In every organisation, accounting and finance are key aspects of their operational structure. Accounting involves all the activities dedicated towards classification and recording of monetary events. Finance includes effective allocation of financial resources and arrangement of funds. These are most crucial element in business which also help to define business targets and goals in efficient manner (Andreasch and Lindner, 2014). In this context this study provides an comprehensive evaluation of financial performance of BT Group plc while covering different fiscal events. BT Group is well-known UK telecommunication company operating in different countries.
Introduction of Company:
BT Group plc is UK based international telecom corporation and company's headquarter is situated in London,UK. Company is currently operating in approximately 180 nations. The group is top supplier of telecommunication services like broadband, fixed line and mobile-telecom services though-out UK, further company is providing IT-services and television subscription. Company is also a leading telecommunications service-provider and providing services to individual consumers along with small & medium-sized organizations as well as public sector. It is selling wholesale items and telecom services to communication supplier across the world.
BT is today an innovative organization that provides general consumer products and services via new advanced technology but has also developed a businesses offering of consulting services and technology solutions to support the company's growth and secure-life in different markets. BT is strongly committed to identification of its consumer base's primary origin in retail outlets and therefore concentrates on sales. Nonetheless, a large share of overall revenues generated in local market remains so that the industry is carefully regulated and invested to ensure the safety of this industry.
Objective of Company:
Company's core aim is to supply world-class and quality telecommunications and information-technology merchandise and services, as well as to create a strong networks across the world. For which company has set following objectives:
Fulfil core requirements of their clients and customers,
Sustainability in earning growth of entire group for stakeholders, and
Form a proper attempt towards community in which company is operating business.
But during three year with change in competition scenario, technologies and customer base company's objectives currently are: boosted speed to market, cost transformation and consumer experiences. In the next decades BT has a forward-looking, versatile and insightful network to allow the business to provide communications which match the needs of its consumers. Company have a quite clear view of where company want to be and now take specific actions toward this objective. Three primary goals are set by their transformation scheme:
To increase customer experience.
To speed up products to market-times
To cut down company's cost base.
21CN is designed and intended to provide end-to-end clients with a globe-class experience. It will create a dramatically streamlined process for BT, boost productivity and enable new technologies to be introduced more quickly on the marketplace than today. It will allow the client as never before to be regulated, elected and versatile. It will be made more effective, faster and more versatile with its new-network to meet market demands. It says that it is much simpler for consumers to launch digital, networked services and more power and versatility to handle their accounts through BT and its IT-infrastructure network.
For evaluation of major opportunities and major issues which BT Group plc has faced over previous 3 years, SWOT analysis of BT Group Plc, as follows:
Businesses face competitive and changing external conditions that are ever more critical to business sustainability and growth as a result of global economical globalization and the extensive use of information technologies. As far as political considerations were concerned, BT was the forefront of telecommunications change in Europe and US, and the UK Government's telecommunications policy was a major success, particularly for the best option in the area of control their policies. SWOT evaluates the strengths or strong-points, weaknesses, opportunities and threats that corporation have to take advantage of to self identify a major strategical niche (Weston, 2013).
It was formed in year-1846 and still services around above20 million business and domestic consumers in around-over 29 million exchange networks. BT is oldest and well-known communications company and has an unique brand value in market. It is well known to be one of Europe's leading suppliers of telecommunications services. Company is continuously extending its business in new countries as company is listed company and Over around60 percent of Fortune-Global 500 organisations and over-around 65percent of FTSE-100 organizations are part of BT Group customer database.
BT's weaknesses are uncompromising and inflexible. Respective company is a big corporation, so it needs to work line by line, and when meet is the issues it could not adjust easily. Also company's popularity still drops, since its internet services typically collapsed for longer hours, taking a lot of times to recover. BT Home Wi-Fi encryption simple to crack. Wired-privacy equivalent (WEP) and WPA (WI-FI safe-access) configuration keys are generated via the BT Home-Hub Wi-Fi algorithms. BT Home-Hub-ships with default/configured encryption codes/keys to encode wireless-network issues and traffic applying WEP/WPA. The algorithm is however simple and only produces a limited no. of keys which are easy to hack. It is also clear that the performance of BT renders recruiting and training staff challenging enough (Dietz, 2013).
In the next 10 years, analysts expect a high potential for further development. More precisely, clients and companies are more expensive than others, and the latest downturn is beneficial. It is also crucial to remember that there is a significant threat to fresh entries in industry which allows for even greater growth domestically and globally. Throughout Europe, BT is well known to bring in new co-operating businesses worldwide. This means that Internet users grow fast, that BT has the chance to get even more market portion. Reliable free-cash flow offers investment opportunities in nearby item segments. The corporation has potential to invest in fresh technologies and in new product-segments with more funding. In many other product lines Bt Group Plc must be given a chance (Alex and Amos, 2014).
The corporation may be sued in distinct markets – distinct laws and continuing variations in consumer prices in those sectors and markets. Imitation/drawback of counterfeit and low-quality product-items are also crucial threat to corporation's product particularly in rising or developing markets as well as low-income markets. Due to the unstable political conditions in many regions worldwide company's activities in multiple nations it is subject to exchange rates.
Evaluate the financial statements and other non- financial information of BT Group:
Evaluation of financial statements and other non-financial data of a corporation provides a vital range of information about company's working conditions, financial performance and other notable aspects about company. The beast way to critically analyse company's performance while considering financial as well as non-financial aspects is ratio analysis which defines different elements in company's financial statements (Ghimire and Giorgioni, 2013). In this context following is systematic ratio analysis of company BT Group Plc with aim to evaluate financial statements of three years and non-financial data, as follows:
Interpretation of ratios defines company's profitability level. Major ratios which contributes in evolution of profitability performance of a company are gross margin ratio and net profit ratio (Kling, Paul and Gonis, 2014). Following are the interpretation of profitability ratios of BT Group Plc, as follows:
Gross Profit ratio:
Gross profit (%)
This evaluates how much efficiently company is generating income after deducting cost of revenue. BT group's gross margin has been decreased during the period from 2017 to 2019. Company's gross profit during year 2017 was 95% which was declined to 94.58% in year 2018 and reached to 75.29% in year 2019, reflecting a decline trend. It means that company's efficiency to generate gross-profit though its core operations has been declined.
Net Profit Ratio:
Net Profit (%)
This ratio shows how efficient corporation is to generate net income after providing all expenditures. BT's net profit percentage was 7.93% in year 2017 which has been reached to 8.57% in year 2018 and to 9.22% in year 2019 indicating up-ward trend in net profitability. It reflect that BT's efficiency to generate net-profits after all the business expresses has been increased and BT is a profit making corporation.
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Some ratio like current ratio, quick ratio, debt to equity ratio etc. help to assess and evaluate company's liquidity position. A liquidity position of company reflects that how much company is capable to handle adverse financial situations (Auboin, Smythe and Teh, 2016). In this regard following are some ratios of BT group for three years and interpretation, as follows:
Current ratio is a short term liquidity ratio which evaluates a company's ability of making payment short-term liabilities/obligations (due within 1 year). It analysts how corporation can maximize their current assets to meet its short-term debts or payables (Kapunda, 2016). Generally a current ratio of 2 is considered as most acceptable ratio. As table shows BT's current ratio was 0.63 in year 2017 which has been reached to 0.82 and 1.09 respectively in year 2018 and 2019 reflecting up side trend. This trend shows that BT's short-term liquidity position has been improved in year 2018 and 2019 as compare to 2017. Continuous improvement in current ratio is favourable indicator for business.
It is also termed as debt-to-equity ratio which points out towards company's long term financial liquidity position. A ratio 1:1 is recognised as adequate debt-to-equity ratio. BT Group's debt-to-equity ratio is more than 1:1 during all three year which shows that company is financially sound (Bertola and Lo Prete, 2015). Notable thing here is that company's debt-to-equity ratio has been declined in year 2018 to 1.16 from 1.21 in year 2017, although this ratio has been improved in year 2019 and reached to 1.45. Overall trend shows that company is effective in maintaining its capital structure and effectively leveraged.
It covers evaluation of company's performance in terms of efficiency to utilise its resources (assets and liabilities) to generate incomes (Eccleston and Gray, 2014). In this regard, here below is interpretation of several efficiency ratio of BT Group, as follows:
Inventory Turnover Ratio:
Inventory Turnover Ratio
It is vital measure which shows no. of times stock/inventory is sold-out or utilised during a specific time-period. This is assessed to evaluate whether company has excessive stocks/inventory comparing to revenue. BT's inventory-turnover ratio in year 2017 was 5.78 which was declined to 5.51 in year 2018, however in 2019 inventory-turnover has been increased to 19.04. Which indicates that company 's efficiency to control its inventory has been increased and company is efficacious to generate sales from inventories (McDonald and Rojc, 2015).
BT Group plc’s performance over past 3 years compares with two of its main competitors:
BT Group Plc is operating in telecommunication industry in which company is facing competition from several competitors. In this industry competitors are few but large in infrastructure and resources. Company's top competitors are Telefonica and Deutsche Telekom which are giving tuff competition to company in telecom sector (Baldacchino, Bartolo and Grima, 2017).
As per the attached common size statements (Attached in Appendix) of BT and its two selected competitors it has been evaluated that BT is at effective and substantial position in industry competition. Company's shareholder equity proportion in total assets are 14.02%, 13.89% and 21.97% respectively in year 2016, 2017 and 2018 while its competitor Deutsche Telekom's shareholder equity proportion has been reached from 21.09% to 23.27% during the same period and Telefonica's shareholder equity percentage has been increased from 16.01% to 17.09%. This reflects that Deutsche Telekom's equity has been grown faster than BT group plc.
BT group's current asset proportions are 10.99%, 1125% and 22.56% during 2016, 2017 and 2018 respectively. Whereas Deutsche Telekom's current-asset proportions are 17.94%, 14.43% and 15.04% during same period and such proportion in case of Telefonica are 16.15%, 17.32% and 20.47% during same period. Comparison shows that BT group's liquidity position has been improved more rapidly as compare to its competitors. While total current liabilities proportion in BT group are: 14.88%, 13.73% and 20.74% respectively in year 2016, 2017 and 2018. Deutsche Telekom's current liabilities percentage are 23.84%, 21.12% and 21.94% during same period and such figures in case of Telefonica during same period are: 31.26%, 27.59% and 28.23%. This scenario about current liabilities position shows that BT Group's current liabilities portion has been increased during the same period.
On other side comparison of income statements of BT and its competitors shows that company's gross margin percentage are 94.54%, 95% and 94.58% during year 2016, 2017 and 2018 respectively. While gross margin during same period of Deutsche Telekom are 70.71%, 71.12% and 71.22% respectively, and of Telefonica are 52.14%, 52.17% and 52.57% respectively. In comparison of its competitors BT Group's gross margin are higher but a slight decrease has also been reported.
Operating margin of BT group are 61.62%, 66.88% and 68.14% in year-2016, 2017 and 2018 respectively. Deutsche Telekom 's operating margin are 7.81%, 8.74% and 10.18% and Telefonica's net-operating margin are 10.37%, 12.80% and 13.65% during same period. It reflects that operating margin of company is higher than its competitors and also has reporting growing in operating margin. Net-profit before tax margin of BT Group are 15.91%, 9.78% and 11.03% receptively during 2016,2017 and 2018 respectively. While EBT margin of Telefonica are 6.24%, 8.84% and 11.44% and of Deutsche Telekom are 6.22%, 6.66% and 6.84% during same period. These margin shows that BT Group plc has EBT margin more than its competitors. However a declining trend has been reported in EBT margin of BT Group.
The above discussion provides a clear picture of accounting and finance subject to maintain an ethical structure of accounting and finance. After comparing three years of financial statements of BT Group Plc with its competitor presents an understanding of effective and efficient accounting formation for sustainable success. From all the evaluations and analysis conducted in study it has been concluded that BT Group Plc is financially sound and efficient to generate profits from business. In industry, company's financial performance is much more better than its core competitors. Company's strengths and opportunities indicates that company will set significant benchmark in telecommunication industry in near future. So it has been recommended to the board that they should back a new joint venture with BT Group plc.
Andreasch, M. and Lindner, P., 2014. Micro and macro data: a comparison of the Household Finance and Consumption Survey with financial accounts in Austria.
Weston, K., 2013. Lifeblood, liquidity, and cash transfusions: beyond metaphor in the cultural study of finance. Journal of the Royal Anthropological Institute. 19. pp. S24-S41.
Dietz, F. C., 2013. English Public Finance: English Government Finance 1485-1558. Routledge.
Ghimire, B. and Giorgioni, G., 2013. Finance and growth: an investigation into the role of internal, bank and equity finance. Poznan University of Economics Review. 13(2).
Kling, G., Paul, S. Y. and Gonis, E., 2014. Cash holding, trade credit and access to short-term bank finance. International Review of Financial Analysis. 32. pp.123-131.
Auboin, M., Smythe, H. and Teh, R., 2016. Supply chain finance and SMEs: Evidence from international factoring data.
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