Business Case Study: British American Tobacco (BAT) Financial Report

This report provides a business case study of British American Tobacco (BAT), a major UK consumer goods company. It explores BAT's financial strategies, including sources of finance, such as equity and sales revenue, and analyzes financial documents from the 2019-20 annual report, including the income statement, balance sheet, and cash flow statement. The report examines BAT's budget, including the CEO's compensation and the company's approach to budgeting, and discusses the company's pricing policy, focusing on how taxation and pricing strategies influence revenue. The analysis draws on the company's annual reports and relevant academic sources to provide a comprehensive overview of BAT's financial operations and business practices.

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Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
1. Source of Finance..........................................................................................................3
2. Example of financial documents...................................................................................3
3. Kind of Budget..............................................................................................................7
4. Pricing policy................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
In this report, to better understand the concept of business case study British American
Tobacco has been selected which is largest consumer good company of UK. The report covers,
sources of finance, examples of finance records, budget implemented within company and the
pricing policy is discussed.
TASK
1. Source of Finance
The BAT gets their finance organized, with the high level of debts on its balance sheet, which
makes it financially strong even if the flow of cash is stacked up (Czerniawska, 2016).
Equity finance: For BATs, the ratio for debt to equity is more than 100%, which signifies that the
company is having a high level of debt in relation to its net worth. During financial crisis, the
company may go through difficulties meeting interest and other debt accountabilities. It does not
matter if the company is debt is high if it can cover the interest payments with ease, it is signified
to be essential with its use of excess leverage.
Sales revenue: The BATs are producing earnings which are at least three times its interest
payments are being examined as financially strong. BATs interest on debt is satisfactory as it is
covered by earnings which are around 9.56 xs. The debtors are approaching to loan the company
more money, providing BATs with a variety of opportunity to expand its debt facilities. In the
last year, the BATs cash flow was 0.25 xs to its current debt. The ratio estimates over a 0.25x is
an assertive factor for the company and it also represents that the BATs is producing enough
amount of money from its business, which will also increase its capacity to pay back.
2. Example of financial documents
From the annual report of 2019-20 some of the main financial records of British American
Tobacco have been presented and interpreted which shows the example of assets, liabilities, net
cash flow from different activities and net profit for the year (Annual report of BAT, 2019). The
same is discussed below:
Income statement

Statement of equity change
Balance sheet

Cash flow statement

From all the above attachment, it has been determined that Sales grew 5.7% to £25.877
million by 2019-20 (2018: £24.492 million, up 25.2% in 2017). In 2019, improved sales were
triggered by tobacco rates (with 9% mix), Conventional Oral prices (when 15%, through 2018,
127%, greater) as well as new segments (with 37%, in 2018, up 138%), which further reversed a
4.7% drop in the amount of smoking (when the number was 2.6%, in 2013). The rise in 2018
was partly attributable to incorporation of RAI mostly as wholly-owned subsidiary since only
roughly 5 measures of RAI sales were used in the 2017 acquisitions. In addition, sales in 2018
were supported by a 6% (for fuel brands) policy making and the expansion of the range of
Different Categories (Miah, Hasan and Gammack, 2017). The migration of foreigners also
influenced revenue exchange on the performance we posted, which was 0.6 percent tailwind in
2019, as contrasted with around 6 percent strong wind in 2018. Operational profits declined in
relation to a rise of 3.2% to £9,016 million. In 2018, from 45% to £9,313 million as these
considerations were motivated by a reckoning of costs relating to the Quebec legal case in
Canada (£436 million), the resolution of the exemption case in Russia (£202 million),

depreciation and damages of brands and like intangibles ($481 million), damages to Indonesian
goodwill (€172 million), other expenses of smoking including health cases (including the Engle
offspring) in the sum of £236 million Development in 2018 stemmed from RAI participation in
mid-2017.
3. Kind of Budget
From the annual report, it has been observed that, From 1 April 2019, the chief executive’s fee
expanded around £685,000 to £698,000. The financial compensation Committee has decided that
the Chairman 's compensation would be £718,940 (+3.100) in line with the amount of wage
rewards given to UK workers in compliance with such a budget rise of 2,5 percent by 1 April
2020. The estimation of the valuation of use uses cash flows mostly on basis of comprehensive
brand budgets drawn out by executives using estimated sales volumes, profits and estimated
brand viability that span a time period of five years to ten years and are then perpetualised. The
company expenditures are assigned organisational expenses focused on, where applicable, or
volume-based specific budgets. Company government gained through experience, specific
industry and brand patterns and price and expense forecasts, has defined nominal discount rates,
varying from 8.32 to 9.02%, including tall-term rates of inflation ranging from 1.0 percent and
0.75 percent. There has been no sign of disability during the implementation of a sufficient set of
sensitivities (Eloquin, 2016).
4. Pricing policy
This report is to mainly aim the pricing strategy of tobacco industries and to examine how the
BAT pricing segments its cigarettes by price and to identify how price, volume and revenue
differ by this price segment. BAT taxes generate a huge amount of funds for many governments
and also become an important source for their revenue (Howard, 2016). By raising the taxes or
the high taxation rates can be helpful in supporting the particular pricing policies of the tobacco
companies and its surprising that when economic crises faced by the country affects the nation’s
budget the high taxes on tobacco products are often been considered as the sufficient source of
income. However, the effectiveness of BAT tax policies depends on the pricing policies of the
companies. The companies can select to take up the increase tax so that it is not passed to the
consumers as an increase in price which is undermining the effect of tax policy this is an act
which is known as under shifting or to pass it to the consumers or to increases the price on the

top of tax policy and this is a practice known as over shifting which had the effect on both tax
increase and the industrial revenue (Gunter and Mills, 2017).
CONCLUSION
In the last of report, it has been founded that throughout the budget details used during the
goodwill of BAT as the RAI deficit testing, the product estimates used throughout the
profitability-in-use measurements have been merged.

REFERENCES
Books and Journals
Czerniawska, F., 2016. Management Consultancy: what next?. Springer.
Eloquin, X., 2016. Systems-psychodynamics in schools: a framework for EPs undertaking
organisational consultancy. Educational Psychology in Practice, 32(2), pp.163-179.
Gunter, H. M. and Mills, C., 2017. Consultants and consultancy: The case of education.
Switzerland: Springer International Publishing.
Howard, W. ed., 2016. The practice of public relations. Elsevier.
Miah, S. J., Hasan, J. and Gammack, J. G., 2017. On-cloud healthcare clinic: an e-health
consultancy approach for remote communities in a developing country. Telematics and
Informatics, 34(1), pp.311-322.
Online
Annual report of BAT. 2019. [Online] Available Through:
< https://www.bat.com/ar/2019/pdf/BAT_Annual_Report_and_Form_20-F_2019.pdf >.