Executive Summary
This work determines the various concerns a company or an investor needs to look into before investing money in any economy. There are key players in the economy that determines its growth and progress. Matters of employment are so fundamental to consider in any country, since it determines the purchasing power of the consumers. In addition, it also determines the purchasing behaviour in an economy. Other factors that this paper looks into include the demand and supply relationships. It is confirmed in the works that increase in supply affects the price of commodities. For example, when the supply goes up above the demand then the prices go down. Consequently, when the demand is higher than the supply then the prices go up. Moreover, this analysis also found out that the price in relation to the supply of goods translates to inflation. Therefore, it is important for any investor to look into these matters for effective investment plans. In addition, this analysis found out that Britain has a demonstration of a better performance in 2016. As a result, this analysis advice the investment collaborates to consider the country for an investment option. Finally, the companies in the ratings are some of the best performers in the British market.
Market Sector4
Outlook for the Global Economy and the Economy In United Kingdom5
Gross Domestic Product.5
3.0 Sector Outlook..6
3.1 Unemployment Ratios6
Fincial Statement Analysis of British Petroleum PLC7
4.1Profitability 7
Liquidity Ratio8
Efficiency Ratio8
Investment Ratios9
Investment Ratios..10
Recommendations and Conclusions.11
References12
Introduction
Many investment planners have demonstrated that Europe stands out for investment in 2016. Its stock market rates best in the global market compared to other performers like the United States of America (Nova, Cerqueira and Brandão 2015, 45). British Petroleum PLC is found within the list of oil and gas corporations. This company has shown tremendous improvements in the world market. This work essentially delves in the professional procedures taken to determine the type of company in the stock market to invest in. For investment plans, the understanding of equity distribution determines the type of asset ratings, to help the company to manage finances and upscale the earnings. It takes the focus in two broad areas; fixed-income bonds and cash equivalents (Beer and Boswell 2015, 32). These two are the true determinants of asset allocation strategy. They help to influence the type of risk involved. Furthermore, they influence return outline for the company’s collection. This analysis will hence consider factors of unemployment, inflation and Gross Domestic Product. There exist many companies that offer equity partnerships investments. Thus, the main objective here will be to give the London Investment Partners a reason to invest with one of them (British Petroleum PLC). Secondly, this work will portray the global economy as well as the economy in the country. This will enable the determination of the possible benefits that British Petroleum PLC promises to its investors. Finally, this work will give comprehensive financial statement analysis that will help in understanding the performance of the stock market.
2.0 Market Sector
2.1 Outlook for the Global Economy and the Economy in United Kingdom
According to the UK Economic Outlook report, GDP was expected to move at a steady pace from the year 2015. This trend was further expected to replicate in 2016 (McMichael 2015, 670). The report also covered the details of the longer outlook of the trends in the global market in Asia and Europe. It further investigated how the consumer spending would perform in 2020. According to this report, the economic projection was 2.5%, which indicates a slight fall of 0.2% in 2016 as illustrated below.
According to this report, the inflation rate was very low. This phenomenon was attributed to the country’s economic analysis associates with the oil prices (Bruno and Shin 2015, 32). They claim that the increase in inflation in 2016 projected the GDP growth aided by the oil prices in 2016. In addition, they believe that no export would interfere with the trend. This is because the country’s economy was highly dependent on consumer purchasing power. In relation to the global economy, they foresee a problem in Eurozone. Hence, it will not be a determinant on this growth.
2.2 Gross Domestic Product
Conferring to the economic and financial surveys, the world economic outlook states that the upsurge increase in employment in the United Kingdom has come a long way. This is in relation with the productivity stagnation as reflected in the above indices. From their outlook, the labour performance in the year 2014 is promising. It indicates that the unemployment rate would be reduced in the preceding years (Del Baldo 2016, 104). The same influence is eminent in 2015 and 2016. In other words, there was an increase in household earning growth of 1.8% in 2014. This further increased to 2.2% in 2015. This demonstrates that the country is determined to lower economic and employment disparities. This means that any investment in the country is non-regrettable for any company.
Moreover, the consumer spending is projected at the rate of 2.4% in the year 2016. This is due to increased stability of the households depicted in the indices below.
This implies a growing economy with low inflation that supports standard investment. The provision of employment leverages the consumer purchasing power identical with the inflation rates (Kane, Palmer and Kiron 2015, 36). However, the domestic demand is not inherently high. This means that the prices of the commodities will remain within the scope of targeted range hence lowering the inflation rate.
2.3 Government Policy
The government impose taxation on consumer goods and services. In addition, the government also taxes the corporations for effective run and provision of essential services to the public and business operations. This in turn interfere with the prices of the petrol that the company charges. Moreover, the government in the United Kingdom is also a key player in determining the growth of stock market, since they also buy shares from the companies. Likewise, the government controls corporations as the chief producers of the capital. Similarly, the supermarkets and outlets that sell the same products have to lean on the government regulation policies that control their operations and how they relate. For example, they cannot do mergers unless within the stipulations of the law.
3.0 Sector Outlook
This work deepens in the oil production sector in Britain. It evaluates the way the global market interacts with the production industry (Wisniewski and Yekini 2015, 283). From the data captured in the various sources, the economy is projected to attract a lot of revenue in the entire country. However, there are many outstanding challenges that would interfere with this progress. Therefore, the economic planners in the region must take meticulous measures to address the challenges as soon as possible (Krempel and Plumper 2015, 487). These challenges include unemployment rate, consumer income and the relation between supply and demand.
3.1 Employment and Unemployment Rates
Consumer confidence also determines the rate to which the companies will perform. For instance, consumer packaged goods trends influence the nature of the market. If the consumption goes up, the market expands. However, it contracts when the consumption goes down. The good news is that this fluctuating demand does not affect its market to the extreme in relation to some goods (Leggio and Molinari 2015, 36). The only challenge in the sector is supply and demand relationship. For instance, a high demand for goods overwhelms their supply. This results in an increase in their prices. When the demand for goods goes down, it exceeds their supply and this lowers the prices of the goods. Thus, the increase in oil prices impact the cost of productions in other sectors such as packaging. This is because packaging depends on the plastic materials produced by the oil companies. Therefore, it is important to note that many companies depend on each other for survival.
Unemployment rates additionally affect the power of the consumers to purchase the products of their choice. This is due to meagre incomes that come about by the jobs provision in the company.in the economy of Britain, employment rate increases by 2% every year (Lewis and Tan2016, 32). In addition, people who have stable employment can large volumes of goods. This is due to the strength in their income scale. In this precept, the two factors influence the relation between demand and supply. If the purchases go up due to the ability to buy (demand), the prices go up due to the limited flow of goods (supply) that cannot meet the total needs of the customers. Conversely, when the ability to buy goes down (demand), the goods produced floods the market (supply), hence the reduction of prices. In relation to inflation, higher prices above the normal standards in the economy raise the inflation rates (Regos et al., 2016, 89).
4.0 Profitability
4.1 Turnover Analysis and Future Plans
According to the company’s report, the performance in the market attracts the profit margin of 2% annually. From this record, total income on task increased by 7.1 to £213.3 million. Consequently, net interest recorded £198.3 in 2014 million compared to 178.9 million in the in 2015. This reflects the margins recorded in the loan book which indicates 7.2% increase. Net interest margin showed improvement of 2.06% in relation to 2014. Other operating income recorded £15.6 million for the year 2015 in comparison to £19.2 in the previous year. The company expect that the same trend will continue for the six subsequent years up to the year 2022. This can be a sure way to the investors that there is much to hope for in this company.
4.2 Liquidity ratio
This section will examine the account of the current asset and current liabilities. The British Petroleum PLC working was calculated as follows
Current assets £700,000
Current liabilities £ 543,000
Net working capital £157,000
This analysis indicates that the company has £157,000 to operate on its daily business dealings. These dealings include accounts payable, quick bank loans as well as working expenditures(Pereiro 2015, 34). It also implies that the company has £1.8 amount in its current asset in about the current liability. This shows that it lies within the normal 2 to 1 percent ratio.
4.3 Efficiency Ratios
The company also is efficient in service delivery. This is due to the effective management of people and resources. In the annual board meeting of 28th September 2015, the governance structure showed tremendous performance in the coordination of people efforts and ability. This has made the company to deliver quality service in its areas of operation. Shareholders are also satisfied with its operations as well as the way it organises its operation plans and business objectives (Schlegelmilch 2016, 32). The company is keen on establishing a good environment for benefits to both the employees and the clients. Moreover, its compliance with the government regulations communicates the same effect. This is because all the taxes are paid on time (Yekini Wisniewski and Millo 2015, 31). The surrounding community also benefits from some of its programs. This includes the green house project. It is clear that the company is more efficient and promises much shortly for the investors and the employees alike. Therefore, it is a company to go for in any investment plan of the year 2016 (Hassanein and Hussainey 2015, 33). the efficiency ratio goes as follows;
Quick assets £512.000
Current liabilities £543,000
1.06
This means that is lies within the quick range of 1:1, which is inherently accepted in normal analysis. Therefore, the company’s performance is better. Any investment with it is thus noble and justifiable.
4.4 Investment Ratios
This segment determines the amount contained in investments by getting the balance between the liabilities and assets. It focuses on two areas of a viable business (Levy 2015, 23). The first bit highlights way assets ownerships are spread to the shareholders. On the other hand, it gauges the company with the management of debts. It takes into account the amount of investors’ capital in the company’s growth. The company that shows higher ratio is promising for the investors. This is because it pays its debts and remains with enough to expand the operations.
The equity/investment ratio is gotten by dividing total equity by the total assets as shown below.
Investment Ratio= Total investment/Total assets
In this general overview, upper ratios gives an advantage for the company to attracts investments and expand itself. It also helps the company to manage its operations effectively with minimum problems (Dhaliwal, Judd, Serfling and Shaikh 2015, 13). The investors also have much to hope for in the company due to the outstanding performance of the company’s investments. The Paragon Group of Companies’ investment ratio appears as follows.
The company had a net income of £1,920,000 in the year 2015. The shareholders had a standing investment of £1,200,000 million the same year.
=1,200,000/1,920,000
This clearly indicates that the company is good to go for when making an investment plan (Xu 2015, 45). For instance, the company is very stable. Also, the investors are only required to share the remaining 40% percent while the company stands for the huge 60% for every cost incurred. Therefore, it has a promising future for both the investors and the company itself regarding paying the employees and managing its debts (Wang and Cheng 2012, 319).
Looking at the performance of the British Petroleum PLC, it is evident that it is a better performer compared to other competitors such as Shell. The company has a strategy of spreading much of the benefits to the shareholders making it attract more investments compared to Shell. For example, British Petroleum share other benefits accrued on assets with the shareholders while Shell do not.
Conclusion and Recommendations
Also, unemployment and employment rates affect the power of the consumers to purchase the products of their choice due to meagre income (Twine 2015, 33). People only buy when there is good income for them to do so and when their income goes down, they become limited in purchasing power. Consequently, people who have stable employment can buy large volumes of goods due to the strength of the income scale. In this precept, the two factors influence the relation between demand and supply. If the purchases go up due to the ability to buy (demand), the prices go up due to the limited flow of goods (supply) that cannot meet the total needs of the customers.
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