Income Statement Period Ending: Total Revenue Cost of Revenve Gross Proft Operating Expenses Sales, General and Admin. Non-Recuming items Other Operating lleens Operating tincome Total Other Incomer Expenses Net Eamings Before interest and Tax Interest Expense Income Before Tax lncome Tax Yinority interest Net income-Cont Operations 537,44,000527.902.000132,122.000 \$10,725.000 s10.085,000 \$11,.850.000 Net Income Net income Applicable to Common Sharehoiders 53,382,000$114.000 (B5.484.000) Balance Sheet Period Ending: Current Assets Cash and Cash Equivalents Short Teim Investments Net Receivabies Inventory Other Current Assets Tota Current Assets Dec 31. 2017 Dec 31. 2015 Dec 31, 2015 Long Term Assets Long Term investments Fored Assets Goodwill intangible Assets Other Assets Deferied Asset charges Total Assets $26,230,000$129,471,000$11,551,000$18,355,000$15,840,000$4,469,000$276,515,000$20,73,000$129,757,000$11,194,000$18,183,000$12,635,000$4,741,000$35,316,000$18,090,000$129,758,000$11,027,000$18,000,000$12,349,000$1,545,000$281,032,000 Current Liabilities Accounts Payable AccountsPayableShortTermDebt/CurrentPortionofLongTermDebtOtherCurrentLiabilitiesTotalCurrentLiabilitiesLongTermDebtOtherLiabilitiesDeferredLiabilityChargesMinorityInterestTotalLiabilities$28,840,000$63,536,000$22,918,000$64,726,000$55,179,000$55,588,000$1,913,000$176,111,000$23,695,000$58,687,000$22,889,000$58,354,000$51,461,000$56,066,000$1,557,000$166,473,000$18,968,000$53,372,000$22,551,000$54,724,000$45,771,000$62,293,000$1,171,000$163,445,000 Stock Holders Equity Common Stocks Retained Earnings Treasury Stock Caital Surplus Other Equity Total Equity $5,322,000$75,226,000($21,431,000)$39,353,000($4,473,000)$98,470,000$5,263,000$75,638,000($25,061,000)$39,425,000($6,618,000)$95,265,000$5,028,000$81,368,000($26,641,000)$37,440,000($6,677,000)$97,195,000 \begin{tabular}{l|rr} & \multicolumn{1}{|c}{ CVX } & \multicolumn{2}{c}{ XOM } \\ \hline Net Receivables & $15,331,000 & $25,597,000 \\ Inventory & $5,585,000 & $16,992,000 \\ Total Revenue & $127,485,000 & $238,883,000 \\ Cost of Revenue & $88,013,000 & $160,491,000 \end{tabular} You are the Chief Financial Officer (CFO) of 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. Using the historical data from BP and its competitors that is available in the accompanying Excel file, answer the following questions. 1. Compute the cash conversion cycle for BP for each of those three years. - Compute the inventory days using "cost of revenue" as cost of goods sold and a 365 -day year. - Compute accounts receivable days using a 365-day year. - Compute accounts payable days. - Compute the cash conversion cycle for each year. - How has BP's CCC changed over the last few years? 2. Determine how BP's free cash flow would change if BP's inventory and accounts receivable balances were adjusted to meet the industry averages. 3. Determine the amount of additional free cash flow that would be available if BP adjusted its accounts payable days to 75 days. 4. Determine the net amount of additional free cash flow and BP's cash conversion cycle if its inventory and receivables turnover ratios were at the industry average and its payable. days were 75 days. Is this amount in the millions or billions range? 5. 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. 6. Now let's take a look at more recent years. Find BP's and its competitors' financial statements for the past three years from Yahoo! Finance (finance.yahoo.com). Enter the stock symbols BP. XOM (Exxon Mobile) and CVX (Chevron Corp) in the "Quote Lookup" box and search. Under "Financials," click "Income Statement," then "Balance Sheet." Record "net receivables" and "inventory" and "accounts payable" from the most recent annual balance sheet, and "total revenue" and "cost of revenue" from the most recent annual income statement. 7. Compare BP's inventory and receivables turnover ratios for the most recent year to those of its competitors. - Compute BP's inventory turnover ratio as cost of revenue/inventory. - Compute BP's receivable turnover ratio as total revenueet receivables. - Compute BP's payable turnover ratio as cost of revenue/payables. - Compute the average ratios of Chevron and ExxonMobil to get an industry benchmark. How do BP's numbers compare to this industry benchmark? 8. You are somewhat concerned about the reliability of financial data from the Internet and decide to check the data versus BP's SEC filings. To obtain these filings, go to the SEC Web site and use the EDGAR system to search for BP's financial statements: www.sec.gov/edgar/, then click on "Search for Company Filings," then "Company or fund name...." Enter BP in the ticker symbol field and then click "Search." Enter 20-F in the "Filing Type" field, and then click "Search." Click on the latest 20-F, "Annual and transition report of foreign private issuers," and then click on the 20F document link. Once you are in the document, scroll down to the table of contents and select "Financial Statements." and then find either the balance sheet or income statement to find the numbers you need. Is there any discrepancy between these numbers and the data you downloaded originally? Income Statement Period Ending: Total Revenue Cost of Revenve Gross Proft Operating Expenses Sales, General and Admin. Non-Recuming items Other Operating lleens Operating tincome Total Other Incomer Expenses Net Eamings Before interest and Tax Interest Expense Income Before Tax lncome Tax Yinority interest Net income-Cont Operations 537,44,000527.902.000132,122.000 \$10,725.000 s10.085,000 \$11,.850.000 Net Income Net income Applicable to Common Sharehoiders 53,382,000$114.000 (B5.484.000) Balance Sheet Period Ending: Current Assets Cash and Cash Equivalents Short Teim Investments Net Receivabies Inventory Other Current Assets Tota Current Assets Dec 31. 2017 Dec 31. 2015 Dec 31, 2015 Long Term Assets Long Term investments Fored Assets Goodwill intangible Assets Other Assets Deferied Asset charges Total Assets $26,230,000$129,471,000$11,551,000$18,355,000$15,840,000$4,469,000$276,515,000$20,73,000$129,757,000$11,194,000$18,183,000$12,635,000$4,741,000$35,316,000$18,090,000$129,758,000$11,027,000$18,000,000$12,349,000$1,545,000$281,032,000 Current Liabilities Accounts Payable AccountsPayableShortTermDebt/CurrentPortionofLongTermDebtOtherCurrentLiabilitiesTotalCurrentLiabilitiesLongTermDebtOtherLiabilitiesDeferredLiabilityChargesMinorityInterestTotalLiabilities$28,840,000$63,536,000$22,918,000$64,726,000$55,179,000$55,588,000$1,913,000$176,111,000$23,695,000$58,687,000$22,889,000$58,354,000$51,461,000$56,066,000$1,557,000$166,473,000$18,968,000$53,372,000$22,551,000$54,724,000$45,771,000$62,293,000$1,171,000$163,445,000 Stock Holders Equity Common Stocks Retained Earnings Treasury Stock Caital Surplus Other Equity Total Equity $5,322,000$75,226,000($21,431,000)$39,353,000($4,473,000)$98,470,000$5,263,000$75,638,000($25,061,000)$39,425,000($6,618,000)$95,265,000$5,028,000$81,368,000($26,641,000)$37,440,000($6,677,000)$97,195,000 \begin{tabular}{l|rr} & \multicolumn{1}{|c}{ CVX } & \multicolumn{2}{c}{ XOM } \\ \hline Net Receivables & $15,331,000 & $25,597,000 \\ Inventory & $5,585,000 & $16,992,000 \\ Total Revenue & $127,485,000 & $238,883,000 \\ Cost of Revenue & $88,013,000 & $160,491,000 \end{tabular} You are the Chief Financial Officer (CFO) of 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. Using the historical data from BP and its competitors that is available in the accompanying Excel file, answer the following questions. 1. Compute the cash conversion cycle for BP for each of those three years. - Compute the inventory days using "cost of revenue" as cost of goods sold and a 365 -day year. - Compute accounts receivable days using a 365-day year. - Compute accounts payable days. - Compute the cash conversion cycle for each year. - How has BP's CCC changed over the last few years? 2. Determine how BP's free cash flow would change if BP's inventory and accounts receivable balances were adjusted to meet the industry averages. 3. Determine the amount of additional free cash flow that would be available if BP adjusted its accounts payable days to 75 days. 4. Determine the net amount of additional free cash flow and BP's cash conversion cycle if its inventory and receivables turnover ratios were at the industry average and its payable. days were 75 days. Is this amount in the millions or billions range? 5. 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. 6. Now let's take a look at more recent years. Find BP's and its competitors' financial statements for the past three years from Yahoo! Finance (finance.yahoo.com). Enter the stock symbols BP. XOM (Exxon Mobile) and CVX (Chevron Corp) in the "Quote Lookup" box and search. Under "Financials," click "Income Statement," then "Balance Sheet." Record "net receivables" and "inventory" and "accounts payable" from the most recent annual balance sheet, and "total revenue" and "cost of revenue" from the most recent annual income statement. 7. Compare BP's inventory and receivables turnover ratios for the most recent year to those of its competitors. - Compute BP's inventory turnover ratio as cost of revenue/inventory. - Compute BP's receivable turnover ratio as total revenueet receivables. - Compute BP's payable turnover ratio as cost of revenue/payables. - Compute the average ratios of Chevron and ExxonMobil to get an industry benchmark. How do BP's numbers compare to this industry benchmark? 8. You are somewhat concerned about the reliability of financial data from the Internet and decide to check the data versus BP's SEC filings. To obtain these filings, go to the SEC Web site and use the EDGAR system to search for BP's financial statements: www.sec.gov/edgar/, then click on "Search for Company Filings," then "Company or fund name...." Enter BP in the ticker symbol field and then click "Search." Enter 20-F in the "Filing Type" field, and then click "Search." Click on the latest 20-F, "Annual and transition report of foreign private issuers," and then click on the 20F document link. Once you are in the document, scroll down to the table of contents and select "Financial Statements." and then find either the balance sheet or income statement to find the numbers you need. Is there any discrepancy between these numbers and the data you downloaded originally