Financial Performance Analysis - Barclays PLC - Case Study Example

FINANCIAL PERFORMANCE ANALYSIS and Introduction Many public organizations operate internationally in various sectors. These companies have offered continued goods and service delivery over the centuries. This paper will analyse two such organizations majorly dealing in the United Kingdom with an interest in their financial performance since they were founded until to date. These companies are Barclays PLC and Standard Chartered PLC. Both companies offer services in the financial sector and hence it will be easy to compare, analyse and formulate conclusions of this analysis. Before getting to the analysis, this paper will provide a brief background of the two companies and their roles in the international market. Background Barclays PLC is a company that has been in existence for over 300 years now. Two goldsmith bankers, John Freame and Thomas Gould in Lombard Street, London, founded it. Thereafter in the 1890s, small private banks were unable to compete with the large joint stock banks which came together to form Barclays and Company Limited. The bank grew through further amalgamations until the year 1920 when the Treasury barred any further amalgamations between larger banks. In that year, it was ranked the third among Britain’s big five banks. Barclays spread their ambition across the world by launching operations in other countries through mergers with local banks. This led to increased employment especially in the 1950s such that by 1962, there were more women employed by Barclays than men did. There were major changes that occurred as the bank continued to grow such as changes in its operations and appearance of branches. This was owing to the improved need for change in the technology they used. There was also a wave of improved new services by banks across the world that led to the company engaging in large-scale advertising to attract new customers. Continued amalgamations and mergers led to the bank changing its name to the current Barclays PLC. Until now, the bank has been on the forefront to offer financial, personal, investment and corporate banking as well as management services. On the other hand, Standard Chartered PLC is also a bank, which has been in operation for over 150 years starting in the United Kingdom. Its headquarters are at 1 Basinghall Avenue, London. Standard Chartered Bank was created in 1969. This was through the joining of two banks; the Standard Bank of British South Africa and the Chartered Bank of India, Australia and China. It is one of the leading banks in the UK and is listed on London Stock Exchange since 1969. It offers an extensive variety of banking and economic services, targeting its home market and the international market. It has branches across the world mainly in Asia, Africa and the Middle East countries. The Prudential Regulation Authority as well as the Financial Conduct Authority regulates it. It is among the top five largest banks by market capitalisation. Current market These two banks are among the top five banks in the UK and they share the same competitors. Their main competitors are HSBC Holdings, which is the top UK bank, Royal Bank of Scotland Group, which is ranked at third place, and Lloyds Banking Group, which comes in at fourth place according to UK financial investment names bank analyst. With over 50 countries of operation, Barclays PLC has continued to improve their profitability and market share. In addition, Standard Chartered has over 70 markets in the world, which has greatly improved their financial performance. Analysis and Discussions Taking a descriptive analysis on the most recent annual reports of the two companies according to (Robinson, 53), Standard Chartered PLC has among other things, evident performance indicators. These key indicators of performance are as follows: 1. Deliver consistently superior performance via disciplined growth. Their normalised earnings per share and return on equity dropped slightly due to the decline in profits in 2013.However, their dividend per share increased by two percent. 2. Focus in Asia, Africa and the Middle East, which amounts to more than 90 percent of their revenue. 3. Build trusted connections with clients. The bank has continuously increased its customer relations. 4. Maintain business strength to support their aspirations. This is because their capital ratios continue to be strong indicating that they have good levels of equity generation, which will enable them to cope with the evolving environmental regulations. 5. Protect the surroundings, promoting sustainability of the economy and in social growth. The bank attained better energy efficiency, which was relative to the annual revenue For the past three years One year into the transformed, ‘Go To’ Barclays bank, the company is performing relatively well despite the many challenges that come with restructuring of a company (Lawrence, Weber & Post,73). The 2013 annual report shows that lending to UK households and businesses has increased while the dividend per share was maintained at 6.5 percent form 2012. This is good progress despite the challenges they are facing during this transformation that is only a year old. These challenges include tough regulatory environment, higher customer and client expectations and subdued economic growth. The analysis of the most recent annual reports show that the two companies have made a positive progress in financial performance. This is amid the changes and developments that are existent in the financial sector. However, both companies have embraced the changes well and suitable measures have been engaged to deal with them. According to Florczak (12), there have been various changes and developments in the financial markets that have led to companies having a focus on sustainability, corporate governance and use of latest technology. These changes include the increases of regulations, the need to uphold sustainable development, protecting the environment, a wide range of customer needs that are to be met, consistent competition and corporate governance as claimed in (Monks & Minow, 26). The Standard Chartered bank has embraced these changes in a positive way. Firstly, it has contributed to sustainable economic growth through providing loan services to small and medium-sized enterprises. This is in an effort to promote economic growth from the small companies by extending financial capital. Secondly, it has enhanced its responsibility through minimising customer complaints from the previous years. It has also trained most of its staff on the Group code of conduct that helps improve efficiency of its staff. According to West, Ford & Ibrahim (29), this has helped increase its customer and client relations in a great length. Finally, Standard Chartered bank has invested in communities in a bid to support corporate accountability and sustainability. This has been done through various programs such as providing eye-care for the community in several countries, supporting girl-child education, empowering the youth through life skills and sports, meeting the needs of Muslim clients among other programs. Likewise, Barclays PLC has embraced these changes through its ‘Go To Bank’ strategy. This has been done through building a client-focused, socially constructive bank that spawns greater and sustainable returns. According to (Singleton,11) due to the increasing customer demands, the bank has introduced the Enterprise Risk Management Framework that helps clients strategize on risk management, which has been a current trend in the business world. The bank has a Balanced Scorecard strategy (Olive, 45) that outlines the commitments and expectations of all stakeholders in the next five years. Comparison Report A critical analysis of the financial statements of the two companies published in their annual reports show different results. According to Helfert (24), a company’s profitability is the main financial performance indicator. In terms of profitability, Barclays PLC performed better since its profit before tax increased from 797 million Euros in 2012 to 2868 million Euros in 2013. This shows an upward trend in profits that may be attributed to their increased customer base and better strategies. This is opposed to the reverse situation in Standard Chartered bank that posted a decrease in profit in 2013 compared to that reported in 2012. Its profit before tax was 6064 million Euros down from 6851 million Euros. This is as summarised in the table below. Company End year results 2012(million Euros) End year results 2013(million Euros) Barclays 797 2868 Standard Chartered 6851 6064 It is clear that Barclays PLC performed better in relation to profit after tax reports. Further analysis shows that for both companies, their level of equity increased due to issue of additional shares and more reserves. Barclays bank reported an increase in its equity at 63949 million Euros from 59986 million Euros. Standard Chartered bank also reported an increase in Equity at 21614 million Euros up from 21468 million Euros. This analysis shows that their liquidity levels increased due to the increased equity. An annual ranking report shows that in 2013 Barclays bank was ranked second place among the top five banks in the UK compared to Standard Charted that came in fifth place. Therefore, both companies performed better compared to their previous year results Barclays PLC being at the top compared to Standard Chartered PLC. Below is a table showing the comparison between the two companies based on equity levels. Company End year results 2012 (million Euros) End year results 2013 (million Euros) Barclays 59986 63949 Standard Chartered 21614 21468 In general, Barclays PLC performed better than Standard Chartered PLC based on various financial factors. Such as equity and profits earned. Conclusion This paper has critically analysed the two companies’ financial performance and their response to various changes and developments in the financial sector. It has concluded that the two companies have had a steady growth in both size and market share across the world. This has been done majorly through mergers and amalgamations within the law. Their increased sizes and market share has opened up opportunities for investment and employment for many people around the world. It is worth recognizing that the two banks started small and currently they have grown to be icons in the financial sector amid challenges of regulations, capital and the dynamic technology in the world. Both banks have embraced the current technologies such as mobile banking and internet banking. Through their innovations, the banking sector has been revolutionized greatly. Issues of sustainable development and corporate governance have been handled well by the two companies. Recommendations However, there are certain recommendations that would enhance more growth and profitability to the two companies, which are; 1. The two banks should increase their investment on corporate responsibility. This is because; it has long-term effects to an organization and will further gain public confidence and preference. 2. The two banks should also invest heavily in its human capital in the information technology segment so that they can come up with better innovations and cope up with the current trends in the market. 3. Barclays PLC should invest more on small and medium sized enterprises in less developed economies by extending their loans to them. This is because, according to (SME financing gap handbook, 10) it would diversify their product base and offer a wider platform for increasing their markets. This is because the analysis shows that the bank specialises on corporate products for high-end companies. 4. It is also recommended that for the new strategy of Barclays bank to be the ‘Go-To’ bank should be put in the public domain for its customers to understand its values and effects to the financial performance of the company. This will also attract potential customers to the bank. 5. For Standard Chartered bank, it would be most appropriate if the company will increase its capital base in order to compete better with the other big five banks. This is because the bank has very good operational performance, which if boosted by more capital.it would see the bank being ranked at a higher level. Limitations This paper has undertaken the analysis of the two companies based on their growth, market share, profitability and liquidity levels to review their financial performance. Hence, the method of analysis may have a few shortcomings. One of them being that the companies operate in different markets, which are affected by different factors such as political, legal, social, economic and environmental factors, which this paper did not take into account. It was assumed that the financial performance of the two companies can be analysed holding all other external factors constant. This is because this paper would have deviated from its main purpose if such factors of different countries were taken into account. Secondly, the paper has examined companies, which operate in the same industry that is the financial sector. The limitation is that the results of the analysis may have been different if companies from different sectors were chosen. References A History of the Standard Chartered Bank. 1980. London] ([10 Clements La., E.C.4]): Standard Chartered Bank. DePamphilis, D. M. 2008. Mergers, acquisitions, and other restructuring activities (4th Ed.). Mishkin, F. S. (1998). The economics of money, banking, and financial markets (fifth Ed.). Reading, Mass.: Addison-Wesley. Amsterdam: Elsevier/Academic Press. New journal on sustainability from M.A. Liebert... 2007, June 1. Business Publisher, 3, 45. Olive, N. 2003. Making scorecards actionable: balancing strategy and control. Chichester: John Wiley and Sons. Singleton, J. 2011. 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