Evaluation of Financial Performance of BT Group plc

This study provides a comprehensive evaluation of the financial performance of BT Group plc, a UK-based international telecom company. It covers the background of the company, its objectives, and a SWOT analysis. The study also includes a ratio analysis of the company's financial statements and compares its performance with two of its main competitors, Telefonica and Deutsche Telekom.

Accounting
&
Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Background:................................................................................................................................3
Evaluate the financial statements and other non- financial information of BT Group:..............6
BT Group plc’s performance over past 3 years compares with two of its main competitors:....8
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
In every organisation, accounting and finance are key aspects of their operational
structure. Accounting involves all the activities dedicated towards classification and recording of
monetary events. Finance includes effective allocation of financial resources and arrangement of
funds. These are most crucial element in business which also help to define business targets and
goals in efficient manner (Andreasch and Lindner, 2014). In this context this study provides an
comprehensive evaluation of financial performance of BT Group plc while covering different
fiscal events. BT Group is well-known UK telecommunication company operating in different
countries.
TASK
Background:
Introduction of Company: BT Group plc is UK based international telecom corporation and
company's headquarter is situated in London,UK. Company is currently operating in
approximately 180 nations. The group is top supplier of telecommunication services like
broadband, fixed line and mobile-telecom services though-out UK, further company is providing
IT-services and television subscription. Company is also a leading telecommunications service-
provider and providing services to individual consumers along with small & medium-sized
organizations as well as public sector. It is selling wholesale items and telecom services to
communication supplier across the world.
BT is today an innovative organization that provides general consumer products and
services via new advanced technology but has also developed a businesses offering of consulting
services and technology solutions to support the company's growth and secure-life in different
markets. BT is strongly committed to identification of its consumer base's primary origin in retail
outlets and therefore concentrates on sales. Nonetheless, a large share of overall revenues
generated in local market remains so that the industry is carefully regulated and invested to
ensure the safety of this industry.
Objective of Company: Company's core aim is to supply world-class and quality
telecommunications and information-technology merchandise and services, as well as to create a
strong networks across the world. For which company has set following objectives:
 Fulfil core requirements of their clients and customers,

 Sustainability in earning growth of entire group for stakeholders, and
 Form a proper attempt towards community in which company is operating business.
But during three year with change in competition scenario, technologies and customer
base company's objectives currently are: boosted speed to market, cost transformation and
consumer experiences. In the next decades BT has a forward-looking, versatile and insightful
network to allow the business to provide communications which match the needs of its
consumers. Company have a quite clear view of where company want to be and now take
specific actions toward this objective. Three primary goals are set by their transformation
scheme:
 To increase customer experience.
 To speed up products to market-times
 To cut down company's cost base.
21CN is designed and intended to provide end-to-end clients with a globe-class experience. It
will create a dramatically streamlined process for BT, boost productivity and enable new
technologies to be introduced more quickly on the marketplace than today. It will allow the client
as never before to be regulated, elected and versatile. It will be made more effective, faster and
more versatile with its new-network to meet market demands. It says that it is much simpler for
consumers to launch digital, networked services and more power and versatility to handle their
accounts through BT and its IT-infrastructure network.
For evaluation of major opportunities and major issues which BT Group plc has faced
over previous 3 years, SWOT analysis of BT Group Plc, as follows:
Businesses face competitive and changing external conditions that are ever more critical
to business sustainability and growth as a result of global economical globalization and the
extensive use of information technologies. As far as political considerations were concerned, BT
was the forefront of telecommunications change in Europe and US, and the UK Government's
telecommunications policy was a major success, particularly for the best option in the area of
control their policies. SWOT evaluates the strengths or strong-points, weaknesses, opportunities
and threats that corporation have to take advantage of to self identify a major strategical niche
(Weston, 2013).
Strength:

It was formed in year-1846 and still services around above20 million business and
domestic consumers in around-over 29 million exchange networks. BT is oldest and well-known
communications company and has an unique brand value in market. It is well known to be one of
Europe's leading suppliers of telecommunications services. Company is continuously extending
its business in new countries as company is listed company and Over around60 percent of
Fortune-Global 500 organisations and over-around 65percent of FTSE-100 organizations are part
of BT Group customer database.
Weakness:
BT's weaknesses are uncompromising and inflexible. Respective company is a big corporation,
so it needs to work line by line, and when meet is the issues it could not adjust easily. Also
company's popularity still drops, since its internet services typically collapsed for longer hours,
taking a lot of times to recover. BT Home Wi-Fi encryption simple to crack. Wired-privacy
equivalent (WEP) and WPA (WI-FI safe-access) configuration keys are generated via the BT
Home-Hub Wi-Fi algorithms. BT Home-Hub-ships with default/configured encryption
codes/keys to encode wireless-network issues and traffic applying WEP/WPA. The algorithm is
however simple and only produces a limited no. of keys which are easy to hack. It is also clear
that the performance of BT renders recruiting and training staff challenging enough (Dietz,
2013).
Opportunity: In the next 10 years, analysts expect a high potential for further development.
More precisely, clients and companies are more expensive than others, and the latest downturn is
beneficial. It is also crucial to remember that there is a significant threat to fresh entries in
industry which allows for even greater growth domestically and globally. Throughout Europe,
BT is well known to bring in new co-operating businesses worldwide. This means that Internet
users grow fast, that BT has the chance to get even more market portion. Reliable free-cash flow
offers investment opportunities in nearby item segments. The corporation has potential to invest
in fresh technologies and in new product-segments with more funding. In many other product
lines Bt Group Plc must be given a chance (Alex and Amos, 2014).
Threats:
The corporation may be sued in distinct markets – distinct laws and continuing variations in
consumer prices in those sectors and markets. Imitation/drawback of counterfeit and low-quality
product-items are also crucial threat to corporation's product particularly in rising or developing

markets as well as low-income markets. Due to the unstable political conditions in many regions
worldwide company's activities in multiple nations it is subject to exchange rates.
Evaluate the financial statements and other non- financial information of BT Group:
Evaluation of financial statements and other non-financial data of a corporation provides
a vital range of information about company's working conditions, financial performance and
other notable aspects about company. The beast way to critically analyse company's performance
while considering financial as well as non-financial aspects is ratio analysis which defines
different elements in company's financial statements (Ghimire and Giorgioni, 2013). In this
context following is systematic ratio analysis of company BT Group Plc with aim to evaluate
financial statements of three years and non-financial data, as follows:
Profitability Criteria: Interpretation of ratios defines company's profitability level. Major ratios
which contributes in evolution of profitability performance of a company are gross margin ratio
and net profit ratio (Kling, Paul and Gonis, 2014). Following are the interpretation of
profitability ratios of BT Group Plc, as follows:
Gross Profit ratio:
Year 2017 Year 2018 Year 2019
Gross profit (%) 95.00% 94.58% 75.29%
This evaluates how much efficiently company is generating income after deducting cost
of revenue. BT group's gross margin has been decreased during the period from 2017 to 2019.
Company's gross profit during year 2017 was 95% which was declined to 94.58% in year 2018
and reached to 75.29% in year 2019, reflecting a decline trend. It means that company's
efficiency to generate gross-profit though its core operations has been declined.
Net Profit Ratio:
Year 2017 Year 2018 Year 2019
Net Profit (%) 7.93% 8.57% 9.22%
This ratio shows how efficient corporation is to generate net income after providing all
expenditures. BT's net profit percentage was 7.93% in year 2017 which has been reached to
8.57% in year 2018 and to 9.22% in year 2019 indicating up-ward trend in net profitability. It
reflect that BT's efficiency to generate net-profits after all the business expresses has been
increased and BT is a profit making corporation.

Liquidity Criteria: Some ratio like current ratio, quick ratio, debt to equity ratio etc. help to
assess and evaluate company's liquidity position. A liquidity position of company reflects that
how much company is capable to handle adverse financial situations (Auboin, Smythe and Teh,
2016). In this regard following are some ratios of BT group for three years and interpretation, as
follows:
Current ratio:
Year 2017 Year 2018 Year 2019
Current Ratio 0.63 0.82 1.09
Current ratio is a short term liquidity ratio which evaluates a company's ability of making
payment short-term liabilities/obligations (due within 1 year). It analysts how corporation can
maximize their current assets to meet its short-term debts or payables (Kapunda, 2016).
Generally a current ratio of 2 is considered as most acceptable ratio. As table shows BT's current
ratio was 0.63 in year 2017 which has been reached to 0.82 and 1.09 respectively in year 2018
and 2019 reflecting up side trend. This trend shows that BT's short-term liquidity position has
been improved in year 2018 and 2019 as compare to 2017. Continuous improvement in current
ratio is favourable indicator for business.
Debt/Equity ratio:
Year 2017 Year 2018 Year 2019
Debt-to-equity Ratio 1.21 1.16 1.45
It is also termed as debt-to-equity ratio which points out towards company's long term
financial liquidity position. A ratio 1:1 is recognised as adequate debt-to-equity ratio. BT Group's
debt-to-equity ratio is more than 1:1 during all three year which shows that company is
financially sound (Bertola and Lo Prete, 2015). Notable thing here is that company's debt-to-
equity ratio has been declined in year 2018 to 1.16 from 1.21 in year 2017, although this ratio
has been improved in year 2019 and reached to 1.45. Overall trend shows that company is
effective in maintaining its capital structure and effectively leveraged.
Efficiency Criteria: It covers evaluation of company's performance in terms of efficiency to
utilise its resources (assets and liabilities) to generate incomes (Eccleston and Gray, 2014). In
this regard, here below is interpretation of several efficiency ratio of BT Group, as follows:

Inventory Turnover Ratio:
Year 2017 Year 2018 Year 2019
Inventory Turnover Ratio 5.78 5.51 19.04
It is vital measure which shows no. of times stock/inventory is sold-out or utilised during
a specific time-period. This is assessed to evaluate whether company has excessive
stocks/inventory comparing to revenue. BT's inventory-turnover ratio in year 2017 was 5.78
which was declined to 5.51 in year 2018, however in 2019 inventory-turnover has been increased
to 19.04. Which indicates that company 's efficiency to control its inventory has been increased
and company is efficacious to generate sales from inventories (McDonald and Rojc, 2015).
BT Group plc’s performance over past 3 years compares with two of its main competitors:
BT Group Plc is operating in telecommunication industry in which company is facing
competition from several competitors. In this industry competitors are few but large in
infrastructure and resources. Company's top competitors are Telefonica and Deutsche Telekom
which are giving tuff competition to company in telecom sector (Baldacchino, Bartolo and
Grima, 2017).
As per the attached common size statements (Attached in Appendix) of BT and its two
selected competitors it has been evaluated that BT is at effective and substantial position in
industry competition. Company's shareholder equity proportion in total assets are 14.02%,
13.89% and 21.97% respectively in year 2016, 2017 and 2018 while its competitor Deutsche
Telekom's shareholder equity proportion has been reached from 21.09% to 23.27% during the
same period and Telefonica's shareholder equity percentage has been increased from 16.01% to
17.09%. This reflects that Deutsche Telekom's equity has been grown faster than BT group plc.
BT group's current asset proportions are 10.99%, 1125% and 22.56% during 2016, 2017
and 2018 respectively. Whereas Deutsche Telekom's current-asset proportions are 17.94%,
14.43% and 15.04% during same period and such proportion in case of Telefonica are 16.15%,
17.32% and 20.47% during same period. Comparison shows that BT group's liquidity position
has been improved more rapidly as compare to its competitors. While total current liabilities
proportion in BT group are: 14.88%, 13.73% and 20.74% respectively in year 2016, 2017 and
2018. Deutsche Telekom's current liabilities percentage are 23.84%, 21.12% and 21.94% during

same period and such figures in case of Telefonica during same period are: 31.26%, 27.59% and
28.23%. This scenario about current liabilities position shows that BT Group's current liabilities
portion has been increased during the same period.
On other side comparison of income statements of BT and its competitors shows that
company's gross margin percentage are 94.54%, 95% and 94.58% during year 2016, 2017 and
2018 respectively. While gross margin during same period of Deutsche Telekom are 70.71%,
71.12% and 71.22% respectively, and of Telefonica are 52.14%, 52.17% and 52.57%
respectively. In comparison of its competitors BT Group's gross margin are higher but a slight
decrease has also been reported.
Operating margin of BT group are 61.62%, 66.88% and 68.14% in year-2016, 2017 and
2018 respectively. Deutsche Telekom 's operating margin are 7.81%, 8.74% and 10.18% and
Telefonica's net-operating margin are 10.37%, 12.80% and 13.65% during same period. It
reflects that operating margin of company is higher than its competitors and also has reporting
growing in operating margin. Net-profit before tax margin of BT Group are 15.91%, 9.78% and
11.03% receptively during 2016,2017 and 2018 respectively. While EBT margin of Telefonica
are 6.24%, 8.84% and 11.44% and of Deutsche Telekom are 6.22%, 6.66% and 6.84% during
same period. These margin shows that BT Group plc has EBT margin more than its competitors.
However a declining trend has been reported in EBT margin of BT Group.
CONCLUSION
The above discussion provides a clear picture of accounting and finance subject to
maintain an ethical structure of accounting and finance. After comparing three years of financial
statements of BT Group Plc with its competitor presents an understanding of effective and
efficient accounting formation for sustainable success. From all the evaluations and analysis
conducted in study it has been concluded that BT Group Plc is financially sound and efficient to
generate profits from business. In industry, company's financial performance is much more better
than its core competitors. Company's strengths and opportunities indicates that company will set
significant benchmark in telecommunication industry in near future. So it has been
recommended to the board that they should back a new joint venture with BT Group plc.

REFERENCES
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Alex, K. and Amos, A., 2014. The role of financial literacy in promoting children & youth
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APPENDIX
Common Size Financial Statements: