You are the Chief Financial Officer (CFO) of your chosen company, let’s assume here British Petroleum(BP). This afternoo

[answerhappygod]

You are the Chief Financial Officer (CFO) of your chosen
company, let’s assume here British Petroleum(BP). This afternoon
you played golf with a member of the company’s board of directors.
Somewhere during the back nine, the board member enthusiastically
described a recent article she had read in a leading management
journal. This article noted several companies that had improved
their stock price performance through effective working capital
management, and the board member was intrigued. She wondered
whether BP was managing its working capital effectively and, if
not, whether BP could accomplish something similar. How was BP
managing its working capital, and how does it compare to its
competitors? Upon returning home, you decide to do a quick
preliminary investigation using information freely available on the
Internet.
1. Obtain BP’s financial statements for the past three years
from Yahoo! Finance (finance.yahoo.com).
a. Enter the stock symbol (BP) in the box and click “Get
Quotes.”
b. Under “Financials,” click “Income Statement.” Copy and paste
the statement into Excel (if using Internet Explorer, place the
cursor in the statement and right-click the mouse, then choose
“Export to Microsoft Excel” from the menu).
c. Go back to the Web page and under “Financials,” click
“Balance Sheet”; repeat the download procedure for the balance
sheet.
d. Copy and paste the balance sheet so that it is on the same
worksheet as the income statement.
2. Obtain the competitors’ ratios for comparison from Yahoo!
Finance (finance.yahoo.com). Assume ExxonMobil Corporation’s is
competitor here.
a. Enter ExxonMobil Corporation’s stock symbol (XOM) in the box
at the top and click “Get Quotes.”
b. Follow the steps in Part 1 to obtain “net receivables” and
“inventory” from the most recent annual balance sheet, and “total
revenue” and “cost of revenue” from the most recent annual income
statement.
c. Repeat the two steps above for another competitor named
Chevron Corporation (CVX).
3. Compute the cash conversion cycle for BP for each of the last
three years.
a. Compute the inventory days using “cost of revenue” as cost of
goods sold and a 365-day year.
b. Compute accounts receivable days using a 365-day year.
c. Compute accounts payable days.
d. Compute the cash conversion cycle for each year
4. How has BP’s CCC changed over the last few years?
5. Compare BP’s inventory and receivables turnover ratios for
the most recent year to those of its competitors.
a. Compute BP’s inventory turnover ratio as cost of
revenue/inventory.
b. Compute BP’s receivable turnover ratio as total revenue/net
receivables.
c. Compute the average inventory turnover ratio and average
receivable turnover ratio of Chevron and ExxonMobil. How do BP’s
numbers compare to the average ratios of its competitors? Do they
confirm or refute your answer to Question 4?
6. What are your impressions regarding BP’s working capital
management based on this preliminary analysis? Discuss any
advantages and disadvantages of bringing the cash conversion cycle
more in line with the industry averages.