FMA Assignment

FINANCIAL & MANAGEMENT

ACCOUNTING

ASSIGNMENT

By:
Jonathan Curt Pohl (ID: 201353436)

3603 words.

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 FMA Assignment

Table of Contents

1 INTRODUCTION………………………………………….. ................................................................ 3

2. STRATEGY AND PROPER PLANNING…………. ................................................................ 3

3. RATIO ANALYSIS………………………………………. ................................................................. 4

4. CASH FLOW………………………………………………. ............................................................... 18

5. NON FINANCIAL PERFORMANCE INDICATORS .......................................................... 19

6. CONCLUSION AND RECOMMENDATIONS ................................................................. 21

References…………………………………………………….. ............................................................... 23

APENDICES……………………………………………………. ............................................................... 24

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 FMA Assignment

1 INTRODUCTION
I am an employee of Schlumberger Oilfield Services, and I will be analyzing ROYAL
DUTCH SHELL plc which is one of the world’s largest independent oil and gas
companies in terms of market capitalization, operating cash flow and oil and gas
production. The company explores for and extracts crude oil, natural gas, and
natural gas liquids. It also converts natural gas to liquids to provide fuels and other
products; markets and trades natural gas; extracts bitumen from mined oil sands
and converts it to synthetic crude oil; and generates electricity from wind energy
[1]. With operations across the world, it covers conventional geological formations
found in Australia, Brazil and Gulf and Mexico and also explores low-permeability
reservoirs in the USA, Australia, Canada and China, which can be development with
fracturing techniques [2]. It also operates approximately 44,000 service stations.
ROYAL DUTCH SHELL plc, is a public limited company registered in England and
Wales and headquartered in The Hague, the Netherlands.

In 2014 is expected to see a continuous increase in the recovery in the global

economy and a decrease of the macroeconomic risk. Demand for oil is expected to
growth mainly driven by increased requirements in Asia and Middle East. Thanks to
the unconventional reservoirs development, oil supply in the US is expected to
continue to growth in 2014, this will create a balance in the oil market. Gas
production is expected to remain static in 2014. Exploration and production
expenditures are expected to growth around 6% [3], with no major changes in oil
price mainly drive by offer and demand controlled by the national major oil
exporter’s countries.

It is an exciting time in the oilfield business with the increase in global reserves
since it has been able to produce hydrocarbons from unconventional reservoirs,
unthinkable year’s backs. The actual biggest markets are the US, China and
Argentina with the largest proven reserves.

2. STRATEGY AND PROPER PLANNING

In ROYAL DUTCH SHELL plc words “Our strategy seeks to reinforce our position as a
leader in the oil and gas industry, while helping to meet global energy demand in a
responsible way. We aim to create competitive returns for shareholders. Safety,
environmental and social responsibilities are at the heart of our activities” [2].

Strengths
ROYAL DUTCH SHELL plc strategy for the future includes 80% of their investment in
their long time generating cash upstream business. Focusing on explorations
projects for oil and gas where ROYAL DUTCH SHELL plc technology and “know how”

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 FMA Assignment

experience will be extra value to the resources holders. The focus will be in 3
strategic schemes, integrated gas, deep water and resources plays such as shale oil
and shale gas. Another opportunity for business represents the Artic, Kazakhstan,
Nigeria and Heavy Oil but will depend on the market and local operating conditions.
With this strategic plan ROYAL DUTCH SHELL plc ensure activity for the upcoming
decades.

ROYAL DUTCH SHELL plc also has invested in research to develop biofuel, solar
power and energy for hydrogen, with this address, the current environmental
concerns on fossil fuels and their future availability, besides spread his market for
greener alternatives energy sources.

The use of scenario planning is well recognize to be use by ROYAL DUTCH SHELL
plc, this provides them a broader view of the possible futures enabling them to
create strategies to supply future energy demand and investment in new business.

ROYAL DUTCH SHELL plc has been working to change their reputation implementing
initiatives to control CO2 emissions and is been seen more positive than before.

Weaknesses
Easy and inexpensive reserves become almost inexistence at the current times.
ROYAL DUTCH SHELL plc future strategy is based on high expenditure on-going and
upcoming exploration for hydrocarbons projects, which can be jeopardized with the
high volatility of the oil prices that can leave the projects uneconomical to develop.

Besides ROYAL DUTCH SHELL plc efforts to controls their emissions still continues
to flare CO2 in the oil and gas extraction facilities with increasing environmental
regulation this can cause additional cost, delayed projects and even reduced
production to comply with the regulations.

ROYAL DUTCH SHELL plc maintains operations in Nigeria which is a highly volatile
environment. Operations have been suffering with attacks to the facilities and have
faced some security problems to their staff. Additionally Shell is accused of
environmental disasters on the Niger Delta [4]. The company may be forced to
nationalize all their assets in the country and failed to meet production targets in
future [5].

3. RATIO ANALYSIS
The following section covers all the ratios analysis on ROYAL DUTCH ROYAL DUTCH SHELL
PLC plc over 2011 and 2012 and British Petroleum (BP) has been selected as the benchmark
company

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Table 1. Table of Ratios for ROYAL DUTCH ROYAL DUTCH SHELL plc.
Current Previous
Working calculations Working calculations
year year
Profitability
ratios:-
Profit before deducting interest and Profit before deducting interest and
taxation *100 taxation *100
Return on Capital
23.83% Equity (Shareholders’ funds) plus long 28.49% Equity (Shareholders’ funds) plus long
Employed
term borrowing (debt) term borrowing (debt)
=(50289+1757)/(188494+29921)*100 =(55600+1373)/(169517+30463)*100
Return on Net profit after taxes *100
Shareholders’ Net profit after taxes *100 Equity (Shareholders’ funds)
Funds 14.24% Equity (Shareholders’ funds) 18.40% =31185/169517*100
(also called Return =26840/188494*100
on Equity)
Net Profit Net profit after taxes *100 Net profit after taxes *100
Percentage (based Revenue (sales) Revenue (sales)
5.75% 6.63%
on profit after =26840/481700*100 =31185/484489*100
interest and tax)
Gross profit*100 Gross profit*100
Gross Profit
14.77% Revenue (sales) 15.21% Revenue (sales)
Percentage
=(481700-369725-26280)/481700*100 =(484489-370044-26454)/484489*100
Operating Profit =(467153-369725-14616-14615- =((470171-370044-14335-13228-
8.97% 9.81%
Percentage 26280)/467153*100 26454)/470171)*100
Liquidity Ratios:-
Current Assets Current Assets
Current Ratio 1.18 Current Liabilities 1.17 Current Liabilities
=114734/96979 =119777/102659
Current Asset less Inventory (stock) Current Asset less Inventory (stock)
Quick Ratio (Acid
0.87 Current Liabilities 0.88 Current Liabilities
Test)
=(114734-30781)/96979 =(119777-28976)/102659
Efficiency
Ratios:-
Inventory (stock)*365 Inventory (stock)*365
Stock Holding 28.37 26.67
Cost of Sales Cost of Sales
Period (days) days days
=30781*365/(369725+26280) =28976*365/(370044+26454)
Trade receivables (debtors)*365 Trade receivables (debtors)*365
Debtors Payment 49.56 59.90
Revenue (sales) Revenue (sales)
Period (days) days days
=(65403)*365/481700 =(79509)*365/484489
Trade receivables (creditors)*365 Trade receivables (creditors)*365
Creditors Payment Purchase or Cost of Sales 80.73 Purchase or Cost of Sales
71.91
Period (days) =(72839)*365/369725 days =(81846)*365/370044

Inventory days+ Inventory days+

Cash Conversion 3.46 2.83
debtor - creditor days debtor - creditor days
Cycle (days) days days
=28.37+49.56-71.91 =26.67+59.90-80.73
Financial
Structure:-
Long Term borrowing (debt) *100
Long Term borrowing (debt) *100
Long Term borrowing plus Equity
Long Term borrowing plus Equity
Gearing 15.32% 17.27%
=((29921+4175)/(29921+4175+188494
=((30463+4921)/(30463+4921+169517)
))*100
)*100
Profit before interest and tax Profit before interest and tax
29.62 41.5
Interest Cover Interest expense Interest expense
times times
=(50289+1757)/1757 =(55600+1373)/1373
Price/Earnings ratio **
8.338 ** 7.57
(year-end)[6]
Dividend yield **
4.4% ** 5.07%
(year-end)[7]
*All figures in the above table are in Millions of US Dollars
** Values of the ratios taken from the reference source

Table 2. Table of Ratios for benchmark company BP.

Current Working calculations Previous Working calculations
year year

Profitability
ratios:-

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 FMA Assignment

Return on Capital Profit before deducting interest and Profit before deducting interest and
Employed taxation *100 taxation *100
23.83% Equity (Shareholders’ funds) plus long 28.49% Equity (Shareholders’ funds) plus long
term borrowing (debt) term borrowing (debt)
=(18809+1125)/(118414+38767)*100 =(38834+1246)/(111465+35169)*100
Return on Net profit after taxes *100
Shareholders’ Net profit after taxes *100 Equity (Shareholders’ funds)
Funds 14.24% Equity (Shareholders’ funds) 18.40% =26097/111465*100
(also called Return =11816/118414*100
on Equity)
Net Profit Net profit after taxes *100 Net profit after taxes *100
Percentage (based Revenue (sales) Revenue (sales)
5.75% 6.63%
on profit after =11816/388285*100 =26097/386463*100
interest and tax)
Gross Profit Gross profit*100 Gross profit*100
Percentage 14.77% Revenue (sales) 15.21% Revenue (sales)
=(388285-293242-33911)/388285*100 =(386463-285618-24145)/386463*100
Operating Profit =(375580-293242-13357-12481- =(375517-285618-13958-11135-
8.97% 9.81%
Percentage 33911)/375580*100 24145)/375517*100
Liquidity
Ratios:-
Current Ratio Current Assets Current Assets
1.18 Current Liabilities 1.17 Current Liabilities
=91666/77586 =89164/84318
Quick Ratio (Acid Current Asset less Inventory (stock) Current Asset less Inventory (stock)
Test) 0.87 Current Liabilities 0.88 Current Liabilities
=(91666-27867)/77586 =(89164-25661)/84318
Efficiency
Ratios:-
Stock Holding Inventory (stock)*365 Inventory (stock)*365
31.09 30.24
Period (days) Cost of Sales Cost of Sales
days days
=27867*365/(293242+33911) =25661*365/(285618+24145)
Debtors Payment Trade receivables (debtors)*365 Trade receivables (debtors)*365
51.12 61.74
Period (days) Revenue (sales) Revenue (sales)
days days
=(37664)*365/388285 =(43526)*365/386463
Creditors Payment Trade receivables (creditors)*365 Trade receivables (creditors)*365
76.03 85.58
Period (days) Purchase or Cost of Sales Purchase or Cost of Sales
days days
=(47154)*365/293242 =(52405)*365/285618
Cash Conversion Inventory days+ Inventory days+
3.46 2.83
Cycle (days) debtor - creditor days debtor - creditor days
days days
=31.09+35.41- 58.69 =30.24+41.11- 66.97
Financial
Structure:-
Gearing Long Term borrowing (debt) *100 Long Term borrowing (debt) *100
Long Term borrowing plus Equity Long Term borrowing plus Equity
15.32% 17.27%
=((38767+2102)/(38767+2101+118414 =((35169+3437)/(35169+3437+111465)
))*100 )*100
Interest Cover Profit before interest and tax Profit before interest and tax
29.62 41.5
Interest expense Interest expense
times times
=(18809+1125)/1125 =(38834+1246)/1246
Price/Earnings
ratio (year- 8.338 ** 7.57 **
end)[6]
Dividend yield
3.89% ** 7.62% **
(year-end) [8]
*All figures in the above table are in Millions of US Dollars
** Values of the ratios taken from the reference source

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 FMA Assignment

PROFITABILITY

In order to analyze the profitability of the selected company (ROYAL DUTCH ROYAL
plc), different profitability ratios has been calculated and analyzed based on the yearly
financial statement for the fiscal year of 2012 with financial information over the years
2012 and 2011. Additional, the company will be benchmarked with another company in
the oil and gas sector in order to evaluate their position in this industry. The selected
company as a benchmark is British Petroleum (BP).

Return on Capital Employed

30

25

20

15 SHELL
BP
10

0
2011 2012

Figure 1.

Return on Capital Employed (ROCE) decrease YoY for both companies. For ROYAL
DUTCH SHELL plc the ROCE drop from 28.52% in 2011 to 23.83% in 2012. For the
benchmark company the drop was steeper from 27.33% in 2011 to 12.68% in 2012 as
can be observed in Figure 1. The drop in the ROCE ratio for ROYAL DUTCH SHELL plc
is attributable to the drop of almost $5 billion in the income before tax and interest and
an increase of almost $19 billion YoY in the Equity attributable to the shareholders in
2012 [2], having said that, ROYAL DUTCH SHELL plc has a better position in the
market compared to the benchmark company.

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 FMA Assignment

Return on Shareholders Funds

25

20

15
SHELL
10 BP

0
2011 2012

Figure 2.

The Return on Shareholders Fund also called return on Equity (ROE) shows a decrease
YoY for both companies, with a larger decrease for the benchmark company. ROYAL
DUTCH SHELL plc decrease from 18.4% to 14.24% from 2011 to 2012 and BP
obtained 23.41% in 2011 to sharply drop to 9.98% (Figure 2). ROYAL DUTCH SHELL
plc reported lower profitability and larger increase in the shareholders Equity in 2012
contributed to the decrease in the ratio. ROYAL DUTCH SHELL plc demonstrates a
more stable position compared to the benchmark company.

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 FMA Assignment

Net Profit Percentage

8
7
6
5
4 SHELL

3 BP

2
1
0
2011 2012

Figure 3.

In Figure 3 is observed a decreased in the Net Profit Percentage (NPP) YoY for both
companies, with the benchmark company dropping 3.71% to finish 2012 with 3.04%
NPP, largely affected for the increase in the operational cost. For ROYAL DUTCH
SHELL plc, it was a steadier drop from 6.44% in 2011 to 5.57%. In 2012, there was an
increase in operational expenditures as a % of generated revenue, additional there was
an increased cost in exploration projects, R&D and acquisition of new assets in 2012.

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 FMA Assignment

Gross Profit Percentage

25

20

15
SHELL
10 BP

0
2011 2012

Figure 4.

For the gross profit percentage ratio (Figure 4) we can observe that the benchmark
company drops from 19.85% in 2011 to 15.74% in 2012, this is attributable for an
increase of $17 billion in their purchases, cost of production and manufacturing when
only managed to increase their total revenue YoY by $1.82 billion, part of this increase
is the cost of the Gulf of Mexico Spill in the Macondo Exploration well, where this
incident in overall has cost BP $42.2 billion [11]. For ROYAL DUTCH SHELL plc the
gross profit percentage remains almost flat YoY with a decrease of less than 1% this
indicate that even with lower revenue of more $2.7 billion in 2012 manage to control
their operational cost, indication of a well-managed operations.

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 FMA Assignment

Operating Profit Percentage

12

10

6 SHELL
BP
4

0
2011 2012

Figure 5.

Overall profitability for ROYAL DUTCH SHELL plc and the benchmark company has
decrease YoY, ROYAL DUTCH SHELL plc with 1% decrease in their operational profit
percentage, this represent over $5 Billion decrease in the company income before tax
YoY, attributed to a decrease of $3 Billion in their sales revenue and to an increase in
their operational cost percentage, larger percentages of expenditures in exploration,
research, development and acquisition of new assets in 2012 compared with the
previous fiscal year. For the benchmark company the drop is even larger with a
decrease of 4.82% in their operational profits percentage resulting in a drop of $20
Billion in their income before tax attributed to an increase YoY of more than $17 Billion
in their operational expenses, big part of this increments is related to the 2010 Macondo
incident in the Gulf of Mexico, considered the largest and more disaster incident in the
oilfield industry with over 40 Billion US$ in losses.

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 FMA Assignment

LIQUIDITY

The liquidity ratios of ROYAL DUTCH SHELL plc and BP can be observed in Figures 6
and 7. ROYAL DUTCH SHELL plc liquidity ratios remain almost flat for the Current and
Quick ratios for the reviewed years. Current ratio compares the “liquid” assets (cash and
those assets held that will soon be turned into cash) of the business with the current
liabilities [9]. The acid test ratio or quick ratio is very similar to the current ratio, but it
represents a more stringent test of liquidity [9], since inventory is not included in the
calculation.

Current Ratio
1.2
1.18
1.16
1.14
1.12
1.1 SHELL
1.08
1.06 BP
1.04
1.02
1
0.98
2011 2012

Figure 6.

For ROYAL DUTCH SHELL plc the current ratio was 1.18 in 2012 and 1.17 in 2011, as
mentioned before almost flat YoY. For BP instead in 2012 was 1.18 and in 2011 1.06
showing some liquidity problems in 2011 and recovering in 2012. Even more it is notice
that ROYAL DUTCH SHELL plc has been increasing the Current ratio in the last 5 years
from 1.1 in 2008 to 1.18 in 2012 [10]. With those results we can state that this is an
acceptable current ratio for ROYAL DUTCH SHELL plc as a company in the oil and gas
sector.

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 FMA Assignment

Quick Ratio
0.9

0.85

0.8
SHELL
0.75 BP

0.7

0.65
2011 2012

Figure 7.

The quick ratio for ROYAL DUTCH SHELL plc was 0.88 in 2011 and 0.87 in 2012, also
showing an nearly flat change YoY, for the benchmark company the results were 0.75
and 0.82 in 2011 & 2012 respectively, even though it is mentioned that the minimum
rated for this ratio is 1 [9]. Comparing the ratios with the benchmark company, ROYAL
DUTCH SHELL plc shows better ratios.

Observing the 5 years trends [10], ROYAL DUTCH SHELL plc demonstrates a
continuous improvement in his Quick Ratio from 2008 to nearly no variation YoY from
2011 to 2012.

Overall can be observed that ROYAL DUTCH SHELL plc has positive liquidity ratios
having a positive trend in the last 5 years that can help to attract short terms investors.

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 FMA Assignment

EFFICIENCY

For the analysis of the efficiency ratios of the selected company, the inventory holding,
receivables and payables period were calculated and their results benchmarked with BP
results.

Inventory Holding Period

32
31
30
29
28 SHELL

27 BP

26
25
24
2011 2012

Figure 8.

In terms of inventory holding period that measures the average period for which
inventory are being held [9] or how fast a company converts inventory in cash. The
results of ROYAL DUTCH SHELL plc as can be observed in the Figure 8, achieves
26.67 days and 28.37 days in 2011 and 2012 respectively, and compared with 31.09
days in 2012 and 30.24 days in 2011 for BP. Both companies have an efficient
management of their inventories demonstrating that the involved parties are working
effectively to maintain the current values.

Among both companies ROYAL DUTCH SHELL plc is more efficient in the reviewed
years. To maintain this type of efficiency, all the requests from operations, internal
supply chain organization and third party suppliers need to combine efforts to guarantee
that the required inventory is never over or under stock to cover sales needs.

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 FMA Assignment

Receivables Payment Period

70

60

50

40
SHELL
30
BP
20

10

0
2011 2012

Figure 9.

For the receivables payment period ratio, the results for ROYAL DUTCH SHELL plc
were 59.90 days in 2011 and 49.56 days in 2012. For BP the results were 41.11 days
and 35.41 days in 2012. For the evaluated years BP shows a faster recovery of their
receivables for both years, but both companies demonstrated efforts to reduce the days
to convert in cash the services provided, showing a positive trend for the period.

Payables Payment Period

90
80
70
60
50
SHELL
40
BP
30
20
10
0
2011 2012

Figure 10.

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 FMA Assignment

In the same alignment the payables payment period shows a decrease for both
companies with BP showing the faster payment time for their suppliers, this as a result
of a faster collection of cash.

Cash Conversion Cycle

9
8
7
6
5
SHELL
4
BP
3
2
1
0
2011 2012

Figure 11.

The last efficiency ratio calculated is the Cash Conversion Cycle (CCC). Both
companies show a negative upward trend with BP with the steeper line from 4.38 days
in 2011 to 7.80 days in 2012. ROYAL DUTCH SHELL plc has a more flat trend with
5.84 days in 2011 and 6.02 days in 2012. Out of the two companies, ROYAL DUTCH
SHELL plc shows a steadier controlled CCC, these results give confidence to the
investors that the company is maintaining good control over the processes to generate
cash.

FINANCIAL STRUCTURE

In terms of leverage (gearing) ROYAL DUTCH SHELL plc demonstrate a downward

trend from 17.27% in 2011 to 15.32% in 2012 when compared with BP that has an
almost flat result YoY with a marginal change and maintained the ratio around 25%. For
ROYAL DUTCH SHELL plc this result demonstrates that it depends less in external
financial debt to finance its investments. Also we can mention that ROYAL DUTCH

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SHELL plc represent a less financial risk for investors compared with BP, anyhow the
numbers for BP are not on the higher side and are maintained YoY.

Leverage
30

25

20

15 SHELL
BP
10

0
2011 2012

Figure 12

Both companies have a safety Interest Cover Ratio, representing a lower risk for
lenders. For ROYAL DUTCH SHELL plc in 2011 obtained 41.54 times dropping to 29.62
times in 2012. The results for BP shows similar trend with 32.17 times obtained in 2011
and dropping to 17.72 times in 2012. These results are consequence of a decrease in
profits for both companies from 2011 and 2012. For ROYAL DUTCH SHELL plc there
was a sales revenue drop in 2012 of $3 billion with an increase in their operational
costs. For BP the scenario is slight different with an increase of revenue of around $2
billion YoY surpassed with an increase of $16 billion in their operational cost. It will be a
key for the future of both companies to control their operational costs in order to
maintain their profits.

Both companies have a decrease YoY on their dividend yield, with BP with the lower
decrease from 7.62% in 2011 to 3.89% in 2012. For ROYAL DUTCH SHELL plc in 2011
the dividend yield result was 5.07% dropping to 4.4% in 2012, this is directly related to a

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 FMA Assignment

lower dividends paid in 2012 of 0.43$ per share A or share B compared to 1.71$ per
share A or share B in 2011 [2].

Dividend Yield
0.09
0.08
0.07
0.06
0.05
SHELL
0.04
BP
0.03
0.02
0.01
0
2011 2012

Figure 13.

Overall ROYAL DUTCH SHELL plc suffered a decreased in profitability YoY mainly
related to an increase in operational cost, larger expenditures in exploration, research
and development and increased depreciation related to acquired new assets. For the
analyzed period the company demonstrated stable liquidity in both years and after
analyzing the efficiency ratios, the company demonstrated that is highly efficient mature
organization and can be considered strength of the organization with a strong financial
structure. ROYAL DUTCH SHELL plc is in a better market position when compared with
the benchmark company.

4. CASH FLOW
In 2012 ROYAL DUTCH SHELL plc has a strong closure in their Consolidated Cash
Flow Statement, with an increase of available cash from $11.292 billion in 2011 to
$18.550 billion in 2012 besides the decrease of $4.345 billion YoY in the net profit. The
Cash flow in 2012 reflects a decrease in receivables, making available $14.145 billion
also shows a decrease in accounts payable and accrued liabilities of $9 billion, this

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 FMA Assignment

improvements in 2012 are aligned with the results of the efficiency ratios that
demonstrated an efficient management of the processes to generate cash and optimize
the Cash Conversion Cycle. All the mention above improves the Net cash from
operating activities of $59.393 billion in 2011 to $67.170 billion in 2012.

Aligned with their strategy there was an increase of over $6 billion in investments YoY in
form of CAPEX and more than $1.1 billion in investments in equity-accounted
investments with a total investments for 2012 of over $35 billion. Some of the major
investments in 2012 include the formation of Sirius Well Manufacturing Services, an
international Well Services Company, in partnership with China National Petroleum
Corporation, the 50:50 joint venture will use advance drilling techniques to drill multiple
wells for tight, shale and coal bed for gas extraction with potential operation across the
world. Another project started in 2012 was the exploration for new resources off the
coast of Alaska [2]. Most of these investments were financed with internal cash, rather
than acquired new loans; in 2012 the new borrowing for the period was only $5 billion.
This trend was discussed on the Leverage ratio analysis.

Overall can be concluded that ROYAL DUTCH SHELL plc finish in a strong position
increasing their available cash, this is perceived as a positive sign by the investors.

5. NON FINANCIAL PERFORMANCE INDICATORS

ROYAL DUTCH SHELL plc in their 2012 annual report includes quantitative non-
financial indicators. These indicators can help the investors and shareholders to
evaluate the performance YoY of the company in different areas than finance.

Some of the non-financial indicators reported in the annual report provide an inside of
the efficiency of the company, for the period we see an increase YoY from 79% in 2011
to 90% in 2012 in terms of projects delivered, this will provide the investors certainty
that the initiated projects will be concluded within the time frame and will not require

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 FMA Assignment

extra budget that may not be allocated in the initial CAPEX for the period. Another
efficiency indicator presented is the availability of refineries and chemical plants for both
years under revision the availability was above 90%, this is indicator that is advertised
as a measured of operational excellence of Shell’s downstream manufacturing facilities.

Another type of non –financial indicators present in the report is related to Health,
Safety and Environment, Shell shows a decrease in their Total recordable case
frequency, this remain almost flat YoY with a difference 0.1, and indicate the number of
staff or contractors injured that requires medical treatment or time off per million working
hours. The other indicator in the same area is the number of operational spills of more
than 100 kilograms with a decrease YoY from 211 to 204 in 2012. With more stringent
environmental regulations this indicator provides to oil reserves holders and future
partners that the company is responsible toward the preservation of the environment of
the area where operates.

A third set of indicators are the one related to production and oil reserves, this indicators
gives the investors the trend of production of the company. The production indicator
combines crude oil, natural gas liquids, synthetic crude oil and bitumen production.
Additional includes the gas volume, converted into equivalent barrels of oil. These
indicators also are a direct indication of current and future growth if the figures are
increasing. The reserves are crucial to oil and gas companies, since they constitute the
source of future production.

The last non-financial indicator in the number of employees, this number can be related
to the efficiency, cost savings and elimination of waste in their internal processes,
resulting in higher profitability and returns to the shareholders. For the period there was
a decrease from 90000 employees in 2011 to 87000 in 2012.

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6. CONCLUSION AND RECOMMENDATIONS

ROYAL DUTCH SHELL plc in the reviewed period, for the years 2011 and 2012, shows
a decrease in revenue YoY repeated in the net income, we can conclude that there was
no growth in the period.

The strengths for the reviewed period can be numerated as follows:

1. The company demonstrate great efficiency in their internal processes, that
increased the cash generation in the second year with optimize control of their
inventory and reducing their receivables.
2. The company possesses cash in hands to self-finance the majority of their
projects representing a lower risk for investors.
3. In 2012 the company increased their investments aligned with their future plan.

Among the weaknesses for the period we can mention:

1. Decrease of the profitability ratios mainly due an increase of operational cost and
increased investments in exploration and R&D.
2. The interest cover also a decreased directly related to final net profit of the
company in 2012.

The company needs to keep their focus in the efficiency of their internal processes and
in order to improve the profitability needs to focus in controlling their operational cost
and develop their on-going exploration projects in order to generate more revenue.

The company is able to manage its financial obligations since has on hands a good
cash flow, that has enable to look for internal financial for the majority of its exploration
projects and investments.

The company is viewed favorable in the financial markets and has been paying
increased dividends until 2011 with a decrease in 2012.

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The company is well position in the oilfield industry and is one of the top 15 with highest
yield stocks in the US [12]

ROYAL DUTCH SHELL plc is a strong performance, is a global organization recognized

worldwide for their technology and engineering solutions that provides energy to
businesses and retailers. Shell has a clear strategy future to keep in the business in the
following decades to come with strong focus in Deepwater, unconventional and
alternative energy resources. Shell also has created partnership in emerging markets
that will allow them to penetrate new markets to increase their proved reserves.

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References:

1. UK Finance Yahoo [ONLINE] Available athttp://uk.finance.yahoo.com/q/pr?s=RDSB.L

[Accessed 06th of Feb]
2. Annual report 2012 ROYAL DUTCH SHELL plc.
3. Enercom consulting. [ONLINE] Available at http://www.oilandgas360.com/barclays-
estimates-global-e-horizontal-drilling-permian-pace-north-american-growth/
[Accessed 06th of Feb]
4. Ecologist [ONLINE] Available at
http://www.theecologist.org/News/news_analysis/1809728/is_royal_dutch_ROYAL
DUTCH SHELL plc_responsible_for_irresponsible_operations_of_ROYAL DUTCH
SHELL plc_nigeria.html[Accessed 06th of Feb]
5. Oil change international [ONLINE] Available at
http://priceofoil.org/2008/10/16/nigeria-court-orders-ROYAL DUTCH SHELL plc-to-
hand-oil-terminal-back-to-locals/ [Accessed 06th of Feb]
6. Ycharts.com [ONLINE] Available at https://ycharts.com/companies/RDS.B/pe_ratio
[Accessed 06 of Feb]
7. Ycharts.com [ONLINE] Available at
http://ycharts.com/companies/RDS.B/dividend_yield [Accessed 06 of Feb]
8. Ycharts.com [ONLINE] Available at https://ycharts.com/companies/BP/dividend_yield
[Accessed 06 of Feb]
9. Page 200, Peter Atrill, Eddie McLaney, Accounting and Finance for Non-Specialists,
Eight Edition, Pearson Editorial.8th Edition.
10. Stock Analysis on Net. [ONLINE] Available at http://www.stock-analysis-
on.net/NYSE/Company/Royal-Dutch-ROYAL DUTCH SHELL plc-
PLC/Ratios/Liquidity#Current-Ratio [Accessed 06 of Feb]
11. Forbes. [ONLINE] Available at
http://www.forbes.com/sites/afontevecchia/2013/02/05/bp-fighting-a-two-front-war-
as-macondo-continues-to-bite-and-production-drops/ [Accessed 07 of Feb]
12. Top Yields [ONLINE] Available at http://www.topyields.nl/the-25-highest-yielding-oil-
stocks.php [ Accessed 06 of Feb]

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APENDICES
Appendix 1. CONSOLIDATED STATEMENT OF INCOME FOR ROYAL DUTCH SHELL plc FOR
2012

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 FMA Assignment

Appendix 2. CONSOLIDATED BALANCE SHEET FOR ROYAL DUTCH SHELL plc FOR 2012

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 FMA Assignment

Appendix 3. CONSOLIDATED STATEMENT OF CASH FLOW FOR ROYAL DUTCH SHELL plc for
2012

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Appendix 4. CONSOLIDATED STATEMENT OF INCOME FOR BP IN 2012

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 FMA Assignment

Appendix 2. CONSOLIDATED BALANCE SHEET FOR BP IN 2012

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