financial analysis of barclays

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Financial Analysis of Barclays Plc

[Name of Student]
[Name of Institution]
[Date]

Barclays Plc

2

Table of Contents
Abstract............................................................................................................................................1
Terms of Reference..........................................................................................................................2
Procedures of Investigation.............................................................................................................2
Background of the Study.................................................................................................................2
1) Findings and Analysis of Information.........................................................................................3
1.1 Barclays Plc Shareholder’s Value..........................................................................................3
1.2 Gain on Investments...............................................................................................................4
2) Sources of Finance......................................................................................................................5
2.1 Financial Leverage.................................................................................................................5
2.2 Debt to Equity/Gearing Ratio................................................................................................6
2.3 Total Debt...............................................................................................................................7
3) Evaluation of Current Shareholder’s Equity...............................................................................8
3.1 Net Asset Value per Share......................................................................................................8
3.2 Price/Earnings Ratio of Barclays Plc.....................................................................................8
Conclusions......................................................................................................................................9
References......................................................................................................................................10
Appendix........................................................................................................................................11

Barclays Plc

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Abstract

This purpose of this report is to analyse the financials of acompany listed on FTSE100, and the
chosen organization in this regard is Barclays Plc. Within the following report key financial
ratios and benchmarks shall be discussed, that provides the overall glimpse of the financial
health of company for past five years. Moreover, available sources of finances for Barclays Plc
and current policies of company for achieving its desired goals and objectives have been
investigated.This evaluation also highlights company industrial practices and its corporate
objectives. Lastly, net asset value (NAV) and price/earnings ratio is analysed to evaluate the
current valuation of equity of Barclays Plc.For the purpose of analysis, last 5 years financial
statement and annual reports of Barclays Plc is utilized. This report provides detailed financial
information about the company.

Barclays Plc

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Financial Analysis of Barclays Plc.

Terms of Reference

This study is based on the financial analysis of Barclays Plc for the last five year. In basic
financial literature, this report highlights the current performance of Barclays Plc and its effort to
deliver the desired targets to its shareholder. One of the majoranalyses of this report describes the
shareholder’s value for Barclays Plc. Second phase of this report explains the sources of finance
for Barclays Plc and evaluation of its long term business policies to achieve its objectives. Final
part of the report is based on the evaluation of company’s shareholder equity, by assessing net
asset value and price/earnings ratio.

Procedures of Investigation

For the purpose of investigation, this study utilizes the financial information available in
financial/annual reports, statements and financial analysis report from different brokerage house.
This process involves assessing the documents, observations and interviewing company’s
employee.

Barclays Plc

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Background of the Study

The aim of this study is to analyse the financial condition of Barclays Plc in three
different perspectives, shareholder value, sources of finance and current valuation of the equity.
This analysis is based on the information released from the company in the form of annual
reports, financial and stock indexes. Barclays Plc provides three different financial services that
include, retail banking, wealth management, corporate and investment banking (Barclays Plc,
2014). All the operations of Barclays Plc are integrated across the globe. Barclays Plc.will
provide services to small and large business, corporation and government institutes. Business of
Barclays Plc is spread across the world in different market to support customer and clients need.

1) Findings and Analysis of Information
1.1Barclays Plc Shareholder’s Value

Shareholder Wealth Maximization (SWM) principle postulates that ultimate operating
goal and objective of any public organization is to maximize its return on equity capital. This
defines the operating goal of the corporation and efficient allocation of its resources, which
yields maximum return for the shareholder’s. Key factors in understanding the SWM, is tofocus
on the motives and interest of company’s stakeholder. The stronger form of SWM principle
argues that main objective of a corporation is to maximize its wealth, even within any set of legal
or ethical constraint. Ultimate purpose or the goal of an organization is aligned with the SWM
theory. Therefore, this part of the study assesses the business goal of Barclays Plc and its
performances over the past five years.

Barclays Plc

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From the analysis of Barclays Plc, it can be observed that there is a significant change
inrevenues and net income of the company. Net revenue for FY2010, was £32,204 million,
which is followed by £33,033 in FY 2011, £25,609 in FY 2012, £28,444 in FY2013 and £25,768
in FY2014. This shows volatility and overall downward trend in the revenues of the company.
Similarly there has been a significant decline in the net income of the company, i.e. £4,549
million in FY 2010 and a sudden decline to £845 million in FY 2014.

For financial year 2014, company’s leftover revenue or operating margin is 7.06%,
however, net operating income for first quarter FY15, is £5.935 million. This represents a
negative trend in the performance of the company. Meanwhile, an increase in dividend per share
is observed from 5.50p to 6.50, i.e. 1p form FY 2010 to 2014. There is also a significant decline
in the adjusted earnings per share from FY 2010 (EPS 28.15p) to FY 2014 (EPS 17.30p), this
represent 61.45% decline of EPS in past five years. However, the changes in EPS and DPS
represent the company’s performance and overall market performance(Financials-Morningstar,
2015).

1.2 Gain on Investments

Gain on investments can be explained as capital gain from the sales of assets on the
investments. Data extracted from the balance sheet of Barclays Plc depicts an increase of total
loans and advances of £34bn to £504bn. However, an increase in customer accounts of £19bn to
£447bn from FY 2014 to 1Q15 is observed and total shareholder’s equity increased to £67.1bn
which was £66.0 in FY14. Similarly, an increase in profit after tax is £0.5bn. Net Asset Value

Barclays Plc

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(NAV) and net tangible assets value of the share also showed an upward trend in past year, i.e.
337p increase from 288p in FY14.

2) Sources of Finance
2.1 Financial Leverage

Financial Leverage (%)
35
30
25
Financial Leverage

20
15
10
5
0
2010

2011

2012

2013

2014

Figure 1: Financial Leverage (%)

Financial leverage is defined as the extent to which an organization uses fixed income
securities including debt and preferred equity. A high degree of financial leverage results in high
interest payments which has a negative impact on the organization’s bottom line earnings per
share. As per Barclay’s bank is concerned, the company has high financial leverage. In 2010, the
financial leverage was calculated to be 29.29 which decreased to 28.13 in 2011. As per the
above chart, it can be witnessed that the company is focusing towards minimizing the financial

Barclays Plc

6

leverage in order to boost up their productivity in terms of earnings per share. In the year 2012,
the company had a total financial leverage of 27.81 which further declined to 21.52 in 2013.
Moreover, in 2014, the financial leverage increased to 22.80. The major reason behind high
financial leverage is that the company is largely dependent on external debt and has issued a
large sum of money through debt financing (Barclay’s 2014).

2.2 Debt to Equity/Gearing Ratio

Debt to Equity
1.6
1.4
1.2
1

Debt to Equity

0.8
0.6
0.4
0.2
0
2010

2011

2012

2013

2014

Figure 2: Debt to Equity Ratio

Similar to financial leverage, the gearing ratio or the debt to equity ratio is also showing a
declining trend. In 2010, the debt to equity of Barclay’s bank was calculated to be 0.56 which
further declined to 0.45 in the next year (2011) which remained constant in 2012. The low debt

Barclays Plc

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to equity ratio shows that the company is more focused towards minimizing the total debt of the
organization. After the bailout of Barclay’s bank in 2008, the management has formulated
different strategies and policies to minimize the negative impact of debt on the overall
performance of the company. In 2013, the company was reported to borrow large amount of
funds from external sources due to its hampered conditions.

The gearing ratio calculated in 2013 was approximately 1.42 which means that the
company is taking high leverage thus possessing high risk to the investors and other shareholders
of the bank (Morning star, 2014). However in 2014, the company showed remarkable
performance and were able to minimize its gearing ratio to ever time lowest of 0.36. Moreover, it
has also been researched that the leverage ratio of Barclay’s bank was regarded as the lowest as
compared with other major banks of UK.

Barclays Plc

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2.3 Total Debt

Total Debt
1,600,000
1,400,000
1,200,000
1,000,000

Total Debt

800,000
600,000
400,000
200,000
0
2010

2011

2012

2013

2014

Figure 3: Total Debt (USD$)

The above chart shows the total debt acquired by Barclays bank from the year 2010 to
2014. In 2010, the total debt of the company was reported to be $1.4billion which was further
increased to $1.5billion in 2011. In 2012, the company reduced its total debt and was able to
report a figure of $1.43billion. Moreover, the total debt was also declined in 2013 and was
reported to be $1.2billion. However, in 2014, the total debt of Barclays bank increased to
$1.29billion. This fluctuation total debt can be related to the fact that the company is closing
down its operations from various parts of the world. The selling of company’s assets was used to
pay off the interest on the loan taken from external sources (Barclay’s, 2014). Moreover, the
corporate objective of Barclay’s bank is to create and develop long term relationship with its
shareholders.

Barclays Plc

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3)Evaluation of Current Shareholder’s Equity
3.1 Net Asset Value per Share

To explain the net asset value per share of Barclays Plc, current market price of a share is
considered. Net asset value (NAV) is calculated by Net assets of the company divided by number
of outstanding shares. Net asset value is calculated to reflect the current value of the stock. In
case of Barclays Plc, calculatedNet asset value and net tangible asset value per share depicts an
increase to 337p from FY 2014: 335p, and 288p FY 2014: 285, respectively. From the available
NAV of 1QFY15, it can be concluded that there is a more chance of higher bid price per shares
by the investor as NAV of Barclays Plc is relatively higher from the past five year.

¨

NAVPS = Net Assets / Number of outstanding Share

3.2 Price/Earnings Ratio of Barclays Plc

Price to earnings ratio depicts the company’s share price to its earning per share. Simple
formula is utilized to calculate P/E Ratio, i.e. Market value of the share divided by earnings per
share (EPS). From the analysis of Barclays Plc quarterly results, and the current market price per
share (i.e. 220.83 as of 23rd November, 2015) and EPS of 17.30 (FY2014), price to earnings ratio
is calculated.
PE Ratio = Price per share/Earnings per share

= 220.83 /17.30

Barclays Plc

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= $ 12.76.

Recent analysis of price to earnings ratio (23rd November, 2015), is $12.83 (Hargreaves
Lansdown, 2015). This represents an increase in the earnings of Barclays Plc and decline in the
current market price per share. To conclude, current price/earnings ratio is $ 12.83 which is
higher than financial year 2014.

Conclusions

To conclude, this report has identified the current financial health of the Barclays Plc, and
analysed few key ratios to predict the value of the firm. In the past five year analysis it was
observed that shareholder’s value of Barclays Plc, has declined and a similar pattern is observed
in earnings per share.However, the overall profits before tax increased in 1QFY15, 14% i.e.
£2,104mn. Barclays Plc has achieved significant growth in investment banking with 37% to
£675mn, and 23% rise (£295mn) in the banking sector at Africa.

By analysing the sources of finance for Barclays Plc, it was observed that company is
more focused on reducing its debt to equity ratio. However, in FY14, total debt of Barclays Plc
increase to $1.29billion. Similarly, NAV and PE ratios are stable and depict a substantial growth
in shareholders’ value. However, Barclays Plc is not performing to achieve its desired targets
and fluctuation in the debt is associated with the fact that company is closing its operations in
several countries to minimize its losses.

Barclays Plc

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Barclays Plc

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References

Barclay’s bank (2014), “Annual Report”, Retrieved from
https://www.home.barclays/content/dam/barclayspublic/docs/InvestorRelations/AnnualR
eports/AR2014/Barclays_PLC_Annual_Report_%202014.pdf

Barclays Plc, (2015) Our company. [Online]. Available at:

https://www.home.barclays/barclays-investor-relations/results-and-reports/annualreports.html [Accessed 23rd November, 2015].

Barclays Plc, (2015) Quarterly Result [Online], Retrieved from:

https://www.home.barclays/content/dam/barclayspublic/docs/InvestorRelations/ResultAn
nouncements/2015Q1IMS/Barclays%20Q1%202015%20IMS.pdf

Hargreaves Lansdown (2015), “Current Market Price per Share & P/E ratio”, Retrieved from:
http://www.hl.co.uk/shares/shares-search-results/b/barclays-plc-ordinary-25p

Investorguide, (2015) Fundamentals for Barclays Plc. [Online]. Available at:
http://www.investorguide.com/stock-fundamentals.php?ticker=BCS [Accessed: 23rd
November 2015].

Morningstar (2014), “Key ratio analysis of Barclay’s bank”, Retrieved from
http://financials.morningstar.com/ratios/r.html?t=BCSPRA&region=usa&culture=en-US

Barclays Plc

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Barclays Plc

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Appendix

Financial Leverage
Debt to Equity

Total Debt
Gearing Ratio

2010

2011

2012

2013

2014

29.29

28.13

27.81

21.52

22.8

0.56

0.45

0.45

1.42

0.36

1,438,78
7

1,507,938

1,436,73
5

1,251,83
1

1,298,33
9

28.29

27.12

26.81

20.51

21.79

Barclays Plc
USD

Dividend Yield
2014

Annual dividend per share
Average price per share *

2013

2012

2011

2010

2.66

2.35

5.92

4.56

6.76

243.15

251.5

255.3

179

266.95

2.67

2.39

2.29

3.12

1.72

Dividend yield (%)

* Average highest annual share price taken from London Stock Exchange

Barclays Plc
USD (million)

Capital Gain
2015

2014

2013

2012

2011

Barclays Plc

Capital gain (loss) *

6065

* Based upon data in company annual reports

5879

797

2868

15

2256

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