Liabilities
..................................................................................... 8
Investor Ratios

62. ...............................................................................................
..................................... 9
Dividend per share
...............................................................................................
........................... 9
Dividend Cover
...............................................................................................
............................... 10
Conclusion
...............................................................................................
.............................................. 11
References
...............................................................................................
............................................. 12
Appendices
...............................................................................................
............................................. 14
Appendix 1
...............................................................................................
......................................... 14
Appendix 2
...............................................................................................
......................................... 23
Appendix 3
...............................................................................................
......................................... 26

63. 3
Introduction
In this report I will examine the performance of one of the top
oil and gas producers; Royal
Dutch Shell PLC. The selected ratios will be calculated (see
app. 2) and compared with other
leaders in this industry, such as Exxon Mobil, British Petroleum
(BP), Chevron Corp. and
Sinopec. This will provide an understanding of the company’s
profitability, financial risk,
earnings and their cash flows over past 5 years using company’s
financial statements (see
app.1). By comparing Royal Dutch Shell with other industry
(see app.3) leaders the report
hopes to provide a balanced and transparent overview of the
aforementioned ratios. This ratio
analysis and benchmarking will give us an informed insight into
whether or not to acquire the
Royal Dutch Shell as a profitable and reliable investment in the
future.
Finance Analysis

64. Profitability ratios
‘Profitability ratios indicate how successful the managers of a
company have been in
generating profit’ (Watson and Head, p.48, 2010). Here we will
be looking at Royal Dutch
Shell Return on Capital Employed (ROCE) and Net Profit
Margin known also as Operating
Profit Margin ratios (calculations can be seen in app.2) over
past 5 years.
ROCE is easy to calculate and interpreted as results are in
percent. Therefore it is easy to
compare with different companies. This ratio looks at the
company’s overall profitability.
Royal Dutch Shell has had a healthy increase in ROCE; from
15.9% in 2010 to a peak of
22.9% over the 5 year period, as shown in the above graph in
2011. This sharp increase could
be due to company’s strong performances and their share price
increase. Industry average in
this time scale is also following the lead of growth ROCE
between 2010 and 2011.
Starting from 2011 onwards there is a decrease in ROCE. This

65. is due to generally weaker oil
prices.
0
5
10
15
20
25
2010 2011 2012 2013 2014
Return on Capital Employed (ROCE) %
Royal Dutch Shell Industry Average
4
‘Royal Dutch Shell Plc, Europe’s biggest oil company, reported
a larger decline than expected
in second-quarter earnings as crude prices dropped and
maintenance work on fields held back
production’ (Gismatullin and Lacqua , 2012).
The oil industries average decrease is more even than that

66. reported by Shell. Shell’s ROCE is
steadily above industries average, only in 2013 it fell under
industries average by 12.7%,
where the overall industry average was 13.76%.
Net Profit Margin is shown as percentage. This ratio measures
how much the company earns
per each dollar spent.
In 2010 Shell had an income of 9.6 cents per every dollar they
spent, where industry average
earned 7.74 cents per every dollar spent. Shell reached a peak
high in 2011 with 11.8 percent
with the industry average just 1.52% below that.
‘Shell also said it had sold $4bn of non-core assets in the first
six months of the year, which
was a "key driver" to reducing costs and improving its operating
performance’ (bbc.co.uk,
2011).
Efficiency ratios
Receivable Turnover
Receivable turnover ratio monitors how well the company deals
with their receivables.
‘The lower the amount of uncollected monies from its

67. operations, the higher this ratio will be.
In contrast, if a company has more of its revenues awaiting
receipt, the lower the ratio will be’
(financeformulas.net, 2012).
This ratio is also known as debtor’s turnover ratio. This looks at
companies’ ability to issue
credit and collect the debt in sensible time.
0
2
4
6
8
10
12
14
2010 2011 2012 2013 2014
Net Profit Margin (Operating Profit Margin) %
Royal Dutch Shell Industries Average

68. 5
Receivable Turnover
(days)
Royal Dutch Shell Industry Average
2010 986 216
2011 14 20
2012 11 19
2013 13 20
2014 18 21
In 2010 Shell had a record high account receivable turnover,
collecting payment from
customers every 986 days. However, this data seems unrealistic;
with the average payment
schedules usually amounting to between 19 and 21 payments
annually. One could argue this
anomaly a possible mistake in the account receivable data (see
app. 1).

69. ‘A very high accounts receivable turnover number can indicate
an excessively restrictive credit
policy, where the credit manager is only allowing credit sales to
the most credit-worthy
customers, and letting competitors with looser credit policies
take away other sales’
(accountingtools.com, 2016).
Due to this high number of receivables, industry average was
significantly influenced. For
the following 4 years there is a more reasonable time for
accounting receivable turnover
which is between 11 and 18 days. Where industries average are
between 19 and 21 day.
Payable Turnover
‘The accounts payable turnover ratio indicates how many times
a company pays off its
suppliers during an accounting period’ (thestrategiccfo.com,
2015).
6

70. According to the payable turnover Shell pays their payables
only twice a year; in 2010, 2011
and 2013. In 2012 Shell received payables only once a year. In
2014 they made their
payments 4 times in a year. Where industry averages pays their
payables as many as 26 times
a year.
Gearing/ Financial Risk ratios
Gearing ratios look at debt and equity proportions in the
company. Financial leverage or
capital structure looks at the mix and utilization of equity and
debt capital. Royal Dutch Shell
adapt the traditional capital structure approach. This particular
approach lends faith to an
optimal capital structure. ‘This approach very clearly implies
that the cost of capital decreases
within the reasonable limit of debt and then increases with
average’ (Chand, 2015).
Shell keeps their gearing ratio under 50% which helps them to
reduce capital costs. Their
highest gearing appeared in 2010 with 29.5%. In 2010 the Shell
may have needed to use more
debt financing due to high investments in explorations, plants
etc. Industry average highest
gearing usage was in 2014 with 27.13%.

71. The company main objective should be shareholder wealth
maximisation. They then should
keep the costs down to increase the revenues, which all 5
companies are doing by keeping
gearing under the 50% mark.
7
Cash Interest Cover shows how much cash is available to meet
interest payments.
Interest Cover
(times)
Royal Dutch Shell Industry Average
2010 1,676 362.88
2011 1,571.3 358.34
2012 330 100.03
2013 18.2 743.48
2014 2,437.6 513.56

72. Shell have a very high coverage for cash interest cover
compared to industries average. This
could mean that they have a high number of cash unused sitting
in the bank, which could be
reinvested back into the company or payed out as a dividends.
Royal Dutch Shell and Exxon
Mobil should consider their opportunity costs related to this
cash. The rest of industries taken
into account for this average have a reasonable amount of
interest cover, using the available
money for better use.
Liquidity ratios
Current Ratio measures the ability to pay its debt over the 12
month period. This ratio shows
how much protection they have over each $1 borrowed.
The Current Ratio shows that the debt level of Royal Dutch
Shell is balanced and desirable
for investors. The above graph shows that Shell PLC has
between1.1:1 and 1.2:1 ratios for
debt cover. This protection stays steady over the 5 year period,
even though the company’s
revenue changes over these years, the debt is protected.

73. However, as these ratios are based on
the balance sheet in the financial statement this data can be
manipulated for the company’s
personal gain.
8
Operating Cash Flow to Current Liabilities
‘Current liabilities are paid with cash so this ratio allows us to
tell if a business is generating
enough cash from operations to meet these liabilities’
(accofina.com, 2013). If the operating
cash flow to current liabilities ratio is under 1 it means that they
do not have generated cash
to pay off short term liabilities. It is interesting that both Shel l
and the industry average do not
have enough cash over this 5 year period, especially as all these
5 oil and gas companies are
considered as leaders in their field of business. This cash could
have been re-invested back
into the company or have been tied up somewhere else. The
above graph shows that

74. industries and Royal Dutch Shells cash flows are improving
gradually over the years and
becoming healthier.
9
Investor Ratios
Dividend per share is the total dividend paid for the share over
the year, it can be made as one
or two payments. The above graph shows that dividends for
Royal Dutch Shells shareholders
have been growing slowly but with a steady pace. Royal Dutch
Shells dividend policy is to;
‘grow the US dollar dividend in line with our view of the
underlying earnings and cash flow
of Shell’ (Shell.com, 2016).
Even though Shells revenue has decreased in 2012, 2013 and
2014 their dividend per share
has had a steady increase to keep their shareholders pleased.
Stable dividend policy is

75. favourable in the shareholder view as they know their dividend
is going to increase every
year.
Industry average also has a steady increase in dividend
payments over these 5 years. Steady
growth in dividend payments send a positive signal to their
existing and potential
shareholders.
In 2011 Shell had a massive increase in revenue but they
decided not to increase dividends
and kept them the same as in 2011. ‘In 2010, the company spent
some 1.02 billion U.S.
dollars on R&D’ (statista.com, 2016).
10
Dividend Cover
Dividend Cover shows how many times the company can cover
dividend payments. Dividend
cover of less than 1.5 is viewed as a threat to shareholders as
this may impact their dividend

76. payments significantly. More than 2 times is viewed as strong.
Industry average is steadily above 2 in all 5 years
consecutively, which is a good signal for
potential investors. Royal Dutch Shell have had ups and downs
on their dividend coverage
but still they kept a steady increase on their dividend payments
each year. Industry average
11
also has a steady and very strong dividend cover, even though
with each year the coverage
declines. ‘Investors use dividend cover ratio to gauge the level
of risk associated with the
receipt of dividends on their investment’ (accounting-
simplified.com, 2013). As the Royal
Dutch Shell’s dividend cover is under 1.50 for 2013 and 2014
this may suggest that the
company will not be able to cover dividend payment in the case
of profitability falling in the
future and this may affect share valuation.
Conclusion

77. In summary by looking at Royal Dutch Shell PLC’s annual
report and financial statements
for the previous 5 year period from 2014 - 2010 we were able to
draw conclusions concerning
profitability, financial risk, efficiency, liquidity and investment,
and comparing them with
industry averages including; Sinopec, Exxon Mobil, British
Petroleum and Chevron
Corporation.
Given the information examined, I would not give the
recommendation to acquire the Royal
Dutch Shell. Even though it is the largest oil and gas company
in Europe, with healthy
revenues and steady dividend payment increases, all the major
ratios examined in the report
showed a steady decrease beginning at 2011 onwards. This may
be due to the Middle East
financial crisis which led to a massive oil price drop per barrel
and the current drive for
sustainable energy. I would advise to further analyse the most
recent financial statements of
Royal Dutch Shell, as the significant research and development
investment of the company
could lead to alternative energy sources in the future.

78. 12
References
1. Royal Dutch Shell (2015) Annual Report 2014, [Online].
Available at:
reports.shell.com/annual-report/2014/consolidated-financial-
statements.php Royal
Dutch financial statements 2014 [accessed 15 March 2016]
2. Royal Dutch Shell (2014) Annual Report 2013, [Online].
Available at:
reports.shell.com/annual-report/2013/servicepages/welcome.php
shell annual report
2013 [accessed 15 March 2016]
3. Royal Dutch Shell (2013) Annual Report 2012, [Online].
Available at:
reports.shell.com/annual-
report/2012/servicepages/about_disclaimer.php shell annual
report 2012 [accessed 15 March 2016]
4. Royal Dutch Shell (2012) Annual Report 2011, [Online].
Available at:

79. reports.shell.com/annual-
report/2011/servicepages/downloads/files/entire_shell_20f_11.p
df shell annual report
2011 [accessed 15 March 2016]
5. Royal Dutch Shell (2011) Annual Report 2010, [Online].
Available at:
reports.shell.com/annual-
report/2010/servicepages/downloads/files/all_shell_20f_10.pdf
shell annual report
2010 [accessed 15 March 2016]
6. Watson, D. and Head, A. (2010) Corporate Finance Principles
& Practice, 4th edition.
Harlow: Pearson
7. Myaccountingcourse.com (2015) Efficiency Ratio, [Online].
Available at:
http://www.myaccountingcourse.com/financial-
ratios/efficiency-ratios [accessed 10
May 2016]
8. Chand, S. (2015) Theories of Capital Structure | Financial
Management, [Online].
Available at: http://www.yourarticlelibrary.com/financial -
management/theories-of-

80. capital-structure-explained-with-examples-financial-
management/29398/ [accessed 10
May 2016]
9. Gismatullin, E. and Lacqua, F. (2012) Shell Profit Falls More
Than Expected as Oil
Prices Drop, [Online]. Available at:
http://www.bloomberg.com/news/articles/2012-
07-26/shell-profit-drops-with-oil-as-maintenance-limits-
production [accessed 11 May
2016]
10. BBC.co.uk (2011) Shell profits jump 77% on higher oil
prices, [Online]. Available at:
http://www.bbc.co.uk/news/business-14321819 [accessed 12
May 2016]
11. Accountingtools.com (2016) Accounts Receivable Turnover
Ratio, [Online].
Available at: http://www.accountingtools.com/accounts-
receivable-turnover [accessed
12 May 2016]
12. Financeformulas.net (2012) Receivables Turnover Ratio,
[Online]. Available at:
http://www.financeformulas.net/Receivables-Turnover-
Ratio.html [accessed 12 May

81. 2016]
13. The Strategic CFO (2015) Accounts Payable Turnover
Analysis, [Online]. Available
at: http://strategiccfo.com/accounts-payable-turnover-analysis/
[accessed 12 May
2016]
14. Accofina.com (2013) Operating Cash Flow to Current
Liabilities, [Online]. Available
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cash-flow-to-current-
liabilities.html [accessed 12 May 2016]
http://www.myaccountingcourse.com/financial-
ratios/efficiency-ratios
http://www.yourarticlelibrary.com/financial-
management/theories-of-capital-structure-explained-with-
examples-financial-management/29398/
http://www.yourarticlelibrary.com/financial-
management/theories-of-capital-structure-explained-with-
examples-financial-management/29398/
http://www.bloomberg.com/news/articles/2012-07-26/shell-
profit-drops-with-oil-as-maintenance-limits-production
http://www.bloomberg.com/news/articles/2012-07-26/shell-
profit-drops-with-oil-as-maintenance-limits-production
http://www.bbc.co.uk/news/business-14321819
http://www.accountingtools.com/accounts-receivable-turnover
http://www.financeformulas.net/Receivables-Turnover-
Ratio.html
http://strategiccfo.com/accounts-payable-turnover-analysis/
http://accofina.com/calculators/liquidity-ratios/operating-cash-

82. flow-to-current-liabilities.html
http://accofina.com/calculators/liquidity-ratios/operating-cash-
flow-to-current-liabilities.html
13
15. Shell.com (2016) Dividend Policy, [Online]. Available at:
http://www.shell.com/investors/dividend-information/dividend-
policy.html [accessed
12 May 2016]
16. Statista.com (2016) Royal Dutch Shell's expenditure on
research and development
from 2010 to 2015 (in million U.S. dollars), [Online]. Available
at:
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and-development-by-
royal-dutch-shell/ [accessed 13 May 2016]
17. Accounting-simplified.com (2013) Dividend Coverage
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http://accounting-simplified.com/financial/ratio-
analysis/dividend-coverage.html
[accessed 13 May 2016]

83. http://www.shell.com/investors/dividend-information/dividend-
policy.html
http://www.statista.com/statistics/260315/spending-on-research-
and-development-by-royal-dutch-shell/
http://www.statista.com/statistics/260315/spending-on-research-
and-development-by-royal-dutch-shell/
http://accounting-simplified.com/financial/ratio-
analysis/dividend-coverage.html
14
Appendices
Appendix 1
15
16

84. 17
18
19
20

85. 21
22
23
Appendix 2
Profitability Ratios:
Net Profit Margin (Operating Profit Margin) = Net Profit BIT
(Operating Profit)/ Sales x 100
2010 = 35,344 / 368,056 x 100 = 9.6%
2011 = 55,543 / 470,171 x 100 = 11.8%

86. 2012 = 50,512 / 467,153 x 100 = 10.8%
2013 = 33,592 / 451,235 x 100 = 7.4%
2014 = 28,314 / 421,105 x 100 = 6.7%
Return on Capital Employed (ROCE) = Net Profit BIT
(Operating Profit) / (Shareholders
funds+ Non-Current Liabilities (Capital Employed)) x 100
2010 = 35,344 / (149,780 + 72,228) x 100 = 15.9%
2011 = 55,543 / (171,003 + 71,595) x 100 = 22.9%
2012 = 50,512 / (189,927 + 73,419) x100 = 19.2%
2013 = 33,592 / (181,148 + 83,106) x 100 = 12.7%
2014 = 28,314 / (172,786 + 94,118) x 100 = 10.6%
Efficiency Ratios:
Receivable Turnover = Account Receivables/Sales x 365 (Days)
2010 = 1 / 368,056 x 365 = 985.5 = 986 days
2011 = 17,433 / 470,171 x 365 = 13.5 = 14 days
2012 = 12,902 / 467,153 x 365 = 10.08 = 11 days
2013 = 15,032 / 451,235 x 365 = 12.2 = 13 days
2014 = 20,652 / 421,105 x 365 = 17.9 = 18 days

87. Payable Turnover = Account Payables/Cost of Sales (Purchases
+ production and
manufacturing costs) x 365 (Days)
2010 = 927 / 307,634 x 365 = 1.10 = 2 days
2011 = 1,110 / 396,502 x 365 = 1.02 = 2 days
2012 = 1,015 / 396005 x 365 = 0.94 = 1 day
2013 = 1,647 / 381,585 x 365 = 1.58 = 2 days
2014 = 3,116 / 357,316 x 365 = 3.18 = 4 days
24
Gearing Ratios:
Gearing Ratio = Total debt/Equity x 100
2010 = 35,344 / (149,780 + 72,228) x 100 = 15.9 %
2011 = 55,543 / (171,003 + 71,595) x 100 = 22.9%
2012 = 50,512 / (189,927 + 73,419) x 100 = 19.2%
2013 = 33,592 / (181,148 + 83,106) x 100 = 12.7%
2014 = 28,314 / (172,786 + 94,118) x 100 = 10.6%

88. Cash Interest Cover = (Cash flow generated from operations +
dividends received + interest
received)/Interest
2010 = (14,127 + 14,345 + 20) / 14 = 1,676
2011 = (13,195 + 13,438 + 79) / 17 = 1,571.3
2012 = (4,086 + 3,807 + 26) / 24 = 330
2013 = (16,526 + 7,117 +175) / 1,307 = 18.2
2014 = (16,079 +18,031 + 7) / 14 = 2,437.6
Liquidity Ratios:
Current Ratio = Current Assets/Current Liabilities
2010 = 112,894 / 100,552 = 1.1
2011 = 119,777 / 102,659 = 1.2
2012 = 114,734 / 96,979 = 1.2
2013 = 103,343 / 93,258 = 1.1
2014 = 99,778 / 86,212 = 1.2
Operating Cash Flow to Current Liabilities = Net cash flow
from operating activities/Current
Liabilities

89. 2010 = 27,350 / 100, 552 = 0.27
2011 = 36,771 / 102,659 = 0.36
2012 = 46,140 / 96,979 = 0.48
2013 = 40,440 / 93,258 = 0.43
2014 = 45,044 / 86,212 = 0.52
25
Investor Ratios:
Dividend per share= Total dividends paid/No. of ordinary shares
2010 = 1.68
2011 = 1.68
2012 = 1.72
2013 = 1.80
2014 = 1.88
Dividend cover = EPS/Dividends per share
2010 = 3.28 / 1.68 = 1.95

90. 2011 = 4.97 / 1.68 = 2.96
2012 = 4.27 / 1.72 = 2.48
2013 =2.60 / 1.80 = 1.44
2014 = 2.36 / 1.88 = 1.26
2010 2011 2012 2013 2014
Net Profit Margin
(Operating Profit
Margin)
9.6 11.8 10.8 7.4 6.7
ROCE 15.9 22.9 19.2 12.7 10.6
Receivable Turnover 986 14 11 13 18
Payable Turnover 2 2 1 2 4
Gearing Ratio
Interest Cover 1,676 1,571.3 330 18.2 2,437.6
Current Ratio
Operating Cash Flow
to Current liabilities
0.27 0.36 0.48 0.43 0.52
Dividends per share 1.68 1.68 1.72 1.80 1.88

91. Dividend Cover 1.95 2.96 2.48 1.44 1.26
26
Appendix 3
Net Profit
Margin (%)
Chevron
Corp.
Sinopec
Royal
Dutch Shell
Exxon
Mobil
BP
Industry
Average

92. 2010 16.48 5.34 9.6 8.52 -1.25 7.74
2011 19.82 4.1 11.8 8.82 6.84 10.28
2012 20.66 3.23 10.8 10.1 3.08 9.57
2013 16.9 3.37 7.4 7.8 6.19 8.33
2014 16.1 2.35 6.7 8.4 1.07 6.92
Return on
Capital
employed (%)
2010 20.99 15.49 15.9 21.7 -1.97 14.42
2011 27.55 14.66 22.9 24.2 12.51 20.36
2012 23.97 11.96 19.2 25.4 5.2 17.15
2013 16.86 11.96 12.7 17.2 10.07 13.76
2014 13.83 7.85 10.6 16.2 1.17 9.93
Gearing Ratio
(%)
2010 10.85 34.03 29.6 9.83 48 26.46
2011 8.31 36.49 23.2 10.6 40 23.72

93. 2012 8.85 36.05 21.4 6.75 41 22.81
2013 13.58 34.91 24.6 12.58 37 24.53
2014 17.81 28.34 26.4 16.08 47 27.13
Interest Cover
(times)
2010 4.48 15.16 1676 121.86 -3.12 362.88
2011 6.06 14.88 1571.3 167.27 32.17 358.34
2012 3.64 9.85 330 138.95 17.72 100.03
2013 2.83 11.65 18.2 3655.44 29.3 743.48
2014 2.78 6.79 2437.6 115.33 5.31 513.56
Current ratio
2010 1.68 0.77 1.1 0.94 1.17 1.13
2011 1.58 0.76 1.2 0.94 1.16 1.13
2012 1.63 0.7 1.2 1.01 1.43 1.19
2013 1.52 0.65 1.1 0.83 1.33 1.09
2014 1.32 0.6 1.2 0.82 1.37 1.06
Operating Cash

94. Flow to Current
Liabilities
2010 0.08 0.53 0.27 0.77 0.24 0.38
2011 1.22 0.35 0.36 0.71 0.17 0.56
2012 1.13 0.29 0.48 0.88 0.26 0.61
27
2013 1.06 0.27 0.43 0.63 0.32 0.54
2014 0.99 0.25 0.52 0.7 0.47 0.59
Receivables
Turnover (days)
2010 38 8 986 32 12 216
2011 33 9 14 31 13 20
2012 32 11 11 29 14 19
2013 36 9 13 29 13 20
2014 30 12 18 26 18 21
Payables

95. Turnover (days)
2010 41 25 2 56 10 27
2011 39 26 2 51 10 26
2012 43 28 1 46 11 26
2013 43 26 2 47 11 26
2014 38 26 4 43 13 25
Dividends per
Share
2010 2.85 0.19 1.68 1.74 0.84 1.46
2011 3.72 0.22 1.68 1.85 1.68 1.83
2012 3.51 0.29 1.72 2.18 1.98 1.94
2013 3.9 0.24 1.80 2.46 2.14 2.11
2014 4.21 0.24 1.88 2.7 2.34 2.27
Dividend Cover
2010 3.34 4.29 1.26 3.58 -1.41 2.21
2011 3.64 3.76 1.44 4.55 4.7 3.62

96. 2012 3.82 2.52 2.48 4.45 1.7 2.99
2013 2.87 2.41 2.96 3 3.37 2.92
2014 2.43 1.69 1.95 2.81 0.82 1.94
Assignment 2
EC521 Finance Assignment Brief
Weighting: Individual report, 50% of module, 1750 words limit
This element of the EC221 module is assessed through an
individual corporate analysis.
You are required to select one publicly listed company from
within the global industry you
examined for Assignment 1. You are then required to use tools
of financial analysis to assess
the corporate performance of your selected company from the
perspective of a potential
acquirer.
It is expected that your interpretation of your financial analysis
will draw upon the

97. macroeconomic country analysis and global industry analysis
undertaken within the first section
of the module, where appropriate. Your interpretation of your
financial analysis will in addition
draw upon aspects of finance which we cover in the second
semester. For example, ratios
concerning liquidity and efficiency can be considered as
evidence of working capital management
practices within companies.
You are expected to compare the corporate performance of your
chosen company (i.e. by
comparing your company’s ratios with industry benchmarks
found in the web or with a close
competitor in the same industry) again drawing upon key
aspects of your macroeconomic
country analysis and global industry analysis to inform your
comparisons and benchmarking
where appropriate.
Learning Outcomes:
• Analyse and interpret financial information in a meaningful
way
• Assess the microeconomic performance of companies though

98. an understanding of
publicly available data
• Develop skills to analyse microeconomic performance and
make comparisons
• To understand the practical aspects of the financing of global
companies
Ratios
The ratio selection should be from all the categories (Liquidity,
profitability, efficiency and
gearing). You should use minimum of eight ratios from all the
categories to perform financial
analysis of your chosen company. You should demonstrate your
understanding of connecting
different ratio results, for example, decline in profitability
could effect liquidity and gearing ratios
of a company.
All the ratio calculations and the screenshots of the relevant
financial statements should
be included in the appendices of your assignment

99. Assessment Criteria:
Work will be marked in accordance with the following specific
criteria but also with reference to
the general criteria within the course handbook.
• Organization, presentation and structure (20%)
• Selection and application of tools of financial analysis (10%)
• Accuracy of ratio calculations (10%)
• Depth and quality of the interpretation (25%)
• Depth and quality of inter-company analysis (25%)
• Use of macroeconomic country analysis and global industry
analysis within the
interpretation of the financial analysis (10%)
Presentation:
Work must be presented as word processed documents and fully
referenced in line with the
guidance available in the Brighton Business School Referencing
Handbook available on
MyStudies. Full workings must be clearly shown for your
financial analysis. As you are submitting

100. through TurnItIn your workings should be organised in Word
using a table, or similar. Your tables
of workings can be included in an appendix but you will be
expected to refer to the results of
your analysis within the main text. The financial statements,
and any relevant notes upon which
the analysis is based, must also be included within an appendix.
A report format should be used which implies that your work
should include the following;
an introduction, an analysis section, and a conclusion. Your
coursework will be supported by
tutors in January in project workshop sessions. You are required
to submit your report on
MyStudies on the EC521 assignment page. You work will be
checked for plagiarism using TurnItIn
before being marked by your tutor. You should follow the
normal Business School policies
regarding your online submission via MyStudies. Full marking
criteria is provided on MyStudies
Other sources of information:
You are required to calculate your own ratios and provide
evidence of this in the provision of

101. workings. However you may find that there are additional
sources of information that you might
find useful especially for benchmarking purposes. These might
include; The London Stock
Exchange website, The Financial Times website, FAME
(Financial analysis made easy, accessed
through the online library, and Reuters.
Further information:
• If there are technical issues with submission please contact
either the module leader or
the Undergraduate Office
• The assignment will be discussed further in seminars and an
assessment briefing video is
available on MyStudies in the Assignment Help folder.
• An opportunity to discuss the assignment and criteria with
your seminar tutor will be
given in the seminars in Week 7.
• All questions on the assignment should be directed to your
seminar tutor
• Feedback and marks will be given on Turnitin and be available

102. 20 working days following
submission.
• Information on extensions is available in the Assessment and
Marks folder on MyStudies.
Formative task.
You will be given an opportunity to complete a formative task
and receive feedback.
You should calculate one ratio from each category of your
chosen company and write a brief
analysis. The instructor will use a previously submitted
assignment to demonstrate the feedback
on ratio calculations and analysis. You should make full use of
that feedback by your seminar
instructor to correct/improve ratios calculations and analysis of
your chosen company.
You should complete the task ready for your seminars in Week
11 (week beginning 10th January)
and bring them along to your seminars. Tutors will then give
feedback in class.