Accounting Ratio Analysis for Decision-Making at British Petroleum - Dissertation Example

Download file to see previous pages This analysis will describe in practical terms the challenges and opportunities inherent with the British Petroleum company, and which accounting practices can be of significant utility in this specific instance. The structure and history of British Petroleum will be explored at length with connection to internal accounting practices, as well as a positive strategy for this – and similar businesses moving forward.

It is necessary to conduct a preliminary analysis analyzing a particular tool of accounting which will be applied to the example of British Petroleum specifically, but with important implications for a wide range of businesses. For the purposes of accounting, the accounting ratio can be utilized to describe important correlations that exist between the values shown on a balance sheet, and how these figures are connected to profit and loss for budgetary purposes, or within the control framework of a professional Corporation. In pursuing these relationships, there are a variety of forms that ratios can take which may be of use for the purposes of financial analysis. Typically, for the purposes of serious accounting, there are three structures that describe the forms ratios may take in ways that are of practical benefit in business (Saleem & Rehman, 2011; Soenen, 1993):

1.) Rates. Where the relationship is expressed as a series of increments whereby one quantity reaches equivalency with another quantity. Often useful in a determination of annual salary compared with hourly rates or monthly stipends.

2.) Quotients. Often in mathematical arguments, different quantities are divided into specified fractions which communicate how much of one quantity becomes equivalent to the next quantity.

3.) Percentages. A useful tool throughout the business and financial circles, this is similar to a determination of quotients, but with the presumption that each quantity is divided by 100, therefore allowing an incremental shorthand for representing quantities relative to one another.

Moreover, there are multiple mechanisms that may be used under various circumstances to evaluate a particular ratio, in order to determine its utility for a given situation. Multiple ratios are often compared with one another in order to provide perspective, various statistical models exist whereby ratios are factors that can be used to compute a trend, and certainly, in the area of business, it is often necessary to compare the known assets of one company against another (Soenen, 1993).

While in theory, it might be possible to compute a ratio for any two factors which can be expressed numerically, a logical determination must also be made in regards to logical correlation, and the probabilities of interrelation. For instance, it might be that sales of ice cream cones at a particular beach a car at the same time as an increase in shark attacks, and while a ratio could be computed describing these two events, a statistician may regard the occurrences as spurious. ...Download file to see next pages Read More