British Petroleum

Working CapitalFinances short term or current assetsNecessary to cover the cost of operating the enterpriseComponents are cash, inventory, receivables and payables

Net Working Capital = Cash + Inventory + Receivables - Payables

Cash Conversion Cycle (CCC)CCC=Inventory days + Accounts Receivable days Accounts Payable dayswhereInventor Days (ID) = Inventory /Average Daily cost of goods soldAccounts Receivable Days (ARD) = Accounts Receivable / Average Daily SalesAccounts Payable Days (APD)=Accounts Payable/Average daily cost of goods sold

Sheet1

12/31/1012/31/0912/31/0812/31/07

Total revenue$297,107,000$239,272,000$367,053,000$284,365,000

Cost of Revenue$280,826,000$186,974,000$303,573,000$200,766,000Number of days per year365

Inventory$26,218,000$22,605,000$16,821,000$27,840,000

Net Receivables$37,242,000$29,740,000$29,638,000$38,890,000

Accounts payable$54,861,000$43,870,000$43,531,000$53,074,000

Average Daily Cost of goods sold769386.301369863512257.534246575831706.849315068550043.835616438

Average daily sales813991.780821918655539.7260273971005624.65753425779082.191780822

Inventory days34.076510009844.128194294420.224674131150.6141478139

Accounts receivable days45.752304725245.367197164729.472228806249.917711392

Accounts payable days71.304882738885.640516863352.339354949296.4904914179

CCC8.52393199623.8548745958-2.64245201194.0413677881

Sheet2

Sheet3

CCC for the year 2007 is negative, so the accounts receivable days are more than payable days.So the cash in 2007 were better in 2007 than in the other 4 years

Sheet1

12/31/1012/31/0912/31/0812/31/07

Total revenue$297,107,000$239,272,000$367,053,000$284,365,000

Cost of Revenue$280,826,000$186,974,000$303,573,000$200,766,000Number of days per year365

Inventory$26,218,000$22,605,000$16,821,000$27,840,000

Net Receivables$37,242,000$29,740,000$29,638,000$38,890,000

Accounts payable$54,861,000$43,870,000$43,531,000$53,074,000

Average Daily Cost of goods sold769386.301369863512257.534246575831706.849315068550043.835616438

Average daily sales813991.780821918655539.7260273971005624.65753425779082.191780822

Inventory days34.076510009844.128194294420.224674131150.6141478139

Accounts receivable days45.752304725245.367197164729.472228806249.917711392

Accounts payable days71.304882738885.640516863352.339354949296.4904914179

CCC8.52393199623.8548745958-2.64245201194.0413677881

Turn over ratios

2010200920082007

Inventory turnover ratio10.7111907858.271355894718.04726235067.2114224138

Receivable turnover ratio7.97774018588.04546065912.38454011747.3120339419

Sheet2

Sheet3

Inventory turnover ratios of BP are lower than the industry averages. So, the inventory costs are higher for BP.Receivable turnover ratios of BP are lower than the industry averages. So, the receivables for BP are very high.This confirms the answer in question 4.

If the inventory and accounts receivables were adjusted to meet the industry averages, the net receivables and inventory costs decrease. Hence the free cash flow increases.Accounts Payable increases if the Accounts payable days is adjusted to 75 days for the years 2007 and 2009. So, cash flow increases in those years.