Describe about the Economic & Financial Analysis For Engineering & Project Management?
Barclays Plc is a multinational banking and financial service organization with its headquarter in London. The financial performance of the company has been analyzed. The performance has been compared with Lloyd’s Plc. The impact of tax policies and the external environmental factors on Barclay’s has been assessed in the paper (barclays.com, 2014).
The financial performance of Barclays Plc will be affected by the external environmental factors. The future performance of the company will be affected by the external environmental factors (Ardalan, 2000).
Political factors
The recent political news does not have much impact on the bank performance.
The growth of Barclays Plc will depend on the political stability of UK and entire Europe. The political instability in UK followed by tensions and turmoil will affect the performance of the banking sector. The major policies implemented by the Government are either in favor or against the financial sector. The monetary and the financial policies affect the performance of the bank significantly. The business model of the organization and the integrated investment banking will find its strength in the existing conditions in the market. The BASEL rules on the capital of the bank which has stated that the Banks need to hold 10% of the total assets as capital, adjusted with risk has to be maintained by Barclays. The financial performance of the company for the year 2014 was poor than the previous year due to conditions prevailing in the market and the low level of activity (Barr, 2002). This tends to impede the growth of Barclay.
Legal factors
The legislations introduced in UK between 2012 to 2014 do not have much impact on the economy.
The legal regulations will have significant impact on Barclays Plc. The “Single Banking License” was implemented by the countries in Europe in the year 1990. This has allowed the banks to branch in a free way in the other countries of Europe. There have been numerous regulatory mechanisms introduced by the European countries that govern the banking sector. This is done for the harmonization of the banking system across the nation. This has resulted in the formation of a single competitive market. However the negative effect of such competition has been faced by the European banks. In order to revive the economy, the government in UK has put pressure on the Barclays Bank to join the British Treasury. Barclays has been charged with lump sum compensation several times. They were caught of allegedly benefitting the companies in UK from continuing business in South Africa. This forced Barclays to pull out of South Africa. The banking regulations were tightened as a result of such scams.
Economic factors
The past demeanors of the traders have forced to charge around 750 million pounds on the bank. The cost cutting for the bank has improved the capital strength and the unwanted assets have been shed. The lack of returns on a timely basis has affected the financial performance of the bank. This has impact on the profitability with rise in nonperforming assets.
The economic condition of the country in which the bank is operating plays a major role in determining the financial performance of the bank. The monetary and the fiscal policies determine the income of the bank for a particular fiscal year. There is existence of large number of private banks in UK. This has increased the competition on Barclays Bank. This has affected the income of Barclays bank. The bank is losing its market share to Bank of Scotland. The competition is regarding better service and rate of interest and other additional facilities. The share price of the company is determined from its performance and service to the customers. The downturn in the economy such as recession results in decline in the performance of the organization (Bayraktar, 2008). This affects the profitability of the organization. The various macro economic factors such as inflation, rate of employment, GDP play a major role in determining the economic policies which determines the performance of the bank. The interest and loan rates are determined according to the fiscal condition of the country (Bankofengland.co.uk, 2015).
Financial factors
The rise in the non performing assets has been a major concern for Barclays. This has resulted in increase in cost cutting of the bank. The profitability of the bank has been affected. The share price of the bank has fallen by almost 3 percent. The share price of Barclays has fallen the most proving it to be one of the weakest banks.
The financial factors such as current account status, fiscal status of the country are a major factor in determining the performance of the company. The global and the local regulatory standards of the market affect the performance of Barclays Plc. The measures introduced by the Central bank are important for determining the performance of Barclays Plc. The unprecedented policies introduced by the Central Bank of UK includes the quantitative easing policy and the near zero interest rate (Bankofengland.co.uk, 2015). The policies were introduced to stimulate growth in the country. There have been further regulatory changes in the form of structural reforms in US and UK that will segregate the activities of the banks. This will result in the creation of a safe working environment. The focus will be on the activities such as funding, liquidity and capital (Broll, Welzel and Wong, 2014). The conduct issues have affected Barclays and the banking sector was adversely affected. This will reduce the trust among the share holders. This will affect the share price of the bank. The trust of the customers can be gained via the introduction of the innovative policies, automotive policies and the minimizing the risk of the banks. Specific risk management strategies and framework plays a major role in dealing with the potential risks affecting the banking sector. The framework will assist the bank in its decision making.
The fluctuations of the exchange rate have significant impact on the growth of Barclays Plc. The profit of the company can be adversely affected by the fluctuation in the currency. It affects the cash flow and the earnings of the bank. The major movement of the exchange rate leaves the bank in a vulnerable situation resulting in the reduction of profitability and reduced value of assets. The economic trends determine the movement of currency. The strengthening of the British economy and weakening of the Euro zone will result in investors selling Euros and buying pounds. This will tend to push up pound further. The interest rate will be taken into consideration by Barclays Plc. The major activity in the foreign exchange market occurs with the borrowing of currency where the rate of interest is low and the investing in the currency where the rate of interest is high. The Central bank and the government play a major role in the determination of the currency value (Barclays.co.uk, 2015).
Strategies to mitigate currency risk
The foreign exchange risk is mitigated by Barclays Bank by the introduction of the following measures.
Barclays Plc has range of products that mitigates and reduces the risk as a result of major movement of the currency. In order to reduce the risk, Barclays has introduced several products which will reduce the risk as a result of volatility of exchange rate. It has introduced option, forward and spot market contracts to reduce the risk of currency fluctuation and the capture the margin opportunities.
The FX needs of the business have been addressed by Barclays Plc by the introduction of the range of solutions. The solutions proactively address to the needs of the business.
The real time trading exchange rate information can be obtained by customers using the online self service platform of Barclays Plc. This provides flexibility to the various transactions in the FX market over the wide range of currencies.
Barclays Plc provides online integrated solutions for online business activity that help to manage the FX risk (Barclayscorporate.com, 2015).
|
2014 |
2013 |
|
|
Profitability ratios |
million pound |
million pound |
|
Gross profit margin |
9% |
10% |
|
Return on capital employed |
3% |
4% |
|
Net profit margin |
3% |
5% |
|
Earnings before tax |
2256 |
2868 |
|
Current ratio |
69% |
82% |
|
69% |
82% |
|
|
454% |
468% |
|
|
178% |
188% |
|
|
Efficiency ratio |
||
|
-136% |
-284% |
|
|
Asset turnover ratio |
2% |
2% |
|
Accounts receivables turnover ratio |
22% |
21% |
Profitability ratios
i. Gross profit margin
The gross profit margin for Barclays Plc for the year 2014 was 9% while it was 10% in the year 2013. The decline in the gross profit margin is a result of difficult market conditions in UK. This has resulted in the low levels of activity (Brigham and Houston, 2004).
ii. Return on capital employed
The ROCE for the year 2014 was 3% while it was 4% for the year 2013. The return on capital employed is a decline in the profit before tax in the year 2014 than 2013. The low levels of activity are the major reason affecting the profitability of the firm.
iii. Net profit margin
The net profit margin for Barclays Plc in the year 2014 is 3% while it is 5% for the year 2013. The decline in the net profit margin is a result of the decline in the income of the bank in the year 2014 due to conditions persisting in the market and the low levels of activity (Brigham and Houston, 2004).
iv. Earnings before tax
The EBIT of Barclays Bank for the year 2014 is 2256 million pound while it is 2868 million pound for the year 2013. The decline is a result of decrease in the net income of the bank as a result of low level of activity.
Liquidity ratios
i. Current ratio
The current ratio for Barclays Plc for the year 2014 and 2013 does not meet the ideal range of the ratio of 2:1. This shows that the company is not being able to utilize its current assets in an efficient manner to repay the current liabilities (Decker, 2005).
ii. Acid test ratio
The acid test ratio indicates the ability of the organization to pay off its current liabilities without using the inventory. In the financial statement of Barclays Plc, no information regarding inventory is provided. Thus it would be same as current ratio (Fridson and Alvarez, 2002).
iii. Trade receivables ratio
The trade receivables ratio for Barclays Plc is much high for 2014 and 2013. This indicates that the company has large number of debtors in the market.
iv. Trade payable ratio
The trade payable ratio for Barclays Plc is high for the year 2014 and 2013. This is an indication that the company making its payment regularly (Guo, n.d.).
Efficiency ratio
i. Working capital ratio
The working capital ratio for Barclays Plc for the year 2014 and 2013 is negative. This is due the increase in current liabilities of the company than the current assets. Thus the company requires managing the working capital in an efficient manner (Helfert and Helfert, 2001).
ii. Asset turnover ratio
The asset turnover ratio for Barclays Plc is 2% for the year 2014 and 2013 respectively. It is seen that the assets for Barclays Plc has increased in the year 2014 due to increase in the derivatives. This is a result of forward rate of interest and the US dollar has strengthened than the other currencies (Hunter, 2001).
iv. Accounts receivables turnover ratio
The accounts receivable turnover ratio of Barclays Plc for the year 2014 and 2013 is 22% and 21% respectively. The ratio shows the ability of the company to collect its receivables in an efficient manner. A higher ratio is always preferable which shows that the company is able to collect its receivables frequently. The ratio for Barclays Plc has been consistent for the two years.
|
2014 |
Barclay’s Plc |
Lloyd PLc |
|
Earnings per share |
(0.7)p |
1.7 p |
|
Gearing ratio |
19.58743443 |
16.13115 |
Earnings per share and Gearing ratio for the year 2014
The earnings per share for the year 2014 of Barclays Plc are negative while it is positive for the year 2014. The earnings per share for Barclays Plc is (0.7)p while for Lloyd Plc it is 1.7 p. The decline in earnings per share for Barclays Plc is due to the decline in the profit after tax for Barclays Plc in the year 2014. The profit after tax for Barclays Plc for the year 2013 was 1297 million pound while it is 845 million pound for the year 2014. There has been 36 % decline in the profit after tax. This is due to the unstable conditions of the UK market followed by low level of activity of the bank for the financial year 2014. The total income of the company has declined in the year 2014 from 28444 million dollars in 2013 to 25768 million dollars. The decline is a result of low level of banking activity in 2014. On the other hand it is seen that the earning per share for Lloyds Plc has been positive. The company has shown a strong financial performance in the year 2014 as a result of its three years strategic decisions that was focused towards delivering the benefits to the customers and the share holders. The company has risen from its loss in 2010 of 0.9 billion pounds to 7.8 billion pounds in the year 2014. The company has reduced its expenses to a considerable extent with lower impairment charges (Paramasivan and Subramanian, 2009).
The gearing ratio for Barclays Plc for the year 2014 is 19.58 while the gearing ratio for Lloyd Plc for the year 2014 is 16.13. The gearing ratio is a measure of the proportion of the borrowed funds to the equity (Phylaktis, n.d.). The high ratio indicates that the company is subjected to excessive debt. A lower gearing ratio is preferable. The gearing ratio for Barclays Plc is high than that of Lloyd Plc. This shows that the debt composition of Barclays Plc is much higher than that of Lloyd Plc (lloyds.com, 2014). This could be a potential risk for Barclays during unfavorable economic and financial condition of the country (Phylaktis and Ravazzolo, n.d.).
The development of the national and the international tax policies will have significant impact on the financial performance of Barclays Bank. The tax rate cut will increase the after tax profit of Barclays Plc. However a tax cut will result in the increase in the federal budget deficit. This will reduce the national savings of the country along with rise in the interest rates. The net impact on the growth will be uncertain. It will have a potential impact on the growth with the reduction in labor supply, saving and investment. However all tax changes will not have same impact on the growth of the economy. The diverse tax policies across the countries will provide the multinational organization incentives to alter the transfer prices. The company has to implement strategies to reduce the impact of the high tax (Chan, Leng and Liang, 2014).
The financial performance of Barclays Plc has been analyzed in the paper. The impact of the external environmental factors on the economy has been assessed. It is seen that the financial performance of Barclays Plc is affected by low level of activity and the prevailing condition of the market of UK. The global financial services of Barclays are governed by the local and the global regulatory standards persisting in the country. The monetary policies by Central Bank will stimulate the growth of Barclays Plc. The future growth of the company will depend on the innovative policies introduced by the bank.
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