Case study: British American tobacco company
- Trend analysis
- Vertical analysis
- Horizontal analysis
- Calculation of financial ratios
Financial analysis usually deals with comparison of current year's performance with the previous year's performance. This is accomplished by mathematical tools known as ratios.
British American Tobacco Company was formed as the result of a joint venture between Imperial Tobacco Company and the American Tobacco Company. It produced 853 billion cigarettes in 2004. The group employs a staff complement of more than 90,000 people worldwide.
An analysis of the financial statements of the British American Tobacco will assist in establishing the success, failure and progress of the establishment.
Trend analysis is useful in the analysis of company accounts over a series of years. The analysis is applied to a five ?year or ten - year summaries supplied in company accounts. The technique gives a quick rough guide to specific trends in the individual items in the financial statements.
[...] Shareholder's ratio = Shareholders funds Capital employed Capital employed = Fixed assets + working Capital = 11,568 + -6,152= 5,416 = = 0.96 This represents the proportion of capital employed that is made up by shareholder's funds. In the case of British American Tobacco, the company heavily relies on equity finance to for its activities. Investment ratios: Ratios such as dividend payout ratio are of great interest to investors. The Dividend Payout Ratio = Yearly Dividend per share Earnings per share = = 0.5 The dividend payout ratio for British American Tobacco is only dividend which could be attributed to British American Tobacco's focus on developing new products, new processes [...]
[...] Calculation % operations tax In the case of British American Tobacco, operating profit dropped by from 2003 to 2004, dividend distribution reduced by 25%. The reduction in operating profit could be attributed to the United States on going costs of a United States Dollars up to $500 million annual cap for the first five years. The writing off of investment costs and restructuring costs considering the uncertainty and difficulties in establishing a major strategy. Dividend reduction can be explained by the 59 million shares that were purchased in 2004 for cancellation at a cost of 492.6 million. [...]