Share Price Performance - Term Paper Example

Share performance review of Barclays Bank Table of Contents Introduction 3 Barclays Bank Plc. 3 PEST analysis 4 Financial analysis 6 Share Price Analysis 10 Conclusion 11 Reference list 13 Introduction The main purpose of the report is to review the share price performance of a renowned public limited company, which is listed under London Stock Exchange (LSE). The performance of such a company is examined so as to invest a nominal amount of £10,000 on the company shares. Barclays Bank Plc. is chosen for investing the amount; however, share price analysis is done in order to decipher the fact whether the company can provide adequate return on the investment in future. To predict the future performance of the share, the past six months price movement is evaluated. The reason for choosing the company lies in the fact that it is one of the most well known financial companies in the UK. The report also recommends whether the nominal amount can be invested in Barclays for purchasing the shares and also sells it at the right time. Barclays Bank Plc. Barclays Bank Plc. offers banking services to about 48 million customers and clients around the world by offering investing, lending and protecting their money. For more than 300 years it has worked as an expert in banking industry (Barclay, 2015b). Investing in Barclays is profitable as it aims at delivering return on equity to the customer, which is higher than the cost of equity (Barclay, 2015c). The future of the institution is based on the international banks, which has four core divisions such as Barclarcard, Personal and Corporate Banking, Investment Banking and Africa Banking (Barclay, 2015a). PEST analysis PEST analysis of banking industry in the UK is discussed henceforth, which helps in identifying the factors and may affect sustainability of Barclays Banks Plc. in the long run. The PEST analysis will help in determining whether the external environment will affect the business of Barclays, which will in turn reduce the rate of return on the investment of £10,000. Political: The stability of UK government affects the business of Barclays to a great extent. Government interference is the key risk that can be encountered by the banking industry in the UK. Hence, like Barclays, other financial institutions such as HSBC and Morgan Stanley have the responsibility to abide by the rules that are formulated by the present government. Hence, the change in power has the ability to affect the business of the banks. Moreover, it is observed that the regulatory environment in the UK is unstable. The Basel rules based on the bank capital requires the banks to hold quality core tier capital equal to 10% of the assets, which is adjusted by risk (European Commission, 2015). Economic: The gross domestic product in the UK has risen by 0.5% from 2013 and the inflation has held the Consumer Prices Index (CPI) at 4.5% and the Retail Price Index (RPI) at 5.2% during 2011 (World Bank, 2015). With the increase in population in the UK, there has been increase in bank accounts, which has brought in cash for the financial institutions (World Bank, 2015) However, the only economic factor that can affect the business of Barclays is inflation; if the income of the individuals decline, there will be less savings and investment in the banks and thus the revenue of the banking industry will decline. Therefore, it is important for the banks to check on this economic variable. Social: The changing lifestyle of the individuals across the UK due to the rise in income has influenced the banking sector to establish new investment techniques so as to help its customers to earn wealth. Therefore, it is evident for the banking sector to gain prominence in the future with the establishment of new schemes and policies in favour of the middle class and upper class clients. Technological: The technological up gradation has led to revolution in every industry as it has added extra cost to the companies and few of them failed to adopt the new tools because of scarcity of money. The banking industry in the UK has to adopt the new banking system so as to satisfy the customers and provide them with high quality services. Barclays and other banks have adopted technological up gradation for offering better solutions to the clients. Therefore, from the PEST analysis it can be stated that the political, economical, social and technological environment in the UK has the ability to affect the sales revenue of Barclays Bank Plc. which may in turn influence the rate of return on the investment of the investors. Nevertheless, it is not advisable to make any investment decision based on the external environment of a company; it is recommended that the company financials are studied for the past three years so as to depict the financial health of the company. It will ensure that the company has the ability to offer higher return on the investment of the shareholders. The following sections highlight the financial analysis and share price analysis of Barclays Bank Plc. Financial analysis Figure 1: Income statement 2013-2014 (Source: Barclays Bank Plc, 2015a; Barclay, 2015c) The income statement of Barclays Bank Plc highlights that the financial strength of the bank has declined over the years from 2013 to 2014 mainly due to decrease in fee and commission income. Though the expense of the banks has decreased over the years from 2013 to 2014; however, the interest income has reduced during the period. Therefore, the decrease in interest income is justified during 2014 may affect the profit of the year; this particular fact is reflected in the profit after tax of the company, which has declined during the period (Barclay, 2015f). Thus, this may influence the confidence of the shareholders for investing in the company shares. The balance sheet will further analyse the liability status of Barclays and whether it has the ability to generate enough return on equity for the shareholders. Figure 2: Balance Sheet (Source: Barclay, 2015a; Barclay, 2015c) The balance sheet of Barclays Bank Plc identifies that total asset has decreased over the years from 2013 to 2014 due to the reduction in cash and bank balance. This indicates that the company have lost accounts of their customers as they could not rely on the performance of Barclays. However, the convincing part for the management of the company is that the liability for the same period is seen to decrease. Hence, it can be stated that Barclays has focused on the decreasing liability value even if they could not increase the asset base. From the figures of assets and liability, it is evident that Barclays has the ability to pay back its liability. Another positive part of Barclays Bank Plc. is that though it could not perform well during 2013 and 2014; but the company has won the trust and confidence of the shareholders, which is reflected in the value of equity. Therefore, it can be estimated that the financial condition of the company is not well enough to offer high return to the shareholders. Share Price Analysis The share price movement of Barclays Bank Plc. can be justified in a number of ways; however, in this project the share price movement of Barclays identified the fact that both the share price of FTSE and Barclays are based on the income of the industry (Barclay, 2015d). Figure 3: FTSE Vs Barclayss(Source: Authors creation) The five months are divided into several weeks in order to understand the major fluctuations in the share price of both FTSE and Barclays. 27/10/2014 to 10/11/2014: In this week, the share price fluctuations of FTSE and Barclays are severe, mainly due to the decrease in demand for the banking services of the company. However, if the performance of the both is compared it can be stated that the share price movement of Barclays is more conservative than the other. Therefore, Barclays have taken decisions strategically when investment is concerned (Barclay, 2015e). 8/12/2014 to 22/12/2014: During the week, there has been severe decline in the share price value of Barclays followed by the industry, may be due to the decrease in demand of the banking services by the customers, which affected the return on share price. 5/01/2015 to 15/01/2015: During the weekdays, it is very difficult for examining whether the price will fall or rise. Hence, it can be said that Barclay’s share prices are seen to improve in 2014. However, the situation was rectified after there was drastic change in the behaviour of the customers toward the banking services. 22/12/2015 and onwards: After 22/12/2015, the fluctuations in the share price are both the same for the two cases; they are upward rising. Hence, the share price is rising along with this there is rise in trust and confidence of the customers. Conclusion It will be advisable to invest in the shares of Barclays Bank Plc. as the company has improved its performance related to the financial liability, which is an important factor. As the company has the ability to pay off its liabilities without harming the working capital; hence, it can be stated that the company can make the effort in improving the present return on equity to the shareholders. Reference list Barclay, 2015a. Investing in Barclays. [online] Available at: [Accessed 18 May 2015]. Barclay, 2015b. About Us. [online] Available at: [Accessed 18 May 2015]. Barclay, 2015c. Annual Reports. < http://www.barclays.com/barclays-investor-relations/results-and-reports/annual-reports.html > [Accessed 18 May 2015]. Barclay, 2015d. Share Price. [online] Available at: < http://www.barclays.com/barclays-investor-relations/share-price-and-dividends.html > [Accessed 18 May 2015]. Barclay, 2015e. Strategy and Operating Environments. [online] Available at: http://www.barclays.com/about-barclays/strategy/strategy-and-operating-environment.html > [Accessed 18 May 2015]. Barclay, 2015f. Barclays. [online] Available at: < http://www.barclays.com/ > [Accessed 18 May 2015]. European Commission, 2015. Capital Requirement. [online] Available at: < http://europa.eu/rapid/press-release_MEMO-13-690_en.htm > [Accessed 18 May 2015]. World Bank, 2015. United Kingdom. [online] Available at: < http://data.worldbank.org/country/united-kingdom > [Accessed 18 May 2015]. Read More