Managing Financial Resources: Analysis of British Telecommunication's Financial Statements

This report provides an analysis of British Telecommunication's financial statements using different financial techniques such as ratio analysis and cash flow analysis. It includes an evaluation of the financial performance and its impact on the business operations of the company.

Managing Financial
Resources

Table of Contents
Introduction....................................................................................................................................4
1. General Purpose Financial Statements of the listed organization...................................4
a) Income Statement of British Telecommunication of the year 2020..................................4
b) Statement of Financial Position of British Telecommunication for the year 2020.........5
c) Statement of cash flow of the British Telecommunication for the year 2020..................6
2. Analysis of the financial statement using different financial techniques..........................6
Ratio Analysis.............................................................................................................................7
b) Cash flow Statement Analysis:...........................................................................................11
Conclusion....................................................................................................................................12
References.....................................................................................................................................13
Books & Journal......................................................................................................................13

Introduction
Managing the financial resources of an organization is considered as an important component for
an organization. It basically helps in dealing with some complicated problems which are related
to the financial planning as well as control. These basically include measures of performance
which have the objective of improvising the financial stability of the company. For the purpose
of current study, the financial statements of British Telecommunicate are considered for the
purpose of the critical analysis. The report will also be including the detailed evaluation of the
financial performance in order to understand the impact of the financial performance on the
business operations of the company.
1. General Purpose Financial Statements of the listed organization.
Financial statements are the essential part of an organization that helps in analysing the
financial performance of the company. It basically includes all the incomes and expenditures
along with the assets and liabilities of the concerned business organization. Therefore, in context
to the report, the general purpose financial statements of British Telecommunications are given
below:
a) Income Statement of British Telecommunication of the year 2020.

b) Statement of Financial Position of British Telecommunication for the year 2020.

c) Statement of cash flow of the British Telecommunication for the year 2020
2. Analysis of the financial statement using different financial techniques.
There are various techniques that can be used for the purpose of analysing the financial
statements in order to conduct the analysis. For this purpose in context to the report two types of
financial techniques have been used. Both the techniques are explained below along with the
analysis:
a) Accounting Ratio Analysis: It is one of the most important and useful financial analytical
tool. It is basically a quantitative method that helps in studying and evaluating the financial
statements mainly the balance sheet and the income statement (Apte and Kapshe, 2020). This
types of financial helps in revealing the insights related to the liquidity, efficiency and
profitability situations of the business organizations. They help in disclosing the performance of
the company along with the comparison of different time periods and also with another company

in the same industry. The detailed ratio analysis of the British Telecommunication along with
the ratio calculation along with its interpretation is done below:
Ratio Analysis
a) Profitability Ratio
 Return on capital employed: It can be referred to as a significant ratio for the
purpose of assessing the finance, valuation and accounting components. It is
basically used for the motive of comparing the profitability levels of the company
in accordance to the amount of capital utilized.
Formula Calculation
Profit before interest and taxes /
capital employed * 100
2019 2020
3282 / 23428 *
100
3143 / 22905 *
100
Result 14.00% 13.72%
INTERPRETATION: Although, the difference between the ratios of 2019 &
2020 of the company is not holding much difference. In the year 2019, the ROCE
was 14.00 % which is stating a higher value of the company revealing the
capacity to return the value to the shareholders back in comparison to the year
2020 with 13.72 % indicating a lower capacity to return back to the investors.
Therefore, there was a slight downfall in the performance of the business
organization.
 Operating Profit Margin: It is one of the popular type of profitability ratio that
displays the amount of percentage of profits that the company can earn out by
running its business operations before deducting all the taxes and interest
charges .
Formula Calculation
Operating Profit / Net Sales * 100 2019 2020

3421 / 23428 *
100
3283 / 22905 * 100
Result 14.60 % 14.33 %
INTERPRETATION: Although, the difference between the ratios of 2019 & 2020
do not hold much difference. The ideal operating profit margin must be higher than
15% which is always considered as good. In case of critical comparison of both the
years, the operating profit ratio was somewhat higher and improved in the year 2019
with 14.60 % as compared to 14.33 % in the year 2020.
 Return on equity: This ratio can be explained as the standard of level of
profitability of the business organization in agreement to the value of the
equity .This ratio can be calculated as the value obtained by deducting return on
the assets from liabilities of the company.
Formula Calculation
Net income / shareholders’ equity 2019 2020
2159 / 499 + 3919 1734 / 499 + 9759
Result 0.488 0.170
INTERPRETATION: The ratio in the year 2020 was higher at 0.488 stating that
the company was in a better and fine financial situation to create profits out of its
business operations as compared to the year 2020 with the value of 0.170.
b) Efficiency Ratio
Inventory turnover ratio: This ratio is majorly utilized in order to measure the
number of times stock of the company is sold or it is used in the financial period of a
financial year (Cranston, 2018) . This specific ratio is calculated to ascertain the
information that whether the business organization dealing with the situation of
excessive inventory in accordance to its level of sales.

Formula Calculation
COGS / Average Inventory 2019 2020
9715 / 969 / 2 8961 / 300 / 2
Result 20.05 59.74
INTERPRETATION: If the Comparison of performance of both the years is done,
2019 was showing a comparatively better position stating that the company is earning
improved cash flow with 20.05 as it was gaining high sales as compared to the year
2020.
Receivable Turnover Days: This is an accounting analytical tool which is used to
critically analyse and measure that whether the company is effective in extending
loans or credits to the different parties as well as efficient in collecting debts
(Nenonen, Storbacka and Windahl, 2019). This ratio is basically utilized by the
company to determine the efficiency levels to utilize its assets in the business
operations.
Formula Calculation
Net credit sales / Average accounts
receivables
2019 2020
23428 / 3119 22905 / 2874
Result 7.511 7.96
INTERPRETATION: This shows the company’s capacity to liquidate its debts
to become stronger in the year 2020 as there was a increment in the ratio to 7.96
from 7.511 of the year 2019 respectively. Therefore, it can be seen that the
financial performance was better in the year 2020.
c) Liquidity Ratio

 Current Ratio: This is a type of liquid ratio that helps in measuring the liquidity
capacity of the company so that the capacity of the company can be analysed to
finish off the short term financial responsibility for up to one financial year .
Formula Calculation
Current assets / current liabilities 2019 2020
10444 / 9602 11992 / 10986
Result 1.087 1.091
INTERPRETATION: The current ratio in the year 2020 was impressive for the
respective company with less amount of risk as the value of current assets were
higher than the value of current liabilities. While the ratio in the year 2019 which
shows that the company was having lesser assets as well as lesser liabilities as
compared to the year 2020.
 Quick Ratio: It is also widely known as by the name of acid test ratio that helps
in calculating and analysing to utilize its cash balances and the quick assets to
liquidate the current liabilities of the business organization (Clevenger and
MacGregor, 2018).
Formula Calculation
Quick assets / current liabilities 2019 2020
10444 – 369 /
9602
11992 – 300 /
10986
Result 1.049 1.064
INTERPRETATION: The quick ratio in the year 2020 was finer than the year
2019 because in the year 2019 the company was capable to pay off its liabilities
with the help of the company's liquid assets less efficiently as compared to the

year 2020. While this disclosed a poor financial position on the basis of the value
of liquid assets.
d) Gearing Ratio: These are those ratios that helps in calculating the financial investment
of the business organization in order to critically assess the degree to which the business
operations can be financially backed by the help of equity capital and debt capital (Essila
ed., 2019).
Name of the Ratio Formula Calculation
Gearing Ratio Non-Current Liabilities /
Non-Current Liabilities +
Total Equity * 100
2019 2020
26518 / 26518
+ 10167 * 100
27318/
27318
+14763
* 100
Results 72.29 % 64.91
%
INTERPRETATION: The gearing ratio is disclosing 72.29 % of debt in 2019 while
64.91 % of debt in the year 2020. It can be seen that the British Telecommunication was
highly leveraging with greater amounts in the year 2019 with higher amount of debt
showing high level of debt reference.
Cash flow Statement Analysis:
It is another important financial analytical tool that can be used in order determine the
working capital requirement if the company. It is basically used to ascertain the amount
of money that is available to execute the business operations and all the transactions
related to it (Besker, Martini and Bosch, 2018). This helps assessing the summary of the
liquidity position of the business organization.
It basically includes three components namely operating, investing and financing
activities that helps in generating these statements.It can be seen that the cash flow
statement has been revised to present the item of rent amortized as interest expense
and the item related to the repayment of the lease debt

as operating cash flow. Many areas of the company was really affected with the global
pandemic covid -19. The measure of 1,521m (2018/19: 1,503m, 2017/18: 1,524m) for
absolute profits or dividends paid in the year is revealed the statement of changes in value
and dissected (Albuhisi and Abdallah, 2018). This amount might vary from the sum
displayed for value of equity dividends paid in the grouped cash flow statement, which
addresses the real money delivered according to profit makes sure that have been
introduced throughout the span of the financial year. Assets and liabilities held available
to be purchased at 31 March 2020 identify with our operation in the domestic nature in
France, our domestic activities in Spain and chosen domestic tasks and foundation in 16
nations in Latin America. These divestments are important for the Global portion and are
relied upon to finish in monetary year 2020/21. The removal of these business operation
is in accordance with our technique. Also, while considering the loans and borrowings,
the goal of the capital administration strategy is to focus on a general degree of obligation
steady with our credit score target while putting resources into the business, supporting
the benefits plan and meeting our dispersion strategy (Yawar and Seuring, 2018). To
meet this objective, BT may issue or reimburse obligation, issue new offers, repurchase
shares, or change the measure of profits paid to investors. It is also dealing with the
capital construction and is making acclimations to it in the light of changes in financial
situations and the danger qualities of the gathering.
Covid19 has major financial impacts on the workforce, business operations, suppliers and
customers, with degrees of dependence on different factors including, but not limited to
the length of the lockdown in the United Kingdom and in the international, employee
absenteeism rate, virus recurrence, insolvency unemployment rate, level of
unemployment, nature of and extent of government interventions, severity of economic
impact and speed and nature of recovery (Fried and Kastel, 2020). Although the company
as having sufficient cash flows but it also became in consistent in the period of covid-19
adversely. The other provisions include provisions disclosed that for contracts for which
the company is face losses due to Covid19. The company have also identified other
contracts which became complicated due to Covid19 but do not meet the criteria for to
recognize provisions for risks.

Conclusion
From the above report, it can be concluded that it is highly important for an organization
to use different financial analytical tool which helps in evaluating and analysing the
financial performance of the company. In context to the report the two method of
ascertaining the financial status of the company namely accounting ratios analysis and cash
flow analysis. Therefore, it helps in examining the different aspects of the financial
conditions along with the performance such a profits, liquidity, effectivity and highest level
of efficiency.
References
Books & Journal
Apte, P. G. and Kapshe, S., 2020. International Financial Management|. McGraw-Hill
Education.
Cranston, J., 2018. A Guide to Managing and Leading School Operations: The Principal's Field
Manual. Rowman & Littlefield.
Nenonen, S., Storbacka, K. and Windahl, C., 2019. Capabilities for market-shaping: Triggering
and facilitating increased value creation. Journal of the Academy of Marketing
Science, 47(4), pp.617-639.
Besker, T., Martini, A. and Bosch, J., 2018. Managing architectural technical debt: A unified
model and systematic literature review. Journal of Systems and Software, 135. pp.1-16.
Albuhisi, A. M. and Abdallah, A. B., 2018. The impact of soft TQM on financial performance:
The mediating roles of non-financial balanced scorecard perspectives. International
Journal of Quality & Reliability Management.
Yawar, S. A. and Seuring, S., 2018. The role of supplier development in managing social and
societal issues in supply chains. Journal of cleaner production, 182. pp.227-237.
Fried, G. and Kastel, M., 2020. Managing sport facilities. Human Kinetics.
Clevenger, M. R. and MacGregor, C. J., 2018. Managing Corporate Relations. International
Journal of Technology and Educational Marketing (IJTEM), 8(2). pp.23-43.
Essila, J. C. ed., 2019. Managing Operations Throughout Global Supply Chains. IGI Global.
Grzegorczyk, T., 2020. Managing intellectual property: Strategies for patent holders. The
Journal of High Technology Management Research, 31(1). p.100374.