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Investment Analysis and Recommendation - BP

Please examine the mix of debt and equity that British Petroleum (BP) uses. After finding this information:

• Compare this to an industry average or Dutch Shell. What are the differences?
• Based on what you know about BP, do these differences seem appropriate?
• Relate BP's capital structure choices to the appropriate capital structure theory (ies).

BP Annual Report and Form 20-F 2012:
http://www.bp.com/content/dam/bp/pdf/investors/BP_Annual_Report_and_Form_20F_2012.pdf

Royal Dutch Shell plc annual report of 2012:
http://reports.shell.com/annual-report/2012/servicepages/downloads/files/entire_shell_ar12.pdf

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BP - Capital Structure

Gross debt at 31 December 2012 was $48.8 billion compared with $44.2 billion at 31 December 2011. Net debt was $27.5 billion at 31 December 2012, leaving BP's gearing (net debt ratio) at 18.7%.
BP's shareholders' equity at 31 December 2012 was $118,414 million.
Net Debt + Net Equity = $167.214 billion
% of Debt = 48.8/167.214 = 29.18%
% of Equity = 118.414/167.214 = 70.82%
Debt-Equity ratio = Total Debt/Total BP ...

Solution Summary

The solution discusses the investment analysis and recommendation.

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