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:
Royal Dutch Shell plc annual report of 2012:
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 ...
The solution discusses the investment analysis and recommendation.