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Assignment on Financial Management

Of

British Telecommunication PLc



Assignment Question

³Critically analyze and interpret a set of company accounts and evaluate the financial

performance of the company and suggest how it may be improved.´³Discuss the best way for the management of the company in task 1 to decide whether to make a

new investment.´

Prepared for

Mr. Imran Khan

Lecturer of Financial Management

Stratford College of Management

ATHE University, London

Prepared by

Monika Rani

PGD in Business Management (B)

ID Number: SCM\20101017\83



Date: May 16, 2011

Mr. Imran Khan

Lecturer

Stratford College of ManagementATHE University London

Subject: Submission of Assignment

Dear sir,

It is my pleasure to submit the assignment on ³Critically analyze and interpret a set of

company accounts and evaluate the financial performance of the company and suggest how

it may be improved.´ ³Discuss the best way for the management of the company in task 1

to decide whether to make a new investment´ as a part of partial fulfillment of the

requirements for the course Financial management in the semester fall 2011.

I have enjoyed and learned a lot in preparing this assignment which enriched my practical

knowledge of the theoretical concept. I tried to reflect the practical operational aspects of the

organization which is complementary to the theoretical lessons.

Should you need any further query information to evaluate the assignment, it would be my

immense pleasure to furnish you the same on situational method. Sincerely Yours

«««««««««««««.

Monika Rani

PGD in Business Management (B)

ID: SCM\20101017\83

Stratford College of Management

ATHE University London

ACKNOWLEDGE

At first my heartiest thanks to Almighty GOD allowing me to prepare the assignment and in the

same time I would like to express my sincere gratitude and cordial thanks to my reverend teacher

Mr. Imran Khan Lecturer, ATHE University London, for her inspiring teaching, guidelines,

moral support, valuable instructions and helpful attitudes during the course of studies.



Table of content

Introduction

Origin of Assignment-------------------------------------------- 5Objective----------------------------------------------------------- 5Topic--------------------------------------------------------------------- 5

Background of BT PLC

About BT----------------------------------------------------------- 5Vision and Mission----------------------------------------------- 6

Learning outcomes

Importance of Credit Control------------------------------------ 6

Variable and Fixed Costs during Economic Downturn------ 7Debt Financing---------------------------------------------------- 7

Equity Financing-------------------------------------------------- 8Consideration when making a major investment------------- 8

Payback Ratio versus Yield Ratio------------------------------ 9

Examination of Profit & Loss account & Balance Sheet---- 11Advantages of Cash Flow when applying for funds--------- 12

Conclusion

Reference



Introduction

Origin of Assignment

PGD in Business Management leading to MBA academic program is the building up of thetheoretical knowledge about business administration which is the base of practical knowledge.

This assignment work is an attempt to provide the students an orientation to a real life business

situation in which we can observe and evaluate the practical use. As per norm this assignment is

the requirement of the fulfillment of the course Financial Management.

Objectives of the Assignment

1. To furnish practical knowledge with income statement.

2. Distinguish between balance sheet and profit and loss account.

3. To fulfill the course requirements.

Topic

Financial management enables the company to allocate the funds efficiently for investment,

purchasing equipment and develop dividend policy in order to achieve the objectives of the

company. Financial management has many important roles including preparing and monitoring

the internal financial information, maintaining the financial records, payment of accounts and

credit control, and payment of salaries. Financial management determines the success or failure

of a company. Effective financial management ensures that the company has enough funds to

meet its objectives including payment of bills, wages, and acquisition of resources and develop

new products.

Background of BT PLC

About.BT

Telecommunication in Britain began in the early Nineteenth Century; with the first commercial

telegraph service. In the late Seventies, British Telecom was born. In the early Nineties, British

Telecom was renamed BT. Today, the holding company BT group PLC presides over four

separately managed business: BT retail, BT wholesale, BT global service and Open reach. BT

PLC is one of the world¶s leading communication companies operating in over 170 countries

around the world. Their main activities include networked IT services, local, national andinternational telecommunication service and broadband and internet product and services. Their

aim is to make life easier, simpler and more fulfilling for all customers.



Vision

Trustworthy Helpful

Inspiring Straightforward

Heart

Mission

Establish and sustain as a customer centric organization.

Provide high quality and innovative communication service.

Continuously develop, motivate and empower their people.

Learning outcomes

³Critically analyze and interpret a set of companyaccounts and evaluate the financial performance of

the company and suggest how it may be

improved.´

Credit Control

According to James C. Van Horne, J. M. (2008),

Credit control sounds like a complex financial process

but in reality is just a set of simple steps taken to ensure you get paid on time. Every business no

matter how large or small needs to have a credit control process. Our specialty is managing that process for you - we take the hassle out of chasing up payments. It is mainly concerned with the

firm's creditors and the debtors. Tight credit control is important if a firm wants to avoid cash

flow problems.

Importance of credit control

The process of credit control is one of the most important ones in the context of the decision

making process of a company. In the modern financial world this process is deemed to be

important with regard to the economic well-being of a business entity. The process of credit

control is also crucial for the lenders as well as their business prospects. BT PLC, as per its

balance sheet, they should focus on the credit control so that they can minimize risk of loss.

Because they provide time credit to their customer but unfortunately they don¶t follow the things

on the same day when it was issued due to which the time when they get it know that they are

losing the amount it usually too much late to recover.



Variable and Fixed Costs during Economic Downturn

Fixed Costs - Fixed costs are incurred and have to be paid regardless of the volume produced

and sold. They are the costs of running a business such as heating, lighting, rent, insurance,

marketing and so on.

Variable Cost - In contrast, variable costs are directly related to the job and so change with the

level of output. The best example of a direct cost is the raw materials that go into making a

product. Fixed costs plus variable costs are known as total costs:

Figure 1: Illustration of Fixed and Variable Cost ( www.businessteacher.org.uk)

Contrast the description of variable costs with the fixed costs incurred by BT PLC to lease and

maintain your office/warehouse space for a year. Rent, utilities, and other such overhead costs

will be at a fixed rate regardless of how much company¶s production increases (or decreases)

throughout the year. Unlike variable costs, fixed costs pay for resources that cannot be quickly

and easily changed to match the resources needed or used.

Debt Financing.

According to Eugene F. Brigham, M. C. (2010), as the name suggest, this type of financing

means that you have ³debt´-money that you owe to someone. The person who lends you money



does not have any liberties or ownership over your business. Debt financing can be short-term or

long-term. This type of financing occurs with banks and the small business administration.

Advantages of debt financing

Retain maximum control over budgetThe interest on debt financing is tax deductible

Equity financing

This type of financing according to James C. Van Horne, J. M. (2008) is an exchange of

money for a piece of ownership in the business. This appears to be ³easy money´ because itinvolves no debt. This type of financing normally occurs with venture capitalists and angel

investors.

Advantages of equity financing

As long as your business makes a profit, the lenders will be repaid.

With the help of investors, business becomes more credible & may win new attention from the

lenders networks.

Both loans are good for this company, but BT PLC is well established company. If it needs aloan then long term debt financing is good because in this company has long time like more than

one year. Secondly the loan is taken over the fixed assets.

³Discuss the best way for the management of the company in task 1 to decide whether to

make a new investment.´

Consideration when making a major investment

One of the challenges seen in today¶s society is that some people are panicking and making rash

investment decisions because of the world financial crisis experienced over the past two plus

years. As a result, some of the decisions have led to choosing the wrong type of investment.

With this, individuals actually lose money instead of make it. With any investment, especially a

cash investment, it is imperative to have a plan or strategy in place prior to the investment being

made. Below are just a few of the more important decisions that are Financial Situation andRisk Comfort zone.



Payback Ratio Versus Yield Ratio

According to Carlos Correia, D. F. (2007), the Dividends per Share measures what a

company¶s pays out to investors in the form of dividends. You calculate the Dividends per Share

by dividing the annual dividends per share by the Earnings per Share.

DPR = Dividends Per Share / Earning Per Share

However, if you are a value investor or looking for dividend income then there are a couple of

measurements that are specific to you. For dividend investors, one of the telling metrics is

Dividend Yield.

Dividend Yield = annual dividend per share / stock's price per share (Jae K. Shim, J. G.

(2008).

BT plc normally tends to follow certain dividend trend to signal market of their assessment of

future earnings. Dividend declaration is also part of risk management as it is based on

management¶s assessment of future cash generation and expenditure expectations.

Examination of Profit & Loss account & Balance Sheet

The objective of financial statement is to provide information about the reporting entity¶s

financial performance & financial position that is useful to a wide range of users for assessing

the stewardship of the entity¶s management & for making economic decisions.The income statement is divided into two parts-heading and body.



(www.google.co.uk/search)

Financial statement

In the words of Carlos Correia, D. F. (2007), first of all we see the profit and loss statement,

BT¶s consolidated profit and loss statement clearly shows the total turnover and share from joint

venture and associates, and in doing so gives more clarity of its earning base.



(www.btplc.com)

Balance sheet

According to Eugene F. Brigham, M. C. (2010), as we have seen that the income statement is a

summary of the financial performance of a limited company over the duration of a financial year,

whereas the balance sheet is different. It describes the financial statement of a company on the

last day of the financial year. It is sometimes described as a µsnap-shot¶ of the business¶s

finances on the day in question.

Disadvantages of balance sheet

It can take a lot of time.

It can be a costly process

It only relates to the specific time, not a period of trading.

Occasionally does not give accurate picture on real time basis since invalid data is used



(www.ukessays.com)

Cash flow statement

According to Anthony G. Puxty, J. C. (1988), The cash flow statement shows cash cominginto a company and going out, the raising of capital and the payment of returns of capital and

tax.BT, s cash flow statement has not only got all the headings but they are also in the same

order. BT report also gives sub-categories under the major headings and hence is a genuine

effort to educate investors as much as possible on the generation and use of cash flows. BT

cash flow statement uses the format prescribed for the µGroup¶ account.



.Advantages of cash flow statement

1 It helps the newly formed companies to know their inflow and outflow of cash.

2. It helps the investors to judge whether the company is financially sound or not.

3. It helps the company to know whether it will be able to cover the payroll and other expenses.

4. It helps the lenders to know the company¶s ability to repay.

Both the profit and loss account and the balance sheet are as important as each other and no

single statement is considered to be more useful than the other. To fully appreciate what is going

on in a company the reader of the financial statements needs to not only understand what a

balance sheet and profit and loss account is but also the relationship between the two statements

and how they interact with each other. Cash flow statement is more advantageous rather than the

balance sheet when company is applying for funds.

Conclusion

BT is in telecommunication business where technology change is rapid. BT has acquired

many companies in recent years to keep pace with the technological developments. So it is

important to analyze the acquisition policies and disclosures are in line with the UK Accounting

Standards. BT¶s annual report under µNotes to financial statements¶ gives detailed disclosure of

total and fair value of the acquisitions made by it. BT¶s financial statements not only give the

book and fair value of acquisitions but also a detailed explanation of them for each acquisition.



Reference

BOOKS

Anthony G. Puxty, J. C. (1988). Financial management: method and meaning. London: Taylor

& Francis.

Carlos Correia, D. F. (2007). Financial Management. South Africa: Juta and Company Ltd.

Eugene F. Brigham, M. C. (2010). Financial Management: Theory and Practice. USA: Cengage

Learning.

Jae K. Shim, J. G. (2008). Financial Management. New York: Barron's Educational Series.

Jae K. Shim, J. G. (2008). Financial Management. New York: Barron's Educational Series.

James C. Van Horne, J. M. (2008). Fundamentals of financial management. England: Pearson

Education.

INERNET

http://www.ukessays.com/essays/accounting/bt-cashflow-changes.php

http://www.google.co.uk/search?hl=en&biw=1345&bih=567&tbm=isch&sa=1&q=INCOME+S

TATEMENT+OF+BT+PLC&btnG=Search&aq=f&aqi=&aql=&oq=

http://www.btplc.com/Thegroup/RegulatoryandPublicaffairs/Financialstatements/index.htm

http://www.businessteacher.org.uk/business-accounting-finance/costs-revenue-and-profit/

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