Strategic Acquisition Opportunities for Barclays Bank

The acquisition of Admiral Group Plc by Barclays bank would be beneficial, enhancing the customer base, productivity, and profitability. The report highlights that Admiral Group's liquidity and solvency position are not sound, while its profitability is moderate. By acquiring Admiral Group, Barclays Bank can build a competitive advantage, and fluctuations in the market can impact the return and prices of FTSE 100 companies.

International Finance

Table of Contents
INTRODUCTION ...............................................................................................................................3
TASK 1 ................................................................................................................................................3
Evaluating the financial position and performance of FTSE 100 through ratio analysis ...............3
TASK 2.................................................................................................................................................5
b)Different valuation methods.........................................................................................................8
c)How valuation method help an entity...........................................................................................8
d)Risk exposures..............................................................................................................................9
e)Situations of acquisition...............................................................................................................9
TASK 3...............................................................................................................................................10
Giving recommendation to Barclays bank on the basis of the financial position of Admiral
insurance group Plc .......................................................................................................................10
CONCLUSION .................................................................................................................................10
REFERENCES...................................................................................................................................12

INTRODUCTION
International finance is concerned with the monetary transactions which take place between
two or more countries. It involves high risk in relation to the financial management, foreign direct
investment and exchange risk. In this, transaction and management of finance at international level
is highly difficult task. In this, IMF and IFC plays a vital role in monitoring the activities that take
place at international level. The present report is based on the case of Barclays bank which is
planning to acquire the small sized firm such as Admirak insurance group. In this, report will shed
light on the financial health and performance of Admiral group with the aim to make suitable
decision regarding acquisition. In this, report will also present the aspects which business need to
follow for the improvement purpose.
TASK 1
Evaluating the financial position and performance of FTSE 100 through ratio analysis
Financial performance analysis of Barclays bank and Admiral insurance group for the year of 2015
are:
Ratios Formula
Admiral
insurance group
Plc
Profitability Ratios
Net sales 17201 904
Gross profit 12558 525
Net profit 623 300
Operating profit 4777 380
Gross profit ratio GP/ net sales * 100 73.01% 58.08%
Net profit ratio Net profit / net sales * 100 4.96% 33.19%

Operating profit ratio Operating profit / net sales*100 27.77% 42.04%
Liquidity ratios
Current ratio current assets / current liabilities 1.24 0.46
Quick ratio
Current assets – (stock + prepaid
expenses) / current liabilities 1.24 0.46
Solvency ratio
Debt-equity ratio Debt / equity 0.36 -
Efficiency ratio
Fixed asset turnover 7.35 26.93
Asset turnover ratio 0.02 0.22
Profitability ratios: Gross profit ratio: In the period of 2015, GP margin of Barclays bank was 73.01%. On the
other side, in the same period, GP ratio of the insurance company in the similar period was
58.08%. Thus, it can be said due to the high direct expenditure approximately 42%
insurance company failed to generate enough gross profit margin. Net profit ratio: This measure presents the company's performance in relation to managing
the indirect expenditure level. Moreover, NP ratio presents the amount of profit which is
available to the equity shareholders. Hence, in the accounting year 2015, NP ratio of
Admiral group was 33.19%. It entails that insurance company has managed its indirect
expenditure level more effectively and efficiently (Frieden, 2015). Thus, by considering
such aspect it can be said that strategic and policy framework employed by the firm is
sound.
Liquidity ratios: It indicates the company's ability in relation to meeting the obligations from
current assets. Hence, through the means of current and quick ratio one can assess the liquidity

position of the firm.
Quick and current ratio: From the financial statement analysis it has been assessed that in
2015 quick as well as current ratio of Admiral Group Plc was .46 (Financial reports of Admiral
group, 2015). This measure reflects that company does not have enough amount of assets to meet
the liabilities. Moreover, according to the ideal ratio company must have 2 current assets for
fulfilling 1 financial obligation (Frisari and Stadelmann, 2015). However, company has enough
assets which can be easily convertible into cash. Ideal quick ratio is .5:1 and company's liquidity in
2015 closed to such ratio. Hence, by considering the overall aspects it can be said that liquidity
position of Admiral group Ltd is not sound.
Efficiency ratios: Such measure provides deeper insight about the level to which business unit has
made optimum use of fixed assets in relation to the generation of sales (Bodea and Hicks, 2015).
Thus, by evaluating the fixed and total asset turnover ratio company's ability or efficiency level can
be measured to the large extent. Fixed asset turnover ratio: From the above mentioned table it has been evaluated that in the
financial period of 2015 fixed asset turnover ratio of Admiral group was 26.93%. It presents
that company has made effectual use of assets such as property and equipment to the middle
extent. It is a good indicator which shows that company had generated suitable sales by
making use of fixed assets.
 Asset turnover ratio: By doing ratio analysis it has been identified that total asset turnover
ratio of the insurance company was highly lower than the industry average at the end of
2015. Total asset turnover ratio of Admiral group Plc accounted for 0.02 in 2015. Hence,
during such period business unit failed to make effective or optimum use of current assets
such as cash and its equivalents (Crocker-Buque and Mounier-Jack, 2016). It is one of the
main reasons due to which Admiral group Plc to generate higher sales by making use of total
assets including both current and fixed.
Along with this, solvency position of Admiral group plc is not good due to the absence of
long term debt. The rationale behind this ratio of .5:1 enables firm to maintain proper balance in the
financial structure. Statement of financial position presents that insurance company has fulfilled its
financial need from equity rather than debt instruments (Chwieroth, 2015). Thus, it can be said that
solvency position of the firm was not highly effectual in the period of 2015.

TASK 2
a)Net asset valuation
It is that essential method which is used in assessing the internal efficiency of an enterprise
in seeking external opportunities based on their internal efficiency. It is identified the value of
internal business efficiency which is obtained after deducting total liabilities from the main asset
figure of an enterprise (Bayne and Woolcock, 2011). It is that method which help an entity in order
to ascertain the value of their business which is reflected in relation to all kinds of asset held by an
enterprise that shows the ability of the business. This method will be able produce realistic figures
that includes tangible asset by ignoring the intangible assets. This amount is exclusive of the
intangible asset deducted from the main asset figure.
Advantages
 It is regarded as one of the important element as in the scheme of merger it is done by using
asset which shows the capabilities of an entity.
 The existing conditions will be improved the status of asset held by an entity.
Disadvantages
 The limitation of this method is that the asset changes over a certain period due to the
concept of going concern followed by an entity.
 Another replacement of costs and the historical concept changes the overall costs incurred
by an entity.
Price earning basis-The efficiency tested by calculating the stock price divided by the earning per
share as it will ascertain the efficiency of an enterprise in order to payback dividend to all the
shareholders (Bertoni and Lugo, 2013). The income of the business are analyses in order to pay off
all the expenses borne by an entity. It is used to determine the worth of the business by assessing the
existing conditions of available equity held with an entity which lends ownership to an entity. It is
beneficial for an entity as it attracts wide number of shareholders by showing transparent business
conditions to showcase their internal business capabilities.
Advantages
 The risks level are ascertained which will help an entity in order to control existing business
entities by highlighting all their weaknesses.
 This is act like an alert statement that stresses on the ability of an enterprise in order to

reduce all kind of expenses by strengthen their existing business position.
Disadvantages
The results obtained after comparing the price earning ratio with other sector may not result into
consistency in the results obtained.
The debt factor can affect the equity level of the current organization which will directly created
greater impact on the price earning ratio. The heavy burden of debt can reduces the price
earning ratio which is not strong condition for an enterprise in attracting wide variety of
shareholders to strengthen their business entity.
The leverages can create turbulence in the equity of an entity as the equity of an enterprise is the
basis element that lends ownership to the business enterprise.
Dividend valuation method-Dividend is the basic factor used by an enterprise which can be used
in order to lure wide number of customers towards an enterprise (Ferguson and Schularick, 2011).
The efficiency of the dividend is totally depends on the sales and the revenue earned by an entity in
a particular year. The fluctuations take place in the dividend level may create uncertain changes in
the dividend level that transforms the existing number of equity holders held with an enterprise. The
valuation of equity is complex job in creating the brand image of an entity as price sensitive
investors who invest their valuables in an entity can change their decision in case they get less
dividend what was expected by them from the enterprise. The current dividend is calculated by
using Gordon's growth model in which the current dividend is determined by an entity after
considering the overall growth achieved by an entity in specific terms in relation to the dividend
concept.
Advantages
It helps in evaluating the dividend of an enterprise to catch the interest of all the
shareholders
The non-controlling interest are evaluated by an entity which will increase the value of
overall corporation.
Disadvantages
 The future decisions can't be taken properly as decision may get wrong due to changes

takes place in the overall growth rate.
b)Different valuation methods
Valuation Formula 2015
Net assets 615
Outstanding equity shares 284.35
Net assets value Net assets / outstanding equity shares 2.16
Stock price 5.58
Earning per share 1.08
Price/Earnings ratio Stock price / Earning per share 5.16
Next year dividend 33.6
MPS 5.58
G 0.0366
Dividend Value D1/P0+G 60.25
Interpretation
It can be seen from the above comparison that net asset valuation is greater than one that
shows the ability of an enterprise. The PE ratio show cases the positivity of an entity that is higher
than the asset valuation method. The last valuation method of determining the dividend value is
showing the highest value.
c)How valuation method help an entity
The business is a mixture of several entities who apply their efforts in real time in order to
strengthen the existing working conditions (Claessens and Forbes, 2013). The valuation plays a
significant method as it will define the internal strengths in order to meet future complexities. The
business appointed special force in their enterprise in order to evaluate their existing business

entity's capabilities. It can be said that the business valuations is blend of considering past and
future cash flows and focuses on the primary aspects of the business. There are various valuations
which can be used in an enterprise which are given as follows:
Asset based approach- The net asset valuation method uses the asset of an enterprise which
excludes cost of an enterprise. The objective of an enterprise is to enhance the capabilities of the
current entity by assessing their assets.
Income based- The stock prices are determined on the base of equity held by an entity as it
identifies the fair market value of the business (Bertoni and Lugo, 2013). Various considerations
and variables are measured by an entity for the specific contribution of the primary value that drives
an entity.
Market based- The valuation of giving dividend to all the shareholders will be based on the
capabilities of an organization by considering all external market factors taken into consideration.
The client will be taken into consideration all the externalizes which will judge the overall
performance of the current business by forming their decisions.
d)Risk exposures
Legal- The basic element of the external environment that constantly imposes challenges for
admiral company in creating turbulence. The laws and regulations need to be complied by this
enterprise which will affect their overall organization.
Market changes- Changes takes places in the stock market can affected the business of this entity
as it is listed among the stock exchange with a constituent of risky component of FTSE 100 indexes.
Foreign exchanges- The exchanges are normally done in the normal course of action of the
business enterprise. The financial exchanges need to be done with the proper care such as using
derivatives and other strategically commodities.
e)Situations of acquisition
Acquisition is regarded as one of the important factor that affect an enterprise's working
conditions in which weakener business conditions can lead an entity towards the situations of
acquisition by another strong enterprise (Alper, Forni and Gerard, 2013). There are various changes
takes place in an entity as the impact of acquisitions which are given as below:
Organizational structure- The current management structure will totally get changed when it is

acquired by another entity as all existing employees will remain same and the top management of
another strong entity will operate their business on a top position.
Trading difficulties-The traditional working pattern get changed with the acquisition that manual
business practices are replaced with the technological factors used in that place.

TASK 3
Giving recommendation to Barclays bank on the basis of the financial position of Admiral insurance
group Plc
On the basis of the above ratio analysis following recommendations have been provided to
Barcalys bank are enumerated below:
 It is recommended to Barclays bank that it should acquire Admiral group Plc on the basis Of
profitability. Moreover, profit generated by bank in the period of 2015 is neither too high nor
too low. Hence, in the period of 2015 profit level of Admiral group is moderate. Hence, it
presents that customers prefer to take the insurance services which are offered by Admiral
group Plc.
 In the present time, liquidity position of Admiral Plc is not good. Thus, by taking into
account effectual management practices and preparing the budgeting framework Barclays
bank would become able to maintain the high liquidity within the firm. Moreover, by
preparing suitable strategies and policies Barclays bank will be in condition to improve the
liquidity position.
 Along with this, Barclays bank can improve the solvency position or aspect of the target
company by raising finance from long term debt in the near future. This in turn enables
Barclays bank to develop proper balance in the financial structure of firm. '
Hence, by considering all the above aspects it can be said that such acquisition will prove be
beneficial for Barclays bank. Moreover, by taking significant measures or actions Barclays bank can
enhance the customer base as well as productivity and profitability of firm.
CONCLUSION
From the above report, it has been concluded that liquidity and solvency position of Admiral
group Plc is not sound. Besides this, it can be revealed from the report profitability aspect of such
company is moderate. Hence, it can be stated that b taking significant action or measure Barclays
bank can build or sustain competitive advantage by acquiring the Admiral Group plc. Further, it can
be inferred that fluctuations which take place in the market have high level of impact on the return

and prices of FTSE 100 company. It can be seen in the report that valuation methods helps company
in taking suitable decisions to the large extent.

REFERENCES
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