Home Video Game

1: Why the rapid growth of Atari? Why the 1982-85 collapse? How did Nintendo rebuild the industry? What was its strategy? After Bushnell settled on Atari, his first built was the simplest game, which people knew the rules immediately, and this game could be played with only one hand. Then, Bushnell talked his way into a $ 50000 line of credit from a local bank to start his business. By 1974, 100,000 Pong-like games were sold worldwide, and although Atari manufactured only 10 percent of the game, the company still made $3. 2 million that year. Atari had a rapid growth because it is a new industry, and Atari does not have any competitor at that time. So, Atari is the only company in this home video game industry, and it has a huge power of supplier with no competitors and substitutes. After 1976, about twenty different companies were crowding into the home videogame market, Atari still has more than 50% market share in the industry. Until 1978, Atari estimated that total demand would reach 2 million units. In 1982, Atari lost $500 in the first nine months of the year. Part of the blame for the collapse was laid at the feet of an enormous inventory overhang of unsold games. With more and more new games hit the market, the average price would goes down and the profits goes down as well. Nintendo established a commanding worldwide position by the end of the decade. The first step of Nintendo was to license video game technology from Magnavox. Then, Nintendo tried to develop its own video game machine (Famicom) that combined superior graphics processing capabilities and low cost. In the US, Nintendo established a subsidiary named as Nintendo of America (NOA) by 1980, and Nintendo repositioned the market in U. S. NOA spent about 2% of sales budget for advertising and also sought out promotion partner, and it practiced careful inventory management in releasing its new games. In conclusion, Nintendo made an innovative new game system which had some competitive advantages such as cheaper, superior image quality, faster hardware processing and a connector that can be used for future addition of a modem and keyboard. : How was Nintendo able to capture value from the home video game business? First of all, with the video game industry’s collapse, none of the company seems to have anything to do with the with the home video business except Nintendo. So, it was a big chance for Nintendo to monopolize the video game business, and it was a good chance to negotiate and license other companies to develop games for its system. Secondly, Nintendo has good market posi tion and distribution in United Stated. Thirdly, Nintendo has good game designing and technology, and it uses the regulation, contract and patent license to limit the market share of other game companies. 3: How was Sega able to gain market share from Nintendo? With Sega’s first game Periscope, Sega built up a respectable export business. Then, Sega realized that great games drove sales and more powerful technology gave game developers the tools to develop more appealing games. Sega also licensed other companies to develop games for the Genesis platform, but asked for lower royalty rates than Nintendo. Despite aggressive marketing in the 80s, it wasn't until the introduction of Sonic the Hedgehog in 1991 as a direct competitor to Nintendo's Mario character that Sega was able to capture a meaningful amount of the market with its Genesis console. The key point was Genesis does what Nintendo don’t, and Sega version out sold Nintendo’s two to one. 4: Evaluate the competitive strategy of 3DO. What flaws can you see in 3DO’s approach? The vision for 3DO was to shift the home video game business away from the existing cartridge-based format and toward a CD-ROM-based platform. The belief at 3DO is that the superior storage and graphics processing capabilities of the 3DO system would prove very attractive to game developers, allowing them to be far more creative. In turn, better games would attract customers away from Nintendo and Sega. The 3DO’s strategy was to license its hardware technology for free. However, only a few 3DO titles were available by the Christmas period where reports suggested 150 titles, and sales of the hardware were slow. As can be seen, 3DO did good at its software, but bad at its hardware. As a result, 3DO announced that it would either sell its hardware system or move into joint venture. 5: How come the Sony Play Station has succeeded where 3DO failed? Sony set up a retail channel separate from its consumer electronics sales force, and Sony has a good communication with retailers before the launch to find out how it could help them sell the play station. Sony targets its advertising for PlayStation at specific generation and age range. So, Sony focused on it retailers and customers, and it has a good market position. On the other side, 3DO only focused on its products but lack of the communication with its retailers and customers. 6: What drove Microsoft’s decision to enter the industry with its X-box offering? Because before Microsoft entered the home video game industry, it was no stranger to games. Microsoft had long participated in the PC gaming industry and was one of the largest publishers of PC games. X-box was based on Microsoft’s PC technology, and it would be much easier for software developers to write game for. Microsoft enter the industry because with annual revenues in excess of $20 billion worldwide, the home video game industry is huge and an important source of potential growth for Microsoft. 7: What lessons can be learned from the history of the home video game industry that has been used to help launch the Sony PlayStation II and Microsoft’s X-Box? Do Microsoft and Sony appear to have learned and applied these lessons? The lesson can be learned from the history of the home video industry was to focus on R&D, market positioning, cost leadership, innovation, technology and communications. Sony PlayStation II has consumed about 1. 3 billion in R&D, and Sony actually loses money on Sony PlayStation machine but gain from game CDs. On the other side, Microsoft’s X-Box cut X-box price over time but guaranteed a profit margin. There are three technical factors determined the quality of a video game: data width (in bits), clock speed (in MHz), and the amount of RAM (in bytes). Both Sony PlayStation II and Microsoft’s X-Box have their own competitive advantage in these technologies, and they also both are good game designers.

Technology Is Being Used Increasingly in the

Argumentative Essay Writing Tips Find your topic – From abortion to human trafficking, the sky is the limit when it comes to finding a heated topic to present an argument about. Think about your stance – Are you going to be for or against human trafficking? Logically, most people would be against human trafficking but either way you will need to be confident and comfortable in whatever stance you take. Additionally, you will need to be able to substantiate the facts and cleverly fuse them with your stance in order to arrive at a solid argumentative essay. This will require that you think about your stance on the issue essay writers world reviews.Think long and hard in order to better be able to discern where you are trying to take the topic argumentatively. Do your homework – There have undoubtedly been others who have argued for or against the topic that you chose who may have done it years prior to you even thinking about it. Take time out to research how your predecessors argued their stance. This is not to say that you should mirror that stance, but it might give you a heads up and/or better tips on what direction you should be moving towards when it comes to the ebb and the flow of the argument.Know your opposition – Every argumentative topic has a pro side and an opposing side. The best possible strategy that you can employ when writing the article is to know your opponent’s stance on the issue. When you know how your opponent will think or what rebuttal he or she will try to use, then you will have an upper hand on how to out debate them. Knowing your opponent is essential in counter-attacking when it comes to your argumentative essay. Get the facts – What good is an argumentative essay if there are no facts? The bottom line is that you need facts in order to support your argument on your controversial topic.No one wants to look like an amateur, and in order to avoid doing such you will need to have cognitive and verifiable facts that will back up your argument completely. Without these facts your risk looking both unprofessional and unprepared. Pick a topic that you are passionate about – When there is no passion in an argumentative essay then there is nothing to capture the attention of the reader. In order to convey your argument it is imperative for you to be passionate about any topic that you pick. If you do not believe in it then no one else will either. Steps in writing your Essay INTRODUCTION 1.Paraphrase the question 2. State your position [totally/strongly/somewhat + agree/disagree] BODY 3. Write topic sentences for each body paragraph Sequencing word + topic + point The main reason why I believe teachers are necessary is because they are essential for disciplining and motivating students CONCLUSION 4. Summarise main points 5. Give your final opinion or recommendation/ restate your position A Sample of Argumentative Essay Technology is being used increasingly in the classr oom and some people believe that educators will become redundant. I somewhat disagree that teachers will be replaced by machines.The main reason why I think that teachers are essential is because they encourage and discipline students. Many people find it difficult to be interested in learning new things. Therefore educators are needed to make classes more interesting and stimulate students’ desires for learning. Also, in the case of young people, teachers often need to force students to learn through the use of punishments. Another reason why teachers are needed is because they can teach young people important skills and values. This is because educators serve as role models to their students and teach them how to appropriately interact with their peers.Therefore, if people only learn using machines they will lose the opportunity to learn important social skills and values. However, studying over the internet certainly offers a lot of convenience. First, we are able to study in the comfort of our own homes, without the need to commute to school. Second, we can choose to study at any time we like even in the middle of the night. In summary, I somewhat disagree that machines can replace teachers. This is because teachers can encourage students to learn and teach them how to interact with other people. Although, computers do offer the ability for people to learn anywhere at any time.

Application Of Driver State Monitoring Systems (Dms)

Application Of Driver State Monitoring Systems (Dms) The term ‘driver state’ has no specific universal definition and is loosely used in the fields of Psychology and Engineering. In general, driver state refers to a set of conditions that affect the driver in a specific instance. Drivers in an optimal state do not suffer from any condition. Vehicle control transition is very important for the success of Highly Automated Driving (HAD). In an ideal scenario, human driver will be attentive to the Driving scene during Take Over Request (TOR). Recent advancements, along with higher levels of automation has made it possible for the driver to be in distracted, inattentive, or even fatigued state. Under similar driving scenario and automation behavior, a driver with some sort of impairment will have poorer performance tackling the situation than when in ideal state. Researches showed that distracted drivers had higher difficulty to adjust speed to a critical event than attentive drivers. Driver State Monitoring Systems (DMS) monitors and collects observable information on the driver, which can be used to determine his/her driving state. It is used, among other things, for active safety, adaptive Human Machine Interface (HMI), and annoyance reduction for false positive notifications in HAD. Electrodermal Activity Electrodermal activity (EDA) is the autonomous changes in electrical properties of the skin, of which, skin conductance is the most widely used property. To measure skin conductance, an electrical potential is applied between two points on the skin, and the resulting current flow between them is measured. This includes both background tonic (Skin Conductance Level or SCL) and rapid phasic components (Skin Conductance Responses or SCRs) that result from sympathetic neuronal activity. It is useful in measuring sympathetic arousal that are tractable to emotional and cognitive states. It is associated with autonomic emotional and cognitive processing. Autonomous nervous system (ANS) generally controls the body’s unconscious actions. Sympathetic nervous system (SNS) prepares body for intense physical activity and is responsible for fight or flight responses whereas parasympathetic nervous system (PSNS) is generally associated with homeostasis and when the body is at rest, while being responsible for rest and digest functions. Some emotional responses may occur without conscious awareness or cognitive intend. EDA can be used to examine such responses (i.e., threat, anticipation, salience, novelty). Recent research has shown that EDA is also a useful indicator of attentional processing per-se, where salient stimuli and resource demanding tasks evoke increased EDA responses. There are two main components to EDA. The slower acting components the overall level, slow climbing, slow declinations over time) are known as general tonic EDA. Skin Conductance Level (SCL) is the most common measure for this and changes in the SCL are thought to reflect general changes in autonomic arousal. The faster changing elements of the signal correspond to the Phasic component, also known as Skin Conductance Response (SCR). SCRs are generally associated with startle reflex or startle response. Recent evidence suggests that both components are important and may rely on different neural mechanisms. Empatica E4 wrist band is the common device used in ITS Leeds for psychophysiological data collection, giving EDA.csv files with Unix timestamp and sampling frequency of 4 Hz. Post processing of the same is done using MATLAB R2016a and Ledalab v3.4.9. For the first study, no pre-filtering was implemented. Although it can be done to smoothen the raw signal, using EDA explorer or a low bypass filter like Butterworth filter. In EDA signal, there is generally a latency of 1-3 seconds (i.e. a delay of around 1-3 seconds from when the event occurs to when you see the change in SC levels). Continuous decomposition analysis (CDA) is generally used instead of Discrete Decomposition analysis. This method extracts the phasic (driver) information underlying EDA and aims at retrieving the signal characteristics of the underlying sudomotor nerve activity (SNA). SC data is deconvolved by the general response shape which results in a large increase of temporal precision. Then data is decomposed into continuous phasic and tonic components. It is the method generally recommended for the analysis of skin conductance data. It features the computation of several standard measures of phasic EDA. Moreover, straightforward measures such as the average (or integrated) phasic driver activity are provided. To find Event Related SCR (ER-SCR) and separate it from Non-Specific SCR (NS-SCR), the event files are loaded in and the Ev ent related SCR activity is exported. The most common minimum threshold amplitude is 0.01  µS. Peaks with amplitude below this value is not considered significant. Another key factor is to standardize the values so that it can be compared across participants. For SCL the standardization is done using the formula: ((SCL ã€â€" SCLã€â€"_min) )/((ã€â€"SCLã€â€"_max –ã€â€" SCLã€â€"_min)) equation 2.2 Where ã€â€" SCLã€â€"_min is the baseline SCL which is to be measured while keeping the participant at rest doing nothing for at least 10-15 mins and ã€â€"SCLã€â€"_max is the maximum value computed when the participant is aroused using loud noise/music for a short period of time. This is done to get the SCL range of the given participant. Since this was not done for the SM study, it can’t be implemented. This can be circumnavigated by finding the minimum non-zero SCL score and the max SCL score during the study for each participant and use this as a baseline. Some studies recommend transforming SCRs into Z-scores. This requires the mean and standard-deviation to be used instead of a hypothetical maximum (from the other methods above). This navigates around the problems associated with determining the maximum SCR response from range-corrected methods / maximal correction methods. Here each raw SCR, a mean SCR value and standard deviation of SCRs, are used to compute the Z-score which is normally distributed, has an average of 0 and a standard deviation of 1. From here one can transform these Z-scores into T-scores, which have a mean of 50 and standard deviation of 10 (thus removing minus scores). The advantage to this approach here is that the resultant z-scores are based on unambiguous mathematical factors that represent the participants typical response level and not on unwarranted assumptions about maximum SCRs. Researchers further suggested that another useful transformation might be to divide each raw SCR, by the participants mean SCR thus providing a kind of standardized ratio. Final output is to obtain the ER-SCR activity window’s average SCR in T-score format, so that it can be compared across all the participants. From this, it might be possible to deduce suggestions/reasons for certain behavior during failure. Shimomura, et al. (2008) showed in his study that frequency domain analysis enabled detection of small differences in mental workload that could not be detected by traditional amplitude domain analysis. Here the signal is transformed from amplitude domain to frequency domain using techniques such as Fast Fourier Transforms (FFT). This technique enables real-time automatic analysis. Motion artifacts can cause the EDA signal to be quite noisy. If 90% of EDA value is zero or close to zero within a 5s window (a lower bound threshold of 0.001 µS can be used, it is probably caused by the sensors losing contact with the skin during that period and they can be removed. Generally, EDA levels are found to be not changing by more than 20% while increasing and 10% while decreasing, within a 1 second time window. A moving one second median filter can be used for initial interpolation to even out the signal. The resultant acceleration from accelerometer sensor can be used to find points/periods of high movements, and the EDA signal during that same period can be checked for motion artifacts, which can be removed if necessary. A bi-cubic interpolation of the signal can be done after the filtering to account for missing data points from the removal of motion artifacts. To summarize, skin conductance generally increases with arousal, stress, salience, mental workload, anticipation and overall increase in body temperature or physical activity. But measurements from palm of the hand or feet are generally highly sensitive emotional responses and can be distinguished from skin conductance spikes due to body temperature or physical activity. Heart rate variability Heart rate (HR) is the number of times the heart beats in a minute or â€Å"bpm†, and resting heart rate is the heart rate measured while being relaxed, but awake. Amongst the general population a resting heart rate of 60-80bpm is considered pretty good. But heartbeat intervals are irregular and there is variation in time between each heartbeat. Heart rate variability (HRV) is simply the measurement of variation between heartbeats. In general, a healthy functioning body will display a greater variability between beats than a poorly functioning one. Heart period is the time interval between two successive heart beats. The Sinoatrial node (SAN) can be seen on the top left side of the figure and the Atrioventricular node (AVN) to the right of SAN. The depolarization of SAN and AVN provides the electrical driving force that triggers the contraction of the heart. SAN’s spontaneous depolarization speed is typically faster than that of AVN, which is why it’s called natural pacemaker. Electrical impulses generated by SAN stimulates each beat of the heart, thereby dictating its rhythm. Sympathetic (SNS) and Parasympathetic (PSNS) branches of the autonomic nervous system are what mainly influence SAN. Hormone and immunity can have a role as well. According to Berntson, et al. (1997) â€Å"sympathetic activity tends to increase HR and decrease HRV, whereas parasympathetic activities tends to decrease HR and increase HRV†. HRV is closely related to emotional arousal. In HRV spectrum, there are both high-frequency (HF) and low-frequency (LF) signals. HF activity generally decreases under pressure, stress, strain, focused attention etc. High stress can cause reduction in LF values as well. Individuals who worry more have shown reduction in HRV. In PTSD patients, HRV and its HF component is reduced whilst the low-frequency (LF) component is elevated. Decrease in PSNS activity or increase in SNS activity results in reduced HRV. HF activity (0.15 to 0.40 Hz), especially, has been linked to PSNS activity. LF activity (0.04 to 0.15 Hz), which is generally associated with a mixture of both SNS and PSNS. So, it’s safe to summarize that during rest periods, HF HRV tends to be higher than when the driver is engaged, stressed, focused or strained/tired. To analyze HRV, either time domain or frequency domain analysis can be implemented. Time domain methods include â€Å"measures of the variance among heart period, the variance of the differences among heart periods, and geometric methods based on the shape characteristics of heart period distributions†. The most common method used to compute heart rate variability amongst time domain methods is the square root of the mean squared successive heart period differences or the RMSSD (Root Mean Square Successive Difference) statistic. It is based on the differences between adjacent heart periods and is nominally independent of basal heart period, although heart period level and heart period variability are themselves physiologically correlated. Because of the differences between adjacent heart periods sample HRV over relatively short periods of time (the duration of a heart period), the RMSSD resolves the total variance by filtering out LF signals. Consequently, the RMSSD has been a pplied as a measure of HF based HRV. The properties of RMSSD, including its cut-off frequency and its frequency-dependent transfer function vary as a function of basal heart period. A more systematic parsing of heart period variance into specific frequency components can be achieved by frequency domain methods. There are mainly two ways to measure HRV and HR. They are Electrocardiogram (ECG) recordings and Photoplethysmogram (PPG) recordings. ECG recordings are collected by placing electrodes on the chest (near the heart), which measure electrical impulses for each cardiac cycle. QRS complex is the defining feature of ECG signal. QRS complex is the three graphical deflections seen on a typical ECG, which is Q wave (downward deflection right after P wave, which is IV.), R wave (upward deflection after Q wave) and S wave (downward deflection after R wave) which is represented by I., II. The heart’s electrical activation is measured directly by ECG recordings. It also generally shows a strong QRS complex presence in the resulting signal. Motion artifacts caused by sensor displacement due to participant movement is a common source of noise in ECG signals. These tend to fall in the same frequency range as the QRS-complexes, which can make it difficult to filter them without deforming the QRS complex. Photoplethysmogram (PPG) recordings are a less invasive method to study cardiac cycle. They generally measure the discoloration of the skin as blood perfuses through the arteries and capillaries with each heartbeat, using optical sensors. PPG is typically measured at the fingertip or at the wrist. The PPG Heart Rate Analysis generally consists of a systolic peak, a dicrotic notch, and a secondary peak called a diastolic peak (2.5b-III). In recordings with very low amplitude the diastolic peak may be absent. The main advantages of PPG over ECG are low cost, ease of setting up and non-invasive methods. Ways of obtaining the PPG signal contactless through cameras have been proposed, further reducing intrusiveness. There is generally more amplitude variation over short time-intervals, more variation in waveform morphology, as well as more noise from various sources as opposed to ECG measurements. This makes analysis of PPG more difficult. The heart signal is often split into heart rate (HR) and heart rate variability (HRV) measures. The distance between the detected heart beats (the RR-intervals, named because in the ECG, the largest amplitude peak is called the R-wave) are used to calculate them. The heart beats are represented by the peaks in both signals. Even though the measurement technique vary quite considerably between ECG and PPG, a high correlation (median 0.97) between RR-intervals extracted from ECG and PPG signals has been reported. This makes the PPG a valid alternative for human factors studies that require non-intrusive heart rate measurements, and hence will be the focus of this research. Researchers talked on how to remove motion artifacts and filter it out of EDA signal. This is explained in the last paragraph of the previous section. The same methodology can be applied to remove motion artifacts from the HR/HRV signal as well.

Effects of Medical Marijuana and Marijuana on the Brain System Research Paper

Effects of Medical Marijuana and Marijuana on the Brain System - Research Paper Example These compounds are called cannabinoids. The THC content varies according to the source of cannabis and its preparation (Ashton). Nonmedicinal effect of marijuana is the intoxication it can produce. Marijuana is rolled as cigarettes and smoked. The odor of the smoke is distinct, pungent, and sweet-and-sour. Marijuana is consumed along with food and its decoction is served as tea. All variants of marijuana produce initial excitement followed by depression (NIH). Marijuana is used in ayurveda for its medicinal properties. Its derivatives act as analgesic, anti-inflammatory, hallucinogenic, and sedative. Marijuana is recommended in cancer chemotherapy as an antiemetic and for treating glaucoma. Marijuana plant in ayurveda is used for its hallucinogenic, hypnotic, sedative, analgesic, and anti-inflammatory properties. (Rajasekar). Medical marijuana or medical cannabis is available as leaves and flowering tops. Medical marijuana is a schedule I drug. Derivatives of cannabis or marijuana are in use for their medicinal actions in United States and Canada for a long time. Such derivatives are dronabinol and nabilone that are schedule III and schedule II drugs respectively. Another derivative ‘nabiximol’ has not been approved by the USFDA (Borgelt, Franson and Nussbaum). The nature of formulation and patient’s character influence the pharmacological actions of cannabinoid compounds. The cannabinoid receptors CB1 and CB2 respond differently. The cannabinoid delta-9-tetrahydrocannabinol exerts primary psychoactive actions. Cannabinoid derivatives dronabinol and nabilone are used for treating nausea and vomiting during cancer chemotherapy. It is also given to patients suffering from anorexia due to acquired immune deficiency syndrome. Cannabis compounds are recommended for treating pain and muscle spasms (Borgelt, Franson and Nussbaum). More than 400 compounds are present in herbal cannabis. The plant genus cannabis contains more than 60

Advantages and Disadvantages of International Economic Institutions Research Paper

Advantages and Disadvantages of International Economic Institutions - Research Paper Example This research will begin with the statement that global economic institutions aim to understand the dilemmas and opportunities faced by several economies of the world. Through their formal chain of command system and global applicability, these institutions facilitate economic actions that are aimed to achieve progress and development. Some of the key institutions in the world are WTO, IMF and World Bank  (Mole) There are many economic institutions in the world. According to EDIRC there are currently 12,542 institutions in 231 countries and territories mentioned. Many of these economic institutions came into existence after the world war. They were basically founded to promote economic cooperation between countries and help in the recovery of world economy from a downturn. The present World trade Organization (WTO) was General Agreement on Tariffs and Trade before 1995. According to the official website of WTO it has 153 members and is located in Geneva, Switzerland. Its aims inclu de removing barriers to international trade, keeping an eye on global economic policy, providing a platform for negotiating and resolving conflicts, reviewing the national trade policies, helping developing countries by providing loans and finally conducting economic research. Now let’s shift focus from WTO to the famous international Monetary Fund (IMF) which was also created after World War 2 in the year 1946. According to the official website of IMF It has 185 members and is located in Washington DC.... The new global body would make sure that exchange rates remained stable and it gave confidence to its member countries to finish exchange limitations that prevented trade. The World Bank is another instance of an institution that was made to act as a global connector of knowledge, learning and modernization for poverty elimination. It links together practitioners and institutions to assist them in locating suitable answers to their development challenges. With an emphasis on the "how" of modification WB connects knowledge from around the world and causes modernization to rise. The WB’s aim is to be enable connection of knowledge, learning and innovation for poverty reduction. Practitioners and institutions are connected to facilitate suitable solution to developmental challenges. The focus is on how to reform, and the methodology involves linking up knowledge from around the world and scaling innovation. WBI’s dream is to encourage change negotiators and provide them wi th suitable instruments enable development. The WBI has always sought to invest in a row of nontechnical methods that match technical answers to development problems. WBI’s part is to act as a booster for development. By enabling universal reach of innovative technology, they are making instruments, approaches, and online platforms to help in opening and working together on the development process between governments and nations.WBI assists in partnerships and information sharing between policy makers and practitioners. It has made a devoted team that has its centre of attention on South-to-South performer exchanges and participates in a joint venture and outreach function in increasing the eminence of SSKE through

308 1st assignment Essay Example | Topics and Well Written Essays - 1000 words

308 1st assignment - Essay Example balance of payments, for the purposes of business profit, royal revenue, and economic prosperity (p.30).† It argues it achieved these ends through, tariff protection against imports; selective subsidies of production and exports; the acquisition of colonies, which provided raw materials and a workforce of settlers and native peoples at low cost, a market for the mother countrys finished goods, a monopoly of colonial trade and shipping, and a direct contribution to the power and prestige of empire; the development of naval power; and measures to minimize the cost of maintaining the domestic population, such as low agricultural prices, low wages, fisheries for cheap food, and so on. Doctrinal emphases on the utility of poverty and on the importance of gold holdings served instrumental purposes for those seeking power and profit. In considering the implications of trade in a mercantilist economic structure Thomas Mun urged industrialists in specific means of exportation. He argued that they must not only heed attention to their own needs, but develop a keen awareness of the needs of neighboring states, as this would give them a decided advantage when attempting export goods. He also urged exporters to attempt to sell their goods as cheap as possible, as this would undercut competing nations and cause the nation purchasing the goods to become further dependent on the imports; referring to this idea he wrote, â€Å"we must in this case strive to sell as cheap as possible we can, rather than to lose the utterance of such wares. For we have found of late years by good experience, that being able to sell our Cloth cheap in Turkey, we have greatly encreased the vent thereo (p.32).† He argued that exporting nations should export their goods in their own ships, as this would further increase the nationâ€℠¢s financial capital as the funds would not have to be spent on foreign vessels, likely increasing the price of the export. He believed that trade in far away nations

Real Estate Development, Construction, Economy Thesis

Real Estate Development, Construction, Economy - Thesis Example The correlation of real estate, construction and economy is so big that a downfall in the industry can jeopardize the whole economy for years. Japan has faced it in the eighties and economies of USA, Britain and many other are facing today. The real estate and construction sectors combined had of late been a booming business all over the world and make up one of the largest business segments in the U.S. economy. Real estate development takes place in three major areas: Residential, Commercial and industrial. In residential segment consumers are encouraged to buy houses on account of low interest rates prevailing in the market, Sub-prime lending, lower return from other segments or stock market investment. Home owners are interested in remodeling old houses that is also part of construction industry real estate According to 'The Economist' the total asset in residential property in developed economies was worth $48 trillion and in commercial property worth $14 trillion in 2002. This was 54% of the total assets in two classes of assets, Property and financial.1.(Wikipedia) From the sources of Bank of International Settlement and wall Street journal it has been found that over three years from 2001-2004 housing values have moved up 63% in Spain, 48% in France, and nearly doubled in South Africa. In single year in 2004 prices have rises 48% in Bulgaria, 19% in Hong Kong and scaled up in China, UK, Australia and India. 2. (Global Real Estate Boom) Real estate prices had unprecedented rise for so long and so fast in many countries of the world-America, Britain, Australia, France Spain, and China. Rising property prices helped to prop up the world economy after the stock market bubble burst in 2000" According to estimates by The Economist, over the last five years the total value of residential property in developed economies has gone up by more than $30 trillion. Over the past five years, to over $70 trillion. This is an increase of about 100% of the combined GDP of those countries. This dwarfs any previous house-price boom. It is larger than the global stock market bubble in the late 1990s or America's stock market Real Estate Dev..3 bubble in the late 1920s (55% of GDP). It is perhaps going to be the biggest bubble in history. There is a definite comparison between the real estate bubble of Japan in 1989 and that of 2005 in USA/UK Real Estate bubbles are created from time to time in some countries at certain intervals though it is not fixed and not forecast able. It occurred in 1920, 1980 and again they are threatening to raise heads in 2007-08 in USA, UK China and some more countries. This time the house prices have been rising up for long. More than 25% of homes bought in USA and UK are for investment purpose not for owner occupation showing that the investment in housing is for speculative motive. Majority of first time buyers did not make any down payment for the loan sanctioned. The home prices in most of countries have gone

Fiction Writers of the New Millennium Essay Example | Topics and Well Written Essays - 750 words

Fiction Writers of the New Millennium - Essay Example Modern fiction writers, however, have turned away from this simple construct to experiment with variations that often don’t resolve into anything for the characters. If they resolve into anything for the reader, it is up to the reader to find this meaning for themselves. Perhaps in keeping with the breakdowns in society that the authors were seeing at the time they wrote their stories, some of the major fiction writers of the past 50 years have presented stories that lack clear direction, climax or resolution. This structural approach can be found in short stories such as â€Å"Entropy† (1960) by Thomas Pynchon, â€Å"Lost in the Funhouse† (1969) by John Barth and DeLillo’s â€Å"The Angel Esmeralda† (1994). In â€Å"Entropy†, the author focuses on a scientific principle that suggests nature moves from a point of order to one of disorder (Random House, 2010). The story introduces a great number of characters with new characters arriving all the time and two characters completely separated within an isolated system. The breakdown referred to in the title is seen in every aspect of the story and stated explicitly by Callisto when dictating to Aubade that he â€Å"envisioned a heat-death for his culture in which ideas, like heat-energy, would no longer be transferred, since each point in it would ultimately have the same quantity of energy; and intellectual motion would, accordingly, cease† (Pynchon 306). This concept is acted out downstairs as communication and sharing breaks down among the party guests and the band begins rehearsing air music. Duke explains to Meatball, â€Å"if that first quartet of Mulligan’s had no piano, it could only mean one thing †¦ no r oot chords. Nothing to listen to while you blow a horizontal line. What one does is such a case is, one thinks the roots† (Pynchon 311). Taking this thought a step further, the band was rehearsing what it would be like if no sound was released, the audience just had to

Explain the principle behind the concept of ''General Average''. What Assignment

Explain the principle behind the concept of ''General Average''. What are the essential elements of the 'York-Antwerp Rules' that define a 'General Average' act - Assignment Example In 1864 the York Rules were developed and this was followed with the Antwerp York Rules of 1877. The York Antwerp Rules were the first codification of the General Average. The elements of the York Antwerp Rules include a common danger, voluntary jettison and effort to save must be successful. General Average has many applications including in marine insurance. Current issues with regard to the application of the General average relate to Piracy. The bone of contention is whether general average can be applied in a case of piracy. There exist guidelines that categorically state a situation in which piracy can be covered by the general average. According to Tetley (2000), the principle of GA (General Average) dates to as far back as 3000 years ago. The Rhodian law that was in existence at around this time embodied the principle of general advantage. The principle read in part that in an effort to make a ship to be light, merchandise may be thrown overboard. It goes ahead to state that, that which has been sacrificed (given) for the benefit of all, then, it shall be restored by the contributions of every one. Currently, a record of the Rhodian law is inexistent. The Roman Law is the only source that captures the Rhodian law. The Roman law was captured, expanded and repeated in the Roles of Oleron. The first English decision that has been recorded in reference to the principle of general average was in the year 1799. The first American decision was in 1798 (Tetley, 2000). This was a maritime law concept both in practice and in origin and it had a very restricted application. With time, the evolution of commerce led to the use of general average as a form of marine insurance. There was sharing of losses and risks during maritime ventures. The cargo owner had a right to claim for losses. The ship owner was also allowed to make claims for compensation for the losses that could not be attributed to his fault. The parties made so many

Moby Dick Essay Example for Free

Moby Dick Essay Questions 1.The captain, Ahab wants revenge against the great white whale Moby Dick because he lost his leg to the whale. 2.Ishmael is the narrator. The first line is â€Å"Call me Ishmael.† 3.The two allusions are the names of Captain ahab and Ishmael. Referring to Captain Ahab: Ahab is a wicked king who goes against goes against Gods will, Like how captain Ahab goes against the white whale. Referring to Ishmael: Ishmael means â€Å"outcast† or â€Å"wanderer† like how he seams to be the only person who cares anything of the beauty of nature. 4.To Captain Ahab he all that is evil in the universe. To Starbuck, he is just an animal to be killed for oil. To Ishmael, he is nature and all its wonder, both beautiful and terrifing. 5.Melville wrote about whaling to create a cosmic allegory to show the unglamorous a whaling, he had a deep respect for nature and wanted to expose it. The industry was significant because it provided oil for lanterns, streetlamps, and machinery and was the main oil used. 6.Melville set sail for the south pacific when he was 21. 7.Melville befriended Nathaniel Hawthorne while writing Moby Dick. 8.The four harpooners represented different races and ethnic groups of the world bringing the Pequod to be like a symbol for the ship of state, a little democracy. 9.The Pequod is attacked by moby dick and is destroyed. Ahab was caught and shot out of the boat and vanished into the sea. Finally, Ishmael becomes the only survivor of the pequod, he floats around until he is rescued and picked up by another ship, The Rachel. 10.He was unemployed, desperately broke, and took a job as a customs inspector. He was forgotten by the public.Interview Questions to Ahab 1. What exactly did you do on the ship other than plot the death of Moby-Dick? 2. How did you keep up hope that you were actually going to encounter Moby-Dick again?3. How did you recognize and tell Moby Dick apart from all the the other whales in the world?4. Have you wanted to be the captain of a whaling ship your entire life? If not what profession did you aspire before?5. Avoiding sailor colloquial verbiage, can you describe the night of the incident with Moby Dick? Also, do you recommend anyone who is good at making ivory legs if this were to happen to anyone in the future?

Royal Dutch Shell Plc Financial Analysis

Royal Dutch Shell Plc Financial Analysis I. INTRODUCTION a. Topic Chosen and its context In this Research and Analysis project Report, I will be analyzing the financial performance of Royal Dutch Shell Plc. I will be identifying and analyzing the factors effecting the financial position of Royal Dutch Shell plc. The role of non-financial performance indicators which effects the financial position of the company will also be kept in mind. I will analyze the financial position of the company compared to its performance with previous years, with the industry and with its rival (BP). The word Shell will be used in place of Royal Dutch Shell as it is convenient. I will base my comparison on figures of audited annual accounts for the last 3 years. Financial analysis is an effective way of analyzing companys performance. Ratio Analysis is the technique, which will mainly be used for financial analysis. My analysis will also be based upon the comparison of key ratios with main rival of Shell, which will indicate some of the core strategies in seeking a competitive position to achieve its purposes. I will use Life Cycle model to analyze my findings on those markets, which materially contribute towards the companys financial results. Then I will use PEST analysis to analyze different stages identified and nature of Life Cycle. My conclusions will be based on current situation of the company as compared to past years and future expectations using the techniques mentioned above. b. Reasons for selection Reasons for selection of the topic and organization are as follows:  § Wide Information base: Shell, being a public limited company and one of the largest oil and gas concern in the finance sector the availability of timely, relevant, reliable information was an added advantage.  § Relation to my studies: While studying my ACCA, one of the important skills which I have learned is the ability to analyze the financial statements, and such a comprehensive research and analysis project will definitely help in developing the same  § The company: Other reason is the investment prospective and size of the company. The company unveiled the largest expenditure program in its history, spend $36bn in 2008 compared to $25bn last year, as it seeks new sources of oil and gas to boost reserves and production and to better exploit its existing resources. (Ft.com, July2008) Standard Poors, the credit ratings agency, downgraded its long-term rating for BP, the Oil and Gas Company, and upgraded Royal Dutch Shell, BPs closest rival, illustrating the widening perception of the two companys circumstances. SP noted Shells reserves replacement success and said current major projects should sustain its production plateau in the next decade. (Ft.com, September 2008) c. Aims and Objectives The aims and objectives contains the comparison of the financial performance of the petroleum sector to assess the worth of the company in its operational industry .To get an idea about the attitude of the management towards the operations of the company by assessing the companys cash flow position compared to its profits. Also to analyze the risks faces by the company I will take in to account Solvency, Liquidity and Capital structures. d. Research Approach ACCA provides a complete guide about different sections of the report, and also this provides the opportunity to plan and think to allocate my time carefully. This planning will help me to concentrate on each section of the report so that I can focus on core and important areas of the report. This also enables me not to overspend my time in explaining any section of the report. Information mainly collected from annual reports of the company and also different sort of other sources like ACCA text books, internet, newspaper, library etc. Traditional ratio analysis has been used to measure and compare the financial performance of the company over last 3 years with its rivals. Ratio analysis will focus on the following key ratios:  § Profitability Ratios This ratio is the reflection of how well the business is performing in term of profits in order to pay the shareholders. Key ratios are: a. Gross Profit Margin b. Operating Profit Margin c. Return on Average Capital Employed  § Liquidity Ratios Liquidity ratio refers to the state of an assets nearness to cash to meet business short term obligations as they fell due. Key ratios a. Current Ratio b. Quick ratio (Acid Test Ratio)  § Efficiency Ratios These ratios show how efficiently the business is employing those resources invested in fixed assets and working capital. Ratios are: a. Debtor Days b. Creditor Days  § Risk Ratios These ratios are used to assess how healthy and sound the business is in term of capital or finances. Ratios are a. Gearing Ratio b. Interest Cover  § Investors Ratios Both present and prospective shareholders look at these ratios to measure their return and to make economic decisions. Key ratios are a. Earnings per Share b. Diluted Earnings per Share II. INFORMATION GATHERING a. Sources of Information Used The information has been collected from different secondary sources for the preparation of this project. Main secondary sources which are use to gather information is as follows:  § Annual Accounts: The annual audited accounts of Shell are the main secondary source of information to use in this project. These annual audited accounts were available from stock exchange. As it supposed to be accurate and reliable thus provides me with an ideal source of annual accounts of the company. I have used only the audited annual accounts for the last three years of the company though unaudited quarterly review until July was available, to make certain that only reliable and accurate source of information is used in my research and analysis project. These audited annual accounts provides me all the information for the last three years which is essential in computing key financial ratios and also to make a comparison with rivals and industry averages of the company. Annual accounts of the rivals for the last three years are also used to make comparison with the Shell.  § Financial Analysts Report: They are professional people and their views are independent and their analysis helped the shareholders making economic decisions, which in turns affects the very existence of the company.  § Kaplans Tutorial Text: Kaplans tutorial text for Bsc (Hons) in Applied Accounting also helped me a lot for gathering information and also about the different requirements of the reports. It also helped in focusing a particular section of the report and also helped in overall design of the project so that nothing is missing in the project.  § News Papers: Getting in touch with the business section of leading newspapers like The Times, The Independent, Daily Express and The Telegraph was very useful as it provided me guidance on the economy overall and as well the movement in the share prices of different companies. b. Methods Used To Collect Information To collect information various methods are used like,  § Internet: Internet offers a speedy and impersonal way of getting to know the basics of the services that a company provides. (BPP 2005 Paper 3.4) I visited www.shell.com to access the financial reports of the company and press releases. I also visited www.bp.com to get information about the rival company of Shell for the purpose of comparison. Also I visited www.ft.com which really helped me a lot for the up to date information about the Shell and BP. I have also visited www.wikipedia.org to get information which helped me a lot to understand the oil and gas industry. In addition I visited the www.bbc.co.uk to get the latest news and important interviews.  § Use of the E-mail: For communication with Shell people I use to e-mail them during my research whenever I want to get some important information. They responded quickly to answer my query.  § Library Research: Libraries proved quite helpful so some libraries in London, Kaplan Financial College library and City Business Library in Moorgate London for general reading of the newspapers, journals, different books, magazines to get important information about Shell and BP. I spend most of my time in city business library, where I was able to get specific information through different CD ROMS which included different databases search designed specifically for getting information about different companies. Some of the CD ROMs are:  § Financial Analysis Made Easy: This database provided the detailed key financial data in the form of profit and loss accounts and the balance sheet. Also it helped me to get important ratios of the Shell and BP and their comparison with the preceding years in the form of graphs.  § Marketing and Business Information Centre (Data Monitor): This database provided vital information regarding the company, industry and market news for the research and analysis. This database contains records of hundreds of companies in UK and worldwide. When I looked at the Shell data, it really helped me by providing the overview and the detailed information. Then same thing was true for its rival BP. c. Limitations in the Information Gathering A number of difficulties I have faced sometime in getting the required information. For instance, I was expecting to get more information from the newspaper, but actually it was not. The newspaper only provides information about a particular date and some events but in depth information cannot be obtained and also articles are found in different newspaper i.e. nothing is new than others. Similarly when I went to City library, I was not aware of using FAME database, so when I tried to get information from database it took me too long. Moreover it only provides me the financial data in the form of graphs. Another problem which I have faced is the information overload on the internet. Whenever I tried to search something on the net it gives me too many results which some time confused me which information I should use and which is not. d. Accounting Technique Used and Limitations In this report to analyze the financial performance of Shell comparing to BP ratio analysis has been used. Ratios are important tool in analyzing the financial performance of the company. Ratios are used because shareholders and potential investors are primarily concerned with receiving an adequate return on their investment. An earnings per share is a key ratio that is to be used to determine the returns on shareholders fund. Suppliers and lenders are concerned with the security of their debt or loan. So they are mainly focused on the gearing level the company is having and also the interest cover. More over management is concerned with the trend and level of profits, so ratios are the main measure of the success. Furthermore, managements bonuses are linked to the profits of the company. I have calculated the key ratios in an appendix from 2006-2008 for Shell and BP and they did analyze the results. Ratios were used as a tool to assist analysis and to focus attention systematically on important areas. Ratios summarize information in an understandable form and also helped me to identify trends and relationships. There are also limitations of financial statements and ratio analysis as they are based on the past and ratios are not predictive if they are based on historical information. Ratios ignores any future action which is or to be taken by management. Another limitation faced by ratio analysis is the fact that the ratios results may be distorted if there are differences in the accounting policies. (Kaplan Financial Study Text Paper F7) In all, Ratios have limitations but are still regarded as the best tool for analyzing the financial performance of the business and so I also used it. III. ANALYSIS In this section of the report I will explain and analyze the financial performance of Shell and will compare its results with BP.I will also explain Shells financial position in the current year. a. Company History: The Royal Dutch Shell Group was created in February 1907 when the Royal Dutch Petroleum Company and the Shell Transport and Trading Company Ltd of theUnited Kingdommerged their operations. This move was largely driven by the need to compete globally with the predominant American oil company (www.wikipedia.org) b. Financial Analysis: Here is the analysis of the financial data of Shell (Revenue, GP and NP) over the last three years.  § The revenues in 2008 were ($458.4 billion) 28.8% higher than in 2007, when they were ($355.8 billion) 11.6% higher than in 2006. (Appendix)  § The oil and gas prices was One of the main reasons of increase in revenues in 2008  § Brent crude oil prices average $97.14 per barrel in 2008 compared with $72.45 in 2007, while West Texas Intermediate average $99.72 per barrel compared with $72.16 a year earlier. Oil prices saw great fluctuation in 2008. (Annual Report Shell 2008)  § A 6% increase in Gross Profit of Shell in year 2008 and 2007 as compared to gross profit in year. (Appendix)  § Its shows an increase in production costs in line with increase in revenues on high margin products.  § Earnings ($26.5 billion) were lower by 17% in 2008 compared to 2007, when they were ($31.9 billion) 21% higher than in 2006 ($26.3 billion). (Appendix) The decrease in 2008, compared with 2007, reflected the effect of declining oil prices on inventory in the second half of the year, lower production volumes, lower realised refining margins and higher operating costs. These more than offset the positive impact on earnings from higher realised oil and gas prices as well as higher LNG and GTL product prices. (Annual Report Shell 2008) Second quarter 2009 reported earnings were $3,822 million compared to earnings of $11,556 million in the same quarter a year ago. (2nd quarter results 2009, www.shell.com )  § Earnings By Business Segments : All figures in this table are in $million The table shows that earnings in 2008 were higher by 47% in Exploration Production, Gas Power and Oil Sands segments as compare to 2007. On other hand earnings were lower by 100% in 2008 as compare to 2007 in Oil Products, Chemicals and Corporate segments. This 100% reduction in last three segments causes overall reduction of earning in 2008. In the Second quarter Exploration Production segment earnings were $1,334 million compared to $5,881 million a year ago. Earnings compared to the second quarter 2008 reflected the impact of significantly lower oil and gas prices on revenues, lower oil and gas production volumes, higher exploration expenses and non-cash pension charges, which were partly offset by lower royalty and tax expenses. (2nd quarter results 2009, www.shell.com ) Comparison of Shell with BP  § Revenue Growth: Shell and BP revenue over the last three years is shown in the graph: Growth in Revenue in $ Million Shell and BP revenue showed a consistent growth over a period of 3 years. In 2008 Shell revenue 26.9% higher than BP. Which shows that Shell growing consistently as Shell revenue were higher 25.2% 19.9% from BP in 2007 2006 respectively. (Appendix) a. Profitability Ratios The profitability of a company is important and a key measure of its success. The figures shown in the profit and loss account mean very little themselves. However, by expressing them as a percentage of sales they become much more useful. The figures can then be compared with previous years or with other similar companies. (Student Accountant ACCA Magazine, Christopher, 1999.) Gross Profit Margin: Gross profit margin shows earning on sales of a company. In the 2nd quarter of 2009 the gross profit margin has fallen 62% compared to last years 2nd quarter results. An indication of high profit margin is that the company earned well on sales by keeping overhead cost in control. Gross profit margin of 2008 is lower than previous years. Net Profit: Shell net profit margin dropped by 3.2% to 5.8% in 2008 from 9% in 2007. And margin in 2006 was 8.3%.BP net profit margin dropped by 1.5% to 5.9% in 2008 from 7.4% in 2007. The 2006 margin was 8.4%. (Appendix) Growth in Net Profit Shell and BP (%) The profit margin is mainly used as an internal comparison tool. As there are different levels of expenditure involved it is therefore sometimes difficult to accurately compare the net profit ratio for different entities. As compared to BP Shells net profit margin dropped by a higher percentage in 2008.On the other hand if we see the year 2007 the Shell profits are higher than the BP. Return on Average Capital Employed: ROACE reflects the ability of the company to utilize the resources i.e. capital in generating revenue. Capital employed consists of total equity, currant debt and non-current debts. The published segment level contains the computation and calculation of the tax rate and the minority interest components. The strong income generation is the only reason for change in ROACE from18% to 24% between 2006 and 2008. There is a significant decrease in the capital employed from 24% to 18% in 2008 as compare to 2007. A significant decrease in income attributable to shareholders is partly offset by an increase in capital employed, resulted in a decrease in ROACE of 6.0% in 2008(18%) compared to 2007 (24%). The 2006 figure was 23%. (Appendix and Annual Report Shell 2008) ROACE is defined as the sum of the current and previous three quarters income adjusted for interest expense, after tax, divided by the average capital employed for the period. In the 2nd quarter or 2009 the ROAC stands at 8.3% way below the 25.8% in the 2nd quarter of 2008. (2nd quarter results 2009, www.shell.com ) On the other hand BP utilization of its capital resources was showing a sorry picture. BP ROCE has moved in a range of 16% to 19% between 2006 and 2008. BPs ROCE was 19% in 2006, and then reduced to 16% in 2007, followed by an increase of 1% to stand at 17%. This was due to lower income attributable to shareholders in 3 years time. This increase in 2008 was due to some increase in income attributable to shareholders. (Appendix) ROCE Shell and BP (%) The drop in oil price in the second half of 2008 had a significant impact on earnings. The strengthening of the dollar against other main currencies reduced the impact of Shells investment plans on capital employed. b. Efficiency Ratios Debtor Days Shells receivable days has fallen from 76 days in 2007 to 65 days in 2008. The figure for 2006 was 68 days. This was due to the effective and better controlled credit policy. (Appendix) BP on the other hand, showed increase in its collection to 30 days in 2008 from 49 days in 2007. The 2006 figure stands at 53 days. All this reflected an aggressive and comprehensive credit control policy and ability to collect from customers. (Appendix) Creditors Days The payment to creditors from Shell showed improvement in payment to creditors in 2008 if we compare the figures to last three years. As creditors days reduced to 78 days in 2008 from 93 days in 2007, while the figure in 2006 was 87. This improvement shows that company has liquidity to pay off its debts and also helped in making stronger relationship with creditors, which could be Suppliers, lenders. (Appendix) BPs creditors days showed reduction over a period of 3 years i.e. from 82 days in 2006 to 78 days in 2007 and more improved to 46 days in 2008 which showed a good sign for the company. (Appendix) c. Liquidity Ratios Current Ratio As short-term creditors prefer a high current ratio since it reduces their risk. The current ratio measures the adequacy of current assets to meet the companys short-term liabilities as they fall due. Traditionally, a current ratio of 2:1 or higher was regarded as appropriate for most businesses to maintain creditworthiness. However, more recently a figure of 1.5:1 is regarded as a norm. (Kaplan Financial, Paper F7 Study Text) Current ratio for Shell in 2008 was 1.1 and remained Constant between 2006 and 2007 to stand at 1.2. This shows better position for Shell and its ability to pay short term liabilities as they fall due. (Appendix) BP current ratio was also healthy between 2006 and 2007, but in 2008 the ratio was below 1 which may be not a good sign for short term creditors. But it was ok as for as it remains near to 1. (Appendix) One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have uncertain liquidation value. SO the quick ratio is an alternative measure of liquidity that does not include inventory in the current assets. (Paper3.6, BPP Professional Education, June 2007) Quick Ratio The quick ratio also known as the acid test ratio eliminates inventory from the currant assets. It provides the acid test of whether the company has sufficient liquid resources (receivables and cash) to settle its short term liabilities. Normal level for quick ratio ranges from 1:1 to 0.7:1. (Kaplan Financial, Paper F7 Study Text) For Shell, liquidity ratio remained unchanged within the industry standards between 2006 and 2008 to stand at 0.9. This shows the companys ability to pay short liabilities from most liquid resources i.e. receivables and cash not inventory. (Appendix) BPs quick ratio showed a sorry picture and remains unchanged on 0.7 between 2006 and 2008, as it was standing at the danger level of 0.7 meaning that BP is not having enough liquid resources to pay off the liabilities due. (Appendix) d. Risk Ratios Gearing: Gearing is the relationship between the companys fixed return capital and its equity capital. Gearing ratio indicates the degree of risk attached to the company and the sensitivity of earnings and dividends to change in profitability and activity level. High geared businesses uses large proportion of fixed return capital, so there are greater chances of insolvency and ultimately return to shareholders grow proportionately more if profits are growing. While low geared businesses provide scope to increase borrowings when potential profitable projects are available and can usually grow more easily. (Kaplan Financial, Paper F7 Study Text) Gearing levels in (%) (2006-2008) Shell maintained smooth profits and more suitable assets for security in order to make use of gearing successfully. Shells gearing level increased in 2008 due to more debts taken as compared to 2006 and 2007. Gearing was 23% in 2008 compared to 17% in 2007. The gearing ratio was 15% in 2006. The increase was due to rise in the total debt. On the other hand, BP gearing level was also high standing between 36% to 28% with 36% in 2008 compare to 28% in 2006, while 2007 figure was 33%, which is higher than Shell. High level of gearing means high risk to business, but this is compensated by a significant increase in profits and the returns to the shareholders. So Shell can borrow more easily in future. Interest Cover Companys interest cover indicates the ability to pay interest out of profits generated. Low interest cover indicates to the shareholders that their dividends are at risk (because most profits are use to pay interest payments) and the company may have difficulty financing its debts if its profits fall. (Kaplan Financial, Paper F7 Study text) Shells interest cover has decreased to 42 times in 2008 compared to 45 times in 2007. The interest covers for 2006 was 38 times. This shows Shells ability to finance its debts and the ability to pay interest out of the profits for sure. As investors are interested in the risk level the company is in, it is a healthy sign. Interest Cover in Times (2006-2008) For BP, there is an increase of interest cover to 30 times as compare to 29 times in 2007 but in 2007 there is a huge reduction in interest cover to 29 times from 49 times in 2006 which clearly indicates the inability of BP to finance its debt and to pay interest out of profits generated. That makes BP riskier than Shell for investment purposes. e. Investors Ratios Earnings per Share (EPS): Earnings per Share for Shell decreased in 2008 from $5 in 2007 to $4.27 in 2008. This was due to decline in profits followed by the repurchase of the shares, which causes a net decrease of 105 million in the number of ordinary shares outstanding as a result of share buybacks. As widespread the use of the EPS as a yardstick for investment decisions. Share price of company might fall if it looks as if EPS is going to be low. EPS increased to $5 in 2007 compared to $3.97 in 2006, this was due to decrease in the number of ordinary shares in 2007 as company repurchased its 112 million shares of common stock for cancellation at a gross cost of $4.4billion.this purchase reduced the number of shares outstanding to 1.7% in 2007 and by 7.3% in total since the commencement of share repurchases following the unification into Royal Dutch Shell and successful completion of Royal Dutch Minority tender (August 2005). (Annual Report Shell 2008) In the first six months of 2009 the EPS for Shell is $1.19 compared to the six month figure of $3.34 of the same period of 2009 (2nd quarter results 2009, www.shell.com ) Earnings Per Share in $ (2006-2008) BPs Basic Earnings per Share increased in 2008 to $1.13 from $1.09 in 2007. This was due to the appreciation in the profits followed by the repurchase of shares, which causes a net decrease of 373 million in the number o shares. Basic EPS decline by 0.01 to stands at $1.09 in 2007 compared to $1.10 in 2006. This was due to the declining of profits of BP. (BP Annual Report 2008) Diluted Earnings per Share(DEPS) : Diluted Earnings Per Share attempts to alert the shareholders to the potential impact on the Earnings per Share due to change in equity share capital in future owing to circumstances which exist now-known as dilution. The most common type of dilution is an option or warrant which gives the holder right to buy shares at time in future at predetermined price. (Kaplan Financial, Paper F7 Study Text) Diluted Earnings Per Share in $ (2006-2008) Shells DEPS reduced due to the reduction in the profits and number of shares to $4.26 in 2008 compared to $4.99 in 2007, while it was $3.95 in 2006. BPs DEPS increased to $1.12 in 2008 from $1.08 in 2007. The figure was $1.09 in 2006. The main reason for this was increase in profits despite shares in numbers was reduced. (Appendix) f. Cash Flow Statement: Shells cash flow from operating activities has increased by 27% reaching a record level of $43.9 billion in 2008 compared with $34.5 billion in 2007 and $31.7 billion in 2006. This improvement in cash flow from operations was a result of reduces working capital in 2008 compared to 2007. The increase in the operating activity in 2007 mainly because of increase in income as well as a reduction in taxation paid in 2007 compared to 2006. In 2009, Shells cash flow from operating activities reduced in the first two quarters to stands at $8478 million compared to $21,030 million in the same period of 2008. (2nd quarter results 2009, www.shell.com ) BPs cash flow from operation declined to $24.7 billion in 2007 compared to $28.2 billion in 2006, but the cash from operating activity increased in 2008. This is menially because of increase in income. (BP Annual Report 2008) Higher capital expenditure in 2008 compared to 2007 made Shell to use its Cash flow in investing activities i.e. $28.9 billion in 2008 compare to $14.6 Billion in 2007. In 2009, Shell continued to invest more with cash flow from investing activities stands at $(13,829) million in six months from $(12,275) million in 2007. (2nd quarter results, www.shell.com) But there was less cash paid out in investing activity in 2007(-14.6 billion) as compare to 2006(-20.9 billion) and the main reason was that the proceeds from sale of asset was higher and les capital expenditure in 2007 as compare to 2006. (Shell Annual Report 2008) BP was also having strong investment with $(22.8) billion in 2008 from $(14.8) billion in 2007. The figure for 2006 was $(9.5) billion. (BP Annual Report 2008) In 2008, as Shell took more debts which results in Shells cash flow from/used in financing activities reduced to $(9.4) billion in 2008 from $(19.4) billion in 2007.As Shell acquired Canada minority interest in 2007 resulting Cash flow from financing activity increased in 2007 from (13.7) billion in 2006. There was a small increase of BPs Net cash flow from/ used in financing activities from (9.0) billion in 2007 to (10.5) billion in 2008 menially because of more dividends paid and less repurchase of shares in 2008. Net cash from financing activities was reduced to $(9.0) billion in 2007 from $(19.0) billion in 2006. (BP Annual Report 2008) Cash and Cash Equivalent of Shell and BP in Billions Cash and Cash equivalent of Shell reached 15.2 billion at the end of 2008, up by 57% as compare to 2007 figure of 9.6 billion. Which is good sign for Shell as there cash and cash equivalent was higher as well in 2007 as compare to 2006 figure of 9.0 billion. BPs cash and cash equivalent also increased to $8.2 billion in 2008 from $3.5 billion in 2007 and also up from 2006 level of $2.5 billion. (Shell and BP Annual Report 2008) This shows that Shell has a sound position and has no problem what so ever in cash flow compared to its rivals. c. Non-Financial Analysis In this section of the report I will be analyzing the corporate social responsibility and the SWOT analysis. Corporate Social Responsibility (CSR) We recognise that our continuing business success depends on helping to meet the worlds growing energy needs in environmentally and socially responsible ways. To manage todays business risks and deliver our strategy, it is critical that we maintain the trust of a wide range of stakeholders. (Shell Annual Report 2008) Environmental Social performance Greenhouse Gas Emissions In 2008 despite growing business, Shell operated facilities emitted 75 million tons of GHGs, (measured on a CO2 equivalent basis), about 7 million lower than the previous year, and nearly 30% below 1990 levels. (Shell Annual Report 2008) Flaring Since 2001, Exploration Production has reduced its natural gas flaring by more than 70%. In 2008, total flaring in Exploration Production dropped again mostly due to reduces flaring in Malaysia and Gabon, as investment and operational improvement programs showed result. In 2008 flaring levels in Nigeria were same as in 2007. Spills Shell has reduced the amount of oil and oil products spilled from operations for reasons, Shell can control, like corrosion or operational failures. Spills from sabotage or extreme weather, like hurricanes, which are harder to prevent, have fluctuated with events. In 2008 the number and amount spilled for operational reasons dropped Royal Dutch Shell Plc Financial Analysis Royal Dutch Shell Plc Financial Analysis I. INTRODUCTION a. Topic Chosen and its context In this Research and Analysis project Report, I will be analyzing the financial performance of Royal Dutch Shell Plc. I will be identifying and analyzing the factors effecting the financial position of Royal Dutch Shell plc. The role of non-financial performance indicators which effects the financial position of the company will also be kept in mind. I will analyze the financial position of the company compared to its performance with previous years, with the industry and with its rival (BP). The word Shell will be used in place of Royal Dutch Shell as it is convenient. I will base my comparison on figures of audited annual accounts for the last 3 years. Financial analysis is an effective way of analyzing companys performance. Ratio Analysis is the technique, which will mainly be used for financial analysis. My analysis will also be based upon the comparison of key ratios with main rival of Shell, which will indicate some of the core strategies in seeking a competitive position to achieve its purposes. I will use Life Cycle model to analyze my findings on those markets, which materially contribute towards the companys financial results. Then I will use PEST analysis to analyze different stages identified and nature of Life Cycle. My conclusions will be based on current situation of the company as compared to past years and future expectations using the techniques mentioned above. b. Reasons for selection Reasons for selection of the topic and organization are as follows:  § Wide Information base: Shell, being a public limited company and one of the largest oil and gas concern in the finance sector the availability of timely, relevant, reliable information was an added advantage.  § Relation to my studies: While studying my ACCA, one of the important skills which I have learned is the ability to analyze the financial statements, and such a comprehensive research and analysis project will definitely help in developing the same  § The company: Other reason is the investment prospective and size of the company. The company unveiled the largest expenditure program in its history, spend $36bn in 2008 compared to $25bn last year, as it seeks new sources of oil and gas to boost reserves and production and to better exploit its existing resources. (Ft.com, July2008) Standard Poors, the credit ratings agency, downgraded its long-term rating for BP, the Oil and Gas Company, and upgraded Royal Dutch Shell, BPs closest rival, illustrating the widening perception of the two companys circumstances. SP noted Shells reserves replacement success and said current major projects should sustain its production plateau in the next decade. (Ft.com, September 2008) c. Aims and Objectives The aims and objectives contains the comparison of the financial performance of the petroleum sector to assess the worth of the company in its operational industry .To get an idea about the attitude of the management towards the operations of the company by assessing the companys cash flow position compared to its profits. Also to analyze the risks faces by the company I will take in to account Solvency, Liquidity and Capital structures. d. Research Approach ACCA provides a complete guide about different sections of the report, and also this provides the opportunity to plan and think to allocate my time carefully. This planning will help me to concentrate on each section of the report so that I can focus on core and important areas of the report. This also enables me not to overspend my time in explaining any section of the report. Information mainly collected from annual reports of the company and also different sort of other sources like ACCA text books, internet, newspaper, library etc. Traditional ratio analysis has been used to measure and compare the financial performance of the company over last 3 years with its rivals. Ratio analysis will focus on the following key ratios:  § Profitability Ratios This ratio is the reflection of how well the business is performing in term of profits in order to pay the shareholders. Key ratios are: a. Gross Profit Margin b. Operating Profit Margin c. Return on Average Capital Employed  § Liquidity Ratios Liquidity ratio refers to the state of an assets nearness to cash to meet business short term obligations as they fell due. Key ratios a. Current Ratio b. Quick ratio (Acid Test Ratio)  § Efficiency Ratios These ratios show how efficiently the business is employing those resources invested in fixed assets and working capital. Ratios are: a. Debtor Days b. Creditor Days  § Risk Ratios These ratios are used to assess how healthy and sound the business is in term of capital or finances. Ratios are a. Gearing Ratio b. Interest Cover  § Investors Ratios Both present and prospective shareholders look at these ratios to measure their return and to make economic decisions. Key ratios are a. Earnings per Share b. Diluted Earnings per Share II. INFORMATION GATHERING a. Sources of Information Used The information has been collected from different secondary sources for the preparation of this project. Main secondary sources which are use to gather information is as follows:  § Annual Accounts: The annual audited accounts of Shell are the main secondary source of information to use in this project. These annual audited accounts were available from stock exchange. As it supposed to be accurate and reliable thus provides me with an ideal source of annual accounts of the company. I have used only the audited annual accounts for the last three years of the company though unaudited quarterly review until July was available, to make certain that only reliable and accurate source of information is used in my research and analysis project. These audited annual accounts provides me all the information for the last three years which is essential in computing key financial ratios and also to make a comparison with rivals and industry averages of the company. Annual accounts of the rivals for the last three years are also used to make comparison with the Shell.  § Financial Analysts Report: They are professional people and their views are independent and their analysis helped the shareholders making economic decisions, which in turns affects the very existence of the company.  § Kaplans Tutorial Text: Kaplans tutorial text for Bsc (Hons) in Applied Accounting also helped me a lot for gathering information and also about the different requirements of the reports. It also helped in focusing a particular section of the report and also helped in overall design of the project so that nothing is missing in the project.  § News Papers: Getting in touch with the business section of leading newspapers like The Times, The Independent, Daily Express and The Telegraph was very useful as it provided me guidance on the economy overall and as well the movement in the share prices of different companies. b. Methods Used To Collect Information To collect information various methods are used like,  § Internet: Internet offers a speedy and impersonal way of getting to know the basics of the services that a company provides. (BPP 2005 Paper 3.4) I visited www.shell.com to access the financial reports of the company and press releases. I also visited www.bp.com to get information about the rival company of Shell for the purpose of comparison. Also I visited www.ft.com which really helped me a lot for the up to date information about the Shell and BP. I have also visited www.wikipedia.org to get information which helped me a lot to understand the oil and gas industry. In addition I visited the www.bbc.co.uk to get the latest news and important interviews.  § Use of the E-mail: For communication with Shell people I use to e-mail them during my research whenever I want to get some important information. They responded quickly to answer my query.  § Library Research: Libraries proved quite helpful so some libraries in London, Kaplan Financial College library and City Business Library in Moorgate London for general reading of the newspapers, journals, different books, magazines to get important information about Shell and BP. I spend most of my time in city business library, where I was able to get specific information through different CD ROMS which included different databases search designed specifically for getting information about different companies. Some of the CD ROMs are:  § Financial Analysis Made Easy: This database provided the detailed key financial data in the form of profit and loss accounts and the balance sheet. Also it helped me to get important ratios of the Shell and BP and their comparison with the preceding years in the form of graphs.  § Marketing and Business Information Centre (Data Monitor): This database provided vital information regarding the company, industry and market news for the research and analysis. This database contains records of hundreds of companies in UK and worldwide. When I looked at the Shell data, it really helped me by providing the overview and the detailed information. Then same thing was true for its rival BP. c. Limitations in the Information Gathering A number of difficulties I have faced sometime in getting the required information. For instance, I was expecting to get more information from the newspaper, but actually it was not. The newspaper only provides information about a particular date and some events but in depth information cannot be obtained and also articles are found in different newspaper i.e. nothing is new than others. Similarly when I went to City library, I was not aware of using FAME database, so when I tried to get information from database it took me too long. Moreover it only provides me the financial data in the form of graphs. Another problem which I have faced is the information overload on the internet. Whenever I tried to search something on the net it gives me too many results which some time confused me which information I should use and which is not. d. Accounting Technique Used and Limitations In this report to analyze the financial performance of Shell comparing to BP ratio analysis has been used. Ratios are important tool in analyzing the financial performance of the company. Ratios are used because shareholders and potential investors are primarily concerned with receiving an adequate return on their investment. An earnings per share is a key ratio that is to be used to determine the returns on shareholders fund. Suppliers and lenders are concerned with the security of their debt or loan. So they are mainly focused on the gearing level the company is having and also the interest cover. More over management is concerned with the trend and level of profits, so ratios are the main measure of the success. Furthermore, managements bonuses are linked to the profits of the company. I have calculated the key ratios in an appendix from 2006-2008 for Shell and BP and they did analyze the results. Ratios were used as a tool to assist analysis and to focus attention systematically on important areas. Ratios summarize information in an understandable form and also helped me to identify trends and relationships. There are also limitations of financial statements and ratio analysis as they are based on the past and ratios are not predictive if they are based on historical information. Ratios ignores any future action which is or to be taken by management. Another limitation faced by ratio analysis is the fact that the ratios results may be distorted if there are differences in the accounting policies. (Kaplan Financial Study Text Paper F7) In all, Ratios have limitations but are still regarded as the best tool for analyzing the financial performance of the business and so I also used it. III. ANALYSIS In this section of the report I will explain and analyze the financial performance of Shell and will compare its results with BP.I will also explain Shells financial position in the current year. a. Company History: The Royal Dutch Shell Group was created in February 1907 when the Royal Dutch Petroleum Company and the Shell Transport and Trading Company Ltd of theUnited Kingdommerged their operations. This move was largely driven by the need to compete globally with the predominant American oil company (www.wikipedia.org) b. Financial Analysis: Here is the analysis of the financial data of Shell (Revenue, GP and NP) over the last three years.  § The revenues in 2008 were ($458.4 billion) 28.8% higher than in 2007, when they were ($355.8 billion) 11.6% higher than in 2006. (Appendix)  § The oil and gas prices was One of the main reasons of increase in revenues in 2008  § Brent crude oil prices average $97.14 per barrel in 2008 compared with $72.45 in 2007, while West Texas Intermediate average $99.72 per barrel compared with $72.16 a year earlier. Oil prices saw great fluctuation in 2008. (Annual Report Shell 2008)  § A 6% increase in Gross Profit of Shell in year 2008 and 2007 as compared to gross profit in year. (Appendix)  § Its shows an increase in production costs in line with increase in revenues on high margin products.  § Earnings ($26.5 billion) were lower by 17% in 2008 compared to 2007, when they were ($31.9 billion) 21% higher than in 2006 ($26.3 billion). (Appendix) The decrease in 2008, compared with 2007, reflected the effect of declining oil prices on inventory in the second half of the year, lower production volumes, lower realised refining margins and higher operating costs. These more than offset the positive impact on earnings from higher realised oil and gas prices as well as higher LNG and GTL product prices. (Annual Report Shell 2008) Second quarter 2009 reported earnings were $3,822 million compared to earnings of $11,556 million in the same quarter a year ago. (2nd quarter results 2009, www.shell.com )  § Earnings By Business Segments : All figures in this table are in $million The table shows that earnings in 2008 were higher by 47% in Exploration Production, Gas Power and Oil Sands segments as compare to 2007. On other hand earnings were lower by 100% in 2008 as compare to 2007 in Oil Products, Chemicals and Corporate segments. This 100% reduction in last three segments causes overall reduction of earning in 2008. In the Second quarter Exploration Production segment earnings were $1,334 million compared to $5,881 million a year ago. Earnings compared to the second quarter 2008 reflected the impact of significantly lower oil and gas prices on revenues, lower oil and gas production volumes, higher exploration expenses and non-cash pension charges, which were partly offset by lower royalty and tax expenses. (2nd quarter results 2009, www.shell.com ) Comparison of Shell with BP  § Revenue Growth: Shell and BP revenue over the last three years is shown in the graph: Growth in Revenue in $ Million Shell and BP revenue showed a consistent growth over a period of 3 years. In 2008 Shell revenue 26.9% higher than BP. Which shows that Shell growing consistently as Shell revenue were higher 25.2% 19.9% from BP in 2007 2006 respectively. (Appendix) a. Profitability Ratios The profitability of a company is important and a key measure of its success. The figures shown in the profit and loss account mean very little themselves. However, by expressing them as a percentage of sales they become much more useful. The figures can then be compared with previous years or with other similar companies. (Student Accountant ACCA Magazine, Christopher, 1999.) Gross Profit Margin: Gross profit margin shows earning on sales of a company. In the 2nd quarter of 2009 the gross profit margin has fallen 62% compared to last years 2nd quarter results. An indication of high profit margin is that the company earned well on sales by keeping overhead cost in control. Gross profit margin of 2008 is lower than previous years. Net Profit: Shell net profit margin dropped by 3.2% to 5.8% in 2008 from 9% in 2007. And margin in 2006 was 8.3%.BP net profit margin dropped by 1.5% to 5.9% in 2008 from 7.4% in 2007. The 2006 margin was 8.4%. (Appendix) Growth in Net Profit Shell and BP (%) The profit margin is mainly used as an internal comparison tool. As there are different levels of expenditure involved it is therefore sometimes difficult to accurately compare the net profit ratio for different entities. As compared to BP Shells net profit margin dropped by a higher percentage in 2008.On the other hand if we see the year 2007 the Shell profits are higher than the BP. Return on Average Capital Employed: ROACE reflects the ability of the company to utilize the resources i.e. capital in generating revenue. Capital employed consists of total equity, currant debt and non-current debts. The published segment level contains the computation and calculation of the tax rate and the minority interest components. The strong income generation is the only reason for change in ROACE from18% to 24% between 2006 and 2008. There is a significant decrease in the capital employed from 24% to 18% in 2008 as compare to 2007. A significant decrease in income attributable to shareholders is partly offset by an increase in capital employed, resulted in a decrease in ROACE of 6.0% in 2008(18%) compared to 2007 (24%). The 2006 figure was 23%. (Appendix and Annual Report Shell 2008) ROACE is defined as the sum of the current and previous three quarters income adjusted for interest expense, after tax, divided by the average capital employed for the period. In the 2nd quarter or 2009 the ROAC stands at 8.3% way below the 25.8% in the 2nd quarter of 2008. (2nd quarter results 2009, www.shell.com ) On the other hand BP utilization of its capital resources was showing a sorry picture. BP ROCE has moved in a range of 16% to 19% between 2006 and 2008. BPs ROCE was 19% in 2006, and then reduced to 16% in 2007, followed by an increase of 1% to stand at 17%. This was due to lower income attributable to shareholders in 3 years time. This increase in 2008 was due to some increase in income attributable to shareholders. (Appendix) ROCE Shell and BP (%) The drop in oil price in the second half of 2008 had a significant impact on earnings. The strengthening of the dollar against other main currencies reduced the impact of Shells investment plans on capital employed. b. Efficiency Ratios Debtor Days Shells receivable days has fallen from 76 days in 2007 to 65 days in 2008. The figure for 2006 was 68 days. This was due to the effective and better controlled credit policy. (Appendix) BP on the other hand, showed increase in its collection to 30 days in 2008 from 49 days in 2007. The 2006 figure stands at 53 days. All this reflected an aggressive and comprehensive credit control policy and ability to collect from customers. (Appendix) Creditors Days The payment to creditors from Shell showed improvement in payment to creditors in 2008 if we compare the figures to last three years. As creditors days reduced to 78 days in 2008 from 93 days in 2007, while the figure in 2006 was 87. This improvement shows that company has liquidity to pay off its debts and also helped in making stronger relationship with creditors, which could be Suppliers, lenders. (Appendix) BPs creditors days showed reduction over a period of 3 years i.e. from 82 days in 2006 to 78 days in 2007 and more improved to 46 days in 2008 which showed a good sign for the company. (Appendix) c. Liquidity Ratios Current Ratio As short-term creditors prefer a high current ratio since it reduces their risk. The current ratio measures the adequacy of current assets to meet the companys short-term liabilities as they fall due. Traditionally, a current ratio of 2:1 or higher was regarded as appropriate for most businesses to maintain creditworthiness. However, more recently a figure of 1.5:1 is regarded as a norm. (Kaplan Financial, Paper F7 Study Text) Current ratio for Shell in 2008 was 1.1 and remained Constant between 2006 and 2007 to stand at 1.2. This shows better position for Shell and its ability to pay short term liabilities as they fall due. (Appendix) BP current ratio was also healthy between 2006 and 2007, but in 2008 the ratio was below 1 which may be not a good sign for short term creditors. But it was ok as for as it remains near to 1. (Appendix) One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have uncertain liquidation value. SO the quick ratio is an alternative measure of liquidity that does not include inventory in the current assets. (Paper3.6, BPP Professional Education, June 2007) Quick Ratio The quick ratio also known as the acid test ratio eliminates inventory from the currant assets. It provides the acid test of whether the company has sufficient liquid resources (receivables and cash) to settle its short term liabilities. Normal level for quick ratio ranges from 1:1 to 0.7:1. (Kaplan Financial, Paper F7 Study Text) For Shell, liquidity ratio remained unchanged within the industry standards between 2006 and 2008 to stand at 0.9. This shows the companys ability to pay short liabilities from most liquid resources i.e. receivables and cash not inventory. (Appendix) BPs quick ratio showed a sorry picture and remains unchanged on 0.7 between 2006 and 2008, as it was standing at the danger level of 0.7 meaning that BP is not having enough liquid resources to pay off the liabilities due. (Appendix) d. Risk Ratios Gearing: Gearing is the relationship between the companys fixed return capital and its equity capital. Gearing ratio indicates the degree of risk attached to the company and the sensitivity of earnings and dividends to change in profitability and activity level. High geared businesses uses large proportion of fixed return capital, so there are greater chances of insolvency and ultimately return to shareholders grow proportionately more if profits are growing. While low geared businesses provide scope to increase borrowings when potential profitable projects are available and can usually grow more easily. (Kaplan Financial, Paper F7 Study Text) Gearing levels in (%) (2006-2008) Shell maintained smooth profits and more suitable assets for security in order to make use of gearing successfully. Shells gearing level increased in 2008 due to more debts taken as compared to 2006 and 2007. Gearing was 23% in 2008 compared to 17% in 2007. The gearing ratio was 15% in 2006. The increase was due to rise in the total debt. On the other hand, BP gearing level was also high standing between 36% to 28% with 36% in 2008 compare to 28% in 2006, while 2007 figure was 33%, which is higher than Shell. High level of gearing means high risk to business, but this is compensated by a significant increase in profits and the returns to the shareholders. So Shell can borrow more easily in future. Interest Cover Companys interest cover indicates the ability to pay interest out of profits generated. Low interest cover indicates to the shareholders that their dividends are at risk (because most profits are use to pay interest payments) and the company may have difficulty financing its debts if its profits fall. (Kaplan Financial, Paper F7 Study text) Shells interest cover has decreased to 42 times in 2008 compared to 45 times in 2007. The interest covers for 2006 was 38 times. This shows Shells ability to finance its debts and the ability to pay interest out of the profits for sure. As investors are interested in the risk level the company is in, it is a healthy sign. Interest Cover in Times (2006-2008) For BP, there is an increase of interest cover to 30 times as compare to 29 times in 2007 but in 2007 there is a huge reduction in interest cover to 29 times from 49 times in 2006 which clearly indicates the inability of BP to finance its debt and to pay interest out of profits generated. That makes BP riskier than Shell for investment purposes. e. Investors Ratios Earnings per Share (EPS): Earnings per Share for Shell decreased in 2008 from $5 in 2007 to $4.27 in 2008. This was due to decline in profits followed by the repurchase of the shares, which causes a net decrease of 105 million in the number of ordinary shares outstanding as a result of share buybacks. As widespread the use of the EPS as a yardstick for investment decisions. Share price of company might fall if it looks as if EPS is going to be low. EPS increased to $5 in 2007 compared to $3.97 in 2006, this was due to decrease in the number of ordinary shares in 2007 as company repurchased its 112 million shares of common stock for cancellation at a gross cost of $4.4billion.this purchase reduced the number of shares outstanding to 1.7% in 2007 and by 7.3% in total since the commencement of share repurchases following the unification into Royal Dutch Shell and successful completion of Royal Dutch Minority tender (August 2005). (Annual Report Shell 2008) In the first six months of 2009 the EPS for Shell is $1.19 compared to the six month figure of $3.34 of the same period of 2009 (2nd quarter results 2009, www.shell.com ) Earnings Per Share in $ (2006-2008) BPs Basic Earnings per Share increased in 2008 to $1.13 from $1.09 in 2007. This was due to the appreciation in the profits followed by the repurchase of shares, which causes a net decrease of 373 million in the number o shares. Basic EPS decline by 0.01 to stands at $1.09 in 2007 compared to $1.10 in 2006. This was due to the declining of profits of BP. (BP Annual Report 2008) Diluted Earnings per Share(DEPS) : Diluted Earnings Per Share attempts to alert the shareholders to the potential impact on the Earnings per Share due to change in equity share capital in future owing to circumstances which exist now-known as dilution. The most common type of dilution is an option or warrant which gives the holder right to buy shares at time in future at predetermined price. (Kaplan Financial, Paper F7 Study Text) Diluted Earnings Per Share in $ (2006-2008) Shells DEPS reduced due to the reduction in the profits and number of shares to $4.26 in 2008 compared to $4.99 in 2007, while it was $3.95 in 2006. BPs DEPS increased to $1.12 in 2008 from $1.08 in 2007. The figure was $1.09 in 2006. The main reason for this was increase in profits despite shares in numbers was reduced. (Appendix) f. Cash Flow Statement: Shells cash flow from operating activities has increased by 27% reaching a record level of $43.9 billion in 2008 compared with $34.5 billion in 2007 and $31.7 billion in 2006. This improvement in cash flow from operations was a result of reduces working capital in 2008 compared to 2007. The increase in the operating activity in 2007 mainly because of increase in income as well as a reduction in taxation paid in 2007 compared to 2006. In 2009, Shells cash flow from operating activities reduced in the first two quarters to stands at $8478 million compared to $21,030 million in the same period of 2008. (2nd quarter results 2009, www.shell.com ) BPs cash flow from operation declined to $24.7 billion in 2007 compared to $28.2 billion in 2006, but the cash from operating activity increased in 2008. This is menially because of increase in income. (BP Annual Report 2008) Higher capital expenditure in 2008 compared to 2007 made Shell to use its Cash flow in investing activities i.e. $28.9 billion in 2008 compare to $14.6 Billion in 2007. In 2009, Shell continued to invest more with cash flow from investing activities stands at $(13,829) million in six months from $(12,275) million in 2007. (2nd quarter results, www.shell.com) But there was less cash paid out in investing activity in 2007(-14.6 billion) as compare to 2006(-20.9 billion) and the main reason was that the proceeds from sale of asset was higher and les capital expenditure in 2007 as compare to 2006. (Shell Annual Report 2008) BP was also having strong investment with $(22.8) billion in 2008 from $(14.8) billion in 2007. The figure for 2006 was $(9.5) billion. (BP Annual Report 2008) In 2008, as Shell took more debts which results in Shells cash flow from/used in financing activities reduced to $(9.4) billion in 2008 from $(19.4) billion in 2007.As Shell acquired Canada minority interest in 2007 resulting Cash flow from financing activity increased in 2007 from (13.7) billion in 2006. There was a small increase of BPs Net cash flow from/ used in financing activities from (9.0) billion in 2007 to (10.5) billion in 2008 menially because of more dividends paid and less repurchase of shares in 2008. Net cash from financing activities was reduced to $(9.0) billion in 2007 from $(19.0) billion in 2006. (BP Annual Report 2008) Cash and Cash Equivalent of Shell and BP in Billions Cash and Cash equivalent of Shell reached 15.2 billion at the end of 2008, up by 57% as compare to 2007 figure of 9.6 billion. Which is good sign for Shell as there cash and cash equivalent was higher as well in 2007 as compare to 2006 figure of 9.0 billion. BPs cash and cash equivalent also increased to $8.2 billion in 2008 from $3.5 billion in 2007 and also up from 2006 level of $2.5 billion. (Shell and BP Annual Report 2008) This shows that Shell has a sound position and has no problem what so ever in cash flow compared to its rivals. c. Non-Financial Analysis In this section of the report I will be analyzing the corporate social responsibility and the SWOT analysis. Corporate Social Responsibility (CSR) We recognise that our continuing business success depends on helping to meet the worlds growing energy needs in environmentally and socially responsible ways. To manage todays business risks and deliver our strategy, it is critical that we maintain the trust of a wide range of stakeholders. (Shell Annual Report 2008) Environmental Social performance Greenhouse Gas Emissions In 2008 despite growing business, Shell operated facilities emitted 75 million tons of GHGs, (measured on a CO2 equivalent basis), about 7 million lower than the previous year, and nearly 30% below 1990 levels. (Shell Annual Report 2008) Flaring Since 2001, Exploration Production has reduced its natural gas flaring by more than 70%. In 2008, total flaring in Exploration Production dropped again mostly due to reduces flaring in Malaysia and Gabon, as investment and operational improvement programs showed result. In 2008 flaring levels in Nigeria were same as in 2007. Spills Shell has reduced the amount of oil and oil products spilled from operations for reasons, Shell can control, like corrosion or operational failures. Spills from sabotage or extreme weather, like hurricanes, which are harder to prevent, have fluctuated with events. In 2008 the number and amount spilled for operational reasons dropped