Financial Analysis of Shell Plc and Bp Plc

Introduction

Some financial outrages have put corporate governance in the business spotlight. Basically, the issues and interest in the subject corporate finance can be traced back at least to the eighteenth century and economists such as Adam Smith. Certainly, there is probably little new in the existing debate involving to financial negligence, except for the range of the financial and economic consequences which replicate the greater importance of finance in the current economy. The purpose of this paper is to examine the economic and financial context of corporate governance of two UK oil companies i.e. Shell Plc and BP Plc. Basically, corporate governance has significant implications for the performance of the financial sector and, by addition, the economy as whole. Well-organised resource allocation is supported by strapping shareholder control rights, which assists investment in fresh development actions and confines the scope for corporate over-investment. Apparently, investment decisions are further linked to corporate governance insofar as investors prefer to invest in appropriately supervised corporations and be apt to avoid investing in ambiguous environments. In this way, the investor assurance created by sound corporate governance provisions and the security of minority shareholders encourages the financial market progress by encouraging share ownership and capable capital allocation across firms. Transparent financial reporting is necessary to sending efficient corporate governance.

For the last several years, the business industry in UK have seen the rapid growth of the number of firms offering financial situation analysis services even though we are currently in the stage of global financial crisis. Anyway, this serves as a proof that more and more organisations are realising the importance the analysis of their financial situation in order to keep up with the demands of the business world.

Background of Companies

British Petroleum (BP) Plc[1]

BP is one of Britain's biggest companies and one of the world's largest oil and petrochemicals groups. William Knox D'Arcy, the company’s founder, believed that oil deposits were to found in Iran so in the company's first six decades, its prime focus lay in the Middle East. But from the late 1960s the center of gravity shifted westwards, towards the USA and Britain itself. Oil exploration and production account for 20 percent of BP’s revenues. In 2005, the firm reported a turnover of $262 billion and by December of the same year, they have 96,200 employees working for the organization. Lord John Browne is the Chief Executive Officer of BP as of the moment. The recent 2003 merger with the Alfa Access Renova group creating the TNK-BP tie-up and the not-so-recent 1998 acquisition of the Amoco Corporation oil company has provided the groundwork for