BUSINESS AND Financial analysis OF BRITISH PETROLEUM WITH COMPARISON TO SHELL PLC

Business and Financial Analysis of BP with comparison to Shell PLC
2011

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Dissertation Topic

BUSINESS AND Financial analysis OF BRITISH
PETROLEUM WITH COMPARISON TO SHELL PLC

Supervisor: - Mr. John Waites
Submitted By
AAMIR YAQOOB
University ID: - 1092187255350
Year: 2011

Submitted in accordance with the requirements for
The degree of
MASTER OF BUSINESS ADMINISTRATION
At the
UNIVERSITY OF WALES
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ACKNOWLEDGEMENT:

In the name of Allah (God) the most Beneficent the Merciful

All praise to Allah, the Almighty, on whom ultimately we depend for sustenance and
guidance.

First and special I offer sincerest thanks to my research supervisor MR. John Waites,
who really supported me in my research work and guide me with patience and devotion
to complete it to his best level, I found him not only a good research supervisor but also
a good friend who really guide me in friendly way, Secondly Dr. Ana-Maria Pascal
who also guide me to complete my all thesis and approve it for final submission.
I also convey special thanks to my elder brothers Mr.Sohail Yaqoob and Mr.Javed
Yaqoob for their indispensable help dealing with funds, special care and politeness. I
realise that without their efforts, it could have not been possible for me to do MBA
from UK.
I would like to special thanks to my cousins Mr.Zafar Iqbal and Mr.Nasir iqbal who
really help me with special care and pay my attention towards my degree, I also thanks
to my friend like Mr.Naveed Zahid who support me during my work and guide me to
choose right topic for my dissertation. Special thanks for my classmates and group
members Mr.Abdul Hameed, Mr.Paramjit Singh and Mr.Ali Warraich who really make
it possible to arrange group study and show their interest in group work, meetings and
presentation.




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Finally, I am thankful to academic and administrative staff at LCB and University of
Wales who gave me an opportunity to complete my degree from one of the best
intuition in UK. Who designed and managed such an interesting MBA program which
helps me in my career development. I offer my Special thanks to Dr.Ana-Maria Pascal
(Principal and MBA Director of LCB) and all Professors and Lecturers. Your efforts
and hard work will always be remembered.



Dedications:
This thesis is dedicated to My Father and Mother who has supported me all the way
since the beginning of my life. I won‟t forget their sacrifice, love, motivation and
inspiration in building up my character and personality.
I would also like to dedicate my research work to my brothers and sisters who always
pray for me and for my success as well.



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EXECUTIVE SUMMARY

This report is about the financial and business analysis of British Petroleum with
compare to the similar type of company Shell PLC, which are the world‟s 2
nd

and third largest Oil Companies around the globe.
Both the companies are the giant of the petroleum industry. The British
petroleum in the recent past few years affected by the large oil Spill of the
history named as Deep water oil Spill or BP Oil Spill. The losses from this are
not only to the BP itself it has affected the environment and marine life also. The
environment and the marine life have recovered from this loss but the BP is still
impacted from this painful event in the past.
The Shell PLC in comparison is doing the business at its high performance and
is in level of British Petroleum in providing the services to the petroleum
industry.

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List of Abbreviations Used
PLC Private Limited Corporation
BP British Petroleum
APOC Anglo-Persian Oil Company
AIOC Anglo-Iranian Oil Company
ROA Return on Assets
BA Business Analyst
BUC Business Use Case

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List of Contents
Chapter 1 Introduction 10
1.1 Introduction 11
1.1.1 Definition – Financial Analysis 12
1.1.2 Background 13
1.2 The Significance 14
1.2.1 Financial Analysis 14
1.2.2 The Scope – Oil spilt in the Gulf 15
1.2.3 Issues – brief overview of Topic 15
1.2.4 Limitation of this research–a clear statement of
the dissertation 16
1.3 Research Questions 16
1.4 Research Objectives – reasons for the investigation and
Purpose of the study 17
Chapter 2 Review of Literature 18
2.0 Company‟s Overview 19
2.1 British Petroleum 19
2.2 Shell PLC 20
2.2.1 Efficiency 25
2.2.2 Financial Ratio 25
2.2.3 Profitability Ratio 25
2.2.4 ROA 26

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2.4.5 Accounts Receivable Turnover (Credit Risk) 26
2.4.6 Steps for Financial Analysis 26
2.3 Business Analysis 30
2.4.1 Business Analysis (BA) 30
2.4.2 Methods for analysing business responses for
an event 31
2.4.3 Organizing the Analysis 32
2.4.4 Learning from the experiences 32
2.5 Modelling 33
2.6 Summary – overview to the subsequent section 34
Chapter 3 Research Methodology 35
3.1 Introduction 36
3.2 Choice of Sector 36
3.3 The Choice of the Organization 36
3.3.1 Financial Sector 37
3.4 Information Congregation 37
3.5 Method of Research 39
3.6 Data Collection 39
3.6.1 Primary Data Collection 39
3.6.2 Designing of Questionnaire 40
3.6.3 Surveys/Questionnaires 41
3.6.4 Collection of Secondary Data 43
3.7 Method of Data Analysis 43
3.7.1 Reliability of Data Collected 43

3.7.2 Validity of the data 43
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3.8 Population Study 44
3.9 The Introduction of the Chapter That Follows 44
Chapter 4 Data and Analysis 45
4.1 Introduction – Data Analysis 46
4.2 Collection of Data Methods 46
4.2.1 Wide-ranging interviewing 46
4.2.2 Surveys 46
4.2.3 Company Yearly Reports 46
4.3 Financial analysis of the British petroleum with comparison
to the Shell PLC(From Annual Financial reports of the
Respective companies) 47
4.3.1 Assets 47
4.3.2 Liabilities 47
4.3.3 Liquidity 48
4.3.4 Equity Share Capital 49
4.3.5 Fixed Interest bearing Funds 50
4.3.6 Capital Gearing Ratio 50
4.3.7 Deep-water Oil spill Effect (BP Oil Spill) 51
4.4 Presentation of Data (From Questionnaires) 54
4.4.1 Working Environment 55
4.4.2 Financial Analysis 56
4.4.3 Business Analysis 68
4.5 Strategic Policy of the Companies 69

Chapter 5 Conclusions 70
5.1 Investigation and argument of outcomes with position to
Purpose of the study 71
5.2 Issues from the literature review 71
5.2 Recommendations 74
5.3 Suggestions 74
5.3.1 Through joint ventures, BP can enter the oil sands
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Production markets 74
5.3.2 Business Strategy 75
5.3.3 BP can Restructures its Alternative Energy
Operations 75
5.3.4 Take Charge of its Cash 75
5.3.5 Manage inventory 75
5.3.6 Areas for the Further Research 75
References 77
Appendix 80
Appendix 2: Questionnaire 80


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Introduction
„‟In the introductory chapter we will give overview of the research topic,
its problems, aims and objectives along with hypothesis.‟‟

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INTRODUCTION
The financial reporting by an organization is an allocation tool to classify the
accounting data for making control and the investor‟s able to have judgment making
power. For the attainment of same purposes the companies of various countries around
the globe had created the course of action to have more than annual or single financial
reporting to help the cause.
The financial reports of an organisation must reveal the evidences which might affect
judgment of the management of the organisation or the informed readers.
The financial declarations honor with benefits to the numerous people devoted to the
company for e.g. predictors, company executives and shareholders and even the public
allied or involved to the company as well. The data obtainable from the financial
reports provides the information about the company existing situation and also the
presentation in the last few years. These financial statements inspire the persons related
to the company and also the people who are interested in it. The financial reporting is
also the sort of check on the growth of the company over the past few years.
The business and financial analysis of the company is done to evaluate the effectiveness

and the paying/buying capacity of the company.
The financial and the business analysis both are very important and basic for the
company to check its profitability, stability buying/paying capacity, liquidity, liabilities,
market strategies and structure and feasibility for the future projects of the company.
The business analysis is also very much important as it gives the ability to the company
or the organisation to arrange and develop more and more strategies and policies but
yet it has many of the involvement of the financial analysis with this.
A careful analysis of the process of observation in atomic physics has
shown that the subatomic particles have no meaning as isolated
entities, but can only be understood as interconnections between the
preparation of an experiment and the subsequent measurement.
Erwin Schrodinger


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FINANCIAL ANALYSIS:
The deep-seated idea behind the financial reporting is to endow with the weight of
judgment to the informed reader.
The financial analysis which the majority of the companies do is to test out the
profitability of the company in short and long term basis. The financial analysis of
company evaluates the paying and buying aptitude of the company to the creditors and
its position in the market. The liquidity is also a main reason to have the monetary
analysis for the company which develops the ability to maintain the constructive cash
flow from the obligations of the company.

METHODS:
There are various methods for the analysis of the financial issues of the company and
improve the present business situations of the company according to the present
situations.
A company can improve the performance in terms of financial issues and improve the
business inside the company by having a good look at the past performances and
existing performances and in light of these the company should develop the future
expected performance for the company.
The researcher had used the following under consideration to do the investigation.

Past Performances: Everything which had passed away is history but history is one
thing which builds our experiences and makes us more and more professional in terms
of business performances. A look at the past performances can make us enable to learn
from our mistakes, policies and strategies effectiveness and also the overall view of the
company‟s performance.

Existing performances: The Existing performance is the present situation which a
company is facing and it is the true picture of what a company is doing in terms of
financial matters and also the business dealings. It also shows the company‟s reputation
in the market and its product evaluation in the market with comparison to the similar
companies doing same business.

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Future Expected Performance: the future is what which nobody knows but yet we
can expect by giving some outputs in short term and long term basis. It is just like

doing work and expecting the result of what we had input.

Comparison with the competitors: in the end of the various expected operation and
performances and analysing them completely the comparison with the different ideas
and thoughts to get the clear picture of the organisation according to the situation.

BACKGROUND
The study stands on the financial investigation of the British Petroleum and its
premeditated preparations in the market with comparison to its contenders. The
financial reporting is the conventional format of keeping the documentation of the
company which presents the information about the financial proceedings of the
business, person and the supplementary entities attached to the company in any way.
The need for the financial analysis and the business analysis is very important and
historical in terms of improvement in the business of the company and building its
reputation for better performance of the company.
The British Petroleum is very old and large petroleum company which is supplying the
petroleum countrywide at larger scale and for understanding the financial and business
structure of the company is very much considerable. For better understanding of the
financial analysis and business analysis the researcher has made a comparison of the
British Petroleum with the Shell PLC which is also very large Petroleum Company and
having the same business and financial structure as that of the British Petroleum.
The financial analysis is usually referred as the viability, stability and profitability of a
business and business analysis usually referred to as a fulfilling needs and requirements
of a business by identifying the various business solutions during the ongoing
performance of the company.


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BREIF HISTORY
The British Petroleum is very historical and large and historical company and was
established ion way back in 1901 in name of Anglo Persion Oil Company. The
company during its performance has developed a lot and made many improvements and
now it has gained the shape of British Petroleum and biggest Oil Company nationwide.
When the comparison of British Petroleum with the Shell PLC is done the researcher
come to know that the Shell is a very large organisation in its operation and services
around the world.
Shell PLC (Royal Dutch Shell PLC) is one of the major petroleum products manufacturing
company around the world and is very famous around the globe. It‟s headquarter is located in
Hague, Netherlands.
A very large petroleum company in its operation which doing the business from almost more
than one century, it is the third largest petroleum company of the world and doing improvement
in the business day by day.
It is operating in more than 95 countries and providing more than 3.1 barrel of oil per day to the
more than 45,000 of its stations around the world in different countries.
SIGNIFICANCE
FINANCIAL ANALYSIS:
The foremost thing which has to be done in financial analysis is discussed in the
following opinions which are outcomes from the financial analysis as a consequence.
 Opening or ending any business maneuver
 Buying and selling of any manufactured product of the company or an
organisation
 Arranging the requirements for the manufacturing of the products.
 Developing policies and strategies for investing and lending various business
operations.
 Any other decisions which are negotiable and address them according to the

rules and regulations of the company or a business organisation.
The main objectives of having the financial analysis are:
1. Check cost-effectiveness: the financial analysis enables the company to check the
profitability of the company for its various products in short term and long term basis
during the business.
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2. Buying and paying Capacity: the financial analysis of the company also enables a
company to have a idea about its buying and paying capacity to the creditors of the
company.
3. Stability: the stability of the company is also checked by the financial analysis of
the company which is done for the purpose of having the assessment about the strength
of the company to retain in the market.
4. Solvency: is usually referred to as a ability of a com0pany or an organisation to pay
its debts of the company or an organisation as a priority case.

OIL SPILLS IN THE GULF:
The oil spills in the gulf which had affected a lot the consumer behavior towards the
British Petroleum in the past few years in gulf. The consumer‟s behavior had changed a
lot during this period and the strategies to overcome this problem developed by the
company are also the part of the research.
The British Petroleum had faced more than 5 Billion Dollars in the oil spills in the gulf
after which they had developed and strategy and prevention methods to avoid such kind
of losses in the future are also the part of the research. Such great losses not only cause
the financial losses to the company but also weaken the market position of the company
against the competitors.

BRIEF OVERVIEW OF TOPIC:
The financial analysis of the company is basically done for the sake of the evaluation of
the strength if it is said that the financial strengths will not be wrong.
The financial analysis enables to overview financial matters of the company which
includes the business transactions, investments and profitability and much more which
is related to the business dealings of the company.
The business analysis is generally the requirement analysis which enables the company
or an organisation to retain and maintain the requirements of the company or an
organisation according to the present needs and circumstances.


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A CLEAR STATEMENT OF THE DISSERTATION:
The main purpose and the objective of the study are to study the financial and business
analysis of the British Petroleum with comparison to the Shell PLC. And also the
various financial transactions and their effects on the company. On the basis of the
analyzed factors and stimulating effects to the organization suggesting and figuring out
the best possible remedies for the organization at each level of the business
transactions.
The key purpose of the dissertation is to study the issue that how the company or an
organization can understand its financial and business analysis on the basis of which a
company or an organisation can make the performance more and more better

THE RESEARCH QUESTIONS

For the research on the British petroleum in terms of financial and Business analysis in
comparison with the Shell PLC the researcher has the following questions on which
researcher wants to work and analysis the data gathered to present a comparison of
these two big Oil/Petroleum companies
The questions for the research are
 What is financial analysis? Explain the financial arrangements of BP and SHELL?
 How much efficient is the strategic policy of BP, to grow and increase profitability
of the organisation in comparison to its competitors.
 Who ecological aspects affect the strategic positions of BP and Shell?
 Who oil spill affect the consumer behaviour of BP and Shell?
 Which course of actions BP is using to minimize the force of the disaster event?
 What are the risk factors that have an effect on the operation of both organisations?
 How much efficient is the marketing policy of BP and Shell?
 Which business segment BP is focusing most of its operational activities, for
example upstream or downstream?


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REASONS FOR THE INVESTIGATION AND PURPOSE OF THE STUDY
However the main reason is to make the better performance of the company but the
better performance of the company can be done only by having the elimination of the
risk associated with the various business and financial matters of the company to have
the certainty and the stability of the business terms of the company for the long period
of time which build the reputation of the company in the market.
The companies work under the dynamic environment which causes their future to

remain uncertain and unpredictable. The uncertainty becomes more evident and the
proper functioning of the organization can be effected in a great deal. Our reason
behind the study is to eliminate this uncertainty and unpredictability of the organization
in the future.
The objective behind the research is to get the following
 Financial strategy of British Petroleum and Shell PLC
 Input characters of British Petroleum and Shell PLC marketing plans and their
supposition on supermarket sector.
 To value the accomplishment subsequent to the British Petroleum and Shell PLC in
becoming leader of the marketplace.
 Ways to improve financial and marketing strategy and its effect on BP and Shell.

OVERVIEW TO THE CHAPTER THAT FOLLOW
In subsequent chapter researcher discusses the literature review of topic and will realize
several matters and existing data to investigate the risking influences that are to affect
the enactment of the organisation.
The subsequent section is about the several literary rudiments and icons of the business
and financial analysis, there effects and significance in the pertinent field.





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Review of Literature
„‟ This part of the research will intricate the different terms employed by the BP and Shell PLC
in terms of Business and Financial Analysis. Moreover their strategic positioning and the
market strategies are also discussed in this chapter of the research‟‟.

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2.0 COMPANY’S OVERVIEW
Both of the companies are doing petroleum business and are wide in their performance
and capabilities of doing business. They are considered as giants of the petroleum
business as they are providing the Petroleum products at very vast range. British
Petroleum and the Shell PLC are in-fact the second and the third largest Petroleum
products providing Companies around the globe. Their product range and services are
very much effective and up-to the International standards which make them even more
reliable and efficient.
2.1 BRITISH PETROLEUM
“BP is a global enterprise which is committed to meeting
the world‟s growing energy needs in a responsible and
ethical way.”
–UK Ordinary Shareholder Guide

The British petroleum is rendering its services by providing the fuel for the
transportation, energy, retail energy and for the petrochemical products globally.
The British Petroleum is globally operated company and it is very vast in its
performance almost functioning in more than 80 Nations. The Headquarter of the
British Oil company is located in London, United Kingdom. The company has more

than 22,400 service stations around the globe and per day it provides equal or more
than 3.8 million barrel of oil
History:
In the year 1901 Shah of Iran has established William Knox D‟Arcy to hunt the
Petroleum who discovered it in the year 1908. In 14 April 1909, the Anglo-Persian Oil
Company (APOC) established which the leading momentous discovery in the Middle
East . In the year 1935 it has become Anglo-Iranian Oil Company (AIOC). With the
passage of years it has developed the shape of British Oil Company which is now one
of the major oil companies round the sphere.

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Objective:
“We [BP] are maintaining our policy of returning cash to
shareholders through dividends and buybacks although we are
changing the relative proportion of each. Your board has confidence
in greater cash flows from our strong asset base, which has allowed
the company to increase both investment in its future growth and the
dividend component of our distribution to shareholders. ”Peter
Sutherland, Chairman of British Petroleum, February 2008
Chairman’s Letter
BP is acquiring many standards other than the profit as in its objective: safety, people
and performance. However there are many aspects of the company to focus about but in
this dissertation we will focus on the performance of the company in term of its
financial analysis and business analysis with comparison to the Shell PLC. This report
will present the performance of the company over the past few years, and also the

financial outlook of the company to the shareholders for the future performance of the
company
The company is committed to provide the petroleum products in different countries of
the world at high standards and in timely manner. It has covered many countries of the
world and has become the necessity of many countries besides which they can‟t do
anything.
Providing the better solutions for the petroleum industry and maintaining the reputation
in the market and interpretation of the key elements and stimulating elements of the
financial analysis of the company.
2.2 Shell PLC
Shell PLC (Royal Dutch Shell PLC) is one of the largest petroleum products
manufacturing company around the world and is very renowned around the globe. It‟s
headquarter is located in Hague, Netherlands.
A very large petroleum company in its operation which doing the business from almost
more than one century, it is the third largest petroleum company of the world and doing
improvement in the business day by day.
It is operating in more than 95 countries and providing more than 3.1 barrel of oil per
day to the more than 45,000 of its stations around the world in different countries.

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History:
The Royal Dutch Shell PLC was established in February 1907 as named Royal Dutch
Petroleum Company the company has its roots back in 1980s when the Dutch
Petroleum company was founded by Jean Baptiste August Kessler. Over the years of its
performance it has acquired a good reputation and recognition in the market in

Petroleum Industry.

Objective:
Besides doing business and profitability the Shell PLC is committed to provide the
services that are based on the consumer satisfaction and building the reliability on the
products and services of the Shell PLC in the eye of the
Customers
Providing the consumer satisfaction packages and inventing the new methods and
techniques in the petroleum industry is the main prospective objective of the company
which has gathered the attention of the investors and the satisfaction and believe of the
investors on the company.

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Source adapted from Business Essentials, Business Strategy, BPP learning media, pg. 25 “Aspects of the external
environment”

2
nd
Layer
Economic
Social &
Cultural
3
rd
Layer
Pollution
Materials
Ecological
Physical

Environment
Technology
Political & Legal
Shell
Competing Organisations
Competitive Environment
1
st
Layer
BP
Exxon Mobil
Total
Chevron
Goods to customers
Profit to Investors
Wages to Labour
Capital
Labour
Suppliers
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Financial analysis
Mostly the companies generate the yearly, quarterly and half quarterly financial reports
to check the profitability and financial and business analysis of the company according
to the present situations.
Yet the finical and business analysis are not done most often on timely basis which

causes loss to the organisation and is a risking factor for any of the company or the
organisation which is committed to provide a good services and do more and more
business in their relevant field.
Provides an excellent long term perspective of risk and the
development of methods to measure and deal with risk, Explains
the shift from a focus on hazard risk to financial risk over the last
few decades

Bernstein, 1996, Against the Gods: The Remarkable Story of Risk, New York: John Wiley
& Sons, Inc.
Decision makers and thinkers most often study these report and build the financial and
business strategies for The Company or make the necessary changes in the relevant
field of their on-going business
To have assistance for the decision makers they are provided with the financial and
business analysis reports to have a acceptance and continuing of the on-going strategies
and to have a changes in the strategies or to develop new strategies.
The financial analysis is all about the understand, identify, analyse and adjust the
various issues inside the company.

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Financial Analysis:
The above figure depicts the following scorecards analysis of ratios breakeven analysis and
various trends

2
nd
Layer
Economic
Social &
Cultural
3
rd
Layer
Pollution
Materials
Ecological
Physical
Environment
Technology
Political & Legal
Shell
Competing Organisations
Competitive Environment
1
st
Layer
BP
Exxon Mobil
Total
Chevron
Goods to customers
Profit to Investors
Wages to Labour
Capital

Labour
Suppliers
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The overall financial ratio analysis is done for the purpose of the income statement
analysis and balance sheet analysis and with the supporting element of the financial
scorecard tool to provide the unique picture of the organisation and its financial
position in the market
The financial position of the company can be analysed by having the financial ratios
analyses for the income statements and balance sheet analyses which are supportive to
the various tools and techniques of financial scorecard. The financial analysis of the
company gives the profitability ratio of the company, liquidity, efficiency of the
company and also the assets and liabilities of the company.
2.2.1 Efficiency
There are mainly the following zones of functioning competence which are to be
consider
 A/R: Re-education in the operation of certain financial matters like cash flow,
operating margins, increased probability and so on.
 Inventories are also the main portion and part of the Operating efficiency of the
financial matters for any of the company or organisation.
 A/P: high Outflows are also to be considered in this regard when we are talking
about the operating efficiency of the company.
2.2.2 Financial Ratio:
Definition: the quantitative analysis of the company‟s financial information. These
ratios are calculated from the present numbers and it is compared with the past year
ratios and then this is presented in the form of financial ratios.

Sustainable Growth: the level achieved when the company is capable of sustaining the
its growth from the internally generated funds and financials of the company or the
organisation
It is given as G = ROE x (1-d)
Where as
G = Sustainable Growth
ROE+ Return on the equity
d = Dividend pay-out Ratio
2.2.3 Profitability Ratio: it is generally the return on the present assets occupied by
the company or the organisation. It is a company‟s will to generate income from
the assets in its occupation which we might also called as debit vs. equity