Principles of Finance Paper - Assignment Example

Discussion The first principle discusses the competitive financial environment. This principle outlines four factors that affect the business environment. These are: the principle of self-interest behaviour, the principle of two-sided transactions, the signalling principle and the behavioural principle (Emery, Finnerty and Stowe, 2007). The principle of self-interest means that the company will always look out for its best interests. BP develops new and innovative technologies for oil exploration and drilling.

This technology is used to further the company’s interests. New drilling techniques are not revealed to competing companies. The principle of two-sided transactions means that BP often cooperates with minor companies around the world in the provision of its services. These collaborations are mutually beneficial to both parties. The signalling principle explores the concept of a company’s decisions’ influence on the public. BP’s investment in research on renewable energy creates a positive impression on the public, making them more willing to invest in an environmentally-conscious company.

The behavioural principle means that a company utilises market information to make rewarding investments. BP’s investments have grown to include alternative energy, shipping and treasury services. This is in addition to its wide variety of oil and gas investments. This wide portfolio caters to a wide range of market needs, cementing BP’s position as one of the largest companies in the world. The four principles of value are: The principle of valuable ideas, the principle of comparative advantage, the options principle and the principle of incremental benefits (Emery, Finnerty and Stowe, 2007).

BP’s research and development department produces innovations in solar power, biofuel and wind power. These fresh and new ideas keep the company ahead of its competitors. Following the principle of comparative advantage, BP has established a reputation as a success in its field. This public perception as a financial giant gives them an edge over their competitors. The company also gains incremental benefits when it invests millions in green energy and renewable energy. Though these amounts may seem a waste, the investments pay off in scientific discovery and public approval of the company’s efforts.

BP also ensures it has a variety of business options to invest in, cushioning them against serious losses should one option fail (Benninga, 2008). The principles that emerge from observing financial transactions are: the principle of risk-return trade-off, the principle of diversification, the principle of market capital efficiency and the time-value-of-money principle (Emery, Finnerty and Stowe, 2007). Investing large amounts of money in ventures such as offshore drilling pays off with great dividends.

Energy industries are a high-risk, high-return enterprise. BP also diversifies its investments in multiple securities, ensuring maximum returns. The capital market runs on an efficient system, with up-to –the minute coverage of stock prices. BP is registered on high-profile stock exchanges such as the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE). Updates on stock are relayed internationally