Financial analysis usually deals with comparison of current year's performance with the previous year's performance. This is accomplished by mathematical tools known as ratios.
British American Tobacco Company was formed as the result of a joint venture between Imperial Tobacco Company and the American Tobacco Company. It produced 853 billion cigarettes in 2004. The group employs a staff complement of more than 90,000 people worldwide.
An analysis of the financial statements of the British American Tobacco will assist in establishing the success, failure and progress of the establishment.
Trend analysis is useful in the analysis of company accounts over a series of years. The analysis is applied to a five –year or ten - year summaries supplied in company accounts. The technique gives a quick rough guide to specific trends in the individual items in the financial statements.
[...] Shareholder's ratio = Shareholders funds Capital employed Capital employed = Fixed assets + working Capital = 11,568 + -6,152= 5,416 = = 0.96 This represents the proportion of capital employed that is made up by shareholder's funds. In the case of British American Tobacco, the company heavily relies on equity finance to for its activities. Investment ratios: Ratios such as dividend payout ratio are of great interest to investors. The Dividend Payout Ratio = Yearly Dividend per share Earnings per share = = 0.5 The dividend payout ratio for British American Tobacco is only dividend which could be attributed to British American Tobacco's focus on developing new products, new processes [...]
[...] Calculation % operations tax In the case of British American Tobacco, operating profit dropped by from 2003 to 2004, dividend distribution reduced by 25%. The reduction in operating profit could be attributed to the United States on going costs of a United States Dollars up to $500 million annual cap for the first five years. The writing off of investment costs and restructuring costs considering the uncertainty and difficulties in establishing a major strategy. Dividend reduction can be explained by the 59 million shares that were purchased in 2004 for cancellation at a cost of 492.6 million. [...]
[...] Balance sheet ratios measure liquidity and solvency (the ability of the business to pay their bills) and leverage (the extent to which the business depends on creditors funding). Balance sheet ratios include: Liquidity ratios; they indicate the ease of turning assets into cash and include the current ratio, quick ratio and working capital. Current ratio = Total current Assets /Total current liabilities = 6,108/12,260 = 0.50 In cases where the value is greater than unity, current assets value exceeds current liabilities. In the case of British American Tobacco, the value of the current liabilities is more than the value of current assets. [...]
[...] British American Tobacco should increase current assets from new equity contributions, pay some debts convert noncurrent assets into current assets and put profits back into the business. Quick Ratio: The Quick ratio is a much more exacting ratio than the current ratio. By excluding inventories, the quick ratio concentrates on the liquid assets whose value is certain. The quick ratio answers the question of whether the establishment can meet its current obligations with the readily convertible quick funds on hand in the event that the sales revenue disappears. [...]
[...] = Capital Employed Shareholders funds = = 3.38 In the case of British American Tobacco, the capital employed is only bigger than the shareholders funds, which means that the assets funded by sources other than the owners increase the profit of the company by a small percentage relative to the shareholders funds. Operating level ratios: These include the Return on Capital Employed (ROCE), which is an important measure of profitability. It is a good indicator of management efficiency because it contrasts net profit with total value of fixed and current assets. [...]
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