International Finance BMG704 Assessment CW1

This report contains the details of Airbnb company which is a public company registered in the U.S. This company works in the global market, room rent on vacations, and conducts tourism activities. The total revenue of Airbnb through the hotel industry was 5.99 billion U.S. Dollars in 2021. The report covers recent developments in the international environment that have impacted the business, dividend policy and sources of finance, and financial performance analysis through ratios.

INTERNATIONAL
FINANCE BMG704
ASSESSMENT CW1

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK...............................................................................................................................................3
a. The two recent development in the international environment which has impact on the
recent business and develop impact in future. .......................................................................3
b. Dividend policy and sources of finance.............................................................................5
c. Analyse the financial performance to calculate ratios........................................................7
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
International finance interplays the role between the two countries. It focuses on foreign
direct investment and calculating the exchange rate of different countries (Agarwal and et.al,
2020). To increase economic interaction, the company’s focus on international finance. This
report contains the details of Airbnb company which is a public company registered in the U.S.
This company works in the global market, room rent on vacations, and conducts tourism
activities. The total revenue of Airbnb through the hotel industry was 5.99 billion U.S. Dollars in
2021. The recent development of Airbnb affects its dividend policy. Airbnb provides services for
a short period at a lower cost. It earns revenue from host commission and guest services. Airbnb
has developed in the market because it provides a platform for stays worldwide. The company
share price is lower as compared to IPO value. It distributed the dividend to its stakeholder as
regularly.
TASK
a. The two recent development in the international environment which has an impact on the
recent business and development impact in the future.
Development means introducing a new change to change the situation. Development is
not simply a word it is no interaction between two people. It includes the natural environment
and converts the natural resource into cultural resources from the point of view of the economy.
The purpose of development is to increase the quality of life and expansion of local regional
income and increases employment opportunities (Al and et.al, 2021).
The first major development in Airbnb has taken place is in form of innovation that enhances
good customer experience. Three fundamental shift have been bought in travelling, to make it
more flexible less stressful. Says Brian Chesky, Co-founder and CEO of Airbnb, “People can
travel anytime, they are travelling to more places and they are staying longer”. There is new
feature introduce in the app that flexible date, matching and destination. This feature provides the
customer to decide everything according to their need and desires. Whenever they want they
alter and change package according to there will and wish. All this is done to increase the
customer satisfaction .

This is also had make things easier for the host with the new booking process. Information
technology automatically arrange the photos of the rooms and destination according to the guest
desires. This resulted in 50% reservation in four days. Which is really good for the host.
The second development in the global environment that has affected the performance of
Airbnb is Covid-19. Before Covid-19 Airbnb achieved growth in European cities. In the second
quarter of 2020 Airbnb, the revenue growth is 61%. Due to a global public health emergency by
the world health organization from January to march the coronavirus outbreak was greatly
disrupted. The travel bans, event cancellations, and become social distance to reduce the virus
impact, tourism and travel activity decreased so that bookings of Airbnb cancel. The strategy
made by Airbnb is to increase its financial performance (Arner and et.al, 2022).
The opportunities are made by the manager of Airbnb to recover the demand which is fall
between march to august of 2020. Airbnb will reduce the demand for international travel bans
and increases demand for domestic travel such as in china and the united states. This may
become better placed to regain booking and nonmetropolitan areas may spur people to be more
interested in vacation so that Airbnb recover income in the future.
 Airbnb should evaluate the host and focuses price with the competitors so that demand
for listing is based on tourist and the listing's placing on the search rankings.
 Taking great photos is an important factor of Airbnb because host improves their
experience on Airbnb.
 Airbnb comes to IPO so that investors can invest in Airbnb company and will expire
employee stock option due to IPO.
b. Dividend policy and sources of finance
Dividend Policy- It is the policy which decides about the distribution of surplus profit
earned by the company. There are many types of dividend policies such as regular dividend
policy, irregular dividend policy stable dividend policy, and no pay dividend policy. In a regular
dividend policy, the shareholder gets dividend every year, the stable dividend policy only the
fixed percentage of profits paid to its shareholder. In this policy, the shareholders are uncertain
because they are not known what amount of dividend is received. In an irregular dividend policy,
the company does not obligation to pay the dividend to the shareholders (Brunstein and et.al,
2019). Expected dividend yield for the company is between 39.1% - 43.6% in the year 2020
which is lesser than the year 2019 that is 41.8%-44.3% . the dividend yield for the company is

declining by the year. Returns that the shareholder expected term from the company is 5.1%-8%
in the year2020
Dividend theory of Airbnb- This theory explains the pattern between payment of dividend to
the customer and various factor that impacts this decision. Advanced technology have given lots
of company heights in the business. Airbnb is one of such company which do not believe in
payment of dividend rather pay the share\holder in form of increased stock price.
The no dividend policy applies here. The preference share of Airbnb has redeemed in the
year 2020 and the company has not paid the dividend of the equity share. The company has not
sufficient profit to pay the dividend. The Airbnb company does not pay a dividend which means
the company reinvests the money so that it increases the growth and expansion of the company.
In the year 2019, the preference shareholder has the right to receive a dividend but in 2020 the
preference shareholder redeems their shares. The equity shareholder does not want to receive the
dividend because they want to increase the company stock value. The increased share price is
more valuable to pay the dividend (Brunstein and et.al, 2019). Key elements of the international
finance and risk management strategy- There are three types of key element activities are
performing by Airbnb -
 Operational excellence.
 Innovation of the guest base
 Improving existing value.
Airbnb is not without its risk so they perform the following risk management strategy.
 To take the feedback of the guests so that cover those places and acquire the insurance to
reduce the risk.
 To complete home with the safety inspection.
 Before they enter the guest in the home verify all documents such as passport and address
proof and review in social media accounts.
Source of finance – To perform the business activity to get the fund as equity share or long-term
fund.
The Airbnb company finance through share capital and debt. The equity share capital of
Airbnb is $(807685) and $2901783 in the year 2019 and 2020. The company issued preference
share 3231502 in 2019. The company issued a debenture for the fund. The noncurrent liabilities
are $271164 and 203470 in the year 2019 and 2020(Huang and et.al, 2022).

The equity component- The issued capital is $26 and additional capital issued of
$617690 and $8904791 are stated in the balance sheet of Airbnb. The accumulated
comprehensive income ($4410) and $2639 in (2019 and 2020) accumulated deficit is ($
1420991, $6005707) in the year 2019 and 2020.
To compare with figures for the last two years Airbnb has issued more capital as
compared to 2019 but increased the accumulated losses.
Shareholder equity and
preference
preference share
Issued equity share
Additional paid-in capital
Comprehensive income
Accumulate deficit
Total equity share capital
The year 2019($)
3231502
26
617690
(4410)
(1420991)
(807685)
The year 2020($)
60
8904791
(2639)
(6005707)
2901783
The gearing ratio of Airbnb in the years 2019 and 2020.
2019($) 2020($)
Gearing ratio =
Noncurrent
liabilities*100/Noncur
rent liabilities + Total
equity
652538*100/
652538+2423817 =
21.21%
2479937*100/2479937+2901783=
46.08%
The gearing ratio shows 21.21% in the year 2019 and 46.08% in the year 2020. Airbnb
has more than 50% equity share existing in capital structure in the year 2019 but in the year 2020
the share capital was more than debt but debt level has increased in the year 2020 as compared to
2019.
WACC and Capital structure theory: The debt of the Airbnb company shows very high on the
balance sheet the relevance of the net income theory of capital structure. According to net
income capital structure if the debt value increases and the cost of capital is lower the result to

increase in the firm value. The Airbnb capital structure is not optimum because the year 2020
accumulated deficit shows more (Ibrahim, M.H., 2018).
Airbnb has a negative operating cash flow of $629732 and sold, maturities of its
marketable securities of $1348173, and $1810052 the company has no liquidity to payment of its
debt. The accrued interest expenses in the year 2019 and 2020($9968, $171688). The net results
of Airbnb are negative operating cash flow.
Cash Management and Liquidity Risks- In the year 2020 during the covid period the
decreases in tourism and guest services. The company issued debt so that the cost of borrowing
has increased. Airbnb reduces the negative operating cash flow by increasing the services for
tourism so that revenue will have increased (International Finance Corporation, 2019).
c. Analyse the financial performance to calculate ratios
Ratio analysis of Airbnb in the years 2019 and 2020
Profitability Ratio- It measures the operational efficiency of the company. It includes the Gross
profit margin ratio and net profit margin ratio.
1. Gross profit margin ratio- It ratio shows that the company earns profit after payment of
direct costs.
Year2019 amount in ($) Year2020 amount in ($)
Gross profit margin ratio-
(Revenue-Cost of goods
sold)*100/Revenue
(4805239-1196313)
*100/4805239 = 75.10%
(3378199-876042)
*100/3378199 = 74.06%
Comments- In the year 2019 Airbnb earns 75.10% gross profit and in the year 2020 the
gross profit is 74.06%. In the year 2020, the company earns less revenue as compared to 2019.
The company should make a good strategy and increases its revenue and reduce the cost of
goods sold.
2. Net profit Margin – It shows the relationship between net profit and sales of the
business (Ivanovich, K.K., 2020).
Year2019 amount in ($) Year2020amount in ($)
Net profit margin ratio- -674339*100/4805239= - -4584716*100/3378199 =

Net profit*100/Revenue 14.03% -135.71%
Comments- In the year 2019 the net loss is 14.09% and year 2020 the net loss reached
135.71% it means in the year 2020the company has not earned revenue to meet all expenses. It
indicates the negative returns from the company and the company reduces its indirect expenses
on sales and marketing.
Liquidity Ratio- It is also known as the short-term solvency ratio. It shows the company's
ability to pay its short-term liabilities (Jia and et.al 2018). It includes-
1. Current ratio- the company has enough assets to pay its liabilities. It measures the current
asset and current liabilities.
Year2019 amount in ($) Year2020amount in ($)
Current ratio- current asset /
current liabilities
6561443 / 5233764 =
1.25:1
8916386 / 5139779 =
1.73:1
Comments- An ideal current ratio for a company is 2:1. in case of Airbnb current ratio is
not an ideal one which depicts that company is not working on full efficiency. Although in the
year company has improvement in current ratio 1.75:1 it is better to compare to the year 2019.
this scenario depicts that company is working towards increasing its competency.
2. Net working capital- It is more a measure than a ratio. It shows the difference
between current assets and liabilities but excludes short-term bank borrowing.
Year2019 amount in ($) Year2020amount in ($)
Working capital =
current asset – Current
liabilities
6561443 – 5233764 =
1327679
8916386 – 5139779 =
3776607

Comments- It must be a positive number. In the year 2020 the company's ability to
weather financial crises as compared to 2019.
Efficiency ratio – These ratios are also known as performance ratios. To use these ratios they
employed to determine the efficiency with which the firm manage and utilize its asset(Ortiz and
et.al, 2018).
1. Total asset turnover ratio- It determines the efficiency with which the firm uses its total
asset.
Year2019 amount in ($) Year2020amount in ($)
Total asset turnover ratio-
Sales / Total asset
4806239 / 8310119 =
0.5784
3378199 / 10491499 =
0.3219
Comments – In the Year 2020 is a low total asset turnover ratio as compared to year2019
it indicates total asset has not been efficiently used to generate sales so the company increases
non-current asset.
2. Current asset turnover ratio – It determines the efficiency of using the current
asset by the firm (Tadapaneni, N.R., 2019).
Year2019 amount in ($) Year2020amount in ($)
Current asset turnover ratio -
Sales / Current asset
4806239 / 6561443
= 0.7324%
3378199 / 8916386
= 0.3788%
Comments- In the year 2020 the current asset turnover ratio is lower as compared to
year2019. In the year 2020, the company has not had enough current asset to generate sales the
company maintain more cash and bank.
Investment Ratio – It measures that the company has enough funds to invest in the assets,
1. Investment turnover ratio- It is also known as the capital turnover ratio. It determines
how effectively a company converts its asset into sales.
Year2019 amount in ($) Year2020amount in ($)
Investment turnover ratio- 4806239 / 2423817 = 3378199 / 2901783 =

Revenue / Capital 1.98 %
1.16 %
Comments – In the year 2019 the capital turnover ratio is better than compared in the
year 2020. In the year 2020, the company invested more capital but has not generated sufficient
revenue. The company should increase revenue.
2. Return on investment ratio – It indicates the net income and total cost of
investment (Tresch, R.W., 2022).
Year2019 amount in ($) Year2020amount in ($)
Investment turnover ratio -
Net income * 100 / Cost of
Investment
-674339*100 / 2694981 =
-25.02%
- 4584716*100/ 3105252=
147.65%
Comments- In the year2020 return on investment is negative as compared to the year
2019. In the year 2020, the expenses of sales and marketing were high and the company has not
had sufficient income to recover the loss. The company should reduce sales expenses. The
company issued more equity share capital rather than debt so that company reduces interest
expenses.
CONCLUSION
In the above report the two recent development in the economy which has an impact on
Airbnb. The economic activities supported by Airbnb were agriculture, forestry, and the fishing
sector. The value of Airbnb has increased in the global market but to the expansion of its
business, the company expenses on sales and marketing, which the company has no revenue to
bear its expenses so that in the year 2020 the company shows net losses. To maintain the
company for the long term to become an optimum capital structure that is borrow fund for share
capital and long term fund. The company policies no pay dividends. And company sources of
finance are equity share is more than as compared to long term debt. The company has not had
sufficient current assets to pay its liabilities. The Airbnb company offers affordable travel
services which impact to create value for local micro-entrepreneurs, businesses, and local

communities. The significant impact of Airbnb guests spending in India was spent on goods and
services other than their accommodation. In the year 2020, the Airbnb company shows negative
operating cash flow that the company cannot pay its interest expenses and the company wants to
maintain its liquidity so sell its marketable securities.

REFERENCES
Books and Journals
Agarwal and et.al, 2020. FinTech and household finance: a review of the empirical
literature. China Finance Review International, 10(4), pp.361-376.
Al-Samarrai and et.al, 2021. Education finance watch 2021. World Bank Group.
http://documents. worldbank. org/curated/en/226481614027788096/Education-Finance-
Watch-202, 1.
Alshater and et.al, 2020. Influential and intellectual structure of Islamic finance: a bibliometric
review. International Journal of Islamic and Middle Eastern Finance and Management.
Arner and et.al, 2022. MSME Access to Finance: The Role of Digital Payments. United Nations,
Economic and Social Commission for Asia and the Pacific, MSME Financing Series, (7).
Brunstein and et.al, 2019. Sustainability in finance teaching: evaluating levels of reflection and
transformative learning. Social Responsibility Journal.
Huang and et.al, 2022. Recent contributions to supply chain finance: towards a theoretical and
practical research agenda. International Journal of Production Research, 60(2), pp.493-
516.
Ibrahim, M.H., 2018. Trade–finance complementarity and carbon emission intensity: panel
evidence from middle-income countries. Environment Systems and Decisions, 38(4),
pp.489-500.
International Finance Corporation, 2019. Annual Report 2019: Investing for Impact. Report.
Ivanovich, K.K., 2020. About some questions of classification of institutional conditions
determining the structure of doing business in Uzbekistan. South Asian Journal of
Marketing & Management Research, 10(5), pp.17-28.
Jia and et.al, 2018. The political economy of Chinese internet companies: Financialization,
concentration, and capitalization. International Communication Gazette, 80(1), pp.30-59.
Ortiz and et.al, 2018. Business schools, the anxiety of finance, and the order of the ‘middle
tier’. Journal of Cultural Economy, 11(1), pp.1-19.
Tadapaneni, N.R., 2019. Artificial intelligence in finance and investments. International journal
of innovative research in science, engineering and technology, 9(5).
Tresch, R.W., 2022. Public finance: A normative theory. Academic Press.