Financial statement of a company proves to be most effective in analysing and reviewing the financial performance of a firm, which supports in making better economic decisions. Every organisation prepares financial statements like income statement, balance sheet, cash flow statement and changes in equity statement (Parker, 2007). The management of a firm, highly depends on these statements to know about their current position of the business. Also, shareholders are able to assess the management performance, which helps them to make investment decisions. In this study, the financial statement of a particular company will be studied. In this context, Shell Plc has been taken into consideration. Shell Plc is an oil and gas firm headquartered in Netherlands. The company is involved in providing products like petroleum, petrochemicals as well as natural gas and has operations in more than 90 nations (Shell, 2016). Further, the financial objective of the firm would be identified and financial ratios will be undertaken for analysing their financial performance. Later in the paper, a decision would be made whether to hold or sell existing shares based on the company’s financial outcome.
From the annual report of 2015, it can be observed that Shell t generated a profit of $2200 million (Reports.shell, 2016). Rate of generating income is an important base for the shareholders to know whether or not, the firm is being able to receive benefits from their investment. Therefore, it supports them to make a decision of investment. According to Peterson and Fabozzi (2012), the net income of a company entails that the firm has effectively met their expenses. It can be indicated that the shareholder of Shell; would use its net income information, to decide that the company is in a position to provide return on their investment. On the other hand, the income attributed to the shareholders is valuable factor for a particular shareholder, to decide whether the company is able to pay the dividend or not. It is evident that in 2015, the firm paid $1939 million to their shareholders (Reports.shell, 2016). Thus, it can be pointed that considering income attributable to shareholders, they would like know how much they have to claim on their investment in the company’s share. Due to this, the shareholder can decide whether to hold the share of Shell till next period, or sell in the current period. Albrecht, E. Stice and J Stice (2007) opined that, if a shareholder finds that the company in which he/she has invested is not in position to pay the income, then they would shift to other companies for making investment. Thus, it can be pointed that in order to make the shareholders hold Shell’s share, the management is required to provide an attributed income to the shareholders, or it can affect the company’s profitability.
Further, the revenue generated by the company is important information for the shareholder to take an investment decision. It is evident that Shell earned positive revenue of $264960 million in 2015. Therefore, it can be assumed that the company is in a better position to cover their expenditures and finance costs. This revenue information; can create a good impact on the shareholder, which would make them invest in the company. According to this context; Makoujy (2010), viewed that if the rate of generating revenue of company is declining in comparison to the previous years, then they might not be interested in buying or selling their existing shares. Therefore, it can be demonstrated that the shareholder too, can use the revenue figure to decide whether to invest or divest. According to D.C Johnston and D Johnston (2006), earning per share (EPS) is represented as that portion of the income/earnings of the firm, which is apportioned to each share of common stock which acts as an indicator of profitability. This makes it the key information for the shareholder to know whether the company is in a profitable situation or not. It was found that in 2015, Shell’s basic earnings per share stood at $0.31 million (Reports.shell, 2016). It indicates that the shareholders of the company are able to generate returns on the number of shares held by them. However, Weygandt, immel and Kieso (2009), mentioned that if the earning per share value of a firm is declining on a regular basis; then it would not attract the shareholder, rather the investor would prefer investing in other securities. Therefore, it can be discussed that the EPS information can enable a shareholder to know how much they can gain from each share in that particular period.
On the other hand, balance sheet of Shell can be useful for the stakeholders as well. According to Parker (2007), through a balance sheet the shareholder is able to analyse the asset structure of the company. It will inform them that how the capital is raised and used by the company. For instance, it can be seen that more than 75% of the assets of Shell are tied up in plant, property and equipment (Reports.shell, 2016). Therefore, the investor can know that in which category the investments of shareholders are mostly used. Furthermore, Peterson and Fabozzi (2012), stated that an investor can also measure the company’s solvency via a balance sheet. It has been observed that Shell has more high liquid assets ($93358 million) as compared to its current liabilities ($70948 million) (Reports.shell, 2016). Therefore, the shareholder can know that the company is able to meet their short-term obligation and could sustain in future.