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International Finance Assignment Sample

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International Finance Assignment Sample

Introduction:

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The aim of this report is to provide an overview of recent developments in global financial management. It has been prepared to gain a better understanding of how these changes affect the British and American Tobacco Company's results. The corporation is a multibillion-dollar film and media conglomerate based in the London. The company's main headquarters are in london. The business is expanding and there are plans to expand in the coming years. The innovations that take place on a global basis have an effect on any organisation. It's important to keep the business's climate in good shape so that it can easily respond to changes in the outside world. Talking about the current share price of BAT is 2886.50 GBX.

In addition, the chosen organisation has incorporated core elements in international finance. The company's financial output is examined using ratio analysis and the company's most recent annual reports. The report interprets the company's profitability, performance, liquidity, and investment in order to make business decisions. It is important to ensure that a company has appropriate controls in place. It's also used to make sure that the business takes the required measures to boost and develop long-term market growth. Ratio analysis can be used to assess a company's operating results and financial position.

Section A:

Some recent developments comes in international market and according to that the company performance will effect:

Recent events have had a significant effect on the company's operations. It is necessary to integrate it into the business in order to make the organisation responsive to change and always forward-thinking. These improvements improve the quality of life and make doing business easier. These shifts and innovations affect the company's economy in both positive and negative ways. There are some changes are here that is:

  1. 1.     Changes in the business by Covid-19:

Corona virus is having an effect around the world. Many governments have placed lockdowns in the area to prevent the pandemic from spreading. The economy, capital markets, and no industry have been spared from the effects of the Covid-19. To prevent the spread of the pandemic, all offices, stores, and schools have been closed across the world. This proved to be crucial in maintaining the country's productivity. To avoid the pandemic, various methods have been devised, including methodological practises, qualitative data analysis to establish assumptions, and virus spread forecasting. The high cost has posed unexpected problems to the nation and the entire world, which will take time to recover from (Brambilla et al 2018).

Covid-19 impacts on BAT:

BAT is a tobacco manufacturing company and its product sales directly in the retail market. In the pandemic situation the country completely lockdown so that sales of product decrease as compared to the recent years. Some kind of sales expenses decrease in this time so that profit increased in year 2020. Additional expenses have been incurred in order to comply with regulatory regulations about employee security and protection. The rise in covid 19 cases around the world has an effect on the company's success. Employees and dependents of the company are provided with free testing and care by the company. In addition, the organisation has improved its staffing efficiency by limiting recruiting.

  1. Global value chain:

It is the biggest development in the industry and in the international business market. These are some of the most recent industry trends. This is the method of breaking down output into various activities and tasks that are carried out within those activities. It is described as a large-scale expansion and division of labour carried out by committed workers. The operations extend across national borders. This can only be accomplished through the liberalisation of trade and the cross-border movement of technology, operations, and information. It refers to the free movement of goods and services, as well as technology and money, from one country to another. As a result of this increased trend, free trade and the intellectual debate, innovation, and culture in other countries has increased. It is known as the mixture of two factors that is social and cultural. The other nation compensates for a country's resource scarcity.

It aids in the establishment of production units in various countries where the business can benefit from low-cost labour and low-cost location setup. It also aids in the acquisition of new talent that is needed by the company's current situation. It is possible to conduct a long-term review of the company's operations and facts. If the improvements are introduced, the organisation will be able to achieve its long-term objectives. Marketing, design, and manufacturing value chain practises would be made simpler if value chains were properly followed up in a company. Many countries may also benefit from GVC by implementing forward and reverse supply in their businesses (Hatefi 2019). The inputs can be obtained from one country to the next, allowing the process to be completed and executed successfully.

Growth value chain resulted in the company's economic growth and the production of new employment opportunities. People will migrate from one country to another in search of better job prospects and to start businesses in less expensive environments. It must be needed in order for the nation and underdeveloped countries to compete with the developed and developing ones in terms of efficiency (Hatefi 2019).

Impacts of GVC on BAT:

A large number of industries are developed all over the world. Today's objectives are met by being futuristic, and improvements are adaptable. It takes a long time to build organisational cooperation. Teamwork and communication are important aspects of the business that enable it to impact a large number of customers at once while providing high-quality service.

Section B:

Sources of finance:

Sources of finance defines the capital structure of the BAT that identify the ways where from the company generate the finance for the company. According to the analysis of annual of BAT, it is find out that there are 3 main resources are available for the finance that is known as Debt, equity and retained earnings.

Equity:

To raise funds from equity financing, the company issues a wider range of share. These individuals are regarded as the company's shareholders. In order to coordinate the capital structure of the organisation, it is critical to set well-defined goals. Private individuals and financial companies are among the various types of equity securities. They are the company's founders and the real owners. The general public is invited to participate in the business via initial public offerings. The price is adjusted based on the current state of the economy and market sentiments. The company's gross equity in 2020 will be £62955, while it will be £64160 in 2019. Owing to shifts in the company's retained profits, the amount has been increased. The profit could increase the company's equity, which would have a direct impact on the equity holders' net worth (Bhattacharya & Londhe, 2014).

Debt:

It is a fixed-rate loan taken out from outside the business. It was charged to figure out what the industry's costs and resources are. Inventory and expenditures will be part of the day-to-day activities. The organization's debt capital is derived from bank loans and bank lines of credit. The BAT has £39451 in outside borrowings for 2020 and £41726 for 2019. According to the company's financial statements, borrowings have decreased from the previous year. The company repays a portion of its debt, lowering its borrowings (Oladele et al 2014).

Retained earnings:

The definition of retained earnings is that it is the same as having no dividends and reinvesting them. The proceeds from the retained earnings were used to purchase aircraft. This could be reflected as the expense to the shareholder of not receiving a dividend and instead having the money invested back into the company. The company's retained earnings in 2020 were £42041, although they were £40234 in 2019. The business money decreased in both year 2020. Owing to the outbreak of a pandemic in the world this year, the retained earnings will decrease (Bhattacharya & Londhe, 2014).

Dividend policy:

Companies pay dividends to their shareholders according to their dividend strategy. It was paid in connection with the debt equity mix decisions taken by the company's management. Profits that aren't paid out as dividends are reinvested in the business. It is critical to make decisions in this direction in order to assess a company's performance. The company should take reasonable steps to deal with the pressure and keep the company running smoothly (Baker et al 2015). The business has a number of dividend strategies that it follows in this regard. In order to determine long-term dimensions of an organisation, it is essential to do so. The main objective is to adapt the dividend policy to the company's progress. A company's dividend strategy may be one of many different kinds. These are dividend policies that guarantee a consistent and predictable dividend at the end of the year. The strategy of maintaining a constant dividend is based on the assumption that dividends will rise in the coming years. Dividends are paid as a percentage of increased earnings. Employees are generally in favour of adhering to this procedure. This will be an important method of dealing with the company's uncertainty (Baker et al 2015). If the company pays dividends against the residual dividend strategy, it is appropriate. It is critical to keep an organization's productivity. The company has announced $4745 in dividends for the year 2020 and $ 4598 for the year 2019. It is important to assess an organization's reliability and accountability. These are trained to keep an enterprise running smoothly. The company has not announced dividends for 2021 since some activities have been halted as a result of Covid 19, which has impacted the company's dividend strategy. With the covid situations, the stock market has been the hardest hit. To prevent the spread of the pandemic, the organisation has implemented a number of prevention measures. It aids in the measurement and reduction of such covid measures' results. Borrowings supplied the majority of the cash provided by funding operations in fiscal 2020, which was supplemented by dividend payments and the settlement of merger obligations. Variables like volatility, dividend yield, and the risk-free interest rate are factored into the binomial valuation model (Alam et al 2012).

Section 3:

Ratio

Formula

2020 (Details)

Ratio

2019

Ratio

Liquidity Ratio

 

 

 

 

 

Current Ratio

Current Assets/Current Liabilities

13612/15478

0.879442

13274/18823

0.705201

Quick Ratio

Quick assets/Current Liabilities

(13612-5998)/15478

0.491924

(13274-6094)/18823

0.381448

Profitability Ratio

 

 

 

 

 

Return on Capital Employed

Net Operating Profit ÷ Capital Employed × 100

((9962/(137690-15478))

8.15%

((9016/(141005-18823))*100

7.38%

Operating Profit Margin

Operating Profit ÷ Sales × 100

(9962/25776)*100

38.65%

(9016/25877)*100

34.84%

Efficiency Ratios

 

 

 

 

 

Accounts Receivable Turnover

Revenue/Average Accounts Receivable

25776/((4093+3721)/2)

6.597389

25877/((4092+3588)/2)

6.738802

Inventory Turnover

Cost of Goods Sold/Average Inventory

15814/((5998+6094)/2)

2.615614

16861/((6094+6029)/2)

2.781655

Shareholder’s ratio

 

 

 

 

 

Earnings per share

EPS = net income / number of ordinary share

 

 £  280.00

 

 £  249.70

Dividend Pay out ratio

total dividend / net profit * 100

(4745/6564)*100

72.29%

(4598/5849)*100

78.61%

 

1. Current ratio:

The current ratio of a company defines about the current situation finance about the company. In this case the current ratio of BAT is 0.87 in 2020 and 0.70 in 2019. According to the situation it is find out that the current ratio is increased in year 2020 that is good for the company because it is nearest to the ideal ratio. This ratio indicates that company's current asset is less than the current liabilities but as compared to previous year the situation became good (Babalola & Abiola 2013).

2. Quick ratio:

Quick ratio is defined as the current ratio but in this this ratio inventories are less than from the assets. It is identify the liquid position of the company that mean a certain amount which a company have to resolve their current Liabilities situations. The quick ratio is 0.49 in 2020 and in year 2019 it was 0.38. The quick ratio is also increase as well as the current ratio that is good for the BAT.

3. Return on capital employed:

Is ratio is define as its name like return on capital employed that means an amount which is earned on the capital employed. Capital employed is known as the difference between the total assets and total current liabilities. The higher are ROCE ratio is good for the company because it defines that company earned more on their current assets. According to calculation it is find out that the ROCE of BAT  is 8.15% in 2020 and year 2019 it was 7.38 %. It is find out that this ratio increased in year 2020 that is good sign for the company (Babalola & Abiola 2013).

4. Operation profit margin:

The operating profit is determined by the difference of revenue and cost of goods sold. Operating profit margin is calculated on the sales that mean how much profit earn by the company on their sales. If company earns more profit on sale that is good as compared to lower profit. The operating profit of BAT is 38.65% in 2020 and 34.84% was in 2019. The operating profit margin increased in 2020 from 2019 that indicates the company earned more profit in year 2020 (Drake & Fabozzi,2012).

5. Account receivable turnover:

It is known as the efficiency ratio that mean this ratio evaluate the efficiency of the company. Accounts receivable ratio find out a turnover of receivable in a year. As per the standards the lower turnover ratio is good efficiency for the company. In your 2020 account receivable ratio is 6.59 days add 2019 it was 6.73 days. There are a minor changes in 2020 as compared to the 2019 but the changes is good.

6.Inventory turnover ratio:

It is also like the account receivable ratio because it is efficiency ratio. Inventory turnover ratio find out the turnover of inventory which is available in the organisation. India 2020 the inventory turnover ratio of British and American tobacco company 2.61 days and in 2019 it was 2.78 days. According to the analysis it is find out that the inventory turnover ratio become good in 2020 as compared to the 2019 (Drake & Fabozzi,2012).

7. Earning per share:

Earning per share is ratio that identified the actual earning on each share. The market value of a company is depends on the share price and the share value also affected by the EPS. If company gives higher EPS in that case investor also invest to their shares. The higher EPS is good for the company's financial perspectives. Higher EPS always attracts to the investor that is good sign for the company. Talking about the EPS performance so that find out that the EPS increased in year 2020 by approx £30. In year 2019 EPS was £249.70 and it 2020 it becomes £280 (Drake & Fabozzi,2012).

8. Dividend payout ratio:

This ratio is provide information about dividend that how much dividend released to the investors on the net profit. It is a direct profit that is given to the investors and many companies gives the dividend. BAT also gives dividend to investors but in 2020 dividend payout ratio decreased as compared to the 2019. It 2020 ratio was 72.29 percent and in year 2019 it was 78.61%

Conclusion:

The overall report is based on the international finance for this topic British and American tobacco company is choose and some analysis find out. The recent to development's are included in this report that is covid-19 and global chain development. According to the both development's BAT financial performance also affected. The dividend policy and source of finance are also discussed in this report and find out that company majorly collect the money by the equity and debt. Retained earning is also source of finance. In 2020 the dividend amount is increased as compared to the 2019 but the dividend payout ratio decreased in 2020 due to net profit. There are some ratio analysis are determined and according to the ratios it is find out that the company's financial situation become good in 2020 as compared to the 2019.

                                               

 

 

Reference:

Alam, M.Z. and Hossain, M.E., 2012. Dividend policy: a comparative study of UK and Bangladesh based companies. IOSR Journal of Business and Management1(1), pp.57-67.

Babalola, Y.A. and Abiola, F.R., 2013. Financial ratio analysis of firms: A tool for decision making. International journal of management sciences1(4), pp.132-137.

Baker, H.K. and Weigand, R., 2015. Corporate dividend policy revisited. Managerial Finance.

Bhattacharya, S. and Londhe, B.R., 2014. Micro entrepreneurship: Sources of finance & related constraints. Procedia Economics and Finance11, pp.775-783.

Brambilla, A., Bonvin, J., Flourentzou, F. and Jusselme, T., 2018. Life cycle efficiency ratio: A new performance indicator for a life cycle driven approach to evaluate the potential of ventilative cooling and thermal inertia. Energy and Buildings163, pp.22-33.

Drake, P.P. and Fabozzi, F.J., 2012. Financial ratio analysis. Encyclopedia of Financial Models..

Hatefi, M.A., 2019. Indifference threshold-based attribute ratio analysis: A method for assigning the weights to the attributes in multiple attribute decision making. Applied Soft Computing74, pp.643-651.

Oladele, P.O., Oloowokere, B.A. and Akinruwa, T.E., 2014. Sources of finance and small and medium scale enterprises’ performance in Ado-Ekiti metropolis. European Centre for Research Training and Development UK (Www. Ea-Journals. Org)2(1), pp.59-78.

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