Royal Dutch Shell PLC a Brief Recent

¶ … Royal Dutch Shell PLC

A Brief Recent History of Royal Dutch Shell PLC

Reason Behind Choosing

Information Gathering and Accounting Business techniques

Result, Analysis, Conclusion & Recommendations

SWOT Analysis of RDSP

Porter's Five Forces Analysis of the Chosen Company

Financial Analysis of RDSP

Finance is the name of allocating the funds at a place from where the likelihood of receiving a good return is bright (Bragg, S2006). Organization is basically referred to a place wherein hundreds of people work together just to achieve a specific goal (Cinnamon, & Larsen, B.2006). The goal may be of two fold, like the goal can be economical or can be non-economical. According to the organizational officials and analysts, investment decisions are always tough to take as far as an organization is concerned (Cinnamon, & Larsen, B.2006). The economic decisions include ad hoc research, analysis and lots of study as well. The essence of risk is always associated with the investment decision, or precisely it can be said that risk is in the heart of the investment (Cinnamon, & Larsen, B.2006). According to 95% of the people, analysts and organizational officials, whatever the organization does in to increase the shareholders equity.

Shareholders are known as the real owners of a company that is why during the investment they analyze the company critically to take the best action they can (Cinnamon, & Larsen, B.2006). The Kinds of analysis are of manifold like the investment and financial analysis, character analysis, rating analysis and credit analysis (Cinnamon, & Larsen, B.2006). The analysis pertains to the investors called the investment analysis. This work will reveal the basics of investment analysis. The brainchild of this work is to present a business analysis of chosen organization against its peer companies. The company on which this work has based on is Royal Dutch Shell PLC. This particular assignment has been broken into different parts. Let's now start the first part of the assignment which is about the recent history of the company.

A Brief Recent History of Royal Dutch Shell PLC

Royal Dutch Shell PLC (RDSP) which is commonly known as Shell is a global oil and Gas Company with its headquartering located in The Hague and registered office at the Shell Center, London United Kingdom (UK) (Financial Statements of Shell, retrieved from www.shell.com) . Shell is known the largest energy company and has been count as the second largest company of the world in terms of revenue recognition. Shell is one of those oil and gas companies which are diversified in almost every area of this particular industry like production, refining, distribution and market and exploitation (Financial Statements of Shell, retrieved from www.shell.com). The company has its active operations in more than 90 countries around the globe and on average produces 3.1 million barrels of oil per day (Financial Statements of Shell, retrieved from www.shell.com). The company has 44,000 service stations spread in all over the world (Financial Statements of Shell, retrieved from www.shell.com). The company is very productive in terms of recognizing the revenue and facilitating its shareholders is concerned. The large portfolio, both human and non-human portfolio enables the company to expand its network comprehensively. Te company has recorded net revenue amounted to U.S.$368.056 billion in the year 2010 and the net income of U.S.$20.474 billion in the same year (Financial Statements of Shell, retrieved from www.shell.com). The company has over 100,000 employees across the globe with total assets worth U.S.$322.560 billion. The company's shares are actively traded in three stock exchange of the world which is London Stock Exchange (LSE), Euro next Amsterdam and New York Stock Exchange (NYSE) (Financial Statements of Shell, retrieved from www.shell.com).

The industry in which the Shell is operating is the oil and gas industry which is the most lucrative industry of the world (Financial Statements of Shell, retrieved from www.shell.com). According to estimation 70% of the world revenue or Gross Domestic Product (GDP) has been recognized through this particular industry (Financial Statements of Shell, retrieved from www.shell.com). The products which the company produces are all of oil and energy. The name of Shell is linked to the Transport and Sports as well (Financial Statements of Shell, retrieved from www.shell.com). The Shell Brand is one of the best accustomed bartering symbols in the world. Known as the "pecten" afterwards the sea carapace Pecten maximus (the behemothic scallop), on which its architecture is based, the accepted adaptation of the cast was advised by Raymond Loewy and alien in 1971 (Financial Statements of Shell, retrieved from www.shell.com). The company has five core businesses which predominantly are production and exploitation, gas and power, refining and marketing, chemicals, trading and shipping (Financial Statements of Shell, retrieved from www.shell.com). The company has been performing wonderfully well from last few decades even at the time of economic hardship this particular company made a record to report heavy amount of revenue even at that time as well. British Petroleum and Exxon Mobil are the two biggest competitors of Shell, but have not competed the level of service of Shell yet (Financial Statements of Shell, retrieved from www.shell.com). The mission statement of the company is "To continuously derive shareholder value by producing oil related products to the entire world." The vision statement of Shell is, "To continue the stories of success and maintain the level of the world's largest oil producing company." The next section is about the intentions behind choosing the project of shell and specifically reason behind choosing Shell Company for analysis.

Reason Behind Choosing

There is a definite reason behind every thing. The reason behind choosing the project and this particular company for the project is of manifold. The foremost reason behind chosen this topic is to broaden my understanding of the subject area which also extends my skills for my ongoing career path. Shell is the largest oil manufacturing company, so the stance of data collection becomes so easy for me to do a research on it. The biggest reason behind this activity is to pursue an ACCA certificate. I have worked for Shell Petroleum Development Company in Nigeria from 2002 to 2008 as an Assistant Project Accountant for the Forados Yokri Integrated Project (FYIP). Apart from these things, the biggest reason behind choosing this particular project is that the current era is the era of analysis and I want to polish my skills by initiating such projects. The next section is about to define the research objectives and questions for this piece of work.

Research Objectives

The research objectives is of manifold which are mentioned below

• How effective is Shell's business and financial strategy over the three-year period under review?

• How did Shell fare in comparison to its competition (include BP's and Exxon Mobil's financial statement for the last three years)?

• Is the company positioned to meet future challenges/changes?

• How do Shell's financial ratios compare to its competitors (BP British Petroleum, Exxon Mobil)? Please include Three years financial statements (2008 to 2010) of Shell, BP and Exxon Mobil.

• How does the company's year on year performance measure over the 3-year period under review?

Research Approach

The approach to be adopted in carrying out this research project is as follows;

• Evaluate Shell business performance with the use of Porter's 5 Forces analyses models, SWOT, PESTEL etc.

• To research the indicators which are performing wonderfully in the context of the Oil and Gas industry and measure Shell success in achieving them?

• Compute the different financial ratios for Shell's over the review period to determine trends and financial performance.

• Review the performance of Shell's in comparison to its main competitors.

• To analyze the adequacy of its current and future strategy for the long-term business growth and sustainability.

Information Gathering and Accounting Business techniques

Organization is basically referred to a place wherein hundreds of people work together just to achieve a specific goal (Mona & Zeeshan, 2006). The goal may be of two fold, like the goal can be economical or can be non-economical (Leopard & Bernstein, 1999). According to the organizational officials and analysts, investment decisions are always tough to take as far as an organization is concerned. The economic decisions include ad hoc research; analysis and lots of study as well (Rees, 1995). Business and financial analysis of an organization will always be difficult and challenging because it needs heavy research and study to do a perfect research (Vernimmen, 2000). To do the research in a perfect manner compilation of data is very important.

Data collection method is the most difficult and time consuming method while making any research. There are a number of problems and issues associated with the data collection method. Some of these problems include the availability of relevant people who can answer the survey question with full concentration and the time it gets to complete this whole hectic and long process. The data which have been utilized to complete this report gathered from the annual and environmental report of the company covering the period from 2006-2010. Sufficient information regarding the stockpiles, share prices, press and release are available on the website of the company which is certainly very beneficial for the investor to do economic and business analysis in an impeccable manner.

Both quantitative and qualitative assay methods accept been activated to complete this allotment of work. The idea behind taking three analytical fiscal years into consideration is little bit appealing but will create substantial benefit for the company. The same economic year's data has been accumulated of the major competitors of the company which are BP and Exxon Mobil (Games, & Lyida, 2003). The tools which have been applied on this research are SWOT analysis, Porter's Five Forces Analysis and Quantitative Financial Analysis. These three tools have been utilized and applied on the company to get a clear picture regarding the performance of the chosen company in comparison to its major competitors (Games, & Lyida, 2003). There are some limitations of the research as well which have also been discussed under this ambit. Although this analysis has been done with immense affliction and research, but there are some issues which can be referred as real problems (Games, & Lyida, 2003). Other limitation includes the financial numbers presented in the computed tables of the company as these numbers can be manipulated by the accountants. The next is all about analyzing, conclusion and recommendations. Let's now start the next section of the report.

Result, Analysis, Conclusion & Recommendations

There are different methods which have been applied in this research to analyze the performance of the company from different slants. Let's first start with the SWOT analysis of the company.

SWOT Analysis of RDSP

SWOT basically a strategic management tool to analyze the non-economic performance of an organization. The acronym of SWOT is Strength, Weakness, Opportunity and Threat analysis of a company. Through effective application of the SWOT analysis, an organization becomes able to analyze the loopholes of an organization which are very important to evaluate and take effective economic decision for the company as a whole. Strength gathering enables an organization to report the major strengths which will then be used to decrease the weaknesses of the organization. The third segment of the tool is opportunity which then be used to decrease the threat associating with the company. Let's start the SWOT analysis of the company.

Strengths

There are number of strengths associated with the RDSP, because the entity is in a good financial health and position from a number of years. The company has been facilitating its shareholders with large dividend and health return from a number of years, and that is the thing which assists them to enhance their business portfolio (Financial Statements of Shell, retrieved from www.shell.com). RDSP facilitates the customer through the online bookings which can be calmly attainable to the customers. The thing which gives it a definite edge over its competitors is their sincerity and sophistication towards the customers (Financial Statements of Shell, retrieved from www.shell.com). One of the above strengths of the RDSP is their able direct name or goodwill, which absolutely helped them to advance their artifact in a definite manner. The acceptability of the entity in the middle of the mark is absolutely unmatchable because of their dilemma. The thing which absolutely induced the trade appear their articles is the low amount which suppressed the peoples to buy the accurate thing on which the tag of RDSP are duly adhered on the cover. RDSP has the ability to use the familiar assets brand in their products, which are calmly accessible on all the administration networks.

Weaknesses

No company is 100% in this world. If we taken the aforementioned statement into application on the weaknesses of the RDSP, again absolutely we will find that there are number of loopholes or added absolutely we can say that there are an abundant scarcities begin in the strategies of the aggregation (Financial Statements of Shell, retrieved from www.shell.com). One of the foremost weaknesses for the company is the connected climb burden of matter the deadlines and timescale. The burden of the assignment is so severe in the organization, which is blazing the bloom of the advisers recurrently. Analyst perceived the actuality from the abstraction that management and managers of the RDSP are awkward to agent the dominance and assignment responsibility. Lack of business action has been beginning in their continued designation planning (Financial Statements of Shell, retrieved from www.shell.com). Uncertainty and rich animation in the middle of the banking market are some of the above trounces from which the association confronted from aftermost 2 years, which disrespected an anticipation in the middle of the fiscal years.

Opportunity

The company has to assignment on the business achievement to overcome on the above triumphs. Arrival of new technologies is one of the capital opportunities for RDSP and added industries to achieve their goals in an accomplished manner (Financial Statements of Shell, retrieved from www.shell.com).

Customer focus or mark adaptation is the capital happening on which the industries charge be inflection which ultimately leaves an abundant appulse over their base line, which can be done by embracing barter barriers and accost altered advice apropos the new business through researches (Financial Statements of Shell, retrieved from www.shell.com). Partner's alliance and association and administration channels is a basic opportunities for the company to get appropriate accurately.

Threats

It is absolutely a sigh of stigma for a big group of company to have the elements of threats with in the organization (Financial Statements of Shell, retrieved from www.shell.com). There are number of threats additionally associated with the RDSP, which can decide in the continued run of the company. Political and Environmental furnishings additionally furnishings abnormally on the abundance of the corporation (Financial Statements of Shell, retrieved from www.shell.com). Retention of the key advisers as well as employees is one of the above factors on which the company has to work on to keep the organization healthy in terms of economic part. Apart from that particular behavior there is addition thing which abnormally furnishings on the company, which is poor accommodation authoritative due to the lack of communication among the head headers. To run a company is actually not a simple thing to do. The company can decrease the threats they envisage, if they treaty their advisers abnormally their key advisers with the latest ability of the technology and latest affairs in the profession. Now, let's move towards the next section of this report which is the Porter's Five Forces Analysis.

Porter's Five Forces Analysis of the Chosen Company

Porter's five forces analysis is basically a strategic management tool used by the organization to direct its performance. Porter's five forces analysis tool analyze the company from four different angles. In this section, the same will be analyzed.

Bargaining Ability of Customers

Customers are the end users of a company and every thing which a company makes is merely for its end users. Whatever an entity does is just to entertain its shareholders and end consumers (Robert & Marry, 2003).

The company number of customers around the globe to work with and all the customers are quite focus and happy from the growth as well as level of service and products they receive in return from the company. The company's products are not only efficient but also reliable as well that is why large number of customers prefers to buy these products (Financial Statements of Shell, retrieved from www.shell.com). The products of the company are great and due to the ample facilitation abject the company is able to accomplish excellently. The company accepts no products apropos the customer's acceding ability because the company's articles are able-bodied acclaimed amid the barter worldwide.

Bargaining Ability of Suppliers

Cost efficiency is one of the best important provisions, should be adopt by the organizations in order to attempt in the aggressive environment. In order to cope up with the competitiveness of the environment, organizations accept to adopt and implement those strategies which are cost efficient (Robert & Marry, 2003).

The suppliers of the company are sufficient and cost effective as well. The company has maintained admirable relationships with their suppliers which not only good for their continued run advance but additionally for its shareholders.

The Threats of Substitute Products

This is the best important hatred for the companies abnormally for those companies who are new in a region. Substitute means the alternatives (Robert & Marry, 2003). Organizations are consistently anxious with the analysis of alternative products, because such arrivals will decrease the financial capability of the companies.

There are companies which came in advanced to accomplish the corporate world and bring new substitute products inline to beat the existing products. This particular stance is very common among the communication industries like Nokia, Ericson and etc. (Financial Statements of Shell, retrieved from www.shell.com). The aggregation currently has no affair and botheration with another articles because the artifact abject of both of these banking institutions is actual able and large.

Threats of New Entrants

The accession of acting articles is an actual assertive blackmail for the company's articles about the advice industry is accretion badly but the issues associated with this industry are additionally accretion with aforementioned clip (Robert & Marry, 2003).

Although the banking and cardinal position of the aggregation is too able but still the aggregation has to contemplate on the strategies of the new companies. Due to the all-encompassing opportunities in the accumulated world, added and added competitors are entering in the bazaar every day.

Financial Analysis of RDSP

Financial analyze refers to an evaluation of the company of its viability, adherence and its approaching consequences. Banking analysis is a best tool to analyze the future. Usually companies appoint experts to e approaching of the entity. Mainly the experts accent on the accomplished trends, arrangement assay and approaching consequences. To acquire the growth and facilitate the shareholders of the alignment is one of the capitals -to-be of the firms (Financial Statements of Shell, retrieved from www.shell.com ). From a shareholders' point-of-view, approval the approaching of the alignment which presently relates with their dividends, is what banking evaluation is all about, but there are lot added allowances for the banking assay like investors use banking assay for anticipations apropos the banking crisis and adherence of the company. To complete this particular section, different types of analytical ratios have been examined. There are different categories of ratio analysis which have been used in this section. The categories are profitability ratios, efficiency ratios, liquidity ratio and investment ratio. Let's first examine the profitability ratios.

Profitability Ratio Analysis

Profitability is the main thing for which the organizations compete with each other as without the essence of profitability not a single company even thing to sustain in the competitive environment. Under the ambit of profitability ratios two different ratios have been examined which predominantly are Gross Profit Margin and Net Profit Margin. Let's examine the same,

Gross Profit Margin (GPM):

Gross & Operating profit margin both comes under the umbrella of profitability ratios. Gross profit is the one, which is computed by subtracting the cost of the sales from the total revenue which is earned by the entity in the financial year, while Operating Profit goes one step further and it is calculated by subtracting all the administrative, general and selling expenses from the gross profit. The computed result along with the graph is mentioned below,

RDSP

BP

Exxon Mobil

Years

Sales

Net Income

GPM

Sales

NI

GPM

Sales

NI

GPM

Million $

Million $

% in Million $

Million $

Million $

Million $

2008

458,361

73,209

15.9719

367,053

58,452

15.9247

477,359

137,712

28.8487

2009

278,188

49,812

17.9059

246,153

48,546

19.7219

310,586

89,731

28.8909

2010

368,056

60,422

16.4165

308,928

11,037

3.57268

383,221

107,827

28.137

Mean GPM

16.7648

13.0731

28.6255

The GPM is one of the widely ratios to analyze the profitability of an organization. Gross Profit analyzes the level of cost incurred by the companies. From the table and graph, this thing can be gauged that the most profitable company out of these three companies in the said analytical period is Exxon Mobil. The best thing find for Exxon Mobil and RDSP is low variation among the gross profit, on the other hand there is high variation found among the figures of BP. The GPM of Shell increased by 193 basis points in the year 2009 but the revenue and gross income of the company decreased by 31% and 21.36% respectively. The average GPM of Shell is 16.78% which shows that the company is able to earn approx 17$ of gross profit after spend 100$ (Financial Statements of Shell, retrieved from www.shell.com). The mean GPM of Exxon Mobil (EM) is the highest among the three companies showing a figure of 28.62% showing that the company is able to earn 28.62$ after spending 100$.

Net Profit Margin (NPM)

A ratio of profitability calculated as net return alienated by revenues, or net profits separated by sales. It is one of the most widely used measures to assess the financial capability of the organization. NPM shows that how much the net profit earns by the company by spending a certain amount of money. The table and graph are mentioned below,

RDSP

BP

Exxon Mobil

Years

Sales

Net Income

NPM

Sales

NI

NPM

Sales

NI

NPM

Million $

Million $

% in Million $

Million $

Million $

Million $

2008

458,361

26,277

5.73282

367,053

21,666

5.90269

477,359

46,867

9.81798

2009

278,188

12,518

4.49983

246,153

16,759

6.80837

310,586

19,658

6.32933

2010

368,056

20,127

5.46846

308,928

(3,324)

-1.076

383,221

31,398

8.19318

Mean NPM

5.2337

3.87836

8.1135

The NPM of the three companies are showing somewhat identical result of the GPM. From NPM, it has been find again that the most profitable company among all of them in the analytical period is EM. BP reported a net loss in the year 2010 due to the high oil prices and severity of the current economic downturn. The NPM of Shell showed a little variation throughout the analytical periods. The NPM of the company decreased by 1.23% in the year 2009 as compared to the same period of last year but then increased again in the year 2010 by 96 basis points and showed the power of resiliency of the company (Financial Statements of Shell, retrieved from www.shell.com). The mean NPM of Shell is 5.2% shows that the company earns 5.2$ net after spending 100$. The mean NPM of EM is 8.11% showed the superiority of the company in terms of recognize the net income. Let's now move towards the efficiency ratios.

Efficiency Ratios Analysis

Efficiency ratios are used to analyze the efficiency of the company in generating the economic profit. This is the most powerful category of ratio analysis to analyze the effectiveness of a company. There are two ratios which have been used in this assignment under this ambit which are Return on Asset (ROA) and Return on Equity (ROE).

Return on Assets (ROA) Analysis

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how helpful management is at using its assets to produce profit (James, O & Chatton, 2000). Calculated by dividing a company's annual wages by its total assets, ROA is displayed as a percentage. The computed result table and chart is mentioned below.

RDSP

BP

Exxon Mobil

Years

Assets

Net Income

ROA

Assets

NI

ROA

Assets

NI

ROA

Million $

Million $

% in Million $

Million $

Million $

Million $

2008

310,654

26,277

8.45861

248,615

21,666

8.71468

291,068

46,867

16.1017

2009

322,560

12,518

3.88083

257,113

16,759

6.51815

299,994

19,658

6.5528

2010

343,327

20,127

5.86234

272,262

(3,324)

-1.2209

302,510

31,398

10.3792

Mean ROA

6.06726

4.67065

11.0112

ROA is one of the most widely used ratios to analyze the efficiency of the assets of the organization. It apprises the investors that what sort of assets, the organization is using to analyze the profit (Financial Statements of Shell, retrieved from www.shell.com). The ROA of the company decreased by 5% in the year 2009 due to the economic downturn but then increased again in the following year. The most efficient company out of these three companies is EM which has the largest mean ROA of the company showing a result of 11.012% shows that the company is able to generate 11$ profit from its operational asset. The mean ROA of the Shell is 6.06% which is better than that of BP (4.6%) but not better than EM. ROA of Shell shows that the company is able to earn 6$ from its operational asset while its competitor EM is earning almost double from its operational assets.

Return on Equity (ROE) Analysis

One can evaluate a company's fiscal stability ad vigor by the help of ROE ratio. The intent of this ratio is to obtain an idea about the yield or profit a crowd gains on its justness, which they put while startup the industry (Games, T & Lyida, 2003). Shareholders are much more worried with the profitability of the visitors and simply stress on ROE. Return on fairness actions a corporation's profitability by revealing how much profit the visitors generates with the money shareholders have invested. The computed result is mentioned below,

RDSP

BP

Exxon Mobil

Years

Equity

Net Income

ROE

Equity

NI

ROE

Equity

NI

ROE

Million $

Million $

% in Million $

Million $

Million $

Million $

2008

142,744

26,277

18.4085

85,490

21,666

25.3433

140,172

46,867

33.4354

2009

148,013

12,518

8.45737

89,454

16,759

18.7348

145,031

19,658

13.5543

2010

157,805

20,127

12.7543

94,987

(3,324)

-3.4994

146,839

31,398

21.3826

Mean ROE

13.2067

13.5262

22.7908

The ROE is another very important measure of the company's efficiency. The ROE of EM is highest as compared to other companies during the analytical period (Financial Statements of Shell, retrieved from www.shell.com). The ROE of Shell is in positive node which is indeed a positive sign for the company indeed. The ROE of the company decreased drastically in the year 2009 by 9.95% due to the financial crisis in which the confidence of the people and investors got tumbled horribly. The resiliency power of Shell is great which can be judged from the ROE figure for year (FY) 2010. The ROE of Shell increased positively by 4.2% in the year 2010 after decreased drastically in a year before (Financial Statements of Shell, retrieved from www.shell.com). The mean ROE of Shell and BP is somewhat identical but the ROE of EM is relatively higher than both of its competitors showing that the shareowners of EM are more powerful than Shell and BP. Let's now examine the liquidity ratio of the company.