International Finance Report: Barclays Bank Valuation and Analysis

This report presents a financial analysis of Barclays Bank Plc, focusing on key financial ratios such as gross profit, operating profit, net profit, current ratio, and quick ratio, calculated for the year 2015. The report evaluates the bank's performance and assesses its investment potential. Furthermore, it explores three valuation methods: net asset value, price-earnings ratio, and dividend valuation, including their respective advantages and disadvantages. The analysis also includes calculations using these methods to determine valuations and discusses potential discrepancies. The report addresses various risk exposures faced by the FTSE 100 and examines how the economic environment influences the valuation of the bank. Finally, it provides recommendations based on the analysis and concludes with an overall assessment of Barclays Bank's financial standing and investment suitability. The report is a valuable resource for understanding financial analysis and valuation techniques within the context of international finance.

INTERNATIONAL
FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Financial Ratio Analysis of Barclays Bank Plc:.........................................................................1
Explanation of Ratios calculated and analysis of the results:.....................................................2
TASK 2............................................................................................................................................3
A) Advantages and disadvantages of the three valuation methods:............................................3
B) Calculations using the 3 methods to determine valuations: ..................................................4
C) There may be instances where these valuations may differ:..................................................5
D) Various risk exposures of the FTSE 100 currently faces:......................................................6
E) Impact of economic environment on the results & influence the valuation:..........................7
TASK 3............................................................................................................................................7
Recommendations of above analysis:.........................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Finance is the lifeline of every business, without is company can not exist in the market.
International finance is the branch of financial economics broadly concerned with monetary and
macroeconomic interrelations between two or more countries. The report is based on the
Barclays Bank Plc company which is operating in the banking and financial services. The report
describes the financial ratios of the bank such as liquidity ratios and profitability ratios. It shows
three methods of valuation of the selected bank such as net asset, PE ratio and dividend
valuation. It describes that the market situations, financial performance of company as well as
the economic environment is how affect to the valuations. The recommendations are also
provided the report for the investors.
TASK 1
Barclays Bank Plc. Is a British multinational banking financial services company
headquarters in London. It is a universal bank with operations in retail, wholesale and investment
banking, as well as wealth management, mortgage lending ans credit cards. It has operation in
over 50 countries and territories and has around 48 million customers.
Financial Ratio Analysis of Barclays Bank Plc:
Ratios Formula 2015
Net sales 17201
Gross profit 12558
Net profit 623
Operating profit Operating profit/ net sales*100 4777
Gross profit ratio GP/ net sales * 100 73.01%
Net profit ratio Net profit / net
sales * 100 4.96%
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Operating profit ratio Operating profit / net sales*100 27.77%
Current assets 623291
Current liabilities 502089
Inventory 0
Prepaid expenses 0
Current ratio current assets / current liabilities 1.24
Quick ratio
Current assets – (stock + prepaid expenses) /
current liabilities 1.24
Explanation of Ratios calculated and analysis of the results:
1. Gross Profit Ratio: Gross profit is a company's total revenue (equivalent to total assets)
minus the cost of goods sold. Gross profit is the profit a company makes after deducting the costs
associated with making and selling its products, or the costs associated with providing its
services (Lewis, 2015). The Barclays Bank Plc is having a good gross profit in the business. It
shows that the company easily cover cost of goods sold. The company is earning gross profit in
year 2015 is 73.01% which is a well situation of company.
2. Operating Profit Ratio: Operating profit is the profit earned from a firm's normal core
business operations. The ratio does not include any profit earned from the firm's investments,
such as earnings from firms in which the company has partial interest (Chwieroth, 2015). The
value is calculated after deductions of all operating expenses such as cost of goods sold, wages,
overhead expense, administration expenses etc. It does not include interests and taxes. The
company is having the operating ratio is 27.77% which decline more than half from gross profit
which shows that company have too much operating expenses for their services.
3. Net Profit Ratio: Net profit is a company's total earnings or profit which is calculated by
taking revenues and subtracting the costs of doing business such as depreciation, interest, taxes
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and other expenses. Net profit is a final income of the business. The Barclays bank is not
performing well because net profit decline from 27.77%-4.96% which shows that the company is
paying more interest and it has a taxation burden.
4. Current Ratio: The current ratio is a liquidity ratio which shows that company is how much
able to pay short term and long term obligations (Bodea and Hicks, 2015). To gauge this ability,
the current ratio considers the current total assets of a company (both liquid and illiquid) relative
to that company's current liabilities. It includes the all current assets and all current liabilities of
company. The ideal ratio of current ratio is 2:1. The Barclays company's current ratio is 1.24:1,
which shows that company is performing good. It has more current assets compare to current
liabilities, so the company is in good position as per the current ratio.
5. Quick Ratio: The quick ratio is an indicator of a company's short term liquidity. The quick
ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay its current
liabilities when they come due with only quick assets. It not considers closing stock and prepaid
expenses of business. Ideal ratio of quick ratio is 1:1. The bank's quick ratio is 1.24:1, which
means that the company has GBP 1.240 of liquid assets available to cover each GBP 14 of
current liabilities. Here the company is performing well.
In terms of the investment opportunity it concluded that The Barclays Bank is not good
for investment purpose. Company's profit is continuously decreases that means it bears more
costs and having high debts as well as paying high taxes. The investors should not invest in this
company, it is not good for investment because continuously decreasing.
TASK 2
A) Advantages and disadvantages of the three valuation methods:
1. Net Asset Value: Most commonly used in reference to mutual or close-end funds. Net asset
value (NAV) measures the value of a fund's assets, minus its liabilities. It is typically on a per-
share basis. It is calculated by dividing the total net asset value of the company by the number of
share outstanding.
Advantages of net asset value are such as: Data required to perform the valuation are
usually easily available (Gallizo, Moreno and Salvador, 2016). It allows for adjustments (up and
down) in estimating FMV. It is suitable for firms with heavy tangible investments (e.g.
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equipment, land). The method is helpful when the firm's future is in question or where the firm
has a brief or volatile earnings record.
Disadvantages of the method are it can understand the value of intangible assets such as
copyrights or goodwill. It does not take into account future changes (up or don) in sales or
income. Here balance sheet may not accurately reflect all assets.
2. Price Earnings Ratio: The price earnings ratio is the ratio for valuing a company that
measures its current share price relative to its per-share earnings.
The biggest advantage of P/E ratio is that it is easy to use and fathom. It can be used to
make quick decisions (Gilpin, 2016). The P/E is a much more indicative means for the real value
of the share than the price alone. With help of this the company's stock's current P/E can be
compared to the past performance of the company.
The main disadvantage is that P/E is largely due to the subjective in nature, and that
company have no idea what price earnings ratio it can sell at. This can partially be accredited to
the volatile nature of stock prices. Another disadvantage is inflation. At times of high inflation,
the currency of the specific country where the share observation takes place.
3. Dividend Valuation Method: It is a procedure for valuing the price of a stock by using the
predicted dividends and discounting them back to the present value. Here the Barclays consider
Gordon growth model to compute dividend value.
The advantages of the model is that it is the most commonly used model to calculate
share price and is therefore the easiest to understand (Shim and Constas, 2016). It values
company's stock without taking into account market conditions, so it is easier to make
comparisons across companies of different sizes and in different industries.
There are many disadvantages to model. It does not take into account non-dividend
factors such as brand loyalty, customer retention and the ownership of intangible assets, all of
which increase the value of the firm. The model also relies heavily on the assumptions that a
firm's dividend growth rate is stable and known.
B) Calculations using the 3 methods to determine valuations:
The three methods of valuation of business are such as Net assets value, Price / Earnings
ratio and Dividend value.
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Valuation Formula 2015
Net assets 81502
Outstanding equity shares 2196
Net assets value Net assets / outstanding equity shares 37.11
Stock price 210.86
Earning per share -1.9
Price/Earnings ratio Stock price / Earning per share -110.98
Next year dividend 3.5
MPS 210.86
G 0.0094
Dividend Value D1/P0+G 0.03
1. Net Assets value Method: Net assets value method considering net assets value of company
and number of outstanding share of the company. It not considers preference shares and
debentures. The Barclays company is good net assets value in year 2015 that is 37.11. It shows
that company is performing well into the industry but not performing at the satisfaction level.
2. Price Earnings Ratio: P/E ratio is a common financial measurement that investors used to
evaluate whether a stock price is a good value. A stock's price earning ratio tells that how many
investors are willing to pay per GBP of earnings. The company's earning per ratio is negative
that means company is not performing well in market, but the share price of Barclays Bank is in
positive that is 210.86 GBP which shows that the investors has not to make investment in the
company, because its earning is negative.
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3. Dividend Valuations Method: It is method of valuing a company's stock based [on the theory
that its stock is worth the sum of all of its future dividend payments, discounted back to their
present value. It used to value shares based on the net present value of the future dividends. Here
the Bank's dividend value is computed on the basis of expected dividend, market price per share
and expected growth rate. The company is able to pay dividend but in very lower amount.
C) There may be instances where these valuations may differ:
The valuation of these three valuation methods will become differ if there are any of the
value of calculation's element will fluctuate. There are major two components by which the
valuation of company's will go up or down and fluctuate into the business. The major two
components are such as Market situation or market value fluctuations and another one is
fluctuations in financial performance or financial statements of the company.
The market value fluctuation is lead to changes into the valuation of companies. If there
are in the market stock or index value is fluctuated or increase and decrease than the value of the
net assets and price earnings ration as well as the dividend valuation all will fluctuate (ohnson,
McLaughlin and Haueter, 2015). As per the market conditions fluctuation if there are interest
rate is increase or decrease than the investment is also decreases or increases, by which the
earnings and profits of the companies are affected positively and negatively. Mainly when the
stock prices or indexes are fluctuated than it will make differ to the valuation of company such as
fluctuation of net asset value, dividend valuation as well as price earning ratios. When the market
fluctuate than it lead to make differ in the profitability ratio of the company as well. Hence,
changes in the market conditions make differ or affect to the valuation of the company.
Another component is the financial performance of the organization. Fluctuation in the
financial performance will lead to the make changes in the valuations of business. Financial
performance such as if there are the profit of the company is decreases or fall down than it will
not able to pay any dividend, so decrease in profit is affects to the earning per share (Hale and
Obstfeld, 2016). Earning per share decreases as well as profit will also decrease then any
investor will not attract towards the company so it will affect to the companies' valuation. If there
are management of the company is not performing well than also the net assets value of the
company will decrease and if performing well than net asset value will increase. So, increase and
decrease in the financial performance is lead to differ in valuations of business.
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D) Various risk exposures of the FTSE 100 currently faces:
The Financial Times Stock Exchange 100 index, is a share index of the 100 companies
listed on the London Stock Exchange with the highest market capitalization. The Barclays Bank
Plc is also listed in the FTSE 100. There are many risks exposures of the financial times stock
exchange. If there are any fluctuations in the stock exchanges than the Bank is also affected. If
the stock exchange index is increases than the share price of the Barclays Bank is also fluctuated.
Events across the world this summer have emphasised the international nature of the financial
times stock exchange 100 indexes, with miners, oil companies, travel firms and banking industry
all hit by political and economic development in different parts of the globe (Passari and Rey,
2015). In this the Barclays Bank will also affect and according to the market it may give
favourable outcome or may be unfavourable outcomes. As the bank-holiday weekend
approached, the FTSE 100 benchmarks was down from over 7,000 points at the end of May to
about 6,000 points. Hence, the Barclays is also too much affected and the share prices of its are
down and earning per share ration goes in negative i.e. -1.9 GBP.
E) Impact of economic environment on the results & influence the valuation:
Environmental economics is a sub-field of economics that is concerned with
environmental issues. There are many environmental and economic issues which impact to the
business as well as in valuing the business. Environmental issues are the external factors that
affect the organization. The various environmental and economic factors that can have an impact
on the valuations of the enterprise.
The main factor which impact to valuations is the market in which the organization
operates (Steil, 2015). When the market of that particular industry in which company is operates,
and the market fluctuate than it will impact on the valuations of business. The economic
conditions of the country is also impact to the valuations. Government legislations of that
particular country such as taxes, tariffs, custom duties etc. all are impacts to the valuations of the
business. Another factor is customer's reaction to the firm's products and services. Hence, this all
factors impact to the valuations of business.
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TASK 3
Recommendations of above analysis:
From the above analysis it can be recommend to the investors that they should not choose
the Barclays Bank Plc company to make the investment. The company is performing little good
in context to the net profit but the based on overall analysis the gross profit ratio and operating
profit ratio of the company is continuously decreasing that means the company is having too
much operating expenses as well as too much debt. Company pays more interest and taxes means
it has high debt and low profit. Due to high debt and low profit company is not able to pay any
dividend or any bonus on the shares or any other, so the investors should not make investment in
the Barclays Bank. As per the net assets, PE ratio and dividend valuation also company is not
performing well.
CONCLUSION
On the basis of above research it can be concluded that the company is performing little
good but not performing well as per the market. The gross profit, operating profit and net profit
is continuously decreases. According to the three valuations also the company not performing
well. So it can be concluded that the company is not good for make an investment. Due to the
lower profit and high debt company is not able to pay dividend or any other appraisal to its
investors. From the analysis it can be recommended to investors that they should not choose the
Barclays Bank Plc to make any investment.
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REFERENCES
Books & Journals
Chwieroth J.M., 2015. Managing and transforming policy stigmas in international finance:
Emerging markets and controlling capital inflows after the crisis. Review of International
Political Economy. 22(1). pp.44-76.
Bodea C. and Hicks R., 2015. International finance and central bank independence: Institutional
diffusion and the flow and cost of capital. The Journal of Politics. 77(1). pp.268-284.
Gallizo J.L., Moreno J. and Salvador M., 2016. Banking Efficiency in the Enlarged European
Union: Financial Crisis and Convergence. International Finance. 19(1). pp.66-88.
Gilpin R., 2016. The political economy of international relations. Princeton University Press.
Lewis W.A., 2015. The evolution of the international economic order. Princeton University
Press.
Shim J.K. and Constas M., 2016. Encyclopedic dictionary of international finance and banking.
CRC Press.
Johnson C.J., McLaughlin J. and Haueter E.S., 2015. Corporate finance and the securities laws.
Wolters Kluwer Law & Business.
Hale G. and Obstfeld M., 2016. The Euro and the geography of international debt flows. Journal
of the European Economic Association. 14(1). pp.115-144.
Passari E. and Rey H., 2015. Financial flows and the international monetary system. The
Economic Journal. 125(584). pp.675-698.
Online
Steil E., 2015. International Finance. [Online]. Available through:
<http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1468-2362> [Accessed on 18
November 2016].
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