International Finance InTRODUCTION 1 TASK 11

INTERNATIONAL FINANCE INTRODUCTION 1 TASK 11 a) To analyse financial position by using key ratios 1 b) Give recommendations on the basis of financial analysis 4 TASK 24 a) Identify various risk exposures and how it can be mitigated by the company 4 b) Company's current trading and financial environment in context to the Brexit5 TASK 36 Financial management models 6 CONCLUSION 6 REFERENCES 8 Appendix 9 INTRODUCTION International finance is a monetary transaction what occurs between two or more nations.

INTERNATIONAL
FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
a) To analyse financial position by using key ratios ...................................................................1
b) Give recommendations on the basis of financial analysis ......................................................4
TASK 2 ..........................................................................................................................................4
a) Identify various risk exposures and how it can be mitigated by the company .......................4
b) Company's current trading and financial environment in context to the Brexit .....................5
TASK 3 .......................................................................................................................................6
Financial management models ....................................................................................................6
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................8
Appendix .........................................................................................................................................9

INTRODUCTION
International finance is a monetary transaction what occurs between two or more nations.
It consider the following things such as: Foreign direct investment, exchange rate of currencies,
monetary systems and other problems which are associated towards international financial
management and it is also known as international macroeconomics. To perform a business
activity finance is essential thing. To better understand this concept Associated British Foods has
been chosen which is a British Multinational food processing & retailing company. There are
various topics has been covered in this report such as: to analyse different types of ratios which
involves profitability, liquidity, investor and gearing ratio, identity the risk and how it will be
mitigate and evaluate the company's current trading & financial environment in context to Brexit.
Along with this, report discuss about dividend valuations model, discounted cash flow model and
capital asset pricing model.
TASK 1
a) To analyse financial position by using key ratios
Financial information denotes those information which associated with individual's
assets, liabilities, balances and other transactional information. With the help of it financial
position of an organisation can be determine and the financial statements of a firm provides the
financial information and it involves: income statement, cash flow statement, balance sheet etc.
With the help of these statements performance of business can be analysed that how much it is
earning currently as compare to the previous year. As Associated British Foods is basically a
retailing company and its ingredients division is the world's second largest producer of both
sugar & baker's yeast. The financial position of an organisation can be identified with the help of
profitability, liquidity, investor and gearing ratio (Waemustafa and Sukri, 2015).
Ratio Formula 2017 2018
Asset Turnover ratio Net sales/ Average
total assets
1.27 1.18
Current ratio Current assets/
currents liabilities
1.65 1.63
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Quick ratio Total current assets-
inventory- prepaid
expenses/ current
liabilities
0.86 0.81
Gearing ratio Total debt/
shareholders equity
0.07 0.03
Return on equity Net Income / Average
Equity
15.57 11.48
Profitability ratio:
Asset Turnover ratio: This ratio is helpful to know performance of a corporation because
it measures the value of corporation's sales in context to the value of assets. This ratio can vary
from company to company and if this ratio is increasing than it can be said that assets are
properly used in order to maximize the sales. As form the above table it has been analysed that in
the financial year 2017, the assets turnover ratio of Associated British Foods was 1.27 that has
been reduced in the year 2018 and it becomes 1.18 which shows that it is reducing in the current
year and it is not good for the organisation. As because it shows that assets are not being
efficiently used in order to generate sales for the firm. In the year 2018, sales of corporation has
been reduced that's way this ratio has been decreased so it can affect the financial position as
well as performance of company (Profitability ratio. 2019).
Liquidity ratio:
Current ratio: This ratio determines the ability of a firm in order to pay its short term
obligations. The ideal current ratio is 2:1 and with the help of this ratio it can be analysed that
how much current assets a company have as compare to the current liabilities. As form the above
table it has been analysed that in the financial year 2017, current ratio of Associated British
Foods was 1.65 that has been reduced in the financial year 2018 and it becomes 1.63 which
shows that it is decreasing in the current year. So for the growth of corporation it is not helpful
because company does not have sufficient current assets as compare to the current liabilities. As
the main reason behind it as current liabilities has been increased in the year 2018 as compare to
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the financial year 2017 and it increased from 3153 to 3248. Due to it financial performance of
organisation can be affected which is not good in context to the growth purpose.
Quick ratio: This ratio measures the ability of a firm to pay its short term obligations by
having assets which are readily convertible into cash. It involves marketable securities, accounts
receivables, cash etc. As form the above table it has been analysed that in the financial year
2017, quick ratio of Associated British Foods was 0.86 and it has been reduced in the year 2018
and it becomes 0.81 which shows that it is reducing and it is not beneficial in context to the
growth of company. As the main reason which can be seen is that cash has been reduced in the
year 2018 as compare to the financial year 2017 and it is 1392 and 1550 respectively. So it
reflects that financial position of corporation is not effective because it does not those assets
which can be converted into cash so that its operational performance does not get hamper.
Gearing ratio: This ratio measures the proportion of corporation's borrowed fund as
compare to the equity. As high gearing ratio shows that organisation have more debt to pay for
its continuing operations. As form the above table it has been analysed that in the financial year
2017, gearing ratio of Associated British Foods was 0.07 that becomes 0.03 in the financial year
2018 it means it is reducing. This reflects that organisation is having more equity as compare to
the debts and it can affect the performance of company because it is having very less debt and
firm is using its own funds to continue its business operations. It shows that company is too
much depends on equity rather than debt so it can effect the financial position because it can not
expand the business at wider level as a result its performance will also be effected (Philippon and
Reshef, 2013).
Investor ratio:
Return on equity: This ratio has measures the rate of return that the owner of common
stock of organisation receive on their shareholdings. It shows that how effectively a firm is
earning returns on the investment that is received from the shareholders. The above table shows
that in the financial year 2017, return on equity of Associated British Foods was 15.57 that has
been reduced in the year 2018 and it becomes 11.48 which means it is decreasing. It shows that
company does not earning much form the investment made by shareholders. As the net income
has been reduced from 1198 to 1007 in the financial year 2017 to 2018. Financial position of
organisation can be affected due to it because its earnings has been reduced form the
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shareholder's investment. As a result it does not get more funds in order to expand the business
operations and it can also affect the financial performance of firm.
b) Give recommendations on the basis of financial analysis
As per the financial analysis of Associated British Foods it has been suggested to ABC
Plc that it does not acquire that company because profitability, liquidity, investor and gearing
ratio are continuously reducing form the financial year 2017 to the financial year 2018. So it can
affect the profitability as well as financial performance of corporation and as the changes of
growth are not much. As it been suggested that ABC Plc should not acquire Associated British
Foods because Asset Turnover ratio has been reduced from 1.27 to 1.18, current ratio has been
reduced from 1.65 to 1.63, quick ratio has been reduced from 0.86 to 0.81, gearing ratio has
been reduced from 0.07 to 0.03. Along with this return on equity has been also reduced from
15.57 to 11.48 so on the basis of this it can be said that it should hire Associated British Foods
because the profits of corporations are continuously reducing and financial performance is also
not good (Fichtner, 2017).
TASK 2
a) Identify various risk exposures and how it can be mitigated by the company
As there are various types of risk which can expose and it required for the corporation to
mitigate it. As there are various types of risks which has arises in the business and it is require to
be identify for the purpose of growth. For earn profits it is require to take risk but it should be
calculated so that chances of losses can be minimize and revenue can be maximize. There are
various types of risk such as: Financial risk, market risk, compliance risk etc so it is required for
Associated British Foods to identity the risk and take necessary steps to mitigate it so that
business operations can performed effectively and organisation can sustain for a long term
(Dörry, 2017).
Market risk: As the market risk which can be seen in context to the business of firm as
because Associated British Foods operates its business in more than 50 nations and due to global
fluctuation in national economies, consumers demands and competitors can be the risk for the
company. To enter into a new market it is also a risk for the corporation because management
does not know about consumer trends, preferences, regulations and business environment of that
country. So it is important for the organisation to analyse the different types of market risk which
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are associated with it and on the basis of mitigate actions are required to be taken. For that
purpose it is require to identify the volatility in the market and existing competitors and most
important thing is to analyse the demands of consumers. On the basis of these things corporation
should produce the quality products which can satisfy the desires of individuals and beat the
completion in order to grab more market share (Degeorge and et. al., 2013).
Financial risk: As financial risk is associated with less profits and earnings and loss of
revenue and due to financial performance and business operations of firm can be affected. As the
liabilities of Associated British Foods are increasing from the year 2017 to 2018 and that it
12810 to 13692 which shows that debts are increasing and through its profits will be minimise.
Net income has been reducing from the year 2017 to 2018 and it becomes 1198 to 1007 and it is
not good for the growth of firm because business will not expand. Free cash flow has been also
reduces from the year 2017 to 2018 and it becomes 775 to 562 which shows that corporation
does not have sufficient cash to perform its regular operational activities and due to it the
business operations of company will be affected because it does not have sufficient funds. So it
is required for organisation to take corrective mitigation actions to minimise the financial risk.
For that purpose effective financial planning is require to be done so that profits can be
maximize.
Compliance risk: As compliances are associated with rules and regulations which are
required to be follow by an organisation. As Associated British Foods operates its business in
more than 50 nations so it is important to follow the compliances otherwise it will create the risk
for the business. To mitigate the risk corporation should follow the laws related to workplace
Health and safety act, Product safety and quality act etc. As a result business operations of firm
does not get affected and it can sustain for a long term in the market while eliminating
compliance risk (Clark and Wójcik, 2015).
b) Company's current trading and financial environment in context to the Brexit
As Brexit takes place in the year 2016 and before it Associated British Foods has cash of
702 in the year 2015 and in the year 2016 it was 555 and in the financial year 2017 it was
increase and become 1550. Before Brexit the revenue was 12800 and in the financial year 2016
it as 13399 and in the financial year 2017 it has increased and become 15357. In the year 2015
the net income of the firm was 532 and in the financial year 2016 it was 818 which was
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increased in the financial year 2018 and becomes 1198. Before the Brexit free cash flow was 553
and in the year 2016 it was 514 which is increased in the year 2017 and becomes 775.
So it has been analysed that before Brexit financial performance of organisation was
good but in the year of Brexit financial environment of Associated British Foods has been
affected but after that financial performance has been improved which shows that only one year
company has suffered. As because rules, regulation and trade compliance has been changed but
in current year financial environment has been improved as compare to the previous year that is
time of Brexit (Benn and Hos, 2017).
TASK 3
Financial management models
Dividend valuation model: It is a quantitative model of valuing a corporation's stock
price based on assumption that the current fair price of stock equals the sum of organisation's
future dividends discounted back to its present value. So for the dividend valuation it is
important. For the financial management and planning this model is useful for Associated British
Foods.
Merger and acquisition model: Under this model valuation is important and in this
regard one company consider that how much price it have to pay to the other organisation in
context to the acquisition and merger. In this regard it is important to make valuation on the basis
of current market price of enterprise so that effective financial management can be done which
support the growth of organisation.
Discounted cash flow model: In this method valuation has been done in order to
estimate value of an investment which is based on future cash flows. It is important for
Associated British Foods to finds the present value of expected future cash flows by using
discount rate.
Capital asset pricing model: This model shows the relationship among expected return
& risk of investing into stocks. It is important for Associated British Foods to determine
expected returns associated to the stock is equal to risk free return which includes risk premium
that is depend upon beta of such stock. It is useful in context to financial management and
planning (Antras and Foley, 2015).
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CONCLUSION
As from the above report, it has been concluded that it is important for the
organisation to emphasis towards international finance. The financial performance
and position of a firm has been analysed through profitability, liquidity and
gearing ratio. There are different types of risk which are needed to be identified for
the growth of business. The impact of Brexit is required to be analysed in context
to the financial environment. As financial management models can be used for the
purpose of financial management and planning.
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REFERENCES
Books and Journals
Antras, P. and Foley, C. F., 2015. Poultry in motion: a study of international trade finance
practices. Journal of Political Economy.123(4). pp.853-901.
Benn, J., Sangaré, C. and Hos, T., 2017. Amounts mobilised from the private sector by official
development finance interventions.
Clark, G. L., Lai, K. P. and Wójcik, D., 2015. Editorial introduction to the special section:
Deconstructing offshore finance.
Degeorge and et. al., 2013. Analyst coverage, earnings management and financial development:
An international study. Journal of Accounting and Public Policy.32(1). pp.1-25.
Dörry, S., 2017. Regulatory spaces in global finance. In Handbook on the Geographies of Money
and Finance. Edward Elgar Publishing.
Fichtner, J., 2017. Perpetual decline or persistent dominance? Uncovering Anglo-America’s true
structural power in global finance. Review of International Studies.43(1).pp.3-28.
Lai, K., 2012. Differentiated markets: Shanghai, Beijing and Hong Kong in China’s financial
centre network. Urban Studies.49(6). pp.1275-1296.
Obstfeld, M., 2013. Finance at center stage: some lessons of the euro crisis.
Philippon, T. and Reshef, A., 2013. An international look at the growth of modern finance.
Journal of Economic Perspectives.27(2).pp.73-96.
Waemustafa, W. and Sukri, S., 2015. Bank specific and macroeconomics dynamic determinants
of credit risk in Islamic banks and conventional banks. International Journal of
Economics and Financial Issues.5(2). pp.476-481.
Online
Profitability ratio. 2019. [Online]. Available Through:
<https://www.investopedia.com/terms/p/profitabilityratios.asp>
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Appendix
Income statement
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Balance sheet
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Cash Flow
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