British Telecommunication - Case Study Example

Table of Contents Introduction …………………………………………………………….2 Ratio Analysis……………………………………………………………2-3 Company Funding……………………………………………………….3-4 Qualitative Analysis……………………………………………………..4 Conclusion……………………………………………………………….5 References……………………………………………………………….6 Appendix A – Graph comparing net margin……….................................7 Appendix B – BT Group Price chart last five years……………………..8 Appendix C – BT Debt allocation pie chart……………………………..9 Appendix D- Telegraph website snapshot………………………………10 Introduction British Telecommunication (BT) is a UK based multination telecommunication company that offers its services in 173 countries around the world. The three main products offered by the firm are informational technology, networks, and services. The company generated total revenues from its global operation of 21390 million pounds. There are nearly 37,000 people working at BT. The global workforce of the business is spread across 53 countries. The enterprise provides networks to approximately 25% of the world’s global traders (Bt, 2010). This report on BT is divided into three primary sections. The three parts of the report are ratio analysis, company funding and qualitative issues. Ratio Analysis The revenues of BT during fiscal year 2009 were 21390 million pounds (Annual report: BT, 2009). The revenues achieved in 2009 represent a 3% improvement in comparison with 2008. The amount of free cash flow equals 737 million pounds. The cash position of the company is solid which means the firm does not have liquidity problems. The total net income of BT in 2009 was a loss of 81 million pounds. The amount of cash the company has means the firm could support similar losses nine times. The corporation had poor profitability in comparison with 2008 when the company was able to achieve a positive net income of 1738 million pounds. The four ratios I selected from the Telegraph .co.uk website were net margin, P/E Ratio, Beta, and Diluted Earnings per share. Appendix D shows a snapshot of the information from the website. The net margin of the company was 0.39%. The industry average for net margin in the communication industry is 1.6% (Dun & Bradstreet database. This implies that the profitability of the company was poor in relations to the industry average. The P/E ratio of the BT Group in 2009 was -71.18. The figure is bad because the desirable outcome is to have a positive P/E ratio. The Beta of the company is 1.16. This financial metric implies that the stock price of the company is 16% more susceptible to price movements than the marketplace due to the fact that the average Beta is 1.0. The diluted earnings per share of the company was -2.0. Again this figure is not good since the figure had negative numbers. The prices of the common stock during the last five last years have seen a downward trend. A lot of the devaluation was caused by the global recession which started in 2008. The latest price dip was probable due to the poor results presented in the 2009 financial statements. Appendix B shows a graph of the price of the stock during the last five years. Company Funding The company utilized both equity and debt to finance its operations, but the majority of its company funding comes from lenders. The total debt position of the company is 23092 million pounds. The amount of current assets minus current liabilities equals 3339 million pounds. The long term debt is divided into three categories: non-current loan and other borrowings, retirement benefit obligations, and other non-current liabilities. The corresponding account balances for the three categories of debt are 12,365, 3973, and 3415 million pounds respectively. BT barely uses equity as a funding source. The enterprise has total equity balance of 169 million pound. The debt to equity ratio of 136.6 is a clear indicator that the company prefers debt as its primary source of funding. The use of debt allows a company to grow without diluting the value of the equity shares of a corporation. Debt can be easily obtained without the approval of the board of directors. The problems associated with the debt is that if a company has too much it must have a good cash position to ensure the company is able to pay its obligations. During tough economic times a high amount of debt can be a burden. When companies issue new debt it must consider the cost of acquiring capital. The typical return on investment required by shareholders hovers around 10%. If the money obtained from equity does not exceed the expected return on the investment a company should use equity as form of financing. Qualitative Issues BT Corporation believes in the importance of corporate social responsibility Corporate social responsibility can be defined as the alignment of a company’s activities with social, economic, and environmental expectations of the stakeholder (Sourcewatch, 2010). The four principles included in the company’s CSR program are social inclusion, environment and climate change, sustainable economic growth, and recognition and ratings. Communication technology helps achieve social inclusion by giving individuals and communities the opportunity to participate in the global economy (Bt, 2010). The climate is an important concern for BT because the firm offers a variety of energy solutions. The enterprise has an aggressive carbon cutting program. Since 1996 the company has been able to reduce its carbon footprint by 56% (Bt, 2010). Two important elements of the company’s sustainable economic growth strategy are innovation and integration. The firm has a product criteria program that is followed in order to maintain sustainable practices. The five criteria of the program are long term viability of customers, contribution to well being, materials use and waste, energy use with emphasis on reducing CO2 emissions, and community impact. Conclusion BT Corporation is a company that has been able to expand its business well beyond its UK heritage. The enterprise offers its services and products to 173 countries. As more companies expand into global territories there is greater demand for networking services. In this industry it is important to provide excellent customer services in order to retain clients. The financial ratio performed showed that the company had a bad year in fiscal year 2009 due to year end operating losses of 81 million pounds. Despite its bad year the fact that the company has large customer base is an indicator that the firm can solve its short-term profitability issues. The company funding segment showed the firm mostly uses debt to finance its operations. As a large multination firm the enterprise has an excellent corporate social responsibility program. References Annual Report: BT (2009). Retrieved April 21, 2010 from http://www.btplc.com/Sharesandperformance/Annualreportandreview/Annualreports/AnnualReports.htm Bt.com (2010). About Us. Retrieved April 21, 2010 from http://www.globalservices.bt.com/AboutusLandingAction.do Dun & Bradstreet (2010). Communications Business Ratios. Retrieved April 21, 2010 from Dun & Bradstreet database. Sourcewatch.org (2010). Corporate social responsibility . Retrieved April 21, 2010 from http://www.sourcewatch.org/index.php?title=Corporate_Social_Responsibility Telegraph.co.uk (2010). Quote for Bt Group plc. Retrieved April 22, 2010 from http://shares.telegraph.co.uk/quote/?epic=BT.A Yahoo.com (2010). BT Group plc – Basic Chart. Retrieved April 22, 2010 from http://finance.yahoo.com/q/bc?s=BT&t=5y&l=on&z=m&q=l&c= Appendix A: Graph comparing net margins Appendix B: BT Group Price chart last five years (Yahoo, 2010). Appendix C: BT Debt allocation pie chart Appendix D: Telegraph website snapshot Read More