Choose any listed company of your choice. Make sure that the financial data (Balance Sheet and Income Statement) of that company is available on yahoo finance or through financial reports. For purpose of understanding, Lets assume that we have chosen the company British Petroleum BP (Note: Each of you are supposed to choose different company other than BP). 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.

1. Obtain BP’s financial statements for the past three years from Yahoo! Finance (finance. yahoo.com).

a. Enter the stock symbol (BP) in the box and click “Get Quotes.”

b. Under “Financials,” click “Income Statement.” Copy and paste the statement into Excel (if

using Internet Explorer, place the cursor in the statement and right-click the mouse, then

choose “Export to Microsoft Excel” from the menu).

c. Go back to the Web page and under “Financials,” click “Balance Sheet”; repeat the download procedure for the balance sheet.

d. Copy and paste the balance sheet so that it is on the same worksheet as the income statement.

2. Obtain the competitors’ ratios of two firms for comparison from Yahoo! Finance (finance.yahoo.com). For this case we have chosen for instance ExxonMobil Corporation and Chevron Corporation (CVX). You have to choose fom other s&p 500 except exxonmobil and Chevron Corporation

a. Enter ExxonMobil Corporation’s stock symbol (XOM) in the box at the top and click “Get

Quotes.”

b. Follow the steps in Part 1 to obtain “net receivables” and “inventory” from the most recent annual balance sheet, and “total revenue” and “cost of revenue” from the most recent annual income statement.

c. Repeat the two steps above for Chevron Corporation (CVX).

3. Compute the cash conversion cycle for BP for each of the last three years.

a. Compute the inventory days using “cost of revenue” as cost of goods sold and a 365-day year.

b. Compute accounts receivable days using a 365-day year.

c. Compute accounts payable days.

d. Compute the cash conversion cycle for each year.

4. How has BP’s CCC changed over the last few years?

5. Compare BP’s inventory and receivables turnover ratios for the most recent year to those of its competitors.

a. Compute BP’s inventory turnover ratio as cost of revenue/inventory.

b. Compute BP’s receivable turnover ratio as total revenue/net receivables.

c. Compute the average inventory turnover ratio and average receivable turnover ratio of Chevron and ExxonMobil. How do BP’s numbers compare to the average ratios of its competitors? Do they confirm or refute your answer to Question 4?

6. Determine how BP’s free cash flow would change if BP’s inventory and accounts receivable balances were adjusted to meet the industry averages.

7. Determine the amount of additional free cash flow that would be available if BP adjusted its accounts payable days to 75 days.