• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
Page
  1. 1
    1
  2. 2
    2
  3. 3
    3
  4. 4
    4
  5. 5
    5
  6. 6
    6
  7. 7
    7
  8. 8
    8
  9. 9
    9
  10. 10
    10
  11. 11
    11
  12. 12
    12
  13. 13
    13
  14. 14
    14
  15. 15
    15
  16. 16
    16
  17. 17
    17
  18. 18
    18
  19. 19
    19
  20. 20
    20
  21. 21
    21

Display the financial position of United Kingdom Rolls Royce Plc.

Extracts from this document...

Introduction

In 1998 the aero and space market in the United Kingdom was estimated to be �21.6 billion, contributing over ten percent of the UK manufacturing gross domestic product and two percent of the entire GDP. The bulk of the industry lies in military sales, which amounts to almost half of the product sales of the aviation market. Military sales have helped companies like British Aerospace (BAE) systems, and Rolls Royce become amongst the UK's largest exporters. The aerospace industry has remained strong in difficult periods through the nineties when there were large defence cutbacks and civil airline cancellations. However, it has been the technical excellence and market positioning that has allowed companies like Rolls Royce to widen the capacity of sales, through associations and relationships with traditional rivals and gained entry into new global markets. This has resulted in the UK industry gaining many domestic and foreign contracts for civil and military defence sales. For the purpose of this project the definition of the aerospace industry is focused on and includes the sale of aircraft components, parts and engines, refurbishment work, and all after market services. The refurbishments and after market services are often included in company turnover because they are considered future cash flows. It excludes the systems that support avionics such as air and ground controls, their electronics and the electrical systems on board aircrafts. Rolls Royce has positioned itself as the worlds second largest aircraft maker, closely behind General Electric (GE), but no less a technological leader in the aerospace, marine, and energy sectors of the industry. Throughout recent years the company has built a broader base growing through acquisitions and the expansion of its ample product range. Success has been attributed to the ability to accurately recognize the requirements of world markets and provide outstanding customer and product life support. The Rolls Royce aerospace business makes gas turbine engines for both military and commercial aircraft worldwide. ...read more.

Middle

It can then be viewed as the opportunity cost of capital. Either using the CAPM, or in this case using the dividend valuation model can calculate it. This cost of equity is calculated as the dividend yield for the next year plus the percentage of annual dividend growth. Next years dividend yield is the last dividend that was paid multiplied by one plus the growth rate, divided by the current market value of the shares. Rolls Royce who paid a dividend of 8.00p per ordinary share paid a total of �126 million in dividends for 2000. The company has adopted a growth model with a 10% growth factor and whose shares are traded on the market at 184.25p for a total of �2932 million. Thus, it has an estimated cost of equity of 14.72% per annum. The method used to estimate the cost of issuing preference shares is identical to that of irredeemable loans. However, Rolls Royce does has not issued preference shares and therefore this does not factor into the cost of equity. Cost of Debt Debt capital can be defined as a loan that is made to a company that will be repaid at a future date. This differs from share capital in two major ways. The issuers of debt do not own part of the company, and the payments they receive in the form of interest are a fixed annual rate whereas dividend are not contractually fixed. These payments are placed above equity in terms of payment. With a fixed rate of return, interest payments, a fixed time of payment, and preferential treatment, debt serves as a much less risky form of capital for a company. Short-term borrowings or amounts falling due within one year consist of overdrafts, bank loans, other loans, and obligations under finance leases. The total short-term borrowings undertaken by the company amounted to �272 million for 2000, down from �408 in 1999. ...read more.

Conclusion

Movements in exchange rates of foreign currencies effect both foreign transactions and the conversion of profit and loss accounts. The most significant exposure is that of the US dollar to Sterling. US income accounts for 42 percent of its UK turnover. The company covers its exposure through the continual hedging of standard foreign exchange contracts and currency options against their dollar income. In fact, risk managers tend to use covered option writing as a means of protection. "We do believe that buying and writing of options can complement our hedging policy... We will in no event ever write options if there is no requirement to have the underlying there in the first place... that is we will not write naked options."(Mark Morris, financial risk manager, "No Fear of Options Here," Corporate Finance, July 1994, p. 44) A point of interest lies where Rolls Royce sells sterling puts on the dollars its receives as income. To sell a put when it already has a forward position seems to be somewhat equal to a call option. The company manages its interest rate risk by using interest rate swaps to change fixed rate borrowings into floating rate borrowings in order to match the rates of short-term bank deposits. Commodity risk includes the company's sensitivity to changes in the price of jet fuel. In order to best hedge against changes in the price of jet fuel it has entered into jet fuel swaps. The following report was written with the intent of displaying the financial position of United Kingdom Rolls Royce Plc. An analysis is given using company reported data spanning from January 1996 to December 31, 2000, and statistical data up to the week of December 4, 2001. Market values are based on share price taken November .......The report uses information and has derived calculations from the annual report of 2000. These calculations include that of the dividend policy and growth rate, cost of capital, both equity and debt, and their weighted averages. These calculations, although limited in depth, are fundamental in analysing the company's current financial capital structure. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Finance essays

  1. HBS Case Diageo Plc

    Assuming Pillsbury will be purchased by General Mills during the year of 2001, Diageo will be able to obtain $5.4 billion (�3.5 billion). However, according to exhibit 6 which shows Diageo's liability structure, 3.2 billion pounds of debt are going to be mature within a year.

  2. Financial analysis of Wipro ltd. The ratio analysis of the company has been derived ...

    Thus it is the ratio of Sales to Total Assets. .It is the ratio which measures the efficiency with which assets were turned over a period. Total Asset Turnover Ratio = Sales Total Assets Total assets turnover ratio Year 2003-04 2004-05 2005-06 2006-07 2007-08 Trend 1.5 1.5 1.6 1.5 1.2

  1. A case study: Gordon Bethune and the turnaround of Continental Airlines.

    of bonus-cut offs for the time while the company is in crisis until it can be able to offer the incentives again. It should be indicated that by so doing the company will be saving costs and therefore generating more income for other agent operations.

  2. Merchant Banking-100 marks project

    Both printers and advertising agency should coordinate to get efficiency and economy of time and money. The merchant bankers should go through the final proof of the entire issue material before printing starts. The application form, brochure and press releases as designed by advertising agency should be approved by managers

  1. Fundamental and Technical Analysis on Australia and New Zealand Bank (ANZ) and Singtel shares

    The official growth forecast for 2010 is between 4.5% and 6.5%. Recovery is on its way as seen from the chart, based on the first two quarters of 2010. (www.singstat.gov.sg) (Source:http://www.tradingeconomics.com/default.aspx) Singapore's inflation rate has also always been maintained at a mild level except for the period of 2008-2009.

  2. Project on portfolio management in Mutual Funds. The analysis and advice presented in ...

    (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.At the end of 1993,

  1. This group assignment of Financial Management will assess the positions financial performances for six ...

    4.4.4 Comparison of Investment Ratios Charts 1.12 : Earning Per Shares (EPS) Earning per shares (EPS), is one of the most widely used ratios concerning common stock and mainly used by public companies. As shows on the Charts 1.12, indicates that TSH Resources' EPS have positive values from year 2000

  2. Mergers and Acquisitions

    The effect should be greater than the adding together of P and E as shown, otherwise the equation will have a negative value. This will mean that the merger or acquisition has not had a positive affect and the bidding company has paid in excess for the target.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work