Reporting Irregularities in Financial Statements: Case Study

Nowadays, especially is Bulgaria, people are becoming more and more hungry for money, that is why the word fraud takes part more often in our speech. Fraud is part of criminal law, and it comes when we have personal gain by fraudulent way or damaging another individual. The most common purpose of frauds are connected with person or entities trying to assign and stole money or valuables. There are plenty of models, which are especially constructed to define and reveal frauds, most of them will be used in this paper to decide whether Asil Nadir should be sentenced or not. More about analysis and comparisons with other cases and examples of models can be found in appendix 1 and 2.
Proposed Fraud Investigation Plan for Polly Pack’s Financial Statement Fraud
Given below is the proposed investigation plan for Polly Pack’s financial statement fraud:
1. Develop an understanding of the activities of Polly Pack
To understand the activities of microfinance institutions, the auditor should pay attention to: the main concerns of the leaders on the objectives and strategies of the institution, the institution’s organizational structure, operation of its business, results of operations, ability to self-finance, operations and other major economic events may affect its financial statements, accounting issues and changes accounting policies, and funding sources.
To obtain this information, the auditor should meet with the leaders of the institution; visit at least one agency, and review reports and other documents.
1.1 Interviews The auditor should meet the main leaders of Polly Pack, including CEO, the head of the financial service or financial director, credit responsibly and activities, and the head of information systems. This is also the time for the auditor to discuss the first time with the staff of the internal audit, the Board of Directors and major shareholders or lenders, if they have subjects of concern that should be subject to review missions on the basis of agreed or special audits procedures. During these interviews, the auditor should bear in mind the list of items of financial statements. After these initial meetings, the auditor should assess any breach of financial reporting requirements. Analysis of financial statement must be carried out prior to this interview since financial statements may present many significant anomalies.
If the first investigations reveal a level of unacceptable business practice or misleading presentation of financial, the auditor may seek further in-depth investigation into a particular area.
1.2 Visits The auditor must visit several regional offices to acquire understanding of the institution’s activities and responsibilities that were decentralized. Auditors should perform some initial visits at the stage of pre-commitment, and more visits during the planning phase.
1.3 Review of financial reports and documents The auditor should also consider the reports and other documents for a better understanding of the institution. Unless they are not available, the following may be helpful:

previously audited financial statements,
budgets and strategic plans;
the monthly activity reports, including tables of cash flows, the credit statistics and reports on outstanding;
loan agreements and grants;
assessments by donors;
evaluation reports and correspondence from the authorities re-rules

A thorough reflection needs to be carried out on the appropriate reports for Polly Peck, according to its size and age.
1.3 Understand the standards and accounting methods The accounting rules and methods of Polly Peck are not conventional, and therefore require special attention from the auditors
2. Evaluating Accounting Standards
The external auditor shall determine the accounting standards used by the institution. Many microfinance institutions do not follow the national standards or international.
2.2 The accounting policies During the pre-commitment, the external auditor should ask the management of the institution which accounting method it uses. Sometimes the service accounts of the institution are not able to answer this question. Many institutions have adopted accrual accounting, sometimes in a modified form. This accounting method is consistent with the standards imposed by most accounting bodies. But some institutions continue to use cash. Auditors should know that it can be in the interests of Polly Peck to register their activities, especially the product credits, according to a cash basis, taking into account adjustment proposals made at the end of the year by the auditor. Since operations of Polly Peck were overseas in Turkey, it did not follow a uniform accounting from one account to another, which further complicates the work of the auditor.

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2.3 The legal structure of Polly Peck in Turkey in the Context of Company Law of the Region The auditor must look at how the institution considers as a publicly owned multinational. This vision often has implications for accounting. In foreign countries organizations usually produce financial reports that reflect less rigorously financial performance. Some do not even produce financial statements Annual. The majority uses the cash and excludes amortization, adjustments for inflation, provisions for risk changes, provisions for social security, and other similar items to gain from tax exemptions. As regulated financial institutions, Polly Peck must not only comply with generally accepted accounting principles, but also the specific regulations governing banks.
2.3 Examine accounting statements for any financial irregularities Auditors must engage in the following activities
The external auditor should investigate books of account and internal control of the institution through:

discussions with managers and staff at various levels;
review of documents such as procedure manuals, descriptions
positions and organizational charts;
consideration of the reports produced by the accounting department;
compliance with the institution’s activities, including IT operations and loan processing at headquarters and agencies

3. Reporting Irregularities in Financial Statements
Accounting operations of Polly Peck were generally de-centralized because of the operations of the organization taking place in Turkey. In such companies, the activity of an agency is often recognized at the regional level, then transmitted periodically (usually monthly) to the head office. This is usually responsible for the production of consolidated financial statements. In some institutions, all the accounting is performed at headquarters.
3.1 Reporting irregularities of internal control systems Multinational businesses need a strong system of internal control to ensure the success of its operation. However, Polly Peck was significantly weaknesses at this level, and the auditor should therefore pay particular attention to the evaluation system organization of internal control. Since, the board of Polly Peck was largely passive, and the governance structure tends to be lax. This is why the system of internal control organization of the institution depends largely on the level of commitment and competence of its management.
3.2 Take into account the audit risk As with any audit, the auditor must explicitly assess the audit risk, that is to say, the opportunity to express an opinion on incorrect the accuracy of the financial statements of the institution, both in terms of financial statements at the level of account balances. Audit risk has three components: inherent risk, the risk control, and the risk of non-detection. At the financial statement level, the main determine risks are inherent risk and control risk. Regardless of the system of internal control, some risks come from the nature of the business activities and its industry.
At Polly Peck a significant number of account staff did not fully understand the credit procedures as they have been trained to work in the social field rather than in the field financial. Accounting was carried out by staff with little experience of double entry accounting, international accounting standards, etc. In addition, the organization’s activities were decentralized and geographically dispersed often in remote areas without adequate infrastructure.
3.3 Identify breaches of risk control policies faulty procedures may cause a significant risk control through audits of microfinance institutions. Yet internal controls are crucial for microfinance institutions. When the internal control has too significant weaknesses, the audit of the institution may become impossible. If control risk is high, the auditor must evaluate whether we can to use extensive substantive tests, and if this approach is economically feasible for the institution. In addition to a thorough evaluation of internal controls, the external auditor must test the controls made ​​at the account balances but prior to these tests, the external auditors should explain their understanding and evaluation systems, using checklists of descriptions and charts.
3.4 Identify risk of non-detection The risk of non-detection, that is to say the risk of material misstatement not be detected by the auditor shall be determined for each balance account, this risk depends on the assessment of inherent risk and risk control.
3.5 Defining the level of significance The definition of significance levels is crucial in determining the nature, e- tense, and timing of audit procedures. A significance level is limit beyond which the potential errors are considered problematic. If the sum of uncorrected misstatements identified during the audit de- passes the threshold of significance, the auditor may not be able to issue an unqualified opinion. The significance level is inversely related to audit risk. more the audit risk, that is to say the combination of inherent risk, risk control and the risk of non-detection is evaluated as important, the higher the threshold significance is low. In other words, only a low level of defects not corrected is acceptable. The significance depends on the determinants identified during the mission planning. An important determinant of financial statements is a factor that users of financial statements are most likely to focus their attention, given the nature of the institution. Identification of factors determinants is a matter of professional judgment. Determinants, which can be used to determine the significance level are e.g. net income, total assets, revenues, and funds own. Significance levels may vary between 2 and 10% of factor. In the United States, some use external auditors, as basis of materiality for a commercial bank, 2% of total assets. For an institution whose weak internal controls, the auditor may reduce significant at 1% of total assets acceptable rate abnormalities. There is no general rules to define the thresholds of significance, hence the auditor should use his/her judgment.
The evaluation by the auditor of materiality and audit risk at planning the audit, may change after evaluating the results of audit procedures. This may be due to a change in circumstances, or a development of knowledge of the listener, following the audit. For example, if the audit is scheduled before the end of the year, the auditor will anticipate the results of and financial position. If actual results to differ materially from this estimate, the assessment of materiality and audit risk may be changed.
3.6 Evaluation of the internal audit and relations with auditors internal The external auditor should consider the work of internal auditors during the phase planning the audit. Internal auditors evaluate and monitor systems accounting and internal control. Internal audit is an essential element to ensure a sound internal control system, and also an important tool reduction, detection and investigation of fraud.
3.7 Obtain an approved status laws or regulations may impose establishment of an internal audit service. When there is an internal audit function, the auditor must evaluate its objectivity, its scope, technical skills and rigor. This assessment must include a review of the service organization, its staff, its purpose, its reports and programs. Potential conflicts must be evaluated. For example, if the audit service Internal reports on its work in the service that he is auditing, the question of the objectivity of the findings of the internal audit service arises. such situation can significantly reduce the value placed on the work of the internal auditor by the external auditor. Ideally, the internal audit department must account of his work directly to the board or committee audit, if one exists. If the external auditor believes, following a screening assessment, the internal audit service is reliable, it must test the work performed by the service to confirm this assessment. This is usually done by performing a new test on a sample of the work performed by the auditor.
Conclusion
The paper laid down a methodical approach to investigate fraud in financial statements of Polly Peck to identify whether the CEO or the top management of the company was involved in deliberate falsification of financial statements to raise share price of the company and to fraud shareholders of the company. The key consideration in this plan was triangulation of the elements of the investigation to find out whether all elements of the financial reporting match. Triangulation is all the more important for investigation of Polly Peck’s finances since the operations of the company were overseas and centralized reporting was not carried out of company’s finances.
Appendix 1
In this Appendix will be reviewed a part of Polly Peck`s frauds and most of the unclear moves and actions of Asil Nadir, also will be made a consideration and comparison with Enron case.
Polly Peck was a great company with a superb vision on the market and it won`t be a lie if it is said that is was a “shareholder dream” for every investor in the world. It has many close points of fraud to Enron case.
The first fraudulent coincidence is that in both cases the most important papers and documents disappear. Enron shredded tons of paper, while in Polly Peck`s case they just disappear and Nadir told that there are no available and existing documents in their original.
The second conjunction with Enron case is that Polly Peck built a hotel in Turkey, which costs around 70 million and the debt of the company did not increase. In Enron the debts were “transferred and funded” to other small companies. The main idea here is the head company to looks attractive, valuable and without debts.
The third coincidences between both companies is that they deal with complementary goods, which can`t be substitute. As well Enron, in Polly Peck case we have huge problems with accounting. In the first case we have fault accounting, here also emerge some misleadings in this sector/department.
Appendix 2
In this appendix will take a look at the meanings of the methods and approaches, which are part of fraud investigation and help us to reveal a fraud. Firstly, it should be known that such investigation is quite expensive and it should be started if there are really serious reasons that fraud occur.
Testimonial evidence: This type of evidence is collected from people, who are interviewed and persuade to fill in honestly test, to realize whether we can believe in them. In Polly Peck`s case should be used this model, to take an interrogation with the people worked for this company and eventually may know something important.
Documentary evidence: This type of evidence is collected from computers, documents, servers, data mining, public records, searches and so on. In addition, in such situations the databases are great source of information, no matter the information is deleted, it can be restored. This type of evidence can be used as well in this case, because most of the fraudulent information is saved on computers and if restored can answer us the basic question, is there a fraud or not.
Physical evidence: This type of evidence is concerned with taking fingerprints, id numbers, weapons, stolen property and so on, which can be linked to a fraudulent act.
Personal observation: This type of evidence is also named “sense” evidence, because it is very close to the information, which is “heard, seen, felt, etc.”.
A second method of investigating a scheme is to focus on the fraud triangles. It should be investigated all variants, elements of the following triangles.
 
Theft act: try to seize the perpetrator to wrench a data or information.
Concealment: In this part should be taken under consideration and used documents, computer hard disks, etc.
Conversion: is to define whether the defendant used money or property fraudulently for personal benefit. An great example of this type is the case: [Brandt v. State, 1944]
 

Analysis Of Financial Statement Of Telecom Sector

Our analysis as a part of management accounting course in MDI, aims at financial analysis of two distinct companies of Telecom sector of India. Telecom sector is one of the fastest growing sectors and has shown the growth of 9.1% in Q2 of financial year 2009-2010 whereas GDP growth of India has been 5.8%.
We have done a comparative analysis of the balance sheet, income & cash flow statements of “Bharti Airtel” & “MTNL”. Key ratios are generated and analysed for short-term and long-term investing, short-term and long-term lending and suggesting a comprehensive strategy.
Accordingly, we have included balance sheet, income & cash flow statements of “Bharti Airtel” & “MTNL” over a period of 5-years in appendix used for data analysis.
Telecom Sector: An Introduction
Telecommunication is the assisted transmission over a distance for the purpose of communication.
The broad segmentation of Indian Telecom Sector can be done on the following basis:
Telecommunication Services
Basic service
Internet Service Provider (ISP)
Value added services
3G
Telecommunication Equipment
Current Scenario
Indian telecom industry a shinning knight in the armour of Indian industries continued to register a significant growth in 2008-09. Indian telecom network, with subscriber base crossing 479 mn in July 2009, is the third largest in the world, while it is the second largest wireless network
At the current pace, the target of 500 million connections by 2010 is well within reach.
The wire-line segment has been declining gradually but the wireless subscriber base grew at a compound annual growth rate (CAGR) of 75.9 per cent per annum since 2003. The share of wireless phones increased from 24.3 per cent in March 2003 to 90.88 per cent in February 2009. Universal access objective feasibility has improved affordability of wireless phone. Several steps are undertaken by Government for reduction in entry barriers, creation of a level-playing field between incumbents and new entrants and forward looking regulation. Consequently, there has been an increase in share of private sector in total telephone connections to more than 79 per cent in February 2009 against a meagre 5 per cent in 1999.
The market share of top 12 telecommunication operators and their devision based on type of services provided (GSM & CDMA) are shown below:
 
Market share of top 12 operators
Market share of top GSM operators
Market share of top CDMA operators
Criteria: For Selection of Companies
In the telecom sector, we have chosen Bharti Airtel Ltd and MTNL as two companies for financial analysis and strategical suggestions.
The criteria to choose these two companies are:
MTNL is government owned and Bharti Airtel Ltd. is a private sector company, this would give a clear picture from both directions.
MTNL and Bharti Airtel Ltd. both offer similar kinds of products/services in the market. For e.g. both are in fixed and mobile communication.
They deal extensively in Value added services and also provide broadband facilities to its consumers.
Their respective asset holding is quite near to each other.
Both the companies are holding companies in other companies.
MTNL has launched 3G services and Airtel would do so from 2010.
Financial Ratio Analysis
It is a method of calculating the financial strengths and weaknesses of the firm by converting financial data into ratios. The most important financial ratios of the firm that needs to be analyzed are:
liquidity
profitability
overall performance measures
Asset utilization ratio.
The financial analysis of MTNL and Bharti Airtel Ltd. is done using key ratios not only in context of the firm’s history (over a period-trend analysis), but also with respect to each other(inter-firm).
Common size analysis is additionally done to the compare financial data across firms. Common size statements normalize the balance sheets and income statements and thus making the task at hand simple.
Overview
Financial analysis is done to assess the viability, stability and profitability of a business. These could be fulfilled by analysing the company on the following scenarios:
Short-term Investment
Long-term investment
Short-term Lending
Long-term Lending
Strategical suggestions
SHORT TERM INVESTMENT
To gain profits by investing in a company for a short term, a person has financial as well as non financial data available with him to calculate the level of risk and returns involved in the stock he is investing for short term.
To measure the volatility of the price of a stock relative to the rest of the market Beta ratio should be applied. Beta ratio provides information on the movement of the price of the stock as compared to the rest of the stock market. Beta of a stock can be used to compare a company with its peers from the same industry or sector to see the relative performance accordingly. If the beta value of a stock is more than 1, then the price of this stock is considered volatile as compared to the overall market. Thus the stock is classified as risky. If the beta value of a stock is equal to 1, then the price of the stock fluctuates at the same level as the market. If the beta value of a stock is less than 1, then the price of the stock is less volatile as compared to the overall market. Thus, the stock is classified as less risky.
Market capitalisation (cap) – Market capitalization/capitalization ( market cap or capitalized/capitalized value) is a measurement of corporate size equal to the share price times the number of shares outstanding of a public company. It is the True Measure of A Company’s Value
Another important factor that can be considered for short term investment is the P/E ratio. The P/E ratio provides relationship between the stock price and the company’s earnings.
P/E Ratio = Stock Price / EPS (Earnings per share)
The P/E ratio tells you what the market thinks of a stock. It provides information about the investors’ confidence in the stock and how much extra he is willing to pay for it.
LONG TERM INVESTMENT
The estimated returns that can be generated against the risks involved when investing for a long term, can be found out using the following criteria:-
Debt-equity ratio- Company’s financial leverage can be measured using this. Debt/equity ratio is equal to long-term debt divided by common shareholders’ equity. It is considered risky to invest in a company with a higher debt/equity ratio, especially when interest rates are rising, as the additional interest is generally paid out from debt.
Interest coverage ratio – This ratio is used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by the company’s interest expenses of the same period. Interest coverage ratio is given as ebit/ interest expense of the company. If this ratio is low, it means the company is burdened by debt expense. If interest coverage ratio is 1.5 or lower, the companies’ ability to meet interest expenses may be questionable. An interest coverage ratio below 1 generally indicates the company is not generating sufficient revenues to satisfy the interest expenses.
Market capitalisation – Market cap helps to determine the true value of the company.
Return on capital employed (ROCE)- This ratio indicates the efficiency and profitability of a company’s capital investments and is calculated as:
ROCE= EBIT/ (total assets-current liabilities)
ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders’ earnings. A variation from this ratio is return on average capital employed (ROACE), which takes the average of opening and closing capital employed for the time period.
Operating profit ratio – This ratio measures the money a company is generating from its own operations; it doesn’t include income generated from investments in other businesses. Operating income can be used to judge the general health of the core business and the managerial efficiency.
Total asset turnover ratio – This ratio calculates the total sales [revenue] for every asset a company owns. The Asset Turnover ratio is given as:
Total Revenue/ Average assets for period
This ratio is an indicator of the relationship between assets and revenue. Companies with low profit margins tend to have high asset turnover and those with high profit margins have low asset turnover – it indicates pricing strategy. This ratio is useful to check the growth of companies as a fact to see the growing revenue in proportion to sales.
SHORT TERM LENDING
To lend money to a firm for a short term the following things have to be considered before going ahead with actually lending the desired amount-
Current ratio- This ratio is an indication of a company’s ability to meet short-term debt obligations; higher the ratio, more liquid the company is. Current ratio is equal to current assets divided by current liabilities
If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations
Quick ratio – This ratio is an indicator of a company’s short-term liquidity. The quick ratio is the measures of a company’s ability to meet its short-term obligations with its liquid assets. Higher the quick ratio better is the position of the company. The quick ratio is equal to Current assets-inventories/current liabilities. It is also known as Acid test or liquidity ratio.
Quick ratio is usually more conservative than the current ratio, and is a more well-known liquidity measure, because it does not include inventory in current assets. Inventory is excluded because some companies face difficulty in turning their inventory into cash. In case short-term obligations need to be paid off immediately, situations may arise in which the current ratio would overestimate a company’s short-term financial strength.
Credit policy of the company has to be calculated to judge the credibility of the company it basically compares the debit period with the credit period for the company i.e. the credit time a company offers to its customers and the credit period it gets from its suppliers. This also gives a general idea about the cash requirements of the company.
Another important aspect to be considered is the cash from the operating activities and comparing it with the total sales. It indicates the efficiency of the management in managing its resources and gives a glimpse of the future aspects of the company. The operating profit ratio of the company also needs to be calculated.
LONG TERM LENDING
The following things need to be kept in mind before lending money to any firm for a long term.
Turnover ratios-This ratio is a measure of number of times a company’s inventory is replaced during a given time period. Turnover ratio is calculated as cost of goods sold divided by average inventory during the time period. A high turnover ratio is a sign that the company’s production and sale of goods or services is taking place at a quick pace.
Profitability ratios-A class of financial metrics that are used to assess a business’s ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. A general rule followed for most of these ratios is that having a higher value relative to a competitor’s ratio or the same ratio from a previous period is indicative that the company is doing well. Various types of profitability ratios are profit margin, return on assets and return on equity etc.
Profit margin is a measures of how much a company earns relative to its sales. A company with a higher profit margin is considered more efficient than its competitor.
Two profit margin ratios are:
operating profit margin
net profit margin.
Operating profit margin measures the earnings before interest and taxes, and is calculated as follows:
Operating Profit Margin = Earnings before Interest and Taxes/sales
Net profit margin measures earnings after taxes and is calculated as follows:
Net Profit Margin = Earnings after Taxes/ sales
Return on assets (ROA) tells how the performance of the management on all the firm’s resources is. However, this does not give an idea about how well they are performing for the stockholders. It is calculated as follows:
Return on Assets = Earnings after Taxes/ total assets
Return on equity (ROE) measures how well management is doing for the investor, because it tells how much earnings investors are getting for each rupee invested. It is calculated as follows:
Return on Equity = Earnings after Taxes/ equity
Another important ratio as a part of the analysis will be debt equity ratio which helps in measuring company’s financial leverage. If this number is too high it may signify future liquidity problems. If this ratio is too low it can signify inefficient use of the various financing alternatives available to a company.
Apart from these ratios the interest coverage ratio and the debt service coverage ratio has to be calculated and evaluated too. It is the ratio of net operating income to debt payments on a piece of investment in real estate. It is a popular benchmark used in the measurement of an income-producing company’s ability to buy a property and its ability to produce enough revenue to cover its monthly mortgage payments. Higher this ratio is, and then it is easier to borrow money for the property.
Strategical suggestions
The company should be suggested a strategy as in restructuring or diversification or expansion. The strategy is decided based on the profitability and the credit policy of the company. The strategy needs to be evaluated very closely for the best possible results of the company and a bright future. The managerial efficiency also plays an important role in determining the right strategy for the company in future endeavours. Thus, strategical suggestions should be made keeping in mind these points and only after detailed analysis of financial and non-financial data is done
Observations
Analysis Of Financial Statements
LIQUIDITY RATIOS
Liquidity ratios in a Balance Sheet refer to the company’s ability to meets its current obligations. There are two major liquidity Ratios, Current Ratio & Quick ratio.
Current ratio gives us an idea about how much of a company’s current liabilities is covered up by its current assets. A higher figure in this case shows that the companies can more than sufficiently meet its current obligations.
Quick ratio is the same as current ratio except for the fact that the current assets in this case does not include inventories because it is believed that inventories are not realized as easily as other current assets are.
Calculated using:
Current Ratio = Current Assets/ Current Liabilities
Quick Ratio = (Current Assets – Inventories)/Current Liabilities
LONG TERM SOLVENCY RATIO
Solvency Ratio refers to the use of Debt Finance in the organization. It pertains to the company’s ability to meet the internal costs & repayment schedules associated with long-term obligations. They help in assessing the risk arising from the use of debt capital. The important Solvency Ratios are the following:
Financial Leverage Ratio = Assets/Shareholders’ Equity
Debt-Equity Ratio = Long Term Liabilities/ Shareholders’ Equity
Debt-Total Funds = Long Term Liabilities/( Long Term Liabilities + Shareholders’ Equity)
Interest Coverage Ratio = EBIT/ Interest
PROFITABILITY RATIOS
Profitability reflects the final position of business operations. These ratios help us to measure the overall profitability of the company. The major Profitability Ratio are given below:
Gross Profit Margin = Gross Profit / Turnover
Net Profit Margin = Net Profit / Turnover
Earning Per Share = PAT / Number of Shares Outstanding
Cash Earning Ratio = Cash Generated by Operations / PAT
Dividend Payout Ratio = Dividend Per Share / Earning Per Share
ACTIVITY OR ASSET UTILIZATION RATIOS
Activity Ratios, also referred to as Asset Management Ratio, measures how efficiently the assets are employed by a firm. These ratios are based on the relationship between the level of activity, represented by Sales, Cost of Goods of Sold, and levels of various assets. The major Activity Ratios are the following:
Total Assets Turnover = Sales Revenue/ Total Assets
Equity Turnover = Sales Revenue / Shareholders’ Equity
Fixed Assets Turnover = Sales Revenue/ Fixed Assets
Current Assets Turnover = Sales Revenue/ Current Assets
Working Capital Turnover = Sales / Net Current Assets
Inventory Turnover Ratio = Cost of Goods Sold / Inventory
Debtor Turnover = Sales / Debtors
Average Holding Period = 365 / Inventory Turnover Ratio
Average Collection Period = 365 / Debtor Turnover Ratio
VALUATION RATIOS
Valuation ratios indicate how the equity stock of the company is assessed in the Capital Market. Since the market value of equity reflects the combined influence of risk & return, valuation ratios are the most comprehensive measures of a firm’s performance. The major Valuation Ratios are the following:
Book Value Per Share = Shareholders’ Equity / Number of Shares Outstanding
Market Value to Book Value Ratio = Market Price / Book Value Per Share
Price Earning Ratio = Current Market Price/ EPS
Market Capitalization = Market Price per share x Number of Shares
Earning per Share = PAT/Number of Shares Outstanding
OVERALL PERFORMANCE
There are basically three main ratios which are used to analyze the overall performance of any Organizations, these ratio in themselves speaks a lot about how the company has performed in the last year and what are the expectations about the company in the future. The three ratios are:
Return on Assets = PAT + Interest (1-Tax Rate)/ Total Assets
Return on Invested Capital = PAT + Interest (1-Tax Rate)/(Long Term Liabilities + Shareholders’ Equity)
Return on Equity = PAT/ Shareholders’ Equity
Conclusion
State-run Mahanagar Telephone Nigam Ltd ( MTNL) reported a 53% year-on-year decline in its net profit at Rs976 crore for the third quarter (Q3) ended December as the company continued to lose market share to more aggressive rivals such as Bharti Airtel Ltd and Reliance Communications Ltd, in the markets of Mumbai and Delhi. The firm’s total revenues for Q3 also declined to Rs1,326 crore, from around Rs1,428 crore in the year-ago quarter.
“The staff cost alone accounts for almost 35% of our revenues, putting a lot of pressure on our profitability,” A.K. Arora, executive director of MTNL, had said in an interview earlier this month.
However, staff costs during the quarter went down from Rs474 crore in the corresponding quarter last fiscal to Rs433 crore in the past quarter. The reduction in costs was brought about by a voluntary retirement scheme that was initiated in fiscal 2006 and fiscal 2007, according to an MTNL statement. During the quarter, the company’s cellular phone subscriber base also increased by 182,760 new connections, bringing MTNL’s total subscribers to 2,954,880 at end-December.
What may have contributed to the decline in revenues is other income during the quarter, “which came down to Rs137 crore, from almost Rs200 crore a year ago,” said Yogesh Kirve, equity analyst at Mumbai-based Anand Rathi Securities Ltd.
MTNL was set up in 1986 by the Union government to enhance telephone connectivity across India. The government currently holds a 56.25% stake in the company.
Shares of MTNL fell 6.62% to close Wednesday trade at Rs123.40 on the Bombay Stock Exchange.
Bibliography
www.capitaline.com
www.economictimes.com
www.bharti.com
www.mtnl.net.in
www.investopedia.com
www.indiainfoline.com
www.moneycontrol.com
www.wikipedia.org
http://www.indianomics.com/2009/07/15/top-12-wireless-operators-in-india-by-subscribers/
 

Report into Barclays Financial Performance Analysis

The following report is aimed at comment the findings of Barclays PLC financial performance analysis. The first section presents an internal and external analysis. The second comments a series of financial ratios. Finally, the last section concludes.
Introduction
Banks are an important part of the financial system. They channel financial resources from individuals who have surpluses to individuals who lack capital. Banks transfer these assets in the form of loans. Loans are evaluated and classified according to the default probability (risk). In this manner, Banks assure that lenders invest their wealth in trustable projects, that is, economically viable (Arnold, G., 2008). Banks, then, subside the research task from lenders and allow them to get a safe and constant return rates in a determined timeframe and conditions (Valdez, S., 2007).

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As any business, Banks are aimed at increasing the wealth of the owners. Banks employ accounting systems and economic models to measure their financial performance. Accounting and economic models evaluate: 1) whether the wealth of the owners is augmenting, and 2) at what extent (Atril, P., McLaney, E., 2008). They provide several financial indicators which help business’ management to control the enterprise performance; among them, the financial ratios are widely used. The purpose of this report is to comment the findings discuss how bank (Barclays PLC) overall performance should be evaluated. The first section presents a review of Barclays’ internal and external performance. The second section evaluates Barclays’ financial performance. Finally, the last section concludes.
A review of Barclays’ internal and external performance
Barclays is one of the worldwide leaders in financial services. It was founded in 1690 in the UK. Barclays has operations in 50 countries spanning over Europe, the US, and Africa. Its headquarters are located London, UK and employs 153,800 people worldwide (BARCLAYS, 2009).
Barclays’ retail banking includes personal customers, home finance, local business, consumer lending and financial planning (DATAMONITOR, 2010).
Internal performance
Barclays’ capital strength has provided the company with resilience to cope adverse market conditions. For example, the company’s liquidity pool increased to £127 billion at 31st December 2009 from £43 billion in 2008. Hence, cash flows allow the bank to negotiate better selling conditions in their product portfolio (BARCLAYS, 2009).
Barclays has kept its lending growth volume regardless global economic situation. The bank has reduced its derivative assets; therefore, its balance sheet size has been reduced (BARCLAYS, 2009).
However, Barclays’ operations are threatened by its weakness in cost management. Its subsidiaries in Western Europe registered detrimental costs in 2009. Thus, the bank may face difficulties in its expansion plans (BARCLAYS, 2009).
On the other hand, Barclays’ mobile banking services have experienced a significant growth due to smart phones popularization. This new service portfolio is likely to reduce workload in bank’s branches; therefore a significant cost reduction may be achieved during the fiscal year 2010. Even though, internet and credit transaction fraud has also risen. Hence, information security investments may undermine cost management accomplishments (BARCLAYS, 2009).
Barclays is pursuing to expand its operation in India and UAE. Even the bank has been present in both countries since 1970’s; it does not have a considerable penetration. These markets have attractive conditions to increase the bank market share. Therefore, an expansion strategy for India an UAE is foreseeable (BARCLAYS, 2009).
External performance
Barclays’ impairment losses in 2009 affected bank’s profitability. This effect was present despite balance sheet size reduction. Disposal of these legacy assets is one of the main bank’s objectives for fiscal year 2010 (BARCLAYS, 2009).
UK government legislation regarding Asset Protection is aimed at improving customers’ trust by clearing up bank’s balance sheets. However, there is no a complete strategy on this matter. These uncertainties add pressure on financial markets, making difficult bank’s capitalization. Besides, a more competitive environment will be roomed (BARCLAYS, 2008).
Finally, mergers and consolidation in banking industry will make more difficult, for Barclays, to adjust pricing levels and protect their market position. However, Barclays has the resources and skills to tackle challenging business environments (BARCLAYS, 2009).
Barclays’ financial performance
ROE
ROE ratio presents negative trend in the last three years. The cause of this behaviour was the increase in the operation costs, 25%, plus a drop of 25% in the interest income. The net effect was a drop of drop of 77% in the net income in 2009. In 2008, Barclays acquired Lehman Brothers, thus, the total financial figures of the bank were affected. This buy clarifies the abrupt changes in costs and interest incomes. Positive results of this acquirement may be reflected in one or two years; it can be said that this normal behaviour of acquirements (BARCLAYS, 2008).
ROA
ROA was also hit by the Lehman Brothers effect; the indicator fell 50% from 2007 to 2009. Total assets were duplicated during 2008 and the net income after taxes was a little bit higher than in 2007. However, in 2009, Barclays made a restructuration in its total assets and was able to reduce them a 44%, that is, total asset were almost the same than in 2007. Unfortunately, net income after taxes also dropped 44%. ROA indicator was, then, almost the same than in 2008. ROA hid the company efforts to align the bank to the pre-acquisition levels (BARCLAYS, 2009).
Net Interest Margin
Net interest margin improved in 2009. It surpassed 2007 value. Assets are producing more Interest profit than in 2007. This can be interpreted as a positive effect of the Lehman Brothers acquisition, since the asset combination is generation more income. However, the increment in operation costs undermined the net effect of these results (BARCLAYS, 2009).
DuPont
This indicator clearly shows the Lehman Brothers acquisition effects. The equity multiplier registered a growth during 2008. The net profit margin was almost 300% higher than in 2007. However, the asset utilization went down 518%. The net effect was a low ROE (BARCLAYS, 2008).
In 2009, the equity multiplier, and net profit margin felt down 49.48%, and 63.45% respectively; whereas, asset utilization grew 281%. Even though, ROE ratio was the lowest one in the studied period. This erratic behaviour was caused by the total asset amount. Each indicator by itself does not provide enough information regarding how well the company is doing it. For instance, asset utilization seems to be worst than in 2007, therefore, the implication would be that acquisition was a bad deal for the bank. In the case of the Equity multiplier, the conclusion would be the same. But, the net profit margin figure seems more realistic and clearly shows that a growth of 10% in two years justify the buy (BARCLAYS, 2008).
The ultimate result is indicating that the new company is expected to have a return in equity of 6.28%. However, this metric does not include dividend amounts; thus, investing in the new Barclays firm may still be attractive. DuPont exercise shows that any indicator does not have all information at glance, thus, they should be used in combination in order to provide relevant and useful information. By decomposing ROE in three different ratios, it is possible to understand the effect of total assets and the operating revenue into the company’s investing profile. Besides, it is clear the effect of the increment in the cost of the sales and operations. From the graph, it can be seen that Lehman Brothers firm made a massive sales and their expenses were under control. However, it can be inferred that liquidity may be one of the relevant factors that pushed former owners to sell it. This thesis is aligned to the main causes of the 2007’s global financial crisis. Therefore, the acquisition was justified and was a good opportunity to improve the bank’s financial performance (BARCLAYS, 2009).
Net Interest Margin
This ratio shows a negative trend. The lowest value was registered in 2008. However, during this year the interest income registered the highest value during the period. In 2009 the interest income dropped 24.18% but asset were reduced almost 50%. Even though, they continued 12.34% above the 2007 value. The net effect was 25.24% below the 2007 mark. It is important to say that 2009 is a good result and shows how the bank is trying to move the new company to the levels in which the former one was operating. It can be inferred that the strategy is to stabilize the bank and then increase the profits. Acquisition was, again, the event that impacted the ratio behaviour (BARCLAYS, 2009).
Earning base
Earning base is indicating that bank is acquiring more assets which are directly implied with the profit generation, that is, that it is lending more money to customers. It is clear that in 2008, due to acquisition, the bank owned a series of assets which were overloading the cost structure. In 2009, the situation improved since assets were re-structured and their number was reduced. This indicator should not be higher than 50%. The rational is that bank’s earning assets are loans, thus, bank should ensure they payment of those loans whit its assets. Therefore a healthy ratio level may be around 50% (BARCLAYS, 2009).
Operating Efficiency Ratio and Wage ratio
The operating efficiency ratio shows that bank is struggling with its operating expenses. In 2007, the ratio was 187%, which means that bank was investing two resource units to produce one. In 2008, this indicator grew almost 2.5 times. However, the bank made a very good effort and reduced the figure 32%. When wage ration is included in the analysis, it presents a drop in 2008, due to redundancy. However, the operation expenses did not diminished; therefore the operation efficiency ratio did not improve. It can be implied that work force is not the biggest expense, as many author claim, but a combination of inefficient process and asset sub-utilization. Unfortunately, annual reports did not provide deep information (BARCLAYS, 2008, 2009).
Interest Income / Total Assets and Interest Rate Risk Ratio
The first ratio provides information regarding how much interest income is produced by the total assets that bank owns. This indicator shows a growing trend with a little drop in 2008 due to the total assets acquired from Lehman Brothers. Thus, Barclays is improving its asset utilization.
Talking about interest risk ratio, this indicator should be ideally around 100% to ensure that all loans are backed up with assets. However, the bank registered values below 10%. On the other hand, this indicator also shows a growing trend, which means that this figure is going to improve in the future. This indicator also supports the 2008 acquisition (BARCLAYS, 2009).
Liquidity Risk Ratio
Cash is the blood of the business. This ratio is relevant because indicates the capacity of the bank to convert its asset in cash. This indicator showed a negative trend with a peak in 2008. Its value has never been below 90% which indicates that bank has no cash flow issues. However, it highly depends in the asset restructuration. According to the 2009 annual report, asset management is one of the key objectives of the current management board. Thus, liquidity risk ratio will improve during the next years (BARCLAYS, 2008).
Capital Risk Ratio
Capital risk ratio shows at what extent the bank is prepared to afford its long term compromises. Values on this indicator shows that bank is in a very good position since its long term compromises do not represent a high percentage of its total assets; the lower this indicator the best. However, it shows a growing trend accelerated by the 2008 acquisition. It can be inferred that management team is trying to either improve the bank resource availability, by long-term instruments, or restructuring the acquisition cost. The peak in 2008 can be explained by the heterogeneous asset combination post-acquisition (BARCLAYS, 2008, 2009).
Conclusions
After analysing Barclays’ bank ratios, it can be inferred that the acquisition of Lehman Brothers was an organic growth during crisis times. Thus, Barclays took advantage of the economic situation in 2008. Its solid cash figures allowed the bank to reject the bail-out plan from the UK’s government. This action increased the customer preference for the bank.
After acquisitions, the ratios tend to show bad results. However, this is somehow expected, since new components are added to the operation and a new organization is created. In the case of Barclays, these variations were not significant to the overall company performance.
Finally, internal and external performance measurement is a complementary part of the ratio analysis. Ratio analysis is highly dependent on accounting information and the standards to gather that info. Thus, the results may vary if another set of accounting rules is applied. Internal and external performance measurement provides the background information to understand the number, trends and behaviours of the ratio result. Hence, both analyses are complementary rather than exclusive. Ratios provide a standard and normalized way to compare and analyze information, but they are meaningless by themselves. Ratio value is important, but it adds nothing to management process if it is not translated into coherent and relevant series of events which explain the root cause of that percentage. Thus, a good selection of indicator and measurements will guide the company to better results.
 

Financial Analysis Of British American Tobacco Plc Finance Essay

Introduction
The purpose of this report is to provide information & Interpretation of British American Tobacco plc (BAT) in terms of historical record, comparative financial indicators, and position in the market along with key value drivers for the company and performance indicators. This is done by analysing the information provided in the historical and present financial statements.
About British American Tobacco & Revenue Analysis
British American Tobacco is a public company listed on the London Stock Exchange, which has direct and indirect stakes in several companies together constituting to be the British American Tobacco Group of companies. The group achieved gross turnover of GBP 40,713 million with revenues amounting to GBP 14,208 Million in the year 2009. There are more than 250 brands in their portfolio with Dunhill, Kent, Lucky Strike & Paul Mall being their flagship cigarette brands which are together sold in more than 120 countries with total sales constituting 196 Billion cigarette units (Annual Report, 2009). The company follows the accounting cycle starting 1st January of the calendar year & ending on 31st December of the same calendar year. The company currently has 95,710 employees on its payrolls. It sold 724 Billion cigarette units in the same year and has production capabilities in 50 cigarette factories based in 41 countries.
British American Tobacco is the second largest tobacco company in the world (Excluding China), while it has 6.4% share of the UK market, dominant players being Imperial Tobacco & Japan Tobacco International (Nielsen Data, Feb 2010). 74% of BAT’s sales come from the developing countries & emerging economies (Annual Report, 2009).
Revenue by Geography
BAT’s largest market lies in Western Europe which accounted for 27.3% of its total revenues in FY 2009. BAT saw an increase of 20.7% from the revenues it had registered in the FY 2008.
Asia Pacific accounted for 23% of its total revenues while Americas accounted for 22.2%. Eastern Europe accounted for 11.5% o the total revenues while the highest performed for BAT turns out to be Africa and Middle east which accounted for 22.2% but it saw an increase of 31.2% in terms of revenue over last year.
Historical Performance & Analysis
British American Tobacco was established as a joint venture between the Imperial tobacco group of the United Kingdom & the American Tobacco Group of the United States in the year 1902. Subsequently, In the year 1911 the company was listed on the London Stock Exchange. In 1913, the company looked overseas for expansion and entered the Argentinean markets. In the 1920s, British American Tobacco’s capitalization had quadrupled since 1902 and sales grew by nearly a factor of 40. In 1923, The Company’s worldwide sales had grown to 50 billion cigarettes per year. By 1962, British American Tobacco’s capitalization allowed it to move towards diversification. It grew consistently, however, and was achieving turnover at the rate of 15% per annum by 1970. Diversifying and expanding at a rapid pace, British American Tobacco became a well known brand globally. With uncertainty about a long term market in tobacco, steps were taken to reduce BAT’s dependence on the tobacco industry. In 1986, only half of its total pre tax profit came from tobacco group which was down from 57% pre tax profit BAT achieved in the year 1985. The 1990s were not a good time of the decade for tobacco sales as companies in the industry faced several lawsuits and litigations. The U.S. courts awarded verdicts which cost the tobacco companies millions of dollars as the consumer claimed tobacco related illness and relatives of smokers who claimed heavy compensation. The company continued with its strategy to take over small to midsized companies as it acquired Canada’s dominant tobacco company, Imasco in the year 2000. The company has been consistently achieving Year on Year growth in the range of 8-12% in terms of revenue since 2005. While it has consistently maintained the operating margin percentage in the range of 26%-29% from 2005 to 2009, the Adjusted Diluted earnings per share has been rising from 56.9p in 2000 to 153p in the year 2009 (Annual Report, 2005-2009).
Annual Report Analysis
“The goal of accounting information is to provide economic decision makers with useful information,” according to Williams, Haka, Bettne & Carcello (2006, p. 670). Financial statements analysis is not just important for the shareholders but various stakeholders as well.
The Group has prepared its annual consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union. Some of the highlights of the Annual Report include revenue increase of 10% at constant rates of exchange & 17% at current rate, when compared to the financials for the year 2008. Adjusted profits from operations too increased by 10% at constant rates and 20% at current rates. The total benefit of the result amounted to GBP 355 Million, which resulted in adjusted diluted earnings per share grow by 19% to 153 pence. Over the past 5 years, BAT has achieved a compounded annual growth rate of 15% in earnings per share and 19 % in dividends per share. The total shareholder returns over the same 5 year has been 175% compared to the FTSE 100 index which gave 35% returns to the investors.

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The financial analysis views the group as a strong player in the global tobacco industry. The resilience in achieving profits & wealth generation along with geographical diversification has positioned the group as a multi national company with strong fundamentals which makes it more susceptible to face risks and unforeseen events in the future. In the first half of the financial year 2009, Sales volumes had increased by 4% or declined by 2% when the benefit derived from acquisition was excluded. BAT’s free cash flow remained strong and resilient during the year 2009 and looks set to remain the same in the year 2010 despite volume pressures. Price increases & sales improvements continue to offset the volume pressure faced by the company in the broad range of other markets. In the financial year 2009, FFO was 31% of fully adjusted debt which was 3% points higher than the FFO in the year 2008. The reason for the same was marginal decrease in debt along with the increase in earnings due to acquisitions. The absorption of operating cash flow in to discretionary spending has slowed due to the company suspending the offer to buy back shares until further notice given. BAT is likely to generate free cash flows despite various expenses like restructuring & dividend payments to the shareholders as it has ample internal liquidity, cash flow characteristics & access to capital markets. The liquidity of BAT was supported by a) USD 1.75 Billion revolving credit facility for a five year period which along with the cash balance of USD 1.3 billion exceeded gross debt maturing on June 2010; b) Bond maturities; Bond worth USD 2.5 billion were issued to extend the groups debt portfolio c) Finance accessibilities; It has ready access to credit facilities on offer by the financial institutions; d) Significant cash position in excess of USD 1billion.
Based on analysis, BAT’s profitability margins are on par with its global peers. BAT intends to improve its sales by 2 % year on year by price increases and product mixes. Market share reached by BAT in specific markets determined its profitability. Operating margin in developing countries can be compared with the margins achieved in matured markets as shown by the margin achieved in excess of 30% in regions like Latin America, Africa and Middle East. EBIDTA margins for BAT in the year 2009 figured 36%, has had a significant rise of 2.5% percentage point from 33.5% margin it achieved in 2008 and 32.5% in 2007.
One widely accepted method of assessing financial statements is ratio analysis which uses data from balance sheet and income statement to produce interpretation which have financial meaning to it. Assessment of the financial health of a business is quick and relatively simple when information is derived using the relevant financial ratios.
Ratio Analysis
“A ratio is a simple mathematical expression of the relationship of one item to another,” according to Williams, Haka, Bettner, and Carcello (2005, p. 674). Ratios can provide diverse information to diverse financial information users.
The analysis of annual report suggests the following ratio analysis of the group. The relevant ratios have been grouped and presented in this paper under various heads.
Profitability Assessment:
Operating Margin: BAT achieved an operating margin of 31.12% in the year 2009 mainly due to savings it achieved in supply chain, general overheads and indirect costs. The impact of higher leaf prices and input costs were offset due to these savings. It allowed the overall operating margin to increase from 30.7% to 31.4% in the year which was much greater than the industry and sector average of 22.01% and 10.10% respectively. BAT also, had much better margins when compared to Japan tobacco which could achieve operating margin of 4.76%.
Return on Equity: BAT has been a fundamentally sound company demonstrating consistency in giving return on equity to its shareholders. In the FY 2009, BAT’s Return on Equity was standing at 37.05% which was considerably higher than the industry and sector average of 11.57% and 8.01% respectively. While Japan Tobacco could manage to achieve little less than 10% Return on Equity, BAT has been since the past able to maintain consistent returns. In the past four years starting 2005 – 2008, BAT gave returns of 26.12%, 27.70%, 28.95% & 30.44% respectively. These numbers give confidence to investors and allow BAT to be looked upon as a good company to place one’s bet on.
Return on Capital Employed (ROCE): Corporate Profitability can be determined by assessing the trading profit that the company has achieved over the capital employed by it to achieve the same. BAT achieved an ROCE of 20.82% in the FY 2009 which is slightly better than the Industry average and sector average. BAT fared approximately twice as better when compared to Japan Tobacco.
Asset Utilisation:
Asset Turnover: BAT was able to main asset utilisation which was on par with the industry average. The industry average for the FY 2009 was 0.58, while BAT registered an asset utlisation ratio of 0.73. The company is expected to register even better numbers in the near future as FY 2009 saw some acquisitions which resulted in BAT’s performance on par with the market in terms of making its asset sweat. Closure of the Soeborg factory in Denmark, Downsizing of manufacturing plant in Australia and impairment charges for certain software assets resulted in these assets having minimum and limited future economic benefit. But with consolidation resulting in greater savings and better utlisation of the assets of the companies acquired in the emerging markets, the asset turnover ratio is expected to fare better in the next financial year.
Interest Cover:
BAT’s interest cover remains steady at 8.6x in the FY 2009 compared to 8.5x which was reported in the FY 2008. It was offset as a result of the financial arrangements carried out for the acquisitions. Pre-Tax impact on adjusting item distorts the interest cover.
Risk Tolerance
By analysing the financial statements, BAT’s policy seems to be moderate as it focuses on maintaining EBIDTA coverage of gross interest payments between 5x and 9x at the same time maintaining cash balance exceeding USD 1 billion and five year maturity on its debt profile. BAT needs to strike a fine balance between acquisitions and share buy backs to avoid over stretching its debt capacity over a short time frame due its commitments to a 65% annual dividend payout ratio. In the year 2008, BAT reduced its annual buy back commitment from USD 750 Million to USD 400 Million to accommodate acquisitions. BAT also suspended its buy back program in 2009 until further notice.
Cash Flow Adequacy
Growing profitability would benefit the companies’ debt protection metrics to a greater extent. Strong conversion of profits into cash supports BAT’s financial metrics. The groups’ future working capital requirements will remain stable in proportion to its annual sales unless there are any significant large scale acquisitions. BAT’s capital expenditure of its net operating cash flows is very low when compared with the averages in food, beverage & tobacco industries. In the year 2009, BAT’s capital expenditure accounted for 15%-20% of net operating cash flows. BAT’s future capital expenditure is most likely to grow giving the compounded annual growth rate of the company along with the industry.
Key Performance Indicators
The key performance indicators for BAT has been its consistent ability to maintain growth in its core competency. Revenue for the FY 2009 grew by 17% which is 3 – 4 per annum greater than the target growing revenue for the medium and long term. This was possible due to acquisitions it made and favourable exchange rate movements.
One of the key strengths of the company in terms of its performance is its diversified global drive brands which constitute majority of the sales for the company. Though growth of 16% was achieved in the FY 2008 in this segment, FY 2009 volumes grew by 4% which is coherent with the company’s strategy to achieved single digit growth over the long run.
The adjust profit from operations achieved by the firm was well above the company target to achieve 6% profit from operations. BAT registered a growth of 20%.
The net cash from operating activities in the FY 2009 was up by £26 million to £ 2630 million. Free cash flow per share increased by 2%, the ratio of free cash flow to adjusted diluted earnings was 86%.
Adjusted Earnings Per Share (EPS) had grown at an average of 11% over the last ten years. This exceeds the company’s target of growing at a single digit figure per annum on an average. Adjusted diluted EPS grew by 19% in the year 2009.
S.W.O.T. Analysis
Strengths:
Diversified Global Brand Drive (GBD) portfolio
One of the keys strength’s of the group is its diversified portfolio of cigarette brands. In the FY 2009, overall volume of the GBD grew by 4%.
Emerging Economies
Currently, 74% of BAT’s revenues come from the emerging economies.
Enhanced Internal Operations
BAT saved GBP 239 Million in the FY 2009 by improving its supply chain, overheads and indirect costs.
Weaknesses:
Legal Issues
Recoupment actions and Class actions are filed against the company and its subsidiaries which in turn impacts not only the brand image but also its cost structure.
Poor Asset Utlization
The company’s Return on Assets (ROA) and Return on Equity (ROE) has been poor when compared to its competitors. Philip Morris International and Altria Group recorded an ROA of 29.7% and 20% respectively with BAT recorded an ROA of 15.1% only. Similarly, ROE for BAT was lower than Philip Morris International which recorded 99.2% while BAT could achieve 40.6% only.
Opportunities
Acquisitions
BAT completed an acquisition of a Turkish state owned tobacco company in the year 2008 which elevated its market share from 7% to 36%. In the same year, BAT Bought Skandinavisk Tobakskompagni (ST) which allowed it to increase annual sales of approximately 30,000 million cigarettes.
Recently BAT acquired PT Bentoel Internasional Investama, Indonesia’s fourth largest cigarette maker which had sales of around 250 million cigarettes a year.
These acquisitions would increase the global presence of BAT across the globe and in turn enhance its topline and profitability.
Growth of Tobacco Industry
The tobacco industry is forecasted to witness growth. It is estimated that there would be 1.3 billion smokers in the world by 2020 up from 1.3 billion currently. According to the Datamonitor estimates, the global tobacco market generated total revenues of $429.3 billion in 2009, representing a compound annual growth rate (CAGR) of 3.1% for the period spanning 2005-2009. Cigarette sales generated total revenues of $394.2 billion in the FY 2009, equivalent to 91.8% of the market’s overall value. The global tobacco market is forecasted to have a value of $490.2 billion, an increase of 14.2% since 2009. BAT is the second-largest global cigarette player. It tends to benefit from this positive outlook.
Threats
Illicit Trade
Illicit trade is estimated up to 660 million cigarettes a year which represents 12% of world cigarette consumption. This results in losses upto GBP 4 Billion to GBP 7 billion a year. Increase in illicit trade would reduce revenues of the company.
Advertising restrictions
Brand Building, advertising and promotion are facing hindrances globally. The absence of marketing would effect introduction and promotion of new products in the markets. It could have a negative impact on BAT’s sales.
Consumer focus and awareness on health issues
Increasing health consciousness and introduction of substitutes to cigarettes into the market has led to decline of sales for the company. Pharma products and nicotine – replacement patches along with chewing gums are the new source of harmless alternatives.
What makes British American Tobacco work?
The year 2009 was a challenging year for the Fast Moving Consumer Goods (FMCG) segment. Total market volumes declined by 2% for the BAT products. The overall performance for BAT was firm . It continued to invest in its marketing initiatives which resulted in it maintaining its market share in key markets. The Global Drive brands (GDB) grew by combined 4% in terms of volume. These accounted for 27% of the global volume sales for BAT. The overall brand mix for BAT is balanced between premium, mid-price & low-price.
Managing business to business relationships makes up for a large part of BAT’s trade marketing activities. BAT co-ordinate its business with its trading partners to ensure that it is able to meet the demands of the customer at the right place and at the right time. This has worked out well for the company as it helps it maintain the market share in a highly competitive tobacco industry.
Understanding customer and their needs is of the core non financial activities of BAT. BAT regularly surveys their customer base internationally against its peers in the FMCG industry and particularly against its competitiors in the tobacco industry. Their efforts made them be recognised as the leading business in the tobacco category for customer relationship management by Dow Jones sustainability index for the third successive year in 2009.
Apart from its own marketing initiatives, BAT makes efforts to develop marketing programmes jointly with its retail partners, who engage with consumers in market channels like Global Travel Retail and Global Convenience Retail.
For BAT, the Direct Store Sales in the most preferred way of selling cigarettes to customers. It fecilitates greater access to consumer information and market. It has also helped them with a direct commericla link to their most strategic retail accounts. In the FY 2009, total sales volumes distributed through DSS reached 50%.
Integrated Global Enterprise
Apart from the key revenue generators for the company, BAT has been able to achieve growth by savings. BAT was successful in turning a multinational business operations in over 180 markets into an integrated global enterprise which take better advantage of its scale. It led to savings in supply chain, overheads and indirect costs amounting to £239 million. The company has a target achieve £800 million savings by 2012.
 

Company Financial Ratio Analysis Report Finance Essay

The aim of this report is to analyse the financial ratios of the Super Cheap Auto Group Ltd and ARB Corporation Ltd from 2008-2009. This would help to give a better understanding of both company’s financial health and performance. This report has analysed the financial ratios of both companies and discovered that both companies are profitable. ARB Corporation is more efficient than Super Cheap Auto Group. All its efficiency ratios suggest that the company is efficient in its operations. The weakest results came from its inventory turnover which remained constant over the two years period. Super Cheap Auto Group needs to improve on its inventory and debtors turnover so as to achieve optimum efficiency. Stability ratios suggest that ARB Corporation is more stable than Super Cheap Auto Group. The report as gives recommendations that can help both companies to perform better.

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Introduction:
The performance and interpretation of financial ratios are one of the most frequently used ways to analyse a company’s financial performance. This report would examine the financial data provided in the financial reports of two companies, namely; Super Cheap Auto Group Ltd and ARB Corporation Ltd. The report would analyse some of the data reported by both companies in their financial statements. At the end of this report, readers would be able to tell a number of things about the above companies. For example, it would be possible to tell if whether the companies are operating in excess debt or inventory and what corrective actions can be put in place so as to keep the business moving in the right direction. These financial ratios would help to throw more light on some salient business issues such as whether the customers are paying their debts on time, or if the company’s operating expenses are too much to make it generate maximum profits. Ratio calculations can also help to make financial analysts to better understand whether the company is making the best use of its assets. It is possible for a business to either over or under utilise its assets in its quest to maximise profits. Ratio analysis can guide a company to know whether it is making good use of its assets and when it is not the case; the outcome of the calculations can guide the financial analyst to recommend management to take the appropriate corrective measure. In order to ensure that the best decision is made, businesses compare their ratios to the general industry ratios compiled by the industry in which they operate. A business can compare its individual ratios to the average ratios compiled for industry to understand whether it is moving in the right or wrong direction.
Profitability Ratios:
Profitability ratios are used to measure the ability of a business to yield returns on the capital invested into the venture. The fact that a company is making profit is not sufficient to classify it as a successful business (Epstein & Jermakowicz, 2007). This is because some businesses make less profit than they would have made if the factors of production were combined differently. Profitability ratios are not just there to tell whether a business is making profit or not (Wild, 2007). In addition to the above; profitability ratios tell if a business is as profitable as it ought to be. A rise in profitability ratios is a possible sign for any business (Wild, 2007). The profitability ratios of both Super Cheap Auto Group Ltd and ARB Corporation Ltd are all positive. They ratios suggest that the companies are making profits and are worth the investment of investors. The table (Appendix A) depicts the performance of the various profitability ratios. Positive implies that the profitability ratios were good. Both businesses had positive outcomes on all the ratios performed. Below is an explanation about the various ratios and how to calculate them.
Gross Profit Margin:
The gross profit margin can enable the management of a business to assess the ability of the business to yield returns on investment at the gross profits level. This ratio covers three issues which include pricing, production and inventory. This ratio can be calculated by using the formula below (Epstein & Jermakowicz, 2007):-
Gross Profit
Total Sales
Net Profit Margin:
The net profit margin can quickly enable a business to know how much net profit it generates from each dollar received in sales revenue. It is an indicator that management can use to assess whether it has well managed its operating expenses so as to ensure that the business generates the best possible returns on investment. This ratio also indicates whether the organisation is making the right volume of sales that can enable it to meet up with fixed costs while making some reasonable profits. Net profit margin can be calculated by using the formula listed below:-
Net Profit
Total Sales
Return on Assets:
This ratio can be used by management to measure the level of efficiency with which the company makes use of its assets to make profits. This ratio is used to measure a company’s level of efficiency in the use of its assets.
Net Profit Before Taxes
Total Assets
Efficiency Ratios:
Efficiency has to do with the evaluation of the various ways in which companies manage their assets. Financial analysts are always interested in evaluating the value of a company’s assets as well as the how the company manages these assets. There are many ratios that can be used by financial analysts to evaluate the level of efficiency within a business (Wild, 2007). The efficiency ratios analysed in the table titled Appendix A depicts that both companies are efficiently run even though there is need for some minor improvements that can only go to improve on the level of efficiency (Williams, 2008). ARB needs to improve on inventory turnover as it had a flat trend from 2008-2009. Creditors’ turnover was also negative as creditors seemed to mount more pressure to get loans repaid faster over the same period. Super Cheap Cars had even worse efficiency performance. The ratios performed suggest that the company had negative trends on both inventory turnover and debtors’ turnover. This means the company has to improve on both areas in order to attain optimum efficiency. Debts need to be collected faster to ensure liquidity (Williams, 2008).
Accounts Receivable Turnover:
This ratio is interested in analysing how many times accounts receivable are paid within a specified accounting period. When turnover is high, the business collects cash faster and this makes the business to have a higher level of cash in hand (Williams, 2008). The formula used to calculate this ratio is:
Total Net Sales
Accounts Receivable
Accounts Receivable Collection Period:
This refers to how much time it takes a business to collect its accounts receivable from its clients. The shorter the period the better for the business just like with turnover discussed above. And when a company has a shorter collection period; the more likely it is that it would have more money in hand. The formula used to calculate this ratio is below:
365 Days
Accounts Receivable Turnover
Accounts Payable Turnover:
This ratio depicts the number of times that a business repays its creditors within an accounting period. When the number is high, it implies that the business might have decided to pay its creditor on a later date or it could simply have problems in paying back its creditors (Weston, 1990).
Cost of Goods Sold
Accounts Payable
Days Payable:
This ratio depict the number of days it takes the business to pay accounts payable. When the business takes longer to pay; it might lose more money as it might not benefit from a number of discounts associated with the prompt payment of loans. This ratio can be calculated with the use of the formula below (Epstein & Jermakowicz, 2007):-
365 days
Accounts Payable Turnover
Inventory Turnover:
This ratio enables financial analysts and businesses to evaluate the number of times that their inventory is sold within a specific accounting period. Faster turnover is a positive sign which allows a business to increase its cash flow and cash in hand. It is a positive trend that businesses value (Weston, 1990). The ratio is achieved as depicted below:-
Cost of Goods Sold
Inventory
Days Inventory:
This ratio is used to analyse the average duration that each inventory lasts on the average. When it takes fewer days to sell the inventory, it means there is more cash flow and subsequently cash in hand. The goal of most businesses is to use fewer days to sell its inventory. Fewer days means more sales and profits. Days inventory formula ratio can be achieved using the formula below:-
365 Days
Inventory Turnover
Sales to Total Assets:
The aim of this ratio is to demonstrate the level of efficiency with which the company generates sales on its assets. It measures the ability of the company’s assets to generate sales (Weston, 1990). This ratio can be achieved using the formula listed below.
Total Sales
Total Assets
Debt Coverage Ratio:
This ratio is used to analyse the ability of a business to meet up with its debt obligations and the capacity to manage more debt. Debt management is an important part of business as business always involves lending and borrowing.
Net Profit + Any Non-Cash Expenses
Principal on Debt
Stability Ratios
The stability ratios for ARB are good. The company is enjoying good stability as depicted by all the ratios performed. All the ratios resulted in positive outcomes. The same was true for Super Cheap Cars except for the fact that it had negative outcome in its times interest rate ratios. This implies that the company needs to revise its strategy for managing debts. This would help to reduce business risks for the company.
Gearing:
Gearing is used to evaluate the proportion of assets that have been acquired through loans. The more a business depends on loans the higher are its survival risks. This is because the repayment of loans and interest rates are compulsory (Bodie et al, 2004). They are not like dividends that may not be paid when the business performs poorly. However, gearing can be very helpful to some businesses that have strong and predictable cash flow. Gearing can be calculated using the formula below:-
Borrowing
Net Assets
Interest cover:
This ratio is used to measure the ability of a business to meet up with payment of interest rates that are associated with its loans. The question here is whether the profits made from the business are sufficient enough to pay for the interest and other financial expenses associated with loans. The ratio can be achieved by using the formula below:-
Operating profit before interest
Interest
Earnings per share (ESP):
This is a very important ratio that can be used to determine how stable a business is. It is used to measure the profit generated per share over a specified period. Many investors always make their investment decision by looking at the returns per share in order to know whether the business is worth investing into. When a business has high share profits, investors tend to believe that the business has stabilised. As such, they believe investing into such a business would include fewer risks. This ratio can be achieved as described below:-
Ordinary share earnings
Weighted average ordinary shares
Price Earning Ratio:
This ratio is used to gauge the way the market values a particular business. This is used by comparing the market price per share to the earnings per share in a particular business. The level of earnings can tell whether the market highly values that particular business when it has a relatively higher return when compared to shares in similar businesses (Groppelli & Ehsan, 2000). In order to get this ratio, the formula below needs to be applied.
Market price per share
Earnings per share
Dividend Yield:
This is also described as the ratio of pay out. It can help to tell whether a business can maintain the payment of a dividend. It also gives an idea of the level of earnings that the business retains for itself. This proportion is profit that is ploughed back and not distributed as dividends.
Latest dividend per ordinary share X 100
Current market price per share
Limitations and Conclusions:
Although financial ratios have been touted for their ability to enable management to assess the financial performance to analysts and management, these ratio also have limitations as they can some times send wrong signals about the financial health and performance of a business (Helfert, 2001). Financial ratios best explain what have happened in the past and can help management and financial analysts to understand business trends. Even though some trends can help to give an idea of what the future of business might look like, these ratios cannot provide forecasts for businesses (Bodie et al, 2004).
Ratio analysis is mostly based on accounting data. And this data is mostly drawn from the company’s financial statements. The right forecast needs to come from the economy instead. This is a major weak point when it comes using financial ratios to make business decision and analysis. This is especially true when it comes to predicted future trends in business (Groppelli & Ehsan, 2000). These ratios mostly take account of figures drawn from the balance sheet. The balance sheet is drafted during specific periods within the financial year and does not take into consideration some important issues. As such, these figure do not truly reflect the off balance sheet data (Watanabe, 2007). These ratios may also differ from one business to the other based on the accounting policy that the business uses. This makes it possible to have different ratios and interpretation from the same firm based on what accounting principles it uses (Weygandt, 1996).
APPENDIX A: OUTCOME OF RATIOS PERFORMED
Profitability Ratios
ARB Corporation
Super Cheap Auto
Gross profit margin
Positive
Positive
Net profit margin
Positive
Positive
Return on equity
Positive
Positive
Return on Assets
Positive
Positive
Efficiency Ratios
Asset turnover
Positive
Positive
Inventory turnover
Flat
Negative
Debtors turnover
Positive
Negative
Creditors turnover
Negative
Positive
Current ratio
Positive
Positive
Quick ratio
Positive
Positive
Stability Ratios Outcome
Debt asset ratio (interest bearing debt)
Positive
Positive
Debt asset ratio (total debt)
Positive
Positive
Debt equity ratio (total debt)
Positive
Positive
Times interest ratios (times)
Positive
Negative
 

Analysis Of The Financial Statements Of Coca Cola Finance Essay

The firm and the outside providers of the capital that is the investors and the creditors will all take the financial statements into considerations .The Investor in the companys will be interested in the present and future expected earning of the company . As a result the investoes will be interested in the profitability of the company usually this will be their focus of their analysis. They are also concerned with the firm ability of the firm to pay dividends
Internal management will also employ financial analysis for the following reasons:
Better purpose of internal control
Management need to undertake financial analysis in order to plan and control effectively
The financial manager is particularly concerned with the return on investment provided by various assets of the company.
Financial statements
Financial analysis is the art of transforming data from financial statement into information that is useful for decision making.
Balance sheet: A summary of a firm financial position on a given data that shows total assets =total liabilities + owner’s equity
INCOME STATEMENT:- A summary of a firms revenues and expenses over a specified period ending net income or loss for a period.
Cash flow statements:- Is a financial Statements that shows how changes in the balance sheet accounts and income affects cash and cash equivalents and break the analysis down to operating investing and finance activities.
FINANCIAL ANALYSIS
FINANCIAL STATEMENTS
Balance sheet
Cash Flow Statement
INCOME STATEMENT
COCA COLA – BACKGROUND INFORMATION
The coca cola company is the world’s largest produces of non alcoholic beverages concentrates and syrups.This company is based in atalnta, gerogia which makes concentrated form of beverages and sells them to the retailers. The company has its operation in more that 200 countries and sells nearly up to 100 different brands .Coca cola is now one of the world’s largest co-operation with a global workforcw of 90000. Over the years the brand equity of Coca cola trade mark,the produces brands ,has established the company a prominent figure in the non alcoholic industry and allowed comapnay to maintain high revenue and profits .
The Coca-Cola Company’s major offerings include such as coca -cola, sprite ,Fanta ,coke zero etc.
EVALUATION
Liquidity (Appendix A)
Current Ratio: The current ration from the years 2007 to 2009(Appendix A) has been increasing but when compared to the standard ration 2:1 these ratios are much lower which shows short term liquidity effencicy and inefficient use of resources.Some corrective measures should be taken by the management to maintain the resources.
Acid test ratio:This show the ability of the firm to pay its current obligation more quickly without considering the inventory and per-paid expenses . From the ratios (Appendix A) the firm has no trouble in meeting its current obligation ;there is an incline in the ratio and the company has the ability to meet the current obligation.
working capital: The working capital of the company (Appendix A) when seen from 2007 to 2008 the net working capital was negative and the situation was alarming.The ablity of the firm to meet its current expenses for day to day operation shows a constraint. But in 009 the working capital shows a positive impact.
Receivables Turnover:In Coca cola the number of times receivables are converted into cash has showed continuous varation from 2007 to 2009. In 2007 the accounts receivables turnover showed incline but again in 2008 due to the financial crisis it has showed a decline. So improvement has been made in 2009 in collection of accounts receivables. So overall situation is quite satisfactory.
AVERAGE COLLECTION PERIOD: In coca cola the number of days requires to collect receivables have increased over the time; it shows the ineffective management of the credit department. So this ratio shows the negetive trend as efficiency has not improved
Days sales in inventory: In coca cola the number of days requires to collect receivables have increased over the time; it shows the ineffective management of the credit department. So this ratio shows the negetive trend as efficiency has not improved.
Inventory turnover: In coca cola cash were increased in 2007 and 2009. This was indication of negative trend. However improvement has been made in 2008.
Leverage (Appendix A)
Leverage ratios measure the degree of protection of suppliers of long term funds. The
level of leverage depends on a lot of factors such as availability of collateral, strength of
operating cash flow and tax treatments. Thus, investors should be careful about
comparing financial leverage between companies from different industries.
In Coco cola The amount of funds provided by creditors in relation to total assets has been the same from 2007 to 2009. Debt- to – total -asset ratio it is obvious that amount of funds provided by creditors to purchase total assets are continuously remaining the same. As in last 3 years the more than 25% of the total assts are being financed by creditors, so the current situation is quite alarming. Operating cash flow that show a great percentage increase which the suppliers and the investors should see .
Profitability(Appendix A)
It is this ratio analysis which would give an insight into the prfotability of the firm , as it would help the investors analysi the combined effect of the liquidity of the firm , its dividend yield Earning pershare , revenue growth and the are all important for the survival of the firm. This would tell how the company has been utilizing its resources in generating profits and shareholders value.
GROSS PROFIT MARGIN: In coca cola the gross profit margin of the organization has showed a continuous increased from 2007 to 2009. But the above time serious analysis clearly implicit, that the ability of the organization to generate profit is improving. The management has taken reasonable as well as tremendous efforts to improve profitability.
Net Profit Margin: In coca cola although there was slight decline in 2007 from 2008 due to the financial crisis net profit margin , but in 2009 serious analysis clearly implicit, that the ability of the organization to generate profit is improving. This showed that the management is managing it selling and admin expenses efficiently and effectively with increasing sales profit to add more to net profits. Profit generation capability is showing positive trend over the years.
Operating Income margin: In coca cola operating profit was increased in 2009 from 2008 . It was decreased in 2008 as compared to previous year. However in 2009 a considerable increased has occurred. Operating profit has increased considerably. So the overall situation is quite satisfactory.
Return on Equity: The Return on Equity was maximum in 2008 but decreased in 2009 and went down more in 2007 . This again may have happened due to the issue of more long-term debt recession.
Return on investment: The overall trend is positive over the timeperiod. The return on investment has increased considerably from 2007 to 2009, which indicates that funds are being utilized effectively to generate revenue.
INVESTOR ANALYSIS(Appendix A)
DEGREE OF FINANCIAL LEVERAGE: The degree of financial leverage is fluctuating over the time period. It was improved in year 2009 and 2007 but, in 2008 once again it indicate a negative trend. The loan is not being utilized efficiently to made more earnings available toshareholders. So the above trend needs corrective action.
Earning Per Share: Earning per share has been increased continuously. It is obvious, that earning capacity of the organization is improving continuously with the time. Earning made on each share of the stockholders equity is increasing. This showed that the shareholders fund is being used efficiently and effectively to maximize the shareholders wealth.
Price / Earning Ratio: Price/earning ratio has been decreasing continuously over the three years. It has decreased considerably in 2008. It reflects a very bad indication on the price of the share. It is quite alarming for the marker price of the stock. Corrective action should be taken immediately.
Dividend Yield: Dividend yield which shows dividend per share in relation to market price per share. It was decreasing from 2008 to 2009. Dividend yield showed improvement in 2008 as compared to previous 3 years. So the above analysis shows that some improvement has been made.
Book Value per Share: It relates the stockholder’s equity to the number of shares outstanding, giving the shares a raw value. Comparing the market value to the book value can indicate whether or not the stock in overvalued or undervalued.
CRITICAL ANALYSIS: (Appendix A)
The fizz is back in Coca-Cola’s stock.
As we can see in the envaluation the company is generating a huge amount of cash flow of 44.70 billion and about $2.93 per share.It has made a net prfit margin of 20.55% in 2009 and a return on equity of about 26.92% . Any one would tell that this is a fabulous company.
The company last year saw profit and sales rise following a strong performance in the developing markets.
Coca-Cola remains financially awesome and its drinks will be sold even if the economy cools off.
The company has moved into the an emerging consumer market such as China , as now China is taking is firt sip of Coca cola.If the history is any guide, the people of that country will get hookied to Coca cola nad will become their loyal customers.
Coca cola has a strong Earning per share and this would continue growing for the next 2 to 5 years. The stock would hit $62 within this year.
Coca-Cola shares were trading at a price-earnings ratio of 19.45
Coca-Cola’s stock has gained about 20% more than the Standard & Poor’s 500 Index ($INX) over the past five years
Earnings growth in the past year has moved up moderately compared to earnings growth in the past years. Positive. Coca-Cola’s stock actually looks like a good investment now that it is starting to benefit from a renewed focus on aggressively retooling its product mix.
The coca cola stock where fluctuating from $45-69, the price of Coca cola stock now is $53.61which is actually down.
The company is now willing to take risks on new brands to capture the strength of hip soft-drink trends such as energy drinks and flavored waters.
From now on I can see that Coca-Cola is gaining market share through out the globe. It’s safe for investors to assume that the growth in the most recent years is not a fake, but the beginning of a trend the shares will grow steadily higher.
As of now I guess that the company has a drop in business in Europe and latin America Developing markets such as China, Africa and India posted double-digit growth in unit volume – led in part by carbonated beverages such as Coke and Sprite.
The analysi of coca cola would not be complete without taking intpo the consideration the brand recogination because it is one of the billion companies in the world that people recognize. Its hard to tell the worth of coke brand but you can be sure that it’s an essential ingredient contributing to the company’s ongoing success
SELECTED COMPITETOR — PepsiCo
Pepsico is the compitetos for coca cola in the non alcoholic beverge industry. It has 31% of the total maket shar as when comapered to coke which has 42.8%.
U.S. non-alcoholic beverage market share, by volume
PEP has many brands some very well known Mountain Dew Aquafina Tropicana and Lipton Both the companies are working hard to grab a larger share in the market and for the title of the best soda producer in the world ,both the companies have a similar taste in the investment portfolio.both the companies share equal powerful brand names and global franchises , but when it comes to profit, revenue EPS dididend yield and othe terms realeted to investment in their stock both different in different ways.
But during the period of recession both the companies had problems making the stock prices and the revenue incomes , the management of pepsico was far better as we get to see in the critical analysi of the assignment , Pepsico has a larger revenue , due to diversifation of its product lines.
Liquidity
In the receivables area ,PepsiCo is ahead of coca cola. Coca-cola is better off with the day’s sales in receivables, but substantially behind either per year and account receivable turnover, days.
In the inventory area, Coco cola appears to be ahead of PepsiCo. They do have some what different Inventory methods, which could account for the difference.
Coca-Cola has a slightly higher operating cycle ,Which favors PepsiCo
Working capital cannot be compared .PepsiCo is materially better that Coca cola
PepsiCo current ratio is materially higher than Coca cola’s. This is necessarily bood because the Coca-cola current ratio is very good and PepsiCo possibly has to many inventory.
Coca cola and PepsiCo acid test ratio are both quite the same, which is good.
Coca-Cola cash on hand is much better than PepsiCo.
Leverages:
PepsiCo did better in debt ratio ,debt/equity ratio, and tangible net worth ,Cocacola has good ration in these areas.
Coca cola has a materially better operating cash flow/total debt .PepsiCo debt indicator appears to be materially better than Coca cola. The Coca-Cola indicators are good.
Profitability
Coca-Cola has a number of profitability indicators that are materially better than PepsiCo. Included here are net profit margin, return on investment, return on equity.
PepsiCo has a number of profitability indicators that are better than coca cola.In general, PepsiCo ‘s profitability appears to be materially better than coca cola.
Investors Analysis
Neither company has a high degree of financial leverage ,but Coca-Cola is lower.
price/earning ratio is slightly higher for coca cola .
Take a note liquidity is better for PepsiCo ,long tern debt paying ability was materially better for PepsiCo and the profitability was materially better for PepsiCo .
The Investors Analysis appears to be better for PepsiCo that that of Coca-Cola .Considering the liquidity , long-term debt paying ability and the profitability we would expect PepsiCo price/earning ratio to be higher than Coca-Cola .
Getting technical (Appendix B)
The stock to see them how they have been performed I took a look at the chart of 4 years price of the stock , in the chart for the coca cola share we see that Coke has done remarkably very well in 2007 but in December 2008 we see that the stock proce has come dwn . even because of this , the stock boasts a total return, including dividends, of about 23% for the past year. But PepsiCo has held its ground better
In terms of fundamentals, Pepsi seems to have the slight advantage. While Coca-Cola does have the higher figures, Pepsi has the better margins in terms of operating margins, revenue, and profit which is more important for growing companies.
During the 2009 pepsi had a better EPS in their statements. The past year Coca-Cola has only remain in a five dollar range, showing little fluctuation patterns for speculators or investors. While this seems to be bad in coca cola ,the value seems to have increased to its maximum, but we can also see a drop in the prices of shre of Coca cola when compared to 2007 and 2009.While pepsico has seen continued growth throughout its tenure in a nice steady growth pattern. The company is in its prime of its careerand this should be able to carry the stock to high numbers for at least a decade.By investing now in pepsi, the investos have an opportunity to see pepsi rise to near 80-100 points by 2010.and possibility of more by 2015. Such as a process is also favorable with its dividend payoff which allows for reinvestments to increase gains.
Likewise, I give PepsiCo an edge on the product side. Both companies have done very well navigating a beverage market that is always evolving. PepsiCo owns the Gatorade brand, which is popular with the athletic set; Coca-Cola purchased the trendy Vitamin Water line in 2007.
Depending on the market situation in tha klast two years coke stock trades at 10.8 times the analyst earning while pepsico 11.3 times , which indicates that pepsico is doing better.
My expectation is that coke profits would grow to 9 percent over the next five years ,but pepsico would grow at 11 percent ,which is behind the forcast. To me, that’s an edge for PepsiCo, because the company has more room for overseas growth.
This sort of competition keeps both companies innovative, aggressive and eager to please consumers and shareholders.
Pepsi has the edge over Coke in price performance, with a total return, including dividends,
Looking at longer-term patterns, PepsiCo has a decided edge. Over 10 years, PepsiCo has an even bigger advantage.
EVALUATION OF FINANCIAL MARKETS
2008 financial crisis: Coca-Cola
Coca cola is selling its products all over the world and it would be a safe investment for the people if they are buying the shares people as I realize that due to the economice crisis investors think twice before they actually buy the stock , the prices of the shaers are increasing and this indicates that the growth will be more as the days pass by.
2009 results. Despite the economic downturn, the company increased its sales by 2 percent in the United States and by 3 percent worldwide.
In India, Coca-Cola’s business grew by 31 percent between January and March 2009. In 2008, sales revenue increased by 7 percent in Brazil
In the 2008 due to this crisi profit fell 3 percent to $5.81 billion, or $2.49 per share, from $5.98 billion, or $2.57 per share, in 2007.
Commodity Cost Fluctuations Affect Margins:. The varaiation in the prices of the raw materials would directly and indirectly affect the production coas which in turn would affect the profitability of Coca cola. Here Coca cola itself would be directly purchasing the raw materials which are used to make the concertes nad syrups.varation in the prices of these would affect the cost of production of as wellas the profit margins

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Here also the change in the production cost os the bottler’s can also impact the coca cola profitability in and indirect way though. If the raw material becomes more that is necessary for bottling then ,the bottler’s would be forced to increase the prices to compensate. Such a nature would hurt the profitabitity of the company , in such an competitive nature of the non alcoholic beverage company.and would be possible incentive for the consumer’s to switch over to other companie’s beverages. The prices of these commodities rose in 2007 and dramatically pressured margins. significant rise in Commodities represents a constant threat to profits.
Dollar Affects International Performance : The another factor for the decrease in the profit and revenue was the affect in the dollar performance. Although the company was based in north America more that 76% of its revenues was derived from outside north America.Because of this the company is very sensitive to the strength in Dollar price.As the prices of the other currencies weaken relative to dollar , goods that are sold outside the US are worth back in the US, lowering earmning. Thus, if the dollar strengthens (as it did in the second half of 2008 and 2009), it has a negative effect on Coca cola earnings. Coca-Cola expect currency fluctuations to adversely operating income by 10-12% .
The Global Economic Recession Threatens Overall Demand http://cdn.wikinvest.com/i/px.gif: In the 2008 -2009 the global economic recession , the credit crunch had a major impact on the sales and revenues of the COCA COLA company as because the consumers where not able to afford the price of coca cola during that period , the company had also increased the prices of their product because of the increase in the price of their commodity.
Conclusion and recommendations
 

Financial Statement Analysis of Hilton Worldwide Holdings

Company Overview
HiltonWorldwide Holdings Inc.is one of the largest and fastest growing hospitality companies in the world. The company is correctly positioned in the industry. We expect Hilton to grow at about 6.92% the same rate as its competitor and to maintain the median returns it currently generates. Hilton has relatively high profit margins while operating with median asset turns. Hilton’s year-to-year change in revenues and earnings are better than that of its competitor. Hilton’s revenue growth in recent years and current P/E ratio are both around their respective peer medians suggesting that historical performance and long-term growth expectations for the company are largely in sync.
Analytical Conclusion
Although the hospitality industry can get volatile Hilton Worldwide will continue to make strides as the company has a dedicated team coupled with an award winning portfolio and tailor made strategies for each hotel. Hence, the company will continue its operations for years to come. While Hilton has little control over external shocks, the company has the ability to adapt to its competitors, both old and new in all 104 countries and regions. Hilton worldwide is fairly valued. The company is currently valued at $19.07 billion with an anticipated value of $19.70-20B.
Summary Financials
Price (Sale):2.63(BV):3.21Float: 192.69M Debt to Equity: 184.85
52 Week Trading Range: 41.55 – 60.40Insider Holdings: N/A Current Ratio: 1.33 Cash: 1.42B Equity: 5.89 B P/E trailing: 54.77
Exchange: NYSEProfit Margin: 4.82% P/E forward: 27.65
Market Cap: 19.18BOperating Margin: 28.07%
Shares Outstanding: 329.73MROE: 6.17%
Selected Financials
FY 12/31 2018 2017 2016 2015 2014 2013 2012
Revenue 9.66B 8.88B 11. 66B 11. 27B 10.50B 9.74B 9.28B
Net Income 743M 571 M 348M 1.4B 673M 415M 352M
EPS (Basic) 2.06 1.74 1.06 4.26 2.04 1.35 1.14
EPS (Diluted) 2.06 1.74 1.05 4.26 2.04 1.35 1.14
P/E 28.22 33.25 21.59 30.65 34.40 33.82 35.98
Company Highlights

Net loss for the fourth quarter was $382 million, and net income for the full year was $364 million.
Diluted loss per share was $1.17 for the fourth quarter, largely driven by $513 million of non-cash corporate restructuring charges incurred prior to the spin-offs, and diluted EPS was $1.05 for the full year.
Added 354 hotels to its system in 2016, opening nearly one hotel per day in the year.
Completed spins-offs of Hilton Grand Vacations (HGV) and Park Hotels and Resorts (PK)
Hilton launched its newest brand the Tapestry Collection by Hilton.

Description
Hilton is one of the largest and fastest growing hospitality companies in the world, with a portfolio of 14 world class brands comprising over 4,900 properties with more than 800,000 rooms in 104 countries and regions. Hilton is committed to fulfilling its mission to be the world’s most hospitable company by delivering exceptional experiences at every hotel, to every guest, every time. Hilton was founded in 1919 by Conrad Hilton when he purchased his first hotel in Texas, Hilton’s is the most recognized hotel brand in the world. Hilton’s operate its business across three segments: ownership; management and franchise; and timeshare. Hilton’s strategy focuses on providing service and cost models tailored to each hotel, reflecting size, business complexity, and market environment. Hilton provide appropriate levels of engagement depending on each hotel’s needs, by ensuring hotel owners are fully engaged in decision-making. This consolidated approach means Hilton maximize cost and scale efficiencies, by sharing best practice, market and trend intelligence and ensuring appropriate affordability to each hotel. For example: Hilton refine its luxury brands to deliver products and service standards that are relevant to each region. Hilton’s operations are mainly concentrated in the United States, however, it has its presence in the international markets such as in Europe, the Middle East and Africa, and in the Asia Pacific region.
Operations
Hilton operates its business across three segments namely; ownership, management and franchise, and timeshare.
Ownership
Hilton is one of the largest hotel owners in the world based on the number of rooms at the company’s leased, owned and joint venture properties. Hilton’s diverse global portfolio of owned and leased properties includes a number of prominent hotels in major cities such as New York City, San Francisco, London, Chicago, São Paolo and Tokyo. Hilton’s portfolio includes renowned hotels with significant underlying real estate value, by the end of 2016, the ownership segment had 141 hotels with 57,716 rooms. In recent years Hilton has expanded its hotel system less through real estate investment and more by increasing the number of management and franchise agreements the company has with third-party hotel owners. Hilton focuses on maximizing profitability and cost efficiency of all its portfolios by, reducing fixed costs and implementing new labor management practices and systems. For instance, Hilton has developed and executed strategic plans for each of its hotels to enhance the market position of each property. At many of its hotels Hilton has renovated guest rooms and public spaces and added or enhanced meeting and retail space to improve profitability. At certain of its hotels, Hilton is evaluating options for the adaptive reuse of all or a portion of the property to residential, retail or timeshare uses.
Management and Franchise
Hilton’s management and franchise segment enables the company to manage timeshare properties and hotels and license its trademarks to franchisees. Hilton currently manages 4,734 hotels with 738,724 rooms. Therefore, this segment generates its revenue primarily from fees charged to homeowners’, hotel owners and associations at timeshare properties. Hilton grows its management and franchise business by attracting owners to become a part of its system and participate in its brands and commercial services to support their hotel. On Hilton’s part, these contracts require little or no capital investment to initiate and provide substantial return on investment for Hiltons. Hilton’s primary management services consist of operating hotels under management contracts for the benefit of third parties, who either own or lease the hotels. Hilton earns an incentive fee based on gross operating profits and a management fee based on a percentage of the hotel’s gross revenue.

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For a fee Hilton franchise its trade, brand names, operating systems and service marks to hotel owners. Hilton does not directly participate in the daily operation or management of franchised hotels but its conducts periodic inspections to ensure that brand standards are maintained. Hilton approves certain aspects of development and the location for new construction of franchised hotels, in some cases, Hilton also provides the franchise with product improvement plans that must be completed in accordance with brand standards to remain in Hilton’s hotel system.
Timeshare
Hilton’s timeshare segment generates revenue from three primary sources: Resort Operations, Timeshare Sales, and Financing. Hilton market and sell timeshare interests owned by Hilton and third parties. The company sells timeshare intervals on behalf of third-party developers using the Hilton Grand Vacations brand. Through resort operations Hilton manages the Hilton Grand Vacations (HGV) Club, receiving annual dues, enrollment fees, and transaction fees from members. Hiltons also provides consumer financing, which includes interest income generated from the origination of consumer loans to customers to finance their purchase of timeshare intervals and revenue from servicing the loans.
Strategy
Since Hilton Worldwide was founded, the company has been among the top hospitality companies in the industry. In fact, after almost 100 years it is considered one of the largest and fastest growing corporations with the goal to deliver outstanding customer experiences and excellent operating performance. Hilton’s business strategy is based on its service differentiation, the company distinguishes itself from its competitors by providing high quality service combining it with IT systems. According to Dudovki, (2016), Hilton has been focusing its strategy on digitalizing mobile services, booking channels, loyalty and data driven-personalization, and also improving guest experience and privacy.
Enhanced service offering is at the forefront of Hilton strategy. In order to allocate more of customers’ travel spending to Hilton hotels, and consequently to enhance customer loyalty for the entire system of hotels and timeshare properties, the team created Hilton Honors Loyalty Program. The program rewards guests with points for each stay at any of Hilton’s more than 4,900 hotels worldwide. Members can use the points earned for free hotel nights and other goods and services; moreover, it is possible to spend the points with 130 partners, among which car rental, rail, and airlines companies, credit card providers and others. The loyalty program contributed over $17 billion in terms of revenues as reported at the end of the year 2016.
Another strategy employed by Hilton is premium pricing. Hilton utilizes the premium pricing policies for its upscale services and hotels. The pricing strategy is established to emphasize, among customers, the sense of status and luxury rather than the sense of stay and dining. Through the analysis of previous performance and strategies they provide to manage future profitability. For instance, they engage with sales teams for hotels with significant group/corporate business, to ensure corporate pricing structure is maximized throughout the RFP process.
The management of Hilton believe every Hilton Worldwide property has its own unique strengths and challenges. As such they provide service and cost models tailored to each hotel, reflecting business complexity, size, and market environment. Hilton matches its service to the needs of the client’s hotel, Hilton management believes that one size fits all. This consolidated approach means that Hilton maximize cost and scale efficiencies, rapidly sharing best practice, market and trend intelligence and ensuring appropriate affordability to each hotel. Hilton have focused on optimizing hotels’ market share and delivering market-beating revenue per available room (RevPAR) results. Hilton’s team provides thorough analysis of previous performance and strategies to drive future profitability.
Management
Hilton Executive Committee is characterized by key personnel with diverse backgrounds who were able to bring the company to the prominence it now enjoys in the hospitality industry. Among those executive are Hilton’s President and Chief Executive Officer, Christopher J. Nassetta. Nassetta has been one of the most important figure in the Hilton family since 2007. With a degree in finance, Nassetta has always been close to the hospitality industry and real estate market. In fact, he worked as President and Chief Executive Officer at Host Hotels & Resorts, Inc. since 2000, and before he was Chief Development Officer for The Oliver Carr Company, one of the largest commercial real estate company in the Mid-Atlantic region. He is also involved in several non-profit organizations and volunteering.
Another central leader in this profitable company is its Executive Vice President & Chief Financial Officer, Kevin Jacobs. He began his experience at Hilton in 2008 covering various positions. He is now responsible of the company’s global finance, information technology and real estate functions. As his President, Jacobs has a background in the hospitality industry working for other Hotels and Resorts corporations.
Jim Holthouser joined Hilton board as Vice President of Global Brands in 1979. He directs the brand management and customer marketing across nine consumer brands for more than 4,000 hotels. With over 20 years of experience in the restaurant, lodging, and gaming industries, Holthouser has held a series of senior management positions within Hilton in the franchising, branding, and marketing arenas.
The above mentioned key personnel are veterans in their own right with experience in hospitality and related industries, Hilton’s executive team is well-positioned to accelerate its momentum. Hilton’s executives collectively make a holistic team because they are from diverse background and shares common interests and values as such they all able to contribute to the holistic growth and development of Hilton Worldwide.
Markets
The hospitality industry is seasonal. It is common for Hilton and the other competitors to expect lower revenues in the first quarter of each year. According to Statista the global hotel industry in 2016 was valued at $490.06 billion. Reports by Financial Morningstar.com indicate that Hilton Worldwide is ranked among the largest player in the global hotel industry, Hilton and Marriott have the highest market share. They are followed by Wyndham’s, Choice Hotel’s and International Hotels Group’s. The global hotel industry is fragmented. There is no single company in a position to influence or dominate the industry as no company holds more than 5% of the global market shares. Hilton is growing quickly, as it has the highest global market share by room supply of approximately 4.7%. Hilton’s operations are mainly concentrated in the United States, but it has started to increase its presence in the international market. Hilton has a higher market share of 9.3 % in the United States, it has a relatively small share of 3% in other regions in the Middle East and Africa, 1.6 % in Europe, and 1.2 % in the Asia Pacific region.
Hilton faces a strong competition as a hotel, resort, residential, and timeshare manager, franchisor, developer and owner. The hotel and lodging industry inspects several elements in terms of competition, such as the attractiveness of the facility, location, quality of accommodations, amenities, level of service, room rate, public and meeting spaces and other guest services, consistency of service, brand reputation and the ability to earn and redeem loyalty program points through a global system. Hilton principal competitors on a global scale are Marriott International, Accor S.A., Carlson Rezidor Group, Mövenpick Hotels and Resorts Hongkong and Shanghai Hotels, Hyatt Hotels Corporation, Intercontinental Hotel Group, and Wyndham Worldwide Corporation.
Financial Analysis and Projections
Financial History 2014-2015
Hilton Worldwide generates revenue from three business segments namely ownership, management and franchise and timeshare which accounts for the company’s strong financial results. For fiscal year ending 2015 total revenue increased from $10,505,000,000 in 2014 to 1$1,272,000,000 in 2015, showing a growth of 6%. This positive revenue is attributed to recovery in the economy. Likewise, cost of revenue also increased from $4,029,000,000 in 2014 to $4,065,000,000. These cost of revenue are consistent with the company’s portfolio expansion. However as a percentage revenues, cost of revenues decreased by 2% in 2015 which is a reflection of the company’s extensive cost reducing strategy, meanwhile the company’s gross profit margins increased by 2.27% in 2015.
The company’s selling and administrative, non-recurring, and other expenses as a percentage of revenues has shown slight increases over the past two years, which is consistent with expansions. However, the company was able to compress the cost of expenses so that these cost did not increase by more than the increase in revenues. On a per share basis, earnings showed a significant increase from $2.04 in 2014 to $4.26 in 2015, this represented an increase in performance. The company’s net profit increased by 5.59% to 1,404,000,000 up from 673,000, 000, as Hilton launched its 13th brand, Tru by Hilton. Hilton’s performance was as a result of the increase in revenues from owned and leased hotels in all segments and regions, with occupancy and rate increases in all regions except Middle East and Africa. Hilton’s economic growth continued to drive performance, as global RevPAR increased from 3 to 5 percent. Hilton achieved record expansion and financial results in 2015 and continues to lead the industry as the largest, best-performing and fastest-growing hospitality company.
Fiscal Year ended 2016
The fiscal year ended 2016 was a record-breaking year for Hilton as the company increased its system size by 6.6% with 52,000 gross rooms opened, nearly one hotel per day was opened a total 354 hotels and started construction on nearly 77,000 rooms. The first quarter of the fiscal year 2016, was the slowest quarter for Hilton as they reported revenues of $2,750,000, 000, a 5% decrease over the corresponding period for 2015. The second quarter was the strongest quarter of the entire year, with a 9.9% revenue growth over the previous quarter. Revenues saw a consistent decline over the two last quarters.
Net income for the first quarters of the 2016 was $ 309,000,000, a 48.5% increase over the corresponding period the previous year. However the company saw a significant reduction in net income over the three last quarters, and even posted a net loss in fourth quarter of 2016, the net loss was $382 million compared to net income of $816 million for the previous period in, 2015. During the fourth quarter of 2016, Hilton incurred a tax charge of $513 million related to a corporate restructuring executed before the spin-offs, resulting in a net loss for the period.
For the fourth quarter of 2016, diluted loss per share was $1.17 compared to diluted earnings per share of $2.47 for the fourth quarter of 2015. For the fiscal year 2016, diluted EPS was $1.05 compared to $4.26 for the previous year. Net income was $364 million for the full year 2016 compared to $1,416 million for the fiscal year 2015, a 74% reduction. The company’s performance for fiscal year 2016 reflect the effects of the spin-off of Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc. which was completed in January 2017.

Consolidated Income Statement and Projections

Common Size

Expected

Common Size

Expected

Common Size

Actual

Actual

Actual

All numbers in thousands

Revenue

12/31/2018

12/31/2017

12/31/2016

12/31/2015

12/31/2014

Total Revenue

100%

9,661,440

100%

8,880,000

100%

11,663,000

11,272,000

10,502,000

Cost of Revenue

35.00%

3,381,504

35%

3,108,000

34.71%

4,048,000

4,065,000

4,019,000

Gross Profit

65.00%

6,279,936

65.00%

5,772,000

65.29%

7,615,000

7,207,000

6,483,000

Operating Expenses

Selling General and Administrative

42.00%

4,057,805

40.00%

3,552,000

43.40%

5,062,000

4,741,000

4,182,000

Non-Recurring

0.09%

9,000

0.17%

15,000

0.13%

15,000

9,000

9,000

Others

5.88%

568,093

6.00%

532,800

5.88%

686,000

692,000

628,000

Total Operating Expenses

Operating Income or Loss

1,645,039

1,672,200

1,861,000

2,071,000

1,673,000

Income from Continuing Operations

Total Other Income/Expenses Net

4.50%

434,764.8

1.00%

88,800

0.15%

-18,000

283,000

73,000

Earnings Before Interest and Taxes

21.53%

2,079,803

19.83%

1,761,000

15.79%

1,842,000

2,071,000

1,765,000

Interest Expense

5.00%

483072

5.00%

444,000

5.03%

587,000

575,000

618,000

Income Before Tax

13.00%

1,255,987.2

11.83%

1,050,600

10.76%

1,255,000

1,496,000

1,147,000

Income Tax Expense

5.00%

483072

5.00%

444,000

7.64%

891,000

80,000

465,000

Minority Interest

0.40%

38645.76

0.40%

35,520

0.43%

50,000

34,000

38,000

Net Income From Continuing Ops

8.00%

772,915.2

6.00%

532,800

3.05%

356,000

1,427,000

692,000

Net Income

7.60%

734269.44

6.43%

571,080

2.98%

348,000

1,404,000

673,000

Net Income Applicable To Common Shares

734,269.44

571,080

348,000

1,404,000

673,000

EPS Diluted

2.09

1.74

1.06

1.35

1.14

Average Share

350,000

329,000

329,730

1,040,000

590,350

Projections for Next Two years
Current Fiscal year ending December 2017
As Hilton separate into three distinct, publicly traded company, in order to unlock growth opportunities and to take advantage of the capital market and tax efficiencies, there seems to be a dim outlook for the upcoming year. Experts project that revenues growth will decrease by 23.80% to 8.88 billion down from 11.66 billion in 2016. This expected decline in growth is not expected to translate in a reduction in overall EPS, as EPS, are expected to increase from $1.06 to $1.74. In fiscal 2017 the company plans to roll out its new simplified business model: A market leading fee-based business as over 90% of Hilton’s revenue comes from franchise fee and management fee. This new business model is expected to generate significant revenues as the company continues to lead the industry in net unit growth without significant use of capital.

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Hilton intends to aggressively invest to drive revenues and manage risk. With the enhanced capabilities developed through the 354 hotels added in 2016 and the completion of a further 77,000 rooms. In addition, the company is expected to drive per unit growth due to the launch of its newest brand, Tapestry Collection by Hilton and extensive management contracts with large luxury hotels in countries such as China. However, general and administrative expense, non-recurring expenses and other expenses are projected to be flat compared to fiscal year 2016. Net profit is project to increase by 3.45% to 571,080 million.
For the fiscal year ending December 2017, Hilton expects total revenue from continuing operations to increase by more than 20% up 88 million compared to the $18 million loss in 2016. Net unit growth is expected to be roughly 50,000 to 55,000 rooms as such system-wide RevPAR is projected to increase anywhere from 1 to 3 percent compared to 2016. For the fiscal year 2017 cash available for capital return and debt prepayments is projected to be between $900 million and $1 billion. Likewise, capital expenditures for the year, excluding amounts reimbursed by hotel owners, are estimated to be between $150 million and $200 million.
Fiscal Year Ending December 2018
For the fiscal year ending December 2018, revenue are projected to increase by an average of 8.80 %, up to $9.67 billion, while earnings are expected to grow to an average of 2% to roughly $2.08 billion, showing positive prospects of continued growth. The earnings per shares are expected to show a corresponding increase from $1.74 to $2.08. Hilton is expected to drive leading investment returns to hotel owners, as hotel owners continue to invest in Hilton’s system growth. Hilton is also expecting its market-leading growth to be amplified by its new brands that will bring new customers into its system and offers more opportunities for its existing customers to stay with the company.
Capitalization and Other Asset and Liability Analysis
During fiscal year 2016, in preparation for the spin-offs, Hilton entered into a series of financing transactions, of which the debt incurred by HGV and Park is the sole obligation of those entities after the spin-offs. Hilton entered into a $200 million senior secured term loan facility for HGV, the company also entered into a $750 million senior unsecured term loan facility for Park and issued two new commercial mortgage-backed securities (CMBS) loans for Park totaling $2 billion. The company also repaid $250 million on the senior secured term loan facility entered into in 2013. Finally the company borrowed $300 million on the revolving non-recourse timeshare financing receivables credit facility entered into in 2013 for HGV.
Also during the fourth quarter of 2016, Hilton repaid the outstanding balance of $3,418 million on a CMBS loan entered into in 2013 and a $450 million mortgage loan, using net proceeds from 2016 borrowings and available cash. As of December 31, 2016, Hilton had $10.2 billion of long-term debt outstanding, of which $3.0 billion is transferred to Park and $0.5 billion is transferred to HGV in connection with the spin-offs. As of December 31, 2016, total cash and cash equivalents was $1,684 million, net receivables was $1.15 billion, inventory amounted to 541 million and other current assets was 176 million.
In December 2016, Hilton paid a quarterly cash dividend of $0.07 per share on outstanding common shares, a total of $70 million, bringing total cash dividends paid in 2016 to $277 million. Hilton ended 2016 with property plant and equipment valued $8,930 million, goodwill of $5,822 million, intangible asset of $6,374 million, and other assets of $334 million the company also had deferred long term asset charge of 117 million. Hilton’s total asset increased by 495 million to $26,211 million up from $25, 716 million in 2015. At the end of the 2016 the Hilton’s had a working capital of $873 million, this indicates that the company has the ability to pay its short term liabilities. The current ratio is 1.33:1, which is also an indication of the company’s ability to honor its short term obligations as they fall dues. Hilton’s has $2,684 in total current liabilities, $20,312 million in total liabilities and total stockholders’ equity of $5,899 million and decrease of 52 million over the same period in 2015. Projections indicate that along with Hilton s new simplifies business model and the separation of the three companies, the current capitalization structure Hilton should be profitable without the need for excess borrowing.

Balance Sheet for year ended 31, December 2016

All numbers in thousands

Current Assets $

Current Liabilities $

Cash And Cash Equivalents

1,684,000

Accounts Payable

2,513,000

Net Receivables

1,156,000

Short/Current Long Term Debt

171,000
 

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Financial Analysis Of Tesco PLC

Tesco Plc is a leading UK retailer that operates in 13 countries across Asia, Europe and the United States. In order to evaluate Tesco’s financial positions in the market, vertical, horizontal and ratio analyses will be implemented. In addition, this report will benchmark two main competitors of the company, namely Morrisons and Sainsbury’s. Finally, in conclusion it will provide some recommendation for future investors and for those who are considering future employment in the company.
1. Review of Tesco’s financial fundamentals over the last 5 years.
In order to examine Tesco’s performance, vertical analysis of the financial fundamentals for 2006-2010 would be implemented.
1.1 Income statement trends
Table 3:
% change P&L account
2006/07
2007/08
2008/09
2009/10
Sales
8.08%
10.92%
13.95%
5.59%
Cost of sales
8.17%
10.83%
13.84%
5.21%
Gross profit
14.37%
4.82%
15.29%
10.08%
Expenses
8.27%
10.47%
14.48%
5.80%
Operating profit
16.14%
5.40%
13.54%
9.09%
Finance income
-21.05%
107.78%
-37.97%
128.45%
Finance cost
-10.4%
15.7%
91.2%
21.13%
Tax
18.95%
-12.8%
17.8%
6.6%
Retained profits
20.49%
12.16%
0.38%
9.26%
Source: Tesco PLC Annual Report and Financial Statements 2007/10
Sales are the main measures for business growth. Tesco’s revenue has increased by 7.14% per year for the last 5 years. The slowing GDP growth and the deteriorating consumer confidence, which was result of the recent economic downturn, were the main reasons for the recent slowdown in the rate of growth. The absolute level of sales has still increased. of the company’s sales levels.

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Notwithstanding the challenging economic environment, Tesco managed to maintain strong margins due to significant investments in new stores and lower prices, better pay rates and effective cost management. The lowest operating and gross profits figures were registered in 2007/2008 but this was a result of £89m investment in US and integration cost from market acquisitions in Czech Republic, Poland and Malaysia.
The most significant figure in 2009 is the increased amount of finance costs, from £250m to £478m or by 91.2% that was result of increased average net debt level slinked to acquisitions and foreign exchange movements, higher coupon rates on commercial paper and unfavourable changes in the non-cash IFRS elements of the interest charge (Tesco PLC Annual Report and Financial Statements 2009). This considerably affected retained profits and a slight increase by 0.38% was registered.
Finally, in 2010 there was a significant increase of the finance income by 128.45%, resulting growth in the retained profits by 9.26% due to the consolidation of Tesco Bank.
1.2 Balance sheet trends
Table 4:
 
2006/07
2007/08
2008/09
2009/10
Current assets
16.76%
37.67%
122.94%
-16.23%
Inventories
31.90%
25.84%
9.84%
2.25%
Trade receivables
20.96%
21.50%
37.15%
5.01%
Non-current assets
8.51%
17.96%
34.45%
6.77%
Current liabilities
9.69%
25.90%
75.78%
-11.23%
Non-current liabilities
8.62%
31.48%
87.75%
2.06%
Shareholder’s funds/Equity
11.93%
12.59%
9.18%
12.97%
Source: Tesco PLC Annual Report and Financial Statements 2007/10
According to the balance sheet in 2007, the increase in stock and debtors outpaced sales that was quite inconvenience, while the fixed assets were satisfactory. The problem with the stock trend was reversed in 2009 and 2010, but the debtors’ level, and the liabilities along with the fixed assets grew faster than sales in 2009 as a result of the economic downturn and the consumers’ uncertainty (see table 4).
2. Ratio Analysis of Tesco
Financial ratio analysis is one of the most common methods that provides ‘a quick and relatively simple means of assessing the financial health of a business’ ( Atrill & McLaney, 2006, pp168).
2.1 Profitability Ratios
‘Profitability ratios provide an insight to the degree of success in achieving this purpose’ (Atrill & McLaney, 2006, pp169).
Table 5:
 
2006
2007
2008
2009
2010
ROSF
16.69%
17.96%
17.90%
16.57%
15.91%
ROCE
12.70%
12.60%
12.70%
12.80%
12.10%
Net profit margin
5.78%
6.21%
5.90%
5.88%
6.07%
Gross profit margin
7.67%
8.12%
7.67%
7.76%
8.10%
Source: Tesco PLC Annual Report and Financial Statements 2007/10
According to table 5 Tesco’s ROSF ratios vary between 16-18% and ROCE between 12-13%. In 2007 and 2008 the ratios are tend to increase while in 2010 a considerable drop can be noticed. This reduction is result of the company’s strategy to continue investment even during the recession that has affected the returns in short term, but at the same time it promises progress in long term aspect (Tesco PLC Annual Report and Financial Statements 2010).
Net profit and gross profit margin ratios have been also remarkably consistent over the 5 years period. Despite the recent economic downturn, Tesco managed to maintain its strong positions and due to efficient cost management, price cuts and increased focus on its clubcard loyalty cart, it raised pre-tax profit by 9% in 2010 (http://www.guardian.co.uk).
2.2 Efficiency Ratios
Table 6:
2006
2007
2008
2009
2010
Stock turnover period (days)
15
18
20
19
19
Sales revenue to cap.employed (times)
2.62
2.56
2.38
1.93
1.90
UK Sales revenue per employee
170,923
177,084
179,840
196,436
196,120
Profit per employee
10,190
11,292
10,814
13,065
14,303
UK Sales per square foot
1303
1325
1322
1318
1311
Source: Tesco PLC Annual Report and Financial Statements 2007/10
Generally, the efficiency of Tesco’s performance during the last 5 years is persistent. Stock turnover ratio has been remarkably steady and has varied between 19-20 days over the last 4 years which is evidence for a good control of stock. However, from 2006 to 2010 sales revenue to capital employed ratio decreased significantly from 2.62 to 1.90 (by 27.5%) which was result of the considerable increase in the level of shareholder’s funds and non-current liabilities (by 173% and 55% respectively). Additionally, the most important ratios measuring business efficiency are sales per employee and profit per employee. Tesco’s ratios are satisfactory notwithstanding the declines in 2008 that are understandable bearing in mind the challenging economic conditions (see table 6).
2.3 Liquidity Ratios
According to McLaney & Atrill liquidity is vital to the survival of a business for there to be sufficient liquid resources available to meet maturing obligations (Atrill & McLaney, 2006, pp169).
Table 7:
2006
2007
2008
2009
2010
Current ratio
0.52
0.56
0.61
0.75
0.73
Acid test ratio
0.33
0.32
0.37
0.60
0.56
Cash generated from operations to maturing obligations
0.45
0.43
0.40
0.28
0.37
Source: Tesco PLC Annual Report and Financial Statements 2007/10
Tesco’s liquidity has considerably improved over the 5 years period due to strong cash generations and tight control of capital expenditure. Working capital also increased significantly, by 20%. However, liquidity ratios are still very low, current ratio varying from 0.5 to 0.7 and acid test ratio from 0.3 to 0.5. This seems disastrously when referencing to some textbooks that suggest that current ratio should be around 2 and the acid ratio should be around 1. But according to Atrill & McLaney (2006) the current ratio will vary from business to business and ‘a supermarket chain will have a relatively low ratio, as it will hold only fast-moving inventories of finished goods and all of its sales will be made for cash (no credit sales)’ (trill & McLaney, 2006, pp 187). (See table 7)
2.4 Financial Gearing Ratio
Gearing ratio is one of the most important indicators regarding ‘the degree of risk associated with a business…it tends to highlight the extent to which the business uses loan finance’ (Atrill & McLaney, 2006, pp169).
Table 8:
2006
2007
2008
2009
2010
Gearing ratio
37.23%
36.53%
40.03%
53.86%
51.08%
Interest cover ratio
6.26
7.04
6.81
5.64
5.01
Source: Tesco PLC Annual Report and Financial Statements 2007/10
There are no significant changes of Tesco’s gearing ratio during the last 5 years; it peaked at 53.9% in 2009 due to the significant increase of the long-term liabilities and the shareholder’s fund resulted of Homever acquisition in South Africa. On the other hand, interest cover ratio decreased significantly from 7 in 2007 to 5 in 2010, but the company still will not have problem to meet its interest (see table 8).
2.5 Investment ratios
Investment ratios give an answer to the key question whether shares should be bought, sold or hold.
Table 9:
2006
2007
2008
2009
2010
Earnings per share
20.04
22.36
26.95
27.14
29.33
P/E ratio
16.5
19.9
14.6
11.5
13.2
Dividend per share
8.63
9.64
10.9
11.96
13.05
Dividend cover
3.57
4.07
2.69
2.42
2.41
Dividend payout
27.98%
24.59%
37.18%
41.30%
41.44%
Dividend yield
2.6%
2.2%
2.7%
3.6%
3.1%
cash from operations /number of shares
0.44
0.45
0.52
0.63
0.75
Source: Tesco PLC Annual Report and Financial Statements 2007/10
Tesco’s earnings per share ratio has increased by around 46% over the last five years, which is a good trend. Dividend per share also registered an excellent growth by 51% for the 5 year period. Dividend cover ratio is another important ratio that determines whether company is attractive for investors. Tesco’s dividend cover ratio is decreasing significantly over the last 3 years, which is good for investors looking for capital appreciation. However, low dividend cover is unattractive for those seeking income (Fitzgerald, (2002, pp160). Dividend yield is another important investment indicator showing the actual return provided by the company. For 2006-2010 Tesco’s dividend yield ratio has been quite variable, the lowest rate was 2.2% in 2007 and the highest was 3.6% in 2009. In 2009 the high yield was affected by economic situation and the company was expected to have low profits growth. In contrast, low dividend yields mean that the company is expected to grow its profits quickly (Arnold, 2004, pp 191) (See table 9). In addition, in 2009 the lowest P/E ratio was registered again because of the expectation for slowdown in profits (Arnold, 2004, pp 187).
3. Benchmark the performance of Tesco
Nowadays, retail industry is characterised by very intense competition and in order to obtain clearer picture of Tesco’s growth, it would be useful to benchmark the company to some of its main competitors, namely Morrisons and Sainsbury’s, evaluating some fundamental financial indicators.
Firstly, it should be taken into consideration the fact Morrisons and Sainsbury’s operates only at national level and Tesco is operating internationally. Therefore, there would be some significant differences in their indices in comparison to Tesco.
Figure 1: Figure 2:
Source: Tesco PLC Annual Report and Financial Statements 2010, Morrisons annual report and financial statements 2010 & J Sainsbury plc Annual Report and Financial Statements 2010
Figure 1 clearly shows that for 2010, Tesco is the market leader with 63% sales levels compared to the whole three companies’ revenue. Sainsbury’s is the second with 22% and Morrisons is the third, registering 16% sales.
In terms of profitability good sign is that all the three companies have managed to maintain its position even during the economic recession and continue to increase their profit numbers. However, comparing Morrisons and Sainsbury’s uncertain fact is that they obtained almost the same levels of profit in 2010, bearing in mind that Sainsbury’s is much bigger than Morrisons. Thus, Morrisons is found to be more efficient with margin of 5.9%, comparing to Sainsbury’s ratio of 3.6% (see figure 2).
Additionally, while Morrisons and Sainsbury’s increased their return on capital employed ratio, even slightly, Tesco registered a significant drop in 2010, by 0.7%, result of the consolidation of Tesco Bank. However, from investor’s point of view, in long term, this is not an inconvenience trend because it will take some time until Tesco Bank start making any profits (see figure 2).
Figure 3:
Source: Tesco PLC Annual Report and Financial Statements 2010, Morrisons annual report and financial statements 2010 & J Sainsbury plc Annual Report and Financial Statements 2010
When it comes to productivity, for 2010, again Tesco is on the top with the highest level of sales per square ft in UK, followed by Sainsbury’s and Morrisons. In terms of sales per employee, there is not a significant difference between the three retails, although Morrisons is presenting more convenience levels in contrast to Sainsbury’s (see figure 3).
Figure4: Figure 5:
Source: Tesco PLC Annual Report and Financial Statements 2010, Morrisons annual report and financial statements 2010 & J Sainsbury plc Annual Report and Financial Statements 2010
From all the three companies, in 2010 Tesco registered the highest level of gearing, 51.08%, Sainsbury’s 38.4% and Morrisons 25.1%, which means Tesco I highly geared. This is not necessary uncertain fact because Tesco is a mature business with strong and reliable cash flows that can allow higher level. In terms of interest cover, Morrisons presents the most convinience positions with ratio of 15.11. Sainsbury’s and Tesco’s rates are low (see figure 4 & 5).
Figure 6:
Source: Tesco PLC Annual Report and Financial Statements 2010, Morrisons annual report and financial statements 2010 & J Sainsbury plc Annual Report and Financial Statements 2010
Finally, Morrisons has the highest earnings per share ratio, 30.36p, but at the same time and the highest dividend cover, which is not very attractive for investors seeking income. Those investors would be more attracted by Sainsbury’s and Tesco’s ratio that are quite low, 2.43 and 2.41, respectively (see figure 6).
Evaluation & Conclusion
Based on the analysis above, it could be concluded that Tesco is a growing company that demonstrates very convenience performance over the last 5 Years, increasing revenues and profits. However, in order to take objective investment decision, share prices and dividend trends should be taken into consideration.
Over the last 5 years Tesco has increased its market shares. ‘In October 2010, Tesco PLC reported semi annual 2011 earnings of 16.43 per share… that is better than the last year’s result for the same period by 18.20%’ (markets.ft.com). In comparison to the FTSE 100 Index, for example, it also demonstrates good trends; ‘over the last week Tesco outperformed the FTSE 100 Index’ (markets.ft.com) (see Table 10). On the other hand, Tesco’s current share prices (432.00p) do not seem so attractive, comparing to its rivals with lowest prices, Morissons- 269.20p and Sainsbury’s-376.00p. Additionally, in terms of the dividend yield rates, there is a significant drop from 3.6% in 2009 to 3.1% in 2010. This could be caused by several factors, but at the same time, it could be a warning sign that the prices are raised excessively and they might be overpriced (moneyweek.com).
Table 10:
Name
1 Week
1 Month
6 Month
1 Year
5 Year
Tesco PLC
-0.24%
+2.48%
+8.74%
+2.57%
+30.59%
FTSE 100 Index
+1.42%
+1.63%
+12.91%
+10.83%
+6.70%
Source: Tesco PLC, markets.ft.com
Finally, according to the Tesco’s ratio analysis and the benchmark there are some other uncertainties regarding liquidity and gearing in comparison to Morrisons and Sainsbury’s, for example. Thus, notwithstanding the satisfying dividend and earnings per share and the strong performance of Tesco, the current share prices do not look very attractive for buying. In this case, Morrisons might be more attractive for future investment noting its successful nationwide expansion, fast growing trend and low share prices.
At first glance Tesco seems an attractive place to work as it has significant growth potential and has very strong positions in the market. The company’s employment policy is very
Overall you have made a good start here. You need to analyse the current share price, dividend yield and P/E ratio for Tesco to see whether it is worth investing. Even if Tesco is a strong performer in a business sense that doesn’t mean we should buy its shares. The strength may already be reflected in the share price or, indeed, the shares may be overpriced. You need to look at share price trends and compare with the FTSE 100 or with an index for the food and drug retail sector. Or you could examine TSR and compare that with the competittion. You need to try to get a feel for whether the shares should be bought at the current price.
You also haven’t answered the employment question – you need to find some employee related data.
 

Challenges Facing Financial Management in Schools

Abstract- With the development of Internet information technology, public financial management reform deepening, accounting focus Universities facing the management accounting change, the financial sector as a core sector universities, data centers will become a big school and participate in school management, decision-making, analysis and forecasting. We analyzed the development of university management accounting brings opportunities and challenges, and puts forward some countermeasures. The arrival of the era of big data, data important asset cause rapid Internet Insurance sector is concerned. This paper describes the development of the insurance status of the Internet, combined with the opportunities and challenges facing the era of big data Internet Insurance is proposed under the era of big data Internet Insurance Development Strategy in order to provide reference for the healthy and rapid development of the Internet insurance. For the “Internet +”, Big Data applications in other industries to produce value-added effect polymerization, and the lack of coal mine large data mining the potential value of the use of problems in the research of coal mine production safety monitoring enterprise warning, large-scale mining and material handling equipment safety standard remote control of the whole life cycle, coal mining enterprises at all levels of production safety data sharing cloud services platform, cross-dimensional aspects of supply and demand and price forecasting perspective platform for big data application mode analysis, data mining by large technical team unified programming model and set standards in the interface protocol, security co-ordination and so do the pre-proposals. He pointed out that “Internet +”, the comprehensive application of big data will become an important means and ways to improve mine safety and production, to achieve lower costs, increase efficiency role.

Key words – big data; the Internet era; data mining; financial stocks management; decision analysis
Internet insurance refers to an insurance company or a third-party insurance net new Internet and e-commerce technology as a tool to support the insurance sales management activities. With the advent of the era of big data, data has become an important factor of production in each industry, people use mobile Internet, cloud computing and other information technology, data mining, processing and analysis, making it a more competitive asset. Insurance is a typical data-production industries, these technologies continue to penetrate to the insurance industry, will enable Internet Advanced Insurance from simple sales model to the Internet Insurance directions. How to seize the Internet Insurance in rapid changes in information technology opportunities, meet challenges, it is an important topic of current research.
“Internet +” 2.0 is an innovative evolution of information technology to promote the development of new social forms, new formats, the future of the entire industry, cross-platform management operations. “Internet +” Action Plan states that “Internet +” represents a new economic form, that is to give full play to optimize and integrate the role of the Internet in the allocation of production factors, the depth of the innovations of the Internet merged in all areas of economic and social promotion innovation and productivity, “Internet +”, the action plan focus on promoting the development of big data integration, cloud computing as the representative of information technology. Large data by conventional sensor means, video tools, software, captures the data set.
Big Data has penetrated into every industry and field has become an important factor of production, and mining companies for the use of huge amounts of data, cloud computing is the second, after another big things disruptive technology revolution. I believe that the need to re-integrate coal mining enterprises, mining past long-term accumulation of vast amounts of data, the application of integrated analysis tools from multi-dimensional space-time insight and knowledge discovery in large data implied by law, to guide the production of coal mine safety decision, the fine will increase to coal mine production safety the new level of management.
Development of the Internet makes big data accounting information processing more efficient, faster, more standardized accounting, real-time and focus. Data is an important basis for decision-making to further tap the Internet data becomes possible. Some college financial workers and researchers are trying to study the theory based on the “Internet +” a new model of financial management, financial officers will be freed from the complex basic accounting business, so that key positions financial officers transferred to the school management and decision-making thus in decision making, management accounting functions.
Internet Insurance more than ten years, with the low cost of the Internet, by many, wide coverage, high-impact characteristics, has made remarkable achievements, but also in the development of some problems.
With the rapid development of e-commerce and computer technology, the Internet Insurance from 2011 into the development of speed and 2011 to 2013, the domestic insurance business Internet companies rose from 28 to 60, average annual growth of 46%; premium volume grew from 3.2 billion yuan to 29.1 billion yuan, an increase of three years to reach 810 percent overall, with an average annual growth rate of 202%; the number of insured customers increased from 816 million to 5437 million, an increase of 566%. Thus the fast pace of development of the Internet of insurance and in addition, according to the report, the Internet insurance products in a simple, standardized, low-value products, mainly in the field of property insurance on motor vehicle insurance, family property insurance and other insurance, some insurance companies also introduced credit insurance and liability insurance. In the field of life insurance, accident insurance is the main insurance. This is due to the insurance product itself professionalism, complexity and technical characteristics of the Internet are currently determined.
Internet insurance innovation, embodied by precise customer targeting, segmentation subject matter of insurance and risk factors, dynamic customization of insurance products and pricing. Although the insurance major insurance companies committed to the Internet innovation, but its degree of innovation still to be improved and first, the business model, most of the insurance firms will simply move to the line of products from online sales, Internet and insurance achieve genuine integration of very few. In addition, from the sale of the product, although the “full moon insurance” “haze insurance” Insurance bold new alternative, but its essence is just common accident insurance and other traditional insurance, some even with gambling elements, departing from the essence of insurance. And similar to the net purchase return shipping insurance, micro-channel payment security insurance and other insurance and real participation poly emerging e-commerce wind. Risk insurance products provide protection for Internet and rare.
A. Challenges and Opportunities
In the Internet, big data and the depth of penetration of insurance background, January 15, 2014, China Insurance Information Technology Management Co., Ltd. as China’s insurance industry’s first big data company formally established, which is to follow the development of insurance in the era of big data will by road. Build big data platform, opportunities and challenges for the development of the Internet insurance.
Big data brings cost-efficient development. In the era of big data, the use of information technology to collect data related to the insurance business management, may establish a standardized, systematic Internet insurance data system, on the one hand, the insurance customer orientation statistics and pricing of insurance products and other aspects of the easier, more traditional insurance, greatly reducing the time and cost of data collection, improve the efficiency of insurance. On the other hand, the insurance business automation has improved continuously. Use relevant data to establish a network of intelligent Underwriting platform, promote the application of intelligent terminals and other mobile Internet devices, the Internet can enhance the insurance business process automation and automation of PCT operator, so that each flow risks are controlled at the same time, various aspects of the processing time was significantly shorter improved efficiency.
Big Data mining helps timely customer needs, innovative products. The use of advanced technology for historical data collection, collation, analysis and processing, can effectively tap the demand for risk management, product innovation, investment, and improve decision-making ability can play an important role. In the era of big data, by the client in the Internet browsing and transaction platform, leaving traces of statistical data, we found that customer propensity to buy, tap the customer needs, and then use this data to design new products. For example, “Zhong An online” positioning to service the Internet, the main liability insurance and guarantee insurance, it is on the Internet risk data statistics and effective use of the Internet user needs mining, while the net purchase return shipping insurance, micro-channel payment security risks also in big data era has brought proof of product innovation.
Big data helps improve the precision pricing and marketing capabilities. First, the Internet and big data will change the traditional insurance products pricing rules and on the one hand, from an actuarial point of view, the traditional products, based on the law of large numbers actuaries, according to a random principle, in the long term, a large number of business practice to extract part of the data to construct a mathematical model to calculate the premium rate, and further to make products pricing. In the era of big data, we are able to collect comprehensive data, complete data and integrated data, mining the relationship behind the data, greatly improve product precision pricing power. On the other hand, the era of big data, some products can achieve dynamic pricing, according to customer requirements to develop products and provide services.
Big Data Acceleration Insurance Internet channels to “format” Conversion. Internet insurance “format” refers to the development of insurance products, insurance consulting, insurance plan design, sales to post-service claims and other aspects are all relying on the Internet to complete. Internet as the pure insurance sales channels have developed more than ten years, under the big data era, the Internet will change the insurance of insurance simple Internet-based sales model to the real Internet insurance “format” development. Through the Internet data mining and analysis, the insurance truly serve the Internet, the development of Internet-based products, so the Internet to “format” Conversion.
B. Risk exposure
Potential new industry entrants increase competition. In the era of big data, the data will show a “complete and accurate, open and transparent sharing of resources” feature, if the data and insurance technology, will probably be more new entrants, competition, market volatility increased. First, Internet companies have huge amounts of data once you have risk identification and control technology, we can set up an Internet insurance company through its proven platform and a wide audience. Second, already has a certain risk control ability of enterprises to large data Once you have a mature technology, mastered valid data, then build their own risk management system is more cost effective than buying a simple insurance products, such as UPS courier company can set up the Internet insurance companies to reduce the cost of risk management.
Information security problems with the advent of the era of big data, we are faced with data privacy and public safety contradictions. Data sharing is public and big data trend of the times, but the data is disclosed along with the controversy from the legal, ethical, moral and other aspects, which restricts the development of the Internet insurance. Big data disclosure is a double edged sword, on the one hand the data disclosed not only provides network operators rely on the insurance risks of the Internet more convenient and accurate data sources, and promote the development of the Internet insurance will also create value throughout society; the other and the data disclosure might cause disclosure of user privacy, violation of human rights, this is a problem we develop Internet safety cannot be ignored in the era of big data.
Second, insurance information system within the Internet and many of the system outside the company for selling payment transactions and other business data exchange exists, there are attacks from Internet hackers, viruses, system rejects all possible risk services.
Computer technical capacity needs to be improved while at present, the data acquisition and processing capability at a low level. First, because of the limited technical capacity data, the accuracy of the information collected, the lack of timeliness of security, it is difficult to be objective data analysis and data utilization value. Present new data, a large number of customer information is untrue, other unstructured data availability is not high, the lack of effective data collection technology; the same time, the accumulated data to be tapped, marketing, customer data can be small, the data processing capability Room for improvement. Second, the lack of data resources and insurance companies a lot of historical data in the system long-term idle, underutilized the insurance company’s own strengths and data sharing and exchange of related industries, lack of data sharing.
Industry regulatory system is not perfect. Currently, the Internet insurance supervision, lack of complete system and China Insurance Regulatory Commission and other relevant departments of the Internet there are many loopholes in the supervision of insurance policies.
C. Development Strategy
To the healthy development of the Internet insurance for the current Big Data era has brought about the Internet insurance business model and will continue to arise in the future cross-industry business internet insurance issues, identify and improve Internet access for insurance, so that has a mature risk management experience, superb information technology, adequate solvency, improve the supporting facilities and strong product development capabilities of enterprises to run higher risks than traditional channels of Internet insurance. In addition, the Internet insurance sales staff and customer service staffs should have professional knowledge of insurance, insurance agents obtain qualification certificates, and publicity to consumers in order to supervise the sales site.
Great use of advances in technology and the accumulation of data mining and to expand the scope of insurable risks, make insurance products more diverse, more abundant form. Unstructured data analysis of consumer behavior and other aspects of the Internet, understanding of customer stickiness strong platform for the Internet, such as micro-letters and other social platforms, the real Internet insurance services on the Internet, the development of new insurance products; in other areas, according to Internet features and customer purchasing power, the development of products easily accepted, as one yuan universal insurance. In addition, the insurance customers seeking to seize the Internet features of convenience, high-quality services, to provide services to facilitate easy operation, especially after the purchase of part of a single delivery, return visits, claims, loss prevention and other processes to improve the customer experience.
On the one hand, handle public relations and data security of personal information. On the basis of does not infringe on the security of personal information is disclosed to the social development of favorable data, and effective use of public data in other industries, the development of the Internet insurance open ideas. On the other hand, China Insurance Regulatory Commission and other relevant departments to the Internet as soon as possible insurance information security management practices, insurance information on Internet security issues to make clear from the system specification.
Information technology capabilities for the development of the Internet insurance are essential. First, to increase technological development capability and for the insurance professionals, complex features, the development of professional services, Internet insurance software, such as the development and customer support interactive voice platform, customer service or sales staff can explain to customers insurance policy via voice, and record chats with voice and reduce misleading sales and post disputes. Second, improve data collection, processing capability. In the Internet field of insurance, data acquisition and processing are essential. First, we should improve data collection technology to ensure the validity and accuracy of the data from the source; secondly to improve the processing capability of the data within the integration of external data, especially external data; and finally to be able to explore the value of the data behind the increase of insurance effective analysis systems company a lot of historical data, and convert it into a business model, implemented.
D. Training of personnel
Big Data era will be the era of competition for talent, data analysts, data engineers and data scientists, will be the future of the insurance company’s core resources. Development of Internet insurance, the insurance data should vigorously develop dual talent based big data era, develop their powers of observation, so that they can in time to capture unstructured data in a particular social phenomenon behind and tapped to ensure the timeliness of the data. In addition, to improve the relevant human imagination, it is possible to use processing techniques revitalize these data, the data structure and logic integrated into new business models, to create new business opportunities.
E. Assessment methods Single
Use translation of the article as a way of course examination, it is difficult to stimulate students’ interest in learning, negative coping curriculum tasks. I conducted a survey found that students planning translation job 35% of the students use the basic copy translation results obtained translation tools, 45 percent of students slightly modified and adjusted on the basis of translation tools, only 20% of the students can take the initiative full article translation. Through courses only a very small part of the student’s level of translation of foreign documents has been improved, examination results difficult to truly reflect the students’ English and theoretical level, the course does not highlight the advanced nature and practical, it is difficult to learn and practice.
With the advent of the era of big data, government performance evaluation requires not only financial indicators, but also need more funding and performance-related non-financial indicators. Whether it is from the College for Financial performance evaluation or self-assessment of performance for the school sector, we need to collect and aggregate data more business. By aggregating data for each business unit, collation, college financial participation in school management greatly increased participation in management, decision making, analysis, forecasting and other functions more important.
Management accounting is an important part of the accounting work. Executive Management accounting needs to have a sound economic and institutional environment. American people more engaged in financial accounting management positions in decision-making. However, the current promotion of management accounting application is not widespread, management accounting, decision-making functions is weak, especially in universities and other administrative institutions, the management is to consider some of the more administrative factors and social factors. Since a long period, China’s colleges and universities accounting practitioners and theorists that consider the conventional financial balance legal compliance, internal control, external audit and other more, and the study of the internal service management decisions is not enough, environmental management accounting the foundation is weak, lagging behind the development.
Colleges whether to apply management accounting, with the external environment, the school management and the financial officer of understanding and attention of the relevant management accounting since the concept of management accounting managers at all levels are thinner, management accounting application is not mandatory, some universities on the functional orientation of the financial sector lower, in the substantive work of the financial management function is not very high, and college financial sector dislocation in the “big logistics” framework, resulting in oversight functions in decision-making is weak. So, not only difficult to play to the functions of management accounting, and even affect the effectiveness of internal control implementation. Due to lack of understanding of management accounting, colleges and universities to consider internal cost accounting, budget performance management, strategic issues such as the budget is relatively small, to a certain extent, affected the development of university career.
New management accounting personnel should be familiar with the characteristics of the industry units, with a strategic mind, broad thinking, keen insight, sound judgment, good at seizing opportunities, from a strategic perspective of the overall development process to understand the problem as Chinese enterprises gradually enter the international market, Chinese accounting industry to accelerate the process of international development, huge domestic management accounting talent gap. China currently accounting personnel, “the number is more than enough quality,” especially serious lack of “sophisticated” high-end accounting personnel with the college finance ranks, there are also uneven quality of personnel, the problem of shortage of talent, capable of high-quality accounting management of comprehensive ability of talent rarely.
The use of large data, clean-up and confidentiality of data is critical. Internal and external data, financial data and non-financial data, stored in various formats, and includes a number of errors and duplicate records. Current financial data disclosed Universities have a financial budget and final accounts, Excellencies funding, the use of research funding, government procurement, bidding, etc; non-financial data on each school site have all kinds of education, teaching information. With these data, we can analyze the problem a lot of data behind it. So, faced with the arrival of the era of big data and confidential data that made public in the extent and scope, will become an important issue.
A. Management Strategies
With demand management accounting concept of the in-depth and practical work, the financial sector participation in the management, functions and responsibilities of participation in decision-making will be strengthened. College management to fully understand the “Internet +” Time and accounting management mode, and the mode of thinking of great change data processing mode, and ready to make adjustments in terms of organizational structure, management functions, post setting accounting and accounting functions of positioning, so that management accounting functions into full play, so that the financial sector enterprises participate more effectively in decision analysis, internal control. Universities accountants will be more extensively involved in school activities, the more into the budget, planning, execution and analysis to go and play an increasing role in management decisions. Financial departments should pay more attention to clean-up and confidentiality of data, and improve the level of Internet information security.
B. Establishing Responsibility center
Responsibility center is organized around the overall management objectives, have some management authority within the organization and assume certain economic responsibility. Target Responsibility Center is coordinated with the overall objectives of the organization, if each responsibility center can be completed given responsibility goals, the overall responsibility for the organization’s goals can be realized. In the center of the implementation of the responsibility proper authorization is necessary, the higher should be given permission to work subordinates; proper authorization to create a performance of the work, the authorization could not reasonably responsibility center is not conducive to mobilizing the enthusiasm of all staff. Colleges and universities can set according to the type of business teaching a different responsibility centers, for the first three years of revenue and expenditure for statistical analysis, combined with the school development goals and the revenue and expenditure plans, revenue and expenditure targets set for each responsibility center business, and to develop a set of appropriate incentive mechanism, so that the balance of payments accounting and financial management is more refined, promote school development.
C. The introduction of strategic thinking, implementation of management accounting
As colleges and universities system reform, the introduction of strategic management accounting thinking in college financial management that is necessary. The implementation of strategic management accounting, and more attention to the management and evaluation of performance, can help senior management in university
More layers of long-term decision-making and forward-looking. Balanced Scorecard in the financial management of the university, SWOT matrix analysis, strategic analysis Boston matrix analysis, from a strategic perspective to analyze the development of the school, has a positive effect. Run management accounting strategy based on the need to accelerate information technology, human, financial, material and information integration in a unified information platform to manage accounting concepts and technical methods, based on a full range of comprehensive management information.
Strategic leave the budget cannot be achieved, the budget is a strategic tool for landing. Western countries proved that performance budgeting is a way to increase efficiency, improve efficiency, optimize resource management budget, is one of the many methods of management accounting applications and the whole process of budget performance management, including reporting, tracking the performance of operational performance objectives, with the performance evaluation, and other aspects of the results of the application. Will promote the concept of the performance management in place, into the performance management methods and techniques in the management of all aspects of the budget, you can promote the reform of university management system and mechanism, sense of responsibility to improve the sector, it is conducive to further enhance the university budget of scientific and meticulous management. Budget performance management only became the “number one” project to do. Budget performance management indicators issued in the case of the layers of the task requires school leaders at all levels perform their responsibilities, mutual coordination among departments.
D. Design of Performance Evaluation System
In the performance management process, including the design of a multi-dimensional evaluation system of financial and non-financial is particularly important. Financial indicators are usually budget implementation rate, earmarks financial performance, asset-liability ratio, liquidity ratio, the ratio of personnel expenses, public expenditure ratio, total asset growth, etc; non-financial performance evaluation include before school, student management, staff management, research management, books, curriculum, facilities, equipment, and energy consumption. School profiles of school functions, campuses, school property cases; school student management situation, scores, enrollment, attendance, dropout rates, graduation rates; faculty circumstances seniority, position, title; there are research papers published data management capacity , project reporting and pass rates; book data have library books, e-books number of books; there are courses course data gate count, course credits, teaching time, curriculum resources (including courseware, video, etc.); and other classrooms and laboratories have to use data use records, borrowing records, maintenance records, recording idle; equipment use and maintenance of equipment condition data have data, use and maintenance records, the log management behavior; school energy consumption data, water, electricity, gas and other energy consumption data.
Conclusion
In summary, the “Internet +” coming of age of the development of information technology, to promote the management accounting in college application and promotion. College accountant will be more extensively involved in school activities, the more into the budget, planning, execution and analysis to go and play an increasingly important role in management decisions and how to manage the accounting and financial accounting organic combination that is the focus of the government, universities, social, financial managers and workers of common concern.
References
1. Borochin, Paul A. “When does a merger create value? Using option prices to elicit market beliefs.” Financial Management 43.2 (2014): 445-466.
2. Jalbert, Terrance, Mercedes Jalbert, and Kimberly Furumo. “The relationship between CEO gender, financial performance and financial management.” Journal of Business and Economics Research 11.1 (2013): 25-33.
3. Speaker, Paul J. “Financial management of forensic science laboratories: Lessons from project FORESIGHT 2011-2012.” Forensic Science Policy & Management: An International Journal 6.1-2 (2015): 7-29.
4. Agundu, Prince Umor C., and Ogbole Friday Ogbole. “Fiscal policy and strategic financial management efficacy in Nigeria: Co-integral regression approach.” Research Journal of Finance and Accounting 5.8 (2014): 78-85.
5. Ab Halim, Mohd Suberi Bin, Mohd Zukime Bin Mat Junoh, and Syahida Binti Kamil. “Financial performance and the management issues of Bumiputera construction firms in the Malaysian construction industry.” Journal of Scientific Research & Reports 3.9 (2014): 1190-1202.

Importance Of International Financial Management Finance Essay

The rapid globalization, economic crises and continuously changing business environment together to make present financial management challenges more critical than ever. And the same forces make successful financial controls very important because international financial management (IFM) operates, with the decisions financial in nature taken, in the era of international business. The development in international business is apparent in the mode of extremely inflated volume of international trade. The history of international trade can be traced back to World War II. When after the war years immediately, the common type of contracts on the Trade and Tariffs were established in order to increase trade. This arrangement eliminates the trade restrictions extensively over the years and as a consequence multinational trade grew largely. Moreover, the trader’s financial contribution in respect of exports and imports surged widely across the countries. Since then this situation persist and increase over the years that compel companies of all types and sizes to think how to utilize resources when dealing in international markets. This expansion gives rise to significant variation in the position of market stability. As a result, today major financial decisions entail cross-border complications. Preferences in respect of raising capital, management of risk, investment decisions, mergers, restructuring, and all other features of financial strategy generally involve international complexities and these complications increase the need of international financial management. When financial managers take these decisions they must examine currency exchange rates, risk factors of specific country, tax rule’s differences and deviation in legal systems. In short, the finance managers of multinational corporations need appropriate management of international flow of funds for which the international financial management came to be very important and this has been discussed in detail below.
Objectives
The purpose of this research paper is to discuss the importance of international financial management to know that the role that financial management is playing in a modern international business environment.
Importance of International Financial Management
International financial management (IMF) significance cannot be exaggerated. It is, however, the core factor to successful business operations. In the absence of finance in local even in international market, no entity can achieve its full strengths for success and growth. We all know that money is a worldwide lubricant that keeps the local and multinational enterprise dynamic in developing product, keeping machines and men in working, motivating management to create values and progress. As I have discussed above that globalization open the market for major corporations to business into international markets, but it also brings corporations to a variety of risks that they can face while operating in international era and in this regard international financial management is the only solution to mitigate these risks and expose corporations to the whole world to operate in. Below is the details of risk that multinational companies face and the role international financial management play to control these risk that increase the importance of international financial management.

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Currency Exchange Risk and International Financial Management
Operating business in international markets may result in a foreign currency exchange risk that is known as exposure of transaction. Currency exchange risk arises when an entity has receivables or payables major portion in foreign currency (FC). The risk persists in the variation of the foreign currency exchange rate. For instance, if the foreign currency increases in value before paying liability, the business has to pay extra amount to purchase the foreign currency required to clear this liability. As a consequence, the business will face a loss of foreign exchange. And when the currency value decreases the business will have foreign currency gain. On the other hand net assets will have the reverse relationships that are denominated in a foreign currency.
In managing the risk of currency exchange, IFM approaches have gained prominence in recent years. IFM provides a variety of hedging techniques to control foreign currency transaction risks.
Pricing. The basic technique offers by international financial management to manage risk or to control billing currency, is called pricing. Exchange risk currency can be controlled if the businesses invoice their clients in the company’s reporting currency or functional currency. For instance, a business can settle a price of receivable in the currency in which they are reporting and thus transfer the risk of exchange to their customer.
Settlement. This technique is used where the business cannot price their customer in reporting currency, it can exercise the settlement technique to eliminate FC exchange risk. This technique needs that management continuously offer early settlement discounts for receivables or payables dealt in a foreign currency. In short, this technique of IFM pushes a business to renounce the advantage of the money time value with the intention to evade the risks of foreign currency exchange variations.
Forward Contracts. The business should use the other techniques to control the cash flows if it doesn’t want to make early settlement or cannot price in reporting currency. Almost certainly in this situation the renowned hedging methods is selling and buying forward contracts in foreign currency. These are agreements between parties to sell or buy foreign currency in future time at pre-decided fixed exchange rate. It reduces the company’s exposures to variation in exchange rates, whatever the rate in future is, the transactions occur at fixed rate. This transaction involves the cost of currency exchange and the cost of purchasing a forward contract.
Leading and logging. IFM also provides additional technique to mitigate the risks for centralized and large business, called leading and logging. This technique requires leading (prepaying) due amount when the currency of payer is decreasing against the payment currency and lagging (covering) those payments if the currency of payer is increasing. From business perspectives, the international financial manager can ask for leading and lagging technique so as to take benefit of the constructive consequences of exchange rate variation. Moreover, leading and lagging strategies may be exercised to move funds to cash-poor from cash-rich partners, thus enhancing liquidity in short-term.
Working Capital Management and International Financial Management
International financial management plays very important role in working capital management. Working capital management means taking decisions relating to short-term liquidity, and capital financing. These decisions comprises on managing the rapport between short-term asset and short liabilities of the firm. In this regard international financial management plays very important role in maximizing the worth of the firm by spending in such projects which produce a positive net present value (NPV) by discounting with appropriate discount rate. These investments, as a result, have complexities in relation to cost of capital pf cash flow. The purpose of IFM is to make sure that the business is capable of operating, and that it has positive flow of cash to support debt in long-term, and to assure both upcoming operational expenses and short-term debt. In this way the firm value is appreciated in case the return on capital investment surpass the capital cost.
Financing Decision
International Financial Management also guides companies in taking financing decions. And accomplishing the business financial objectives IFM need that any corporate investment be financed properly. As discussed above since both un-stable rate and cash flows will be influenced, the mix of the financing can influence the valuation. In this way financial manager must highlight the capital structures and optimal mix of financing that should result in maximum value. The sources to generate finance generally involve the combination of debt and equity financing. If a business decides to finance through debt, it will increase the liability that must be paid, therefore involving cash flow complications independent of the project target of success. The second option is equity financing. Equity financing is, however, less risky in relation to cash flow payment promises, but results in a reduction of control, ownership and earnings. The equity financing cost is also more than the cost incurred in debt financing, and in this way equity financing method may result in an appreciated hurdle rate that may compensate any reduction in risk of cash flow. International financial management helps management to keep balance between both options to avoid the risk of cost burden.
IFM Co-ordinates Various Functional Activities
International financial management offers comprehensive harmonization between varieties of functional areas such as production, marketing, etc. to accomplish the goals of organizations. If financial management is imperfect in multinational companies, the effectiveness of other business units can be maintained. For instance, it is very essential for the finance department to make available required finance for the raw material procurement and for other expense for the successful running of business. If financial department does not work properly and fails to meet obligations, the sale and production units will suffer and as a result profit and income will undergo. In short, proper financial management occupies a significant place in any business concern.
Determinant of Business Success
International financial management is necessary for the business success. It has been identified that the financial manger plays a very imperative role in the business success by suggesting the higher level management the effective solutions of a range of financial problems as professional. They provide considerable figures and facts in relation to financial position and company various functions performance in specific period before the higher management in such means that make it easier for the higher management to assess the company’s progress to adjust policies and the principles of the company properly. The international financial managers help the higher management in the process of decision making by recommending the best possible solutions out of the number of alternatives options available. Hence, international financial management assists the management at various stages in taking national and international financial decisions.
IFM as Measure of Performance
International financial management helps to measure the performance of business through its financial results by applying the techniques of ratio analysis. These analyses provide the position that where the firm is going over the years. Such financial decisions that appreciate risks become cause to decrease the worth of the firm and on the other the hand, such international financial decisions that boost the profitability enhance the firm value. Profitability and risk are two necessary part of any business that can be managed effectively through financial management.
Conclusion
The challenges that management is facing today is the effective and efficient working such that is internationally oriented. The major difficulties that a business faces in international markets are, fluctuation in currency exchange rate, investing decisions, financing decision, coordination of different business unit in different geographic places, etc. These problems can be managed through proper adaptation of international financial management methodologies. The effectiveness of these methodologies based on management’s understanding to the foreign markets and the requirements of its subsidiaries. In short, managing business accounts and finance is crucial to the success of every multinational business because the increase in complication and importance of financial management in international business environment poses challenges for management in international corporations.