British Petroleum
Working CapitalFinances short term or current assetsNecessary to cover the cost of operating the enterpriseComponents are cash, inventory, receivables and payables
Net Working Capital = Cash + Inventory + Receivables - Payables
Cash Conversion Cycle (CCC)CCC=Inventory days + Accounts Receivable days Accounts Payable dayswhereInventor Days (ID) = Inventory /Average Daily cost of goods soldAccounts Receivable Days (ARD) = Accounts Receivable / Average Daily SalesAccounts Payable Days (APD)=Accounts Payable/Average daily cost of goods sold
Sheet1
12/31/1012/31/0912/31/0812/31/07
Total revenue$297,107,000$239,272,000$367,053,000$284,365,000
Cost of Revenue$280,826,000$186,974,000$303,573,000$200,766,000Number of days per year365
Inventory$26,218,000$22,605,000$16,821,000$27,840,000
Net Receivables$37,242,000$29,740,000$29,638,000$38,890,000
Accounts payable$54,861,000$43,870,000$43,531,000$53,074,000
Average Daily Cost of goods sold769386.301369863512257.534246575831706.849315068550043.835616438
Average daily sales813991.780821918655539.7260273971005624.65753425779082.191780822
Inventory days34.076510009844.128194294420.224674131150.6141478139
Accounts receivable days45.752304725245.367197164729.472228806249.917711392
Accounts payable days71.304882738885.640516863352.339354949296.4904914179
CCC8.52393199623.8548745958-2.64245201194.0413677881
Sheet2
Sheet3
CCC for the year 2007 is negative, so the accounts receivable days are more than payable days.So the cash in 2007 were better in 2007 than in the other 4 years
Sheet1
12/31/1012/31/0912/31/0812/31/07
Total revenue$297,107,000$239,272,000$367,053,000$284,365,000
Cost of Revenue$280,826,000$186,974,000$303,573,000$200,766,000Number of days per year365
Inventory$26,218,000$22,605,000$16,821,000$27,840,000
Net Receivables$37,242,000$29,740,000$29,638,000$38,890,000
Accounts payable$54,861,000$43,870,000$43,531,000$53,074,000
Average Daily Cost of goods sold769386.301369863512257.534246575831706.849315068550043.835616438
Average daily sales813991.780821918655539.7260273971005624.65753425779082.191780822
Inventory days34.076510009844.128194294420.224674131150.6141478139
Accounts receivable days45.752304725245.367197164729.472228806249.917711392
Accounts payable days71.304882738885.640516863352.339354949296.4904914179
CCC8.52393199623.8548745958-2.64245201194.0413677881
Turn over ratios
2010200920082007
Inventory turnover ratio10.7111907858.271355894718.04726235067.2114224138
Receivable turnover ratio7.97774018588.04546065912.38454011747.3120339419
Sheet2
Sheet3
Inventory turnover ratios of BP are lower than the industry averages. So, the inventory costs are higher for BP.Receivable turnover ratios of BP are lower than the industry averages. So, the receivables for BP are very high.This confirms the answer in question 4.
If the inventory and accounts receivables were adjusted to meet the industry averages, the net receivables and inventory costs decrease. Hence the free cash flow increases.Accounts Payable increases if the Accounts payable days is adjusted to 75 days for the years 2007 and 2009. So, cash flow increases in those years.
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