CRITICAL ANALYSIS

Critical Analysis of BT Group Plc



Executive Summary

This report focuses on the financial performance of BT Group for the last 4 years that are from 2008 to 2011. This report analyse and compares the financial performance of the BT group with its major competitors in relation with profitability, working capital management and gearing ratios. The overall telecom industry is performing good worldwide and there exists a tough competition. Big telecom companies from major countries are fighting for larger market share. BT Group's performance is very competitive. BT Group's strong customer base and diversification strategy are making it capable to achieve the planned objectives in the coming year. The quick development of world financial market demands coordination of accounting standard and approach around the globe, due to which many developments are made in IFRS. This greatly influence the availability of the financial information for analysis, evaluation and reporting. Like many major corporations, the BT group has also updated itself with the standards and make available all the necessary information required to the internal or external stakeholders.

Critical Analysis of BT Group Plc

Introduction

This report critically analyse BT (British Telecom) Group's financial performance, working capital management and gearing for the period of last four years. Finanical ratio analysis has been performed to anlayse the company's performance. The group's performance is compared with its competitors in the same industry during the same period. The profitability, liquidity, working capital management and gearing ratios are compared to analyse the performance of the companies. The report also evaluates the result of financial analysis and critically examines the ability to achieve its objectives based on its strengths. The report also discusses the developments in Finanical Reporting Standards (IFRS) and its effect on the financial information available for performance analysis in the perspective of BT Group.

Part 1: Financial Performance

Profitability Ratios

Profitability ratios are those ratios that cover all the ratios that compare the profits of a period with certain items of Income Statement and Balance. Their results materialize efficiency in the management of the company, i.e. how managers have used the resources of the company. They are widely used to assess the financial - economic activity of enterprises of all industries (Vandyck, 2006, 101). These ratios tell the company that how good it is for the company to increase further funds or not. The profitability ratios were good in 2008 then greatly decreased in 2009. The company started to increase from 2010 and is now in good position. BT Group has increased its ROCE in the last 4 years from 11.97% in 2008 to 15.62% in 2011 The asset turnover was controlled at a close level of around 0.75 in that particular period (See appendix A for detailed table).

Liquidity Ratios

The liquidity ratios are used to judge the ability of a company to meet its short-term obligations, since they can get a lot of evidence about the solvency of the company's current Cash and ability to remain solvent in the case adverse situations (Giles & Capel, 2004, ...