British American Tobacco (BAT) Finance Report: A Case Study

This report provides a comprehensive financial analysis of British American Tobacco (BAT), a major consumer goods company in the UK. It examines the company's sources of finance, highlighting its debt-to-equity ratio and revenue streams, including sales revenue. The report delves into examples of financial documents, referencing the 2019-20 annual report to illustrate key financial statements like income statements, balance sheets, and cash flow statements. It analyzes sales growth, operational profits, and the impact of various factors on these metrics. Furthermore, the report explores BAT's budgetary practices, including executive compensation and brand valuation methods. Finally, it discusses BAT's pricing policies, particularly focusing on the impact of taxes and the company's strategies for managing price adjustments in response to tax changes. The conclusion summarizes the findings, emphasizing the integration of budget details and product estimates in the company's profitability assessments.

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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 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's 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 which are being examined as financially strong. BATs interest on debt is satisfactory as
it is covered by earnings which are around 9.56x. 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 0.25x 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 are 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 1st 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 as organisational expenses which focuses
on their applicability for volume-based specific budgets. Government companies make budget
with the help of their experiences and proper planning which helps them to allocate the required
funds in various sectors. There has been no sign of disability during the implementation of a
sufficient set of sensitivities (Eloquin, 2016).
4. Pricing policy
The main aim for the pricing strategy of tobacco industries is to examine how the BAT is
pricing its segments of cigarettes by price and to identify how its price and its volume and the
revenue will differ through this price segment. BAT's 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 is faced by the
country it affects the nation’s budget with high taxes on tobacco products which 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
increased tax so that it is not passed to the consumers as an increase in price which will
undermine the effect of tax policy this act is known as under shifting or if they decide 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 which were used
during the goodwill of BAT as the RAI deficit testing and the product estimates were 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 >.