Comprehensive Report on International Finance for Burberry Group Plc

This report provides a comprehensive analysis of the international finance aspects of Burberry Group Plc. It begins with an introduction to the significance of integrating international financial standards. The report is divided into three key tasks. Task 1 examines recent developments in the international financial environment, highlighting the impact of globalization and the emergence of universal banking. Task 2 details the various sources of finance available to companies like Burberry, including long-term, medium-term, and short-term financing options, alongside an overview of dividend policies. Task 3 focuses on the financial performance analysis of Burberry Group Plc, utilizing ratio analysis to evaluate profitability and efficiency using financial statements from 2018 and 2019. The analysis includes the calculation and interpretation of gross profit margin and net profit margin ratios to assess the company's financial health and performance over the specified period.

International Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Recent developments in international financial environment: ...................................................1
TASK 2............................................................................................................................................2
Source of finance:.......................................................................................................................2
Dividend policy: .........................................................................................................................3
TASK 3............................................................................................................................................4
Financial performance analysis:..................................................................................................4
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In any business environment, there is a need to integrate a nation or location specific
financial standards with international financial standards for growth perspectivev (Armijo and
Echeverri-Gent, 2014). In recent business environment, there are vast changes in the field of
international finance and hence, there is a requirement of competent management in an
organisation to cope up with such changes taking place in the environment. For better
understanding of international finance, an organisation named Burberry Group Plc is chosen.
This report is divided in three task, first task provides the details about the recent developments
in the international market. Second task describes the sources of funds and related matters
whereas third task tells about the financial performance of selected organisation.
TASK 1
Recent developments in international financial environment:
There are various developments taking places in the business environment related to
finance which has a tremendous impact on the business operations of Burberry Group Plc. For
understanding of these developments, firstly the term international financial should be
understood. International Finance means monetary interactions with two more countries for
doing business. It is concerned with economies as a whole instead of individual market of a
country. There are various institution which provides international finance for doing business
such as international monetary fund (IMF) and international finance corp. (IFC) etc. Details of
two recent developments among various developments are as follows:
 Due to globalisation and rapid integration of financial markets, the geographical locations
are no more cause for obtaining finance from outside the domestic market for
diversification. Due to this, international financial market is getting smaller in every
aspect of business. It can affect the Burberry Group Plc in near future because these
developments provides more growth opportunities to the company.
 The other development in this environment is existence of universal banking and as a
result, there is a active flow of international capital. There is also improvement in the
working of non banking financial institution in supporting business operations of various
organisations. Due to this it has a wide range of sources in near future for diversification
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of its business operations in other countries by taking loans in that country easily (Bishop
and Hill, 2014).
TASK 2
Source of finance:
In any organisation like Burberry Group Plc, for carrying out its business operations
effectively and efficiently, there is a need of finance to provide monetary assistance to its
business operations and for working capital requirements. There are various sources of finance
from where a company may take finance which are as follows:
 Long term finance
 Medium term finance
 Short term finance
Long term finance:
These are those finance which are taken by the company for long term period generally
for more than 5 years. This is taken for financing capital expenditures like purchase of fixed
assets, land and building etc. long term financing sources can in the form of followings:
 Share capital or equity shares: In this method, companies like Burberry Group Plc are
often gives a prescribed number of shares to general public (in case of public
company) or to some specified person (in case of private company) and takes the
money form such persons in lieu of shares given.
 Retained earnings: In this method, company often retained its earning by not
distributing to shareholders (by way of dividend) and use this retained earning in
funding of its capital projects (Buchner and others, 2014).
 Debenture/bonds: This method for obtaining fund is used when company wants to use
debt source of finance. In this method, the person who is given finance to company is
entitled to receive an income at fixed periodical intervals at fixed rate.
Medium term finance:
These are those finance which are taken by the company for medium term period which
is for 3 to 5 years. This include the followings:
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 Medium term loans: In this method, Burberry Group Plc takes a loan for its business
operations from banks and financial institutions including non banking finance
companies.
 Lease finance: It is one of the important sources of medium term financing where owner
of a particular asset gives right to use the assets to the company for a payment of a
predetermined periodical payments (Hieronymi, 2016).
Short term finance:
Short term finance means financing the business requirements for a period not more than
1 year. This is required to finance the current assets, to pay the current liabilities and maintain
liquidity in the company. The various sources of this are as follows:
 Trade credit: This is the essential source for the company in which supplier of company
gives extended time to the company for the payment of money for purchase of goods.
 Factoring services: This method is important source for maintaining its liquidity in short
period time. In this method, companies like Burberry Group Plc are often sells its account
receivables to the third party at a discount in a situation where there is a requirement of
immediate cash.
 Bill discounting: In this period company gives its account receivables to the bank and in
return bank release funds to the company before credit period of account receivables end.
Dividend policy:
A dividend policy of a company depends upon the various key factors affecting its
profitability. A dividend policy determines the amount of dividend which should be given by the
company to the shareholders and determine the fixed intervals of time for dividend payments.
The some of popular policies are as follows:
 Stable dividend policy
 Constant dividend policy
 Residual dividend policy
Stable dividend policy:
In this policy, company aims to give dividend at a steady rate of dividend every year.
This is determined by foresting the company's future earnings and accordingly determine the
stable dividend rate. In such policy, dividend is also be given even if there is any decline in the
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earnings of the company and also in boom situation, dividend is not given by the organisation at
a higher rate (Huang and others, 2015).
Constant dividend policy:
Under constant dividend policy, company is given dividend at a specific constant rate of
earning of an organisation. In this case, dividend amount payable at every year is affected by the
profits earn by the company every year because in this policy, dividend is given by company is
depended on the earning and earning can not be same in each year.
Residual dividend policy:
This is also a important dividend policy where the rate of earning on retained profits are
more than cost of capital and expected rate of earning. Under this policy, profits left after it is
utilised for internal business operations and after meeting equity capital expenditure requirement
are given to shareholders as a dividend. In this, company give first priority to its investment
proposals and thereafter any residual profits is given to shareholders as a dividend (McFarland,
2015).
TASK 3
Financial performance analysis:
Financial performance of Burberry Group Plc can be evaluated by the help of ratio
analysis. Ratio analysis is a technique by which financial performance of a company can be
evaluated with the help of various ratio calculation such profitability, liquidity, investment and
efficiency ratios etc. For calculation of these ratios financial statements of Burberry Group Plc
are as follows:
Group Income Statement:
Particulars 52 weeks to 30 march
2019 £m
Year to 31march 2018 £m
Revenue
cost of sales
2720.2
(859.4)
2732.8
(835.4)
Gross profit
Net operating expenses
1860.8
(1,423.6)
1,897.4
(1,487.1)
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Operating profit 437.2 410.3
Financing:
Finance income
Finance expense
Other financing charge
8.7
(3.6)
(1.7)
7.8
(3.5)
(2.0)
Net finance income 3.4 2.3
Profit before taxation
Taxation
440.6
(101.5)
412.6
(119.0)
Profit for the year 339.1 293.6
Attributable to:
Owners of the Company
Non-controlling interest
339.3
(0.2)
293.5
0.1
Profit for the year 339.1 293.6
Earnings per share
:
Basic
Diluted
82.3p
81.7p
68.9p
68.4p
Group balance sheet:
Particulars As at
30 March
2019
As at
31 March
2018
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£m £m
ASSETS
:
Non-current assets
Intangible assets
Property, plant and equipment
Investment properties
Deferred tax assets
Trade and other receivables
Derivative financial assets
221.0
306.9
2.5
123.1
70.1
–
180.1
313.6
2.6
115.5
69.2
0.3
723.6 681.3
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Income tax receivables
Cash and cash equivalents
465.1
251.1
3.0
14.9
874.5
411.8
206.3
1.6
6.7
915.3
1608.6 1541.7
Total assets 2332.2 2223
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LIABILITIES
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Derivative financial liabilities
Retirement benefit obligations
Provisions for other liabilities and
charges
(176.5)
(3.4)
(0.1)
(1.4)
(50.7)
(168.1)
(4.2)
(0.1)
(0.9)
(71.4)
-232.1 -244.7
Current liabilities
Bank overdrafts
Derivative financial liabilities
Trade and other payables
Provisions for other liabilities and
charges
Income tax liabilities
(37.2)
(5.5)
(525.7)
(34.6)
(37.1)
(23.2)
(3.8)
(460.9)
(32.1)
(32.9)
-640.1 -552.9
Total liabilities -872.2 -797.6
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Net Assets 1460 1425.4
EQUITY
Capital and reserves attributable to
owners of the Company
Ordinary share capital
Share premium account
Capital reserve
Hedging reserve
Foreign currency translation reserve
Retained earnings
0.2
216.9
41.1
3.5
227.7
965.6
0.2
214.6
41.1
3.8
214.7
946.1
Equity attributable to owners of the
Company
Non-controlling interest in equity
1,455.0
5.0
1,420.5
4.9
Total Equity 1460 1425.4
Profitability Ratios:
Profitability ratios are those ratios which are calculated to determine the the profitabilty
of the company and accordingly take corrective action and in case of favourable ratios give
incentives to the employees and other workers (Wollner, 2014). These includs the following:
 Gross profit margin ratio
 Net profit margin ratio
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Particulars 30/03/19 31/03/18
Gross profit (G.P.) 1860.8 1897.4
Revenue 2720.2 2732.8
G.P. Ratio 68.41% 69.43%
Note: G.P. Ratio = Gross profit / Revenue*100
Interpretation: After observing the above ratio related to Burberry Group Plc, it may be easily
concluded that performance of company decreases in current year as compared to past year.
Beacuase in current year, its G.P. Ratio is 68.41% but in last year it was 69.43%
Particulars 30/03/19 31/03/18
Net profit (N.P.) 440.6 412.6
Revenue 2720.2 2732.8
N.P. Ratio 16.20% 15.10%
Note: N.P. Ratio = Net Profit / Revenue*100
Interpretation: After observing the above ratio, it may be stated that net profit of the current
year(16.20%) is higher than previous year (15.10%). it means that Burberry Group Plc has
utilised its resources in better way to reduce its operatin expenses. This is good sign for company
and there is no need to take any corrective action.
Liquidity Ratios:
These ratios are calculated to the find the liquidity position of the company and taking
corrective action accordingly (Neal, 2015). These ratios are very useful for mainaining short
term liquidity posotion of the company. These are as follows:
 Current Ratio
 Quick Ratio
Particulars 30/03/19 31/03/18
Current assets 1608.6 1541.7
Current liabilities 640.1 552.9
Current Ratio 2.51 2.79
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Note: Current Ratio = current assets/ current liabilities
Interpretation: Afetr observing the above ratio, it is clearly concluded that Burberry Group Plc
has its current asset ratio (2.51) is lower in current year as compared to last year which is 2.79.
this can be due to non utilisation of short term assest effectively to maiantain the solvency
position.
Particulars 30/03/19 31/03/18
Quick assets 1143.5 1129.9
Current liabilities 640.1 552.9
Quick Ratio 1.79 2.04
Note: Quick Ratio = Quick Asset/ Current Liabilities
Note: Quick ratio is calculated by deducting the prepaid expenses and inventories from the
current assets.
Interpretation: Afetr observing the above ratio, it is clearly concluded that Burberry Group Plc
its quick ratio (1.79) is less than last year which is 2.04. Due to this, company is not able to pay
its short term liabilties on the basis of quick assets as compared to previous year.
Efficiency Ratios:
Efficiency ratios are calculated by the company to determine in what way company uses
its assets and liabilities for business operations. By calculating this, it can plan its future
operations and processes to improve its efficiency and effectiveness (Passari and Rey, 2015).
These includs the following:
 Assets turnover ratio
 Fixed assets turnover ratio
Particulars 30/03/19
Net sales 2720.2
Average total assets 2277.6
Assets turnover Ratio 1.19
Note: Asstes turnover ratio = net sales / average total assets
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Note: Average total assets are calculated by taking average of opening balance of total assets and
closing balance of total assets.
Interpretation: After observing the above ratio, it is clearly concluded that company has utilises
its total assets efficiently due to this its sales increases and there is no need to take any corrective
action.
Particulars 30/03/19
Net sales 2720.2
Average fixed assets 702.45
Fixed assets turnover Ratio 3.87
Note: Fixed asstes turnover ratio = net sales / average fixed assets
Note: Average fixed assets are calculated by taking average of opening balance of fixed assets
and closing balance of fixed assets.
Interpretation: After observing the above ratio, it is clearly concluded that Burberry Group Plc
has utilised its fixed assets efficiently and effectively in terms of its total fixed asstes and
therefore, there is no need to take any corrective action.
Investment Ratios:
Those ratios which are calculated by the company for assessing and evaluating its
performance. In other words, these are the ratios by which a company can ensure that whether or
not its funds are utilised in efficiently and effectively (Terra, 2015). Thes includs the following:
 Debt equity Ratio
 Return on equity
Particulars 30/03/19 31/03/18
Debt 232.1 244.7
Equity 1460 1425.4
Debt equity ratio 0.16 0.17
Note: Debt equity ratio = Debt / Equity
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Interpretation: After observing the above ratio, it is clearly concluded that Burberry Group Plc's
debt equity ratio decreses as compared to previous year. It means that company's fianancial risk
decreses as compared to previous year in terms of business risk.
Particulars 30/03/19 31/03/18
Net income 339.1 293.6
Equity 1460 1425.4
Return on equity ratio 0.23 0.21
Note: Return on equity Ratio = net income after tax / equity
Interpretation: After observing the above ratio, it is clearly stated that Burberry Group Plc has
higher return on equity ratio (0.23) as compared to last year (0.21). it means that company has
utilised its capital in efficient way by investing in good resources so tha its overall return can
maximised.
CONCLUSION
From the above report it is concluded that in an organisation where there is a changes in
international finance environment, these changes may have vast impact on the current and future
business processes. It is further concluded that there is a variety od sources available to an
company to raise funds doing its business operations. An organisation may choose a suitable
source among these various sources of finance as per the its requirements and there different
types of dividend policies available to an organisation. It is also concluded that for anlysis of
financial performance of a company there is a requirement of calculation of various type of ratios
to evaluate its performance in different scenarios.
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