Accounting and Managerial Finance

Accounting and Managerial Finance

Question 1 - Payout Decision and Working Capital Management

a)

British Petroleum Plc

12/ 31/ 2012

12/ 31/ 2011

12/ 31/ 2010

Earnings Per Share

=

NI

=

11,816

=

0.62

26,097

=

1.38

-3324

=

-0.18

Avg. outstanding shares

19,028

18,905

18,786

Dividends per share

=

Dividends

=

5376

=

0.28

4317

=

0.23

2942

=

0.16

Shares outstanding for the period

19027.93

18904.81

18785.91

Dividend Payout Ratio

=

Dividends per share

=

0.28

=

0.45

0.23

=

0.17

0.16

=

-0.89

Earnings Per Share

0.62

1.38

-0.18

The corporate payout policy of British Petroleum for its shareholders for the financial year 2010 to 2012 indicates that dividend payout ratio declined over the period under consideration. The reason of such is that in 2010, the payout ratio is 0.89 which declined to 0.17 in 2011; however, the payout ratio slightly increased to 0.45 in 2012. In the similar way, dividends per share for 2010 to 2012 declined; however, the earnings per share increased over the period. Thus, overall it is observed that corporate payout policy of British Petroleum declined over the years.

Tullow Oil Plc

12/ 31/ 2012

12/ 31/ 2011

12/ 31/ 2010

Earnings Per Share

=

NI

=

666200

=

0.73

689000

=

0.77

72500

=

0.08

Avg. outstanding shares

906825

895677

879789

Dividends per share

=

Dividends

=

198300

=

0.22

139200

=

0.16

79,200

=

0.09

Shares outstanding for the period

906825

895677

879789

Dividend Payout Ratio

=

Dividends per share

=

0.22

=

0.30

0.16

=

0.20

0.09

=

1.09

Earnings Per Share

0.73

0.77

0.08

With reference to Tullow Oil, the corporate payout policy for shareholders represents that the dividend payout ratio for the financial year 2010 to 2012 decreased. The basis of such is that the payout ratio is 1.09 in 2010 which decreased to 0.2 in 2011; though, in 2012, it is found that the payout ratio slightly improved that is, 0.3. On the other hand, it is noticed that the earnings per share decreased from 2010 to 2012; however, the dividends per share for the period under consideration increased. Keeping this in view, it can be said that the corporate payout policy of Tullow Oil declined from 2010 to 2012.

Royal Dutch Shell Plc

12/ 31/ 2012

12/ 31/ 2011

12/ 31/ 2010

Earnings Per Share

=

NI

=

26840

=

4.29

31185

=

5.02

20474

=

3.34

Avg. outstanding shares

6261

6213

6133

Dividends per share

=

Dividends

=

7,682

=

1.23

7,315

=

1.18

9,979

=

1.63

Shares outstanding for the period

6261

6213

6133

Dividend Payout Ratio

=

Dividends per share

=

1.23

=

0.29

1.18

=

0.23

1.63

=

0.49

Earnings Per Share

4.29

5.02

3.34

Pertaining to the corporate payout policy of Royal Dutch Shell shows that the dividend payout ratio of the company decreased from 2010 to 2012. The payout ratio of Royal Dutch Shell is 0.49 in 2010 which declined to 0.23 in 2011; though, it slightly improved to 0.29 in 2012. In this context, it is observed that the earnings per share increased over the period; conversely, the dividends per share decreased. For that reason, it can be said that the corporate payout policy of Royal Dutch Shell declined.

b)

British Petroleum Plc

12/ 31/ 2012

12/ 31/ 2011

12/ 31/ 2010

Cash Flow Per Share

=

Operating Cash Flow

=

20,397

=

1.07

22,154

=

1.17

13,616

=

0.72

Shares Outstanding

19,028

18,905

18,786

Total Debt to Equity

=

Total Debt

=

180573

=

1.51

180586

=

1.61

176371

=

1.84

Total shareholder's equity

119620

112482

95891

For the strategy of financing the payout, British Petroleum uses its cash flow per share as it increased from 2010 to 2012. Moreover, it is also noticed that the cash flow per share of the company is higher than debt to equity ratio over the period under consideration. In this context, it is observed that cash flow per share was 0.7, 1.17 and 1.07 from 2010 to 2012 respectively. Therefore, it is noted that its cash flow from operating activities increased which increased its cash flow per share; thus, excess cash is used by British Petroleum for financing the payout.

Tullow Oil Plc

12/ 31/ 2012

12/ 31/ 2011

12/ 31/ ...