Will BP go bankrupt? Today BP indicated that it would not pay a dividend and agreed to place over $20 billion in a settlement fund. President Obama indicated the $20 billion is only a start. Will this force BP to file a bankruptcy? A good place to start is to look at BP’s 2009 financial statements from its 2009 annual report. The financial statements can be found at the following link:

http://www.bp.com/extendedsectiongenericarticle.do?categoryId=9021605&contentId=7040949

BP’s 2009 balance sheet only indicates that the company has $67 million in cash. The Income statement indicates that BP had income of around $20 million. The 2009 cash flow statement indicates that BP cash position only increased by $142 million in 2009. There is no way the company can pay $20 billion from current cash assets of $67 million. It also does not appear that company will generate enough income or cash.

From reviewing the financials, it would appear that BP most likely will go bankrupt. BP needed to cut their dividend because the company needs to save cash to pay all the claims. The company is really not producing enough cash to fund the settlement account. Where else will it get the money? Borrow money. From what bank? Could BP borrow from AIG or the government?

It will appear that BP’s other choice would be to sell assets. If the company starts to sell assets then it can not produce oil. If it can not produce oil or sell oil then it won’t generate the cash for the settlements. In the end, BP most likely will be forced in to bankruptcy.