Corporate Finance                Coursework Assignment

Table of Contents

Table of Contents ………………………………………………………………………... 1

Introduction ……………………………………………………………………………… 2

Analysis of Company Performance ………………………………………………………4

Source of Long Term Finance and Shareholders Wealth ……………………………….. 9

Conclusion ………………………………………………………………………………11

Bibliography …………………………………………………………………………… 13


Introduction

British Telecom is one of Europe’s leading providers of telecommunication service. Its principal activities include local, national and international telecommunication services; the company provides local and long-distance telephone call products and services, international calls to and from the UK. In addition this company also provide higher-value broadband, and internet products and services and IT solutions. In the UK BT serves over 20 million business and residential customers with more than 29 million exchange lines, as well as providing network services to other network (BT Group PLC annual report). The company which has a motto ‘delivering today, investing for tomorrow’ is a public limited company registered in England and Wales, with listing on the London and New York stock exchange. In addition according to the BT annual report, BT is the UK’s largest communication service provider market share. In addition BT group plc also covers BT Global Service, BT Retail, BT Wholesale, BT Exact and BT Openworld.

Starting in 1981, the postal and telecommunication service of the Post Office become the responsibility of two separates corporation, with British Telecommunications (under the trading name of British Telecom) taking over the telecommunication business. In 1984, as a result of telecommunication act, British Telecommunication plc was incorporated in England and Wales as a public limited company, and wholly owned by the UK government. Afterwards, from 1991 British Telecommunication traded as BT. In 1999, BT acquired full control of Cellnet (now O2UK) by acquiring Securicor’s minority holding. Eventually, on November 2001 BT completed the demerger of mmO2 comprising what were BT’s wholly-owned mobile assets in Europe. (www.btplc.com)

To analyze this company whether this is under, over or fairly priced, the portfolio will cover the following area, those are analysis of company performance using accounting statements and ratio analysis, sources of long term finance, gearing and shareholders wealth, dividend policy, and mergers, acquisitions and corporate restructuring. The accounting statements that we will be looking are the balance sheet, income statements and cash flow. Next, we will cover the ratio analyses which are the liquidity and control of working capital, long term solvency and long term investment, profitability, returns on capital, investment ratios and trend analysis. Moreover, to analyse this company performance we need to compare with another company in the same industry, which is Deutsche Telecom.

As there are limitations to analyse the company, there are some basic assumptions to cover. There are several basic assumptions that have to be taken into account to analyse the company. Firstly, there is a time constraint in preparing this portfolio; secondly, the analysis is only based on Bloomberg, BT annual report which can be accessed from btplc.com to monitor the progress of the company and Deutsche Telecom annual report. The last one is that writer has no previous experience in the investment world. Moreover, most of the result of that will be analyzed is based on the BT Group plc 31 March 2004 annual report.

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Analysis of Company Performance

As it has been mentioned in the previous chapter about how this company is going to be analysed, we will firstly look at the accounting statement at 31 March 2004. Firstly, we will look at the profitability ratios, which are concerned with the effectiveness of the business in generating profit (McLaney, 2003). Those ratios are return on assets (return on capital employed), return on equity (return on shareholders’ funds), gross profit margin, and net profit margin.

In the return on assets ratio we are considering the effectiveness of the assets financed ...

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