BT Group plc is a provider of telecommunications employing a total of 100,000
people worldwide and operating in 170 countries. In the UK, BT serves more than 20 million business and residential customers. The group consists of the following 5 sectors: (Company Profile, 2006). BT’s vision is to be dedicated to helping customers thrive in a changing world (Vision, 2006). A vision in general is the “desired future state: the aspiration of the organisation”, whereas a mission is the “overriding purpose in line with the values
or expectations of stakeholders” (Johnson & Scholes, 2005, p. 13). BT’s mission is “to be the leader in delivering converged networked services”. (Annual Report, 2006, p. 7) [...]
Table of Contents
1. Introduction
1.1. Company profile
1.2. BT’s vision and mission
2. Stakeholder Theory
2.1. BT’s stakeholder definition
2.2. Addressee of this report
2.3. Stakeholder mapping – the needs of shareholders
3. BT’s legal form and its implication on shareholders
3.1. Memorandum of Association
3.2. BT Group plc
3.3. Shares
3.4. Dividends
3.5. AGM
3.6. Accounting records
4. Analysis of the financial strengths and weaknesses
4.1. Horizontal Analysis
4.2. Profit margin
4.3. Profitability – roce
4.4. Efficiency – asset turnover
4.5. Liquidity – current ratio & quick ratio test
4.6. Structure – leverage ratio & debt to shareholders’ equity
4.7. Cash Flow
4.8. Comparison of BT to the Deutsche Telekom
5. BT’s financial strengths and weaknesses
6. New financial strategy
6.1. BT’s overall strategy
6.2. BT’s new financial strategy
7. Implementation of the new financial strategy
7.1. Inform shareholders
7.2. Build a team
7.3. Introduce Balanced Scorecard
7.3.1. Proposed Balanced Scorecard Approach
7.4. Budgeting
7.4.1. Proposed Budgeting Process
Objectives and Core Topics
The primary objective of this report is to evaluate the financial performance of BT Group plc and to propose a future financial strategy that maximizes value for its shareholders. The research addresses key financial weaknesses by analyzing liquidity, leverage, and profitability metrics, ultimately providing a strategic roadmap for operational improvement.
- Analysis of BT Group plc's financial position and key performance indicators.
- Evaluation of the impact of the organization's legal form on stakeholder interaction.
- Application of the Mendelow Framework for stakeholder mapping and requirement analysis.
- Proposal of a new financial strategy including cost reduction and turnover growth.
- Implementation planning using the Deming Wheel (PDCA Cycle) and the Balanced Scorecard approach.
Excerpt from the Book
4.5. Liquidity – current ratio & quick ratio test
Epstein (2005) recognised that a company “must have the cash it needs to carry out day-to-day operations and pay its debt obligations”. Liquidity is the ability to pay bills in future. Especially investors, to whom this report is addressed, are interested in whether they get their money back or not.
Liquidity is measured by the current ratio (=current assets/current liabilities) which shows the safety of debt holders’ claims in case of a bankruptcy (Helfert, 2001). The current ratio should be stable over time. In addition, the author carried out the quick ratio test. It does not take into consideration inventory and includes only cash on hand.
Both analysis tools show that BT has more current liabilities than current assets. The rule of thumb is that the current ratio should be between 1.2 and 2.0 and the quick ratio test should be higher than 1. If the current ratio is below 1, like in BT’s case, it shows that the company is in danger (Epstein, 2005). BT is working with a negative working capital and liquidity is not ensured. In 2006, BT had £ 0.7 of current assets for every £ of current liabilities.
BT has too little cash in both the current ratio and the quick ratio test. In both cases, the number is below 1 which means that BT has to borrow long term, issue new shares for cash, make more profit, should not pay dividends or sell fixed assets.
Summary of Chapters
1. Introduction: This chapter provides an overview of BT Group plc as a telecommunications provider and defines the corporate vision and mission.
2. Stakeholder Theory: This section explores how BT interacts with its various stakeholders and justifies the report's focus on the specific needs of shareholders.
3. BT’s legal form and its implication on shareholders: This chapter examines the implications of BT’s status as a public limited company, particularly concerning shareholder rights and limited liability.
4. Analysis of the financial strengths and weaknesses: The author conducts a comprehensive financial analysis using horizontal analysis and investment ratios to evaluate the company's fiscal health.
5. BT’s financial strengths and weaknesses: This chapter synthesizes the financial findings, highlighting critical areas like turnover growth versus concerns regarding liquidity and leverage.
6. New financial strategy: The author outlines a strategic plan focused on cost reduction, turnover growth, and equity-based financing to satisfy shareholder needs.
7. Implementation of the new financial strategy: This final chapter details the practical application of the proposed strategy using management tools like the Balanced Scorecard and the PDCA cycle.
Keywords
BT Group plc, Financial Strategy, Stakeholder Theory, Shareholders, Liquidity, Leverage, Profitability, Asset Turnover, Balanced Scorecard, Budgeting, Telecommunications, Financial Analysis, Corporate Strategy, Working Capital, Debt to Equity
Frequently Asked Questions
What is the primary focus of this report?
The report focuses on evaluating the current financial performance of BT Group plc and developing a strategic financial plan to improve its market position and satisfy shareholder expectations.
Which stakeholder group is the primary addressee of this document?
The report is primarily addressed to shareholders and investors, as their interests in the company's ability to generate cash and maintain profitability are central to the analysis.
What is the core financial goal of the proposed strategy?
The primary goal is to improve the company's liquidity and leverage ratios by increasing turnover, reducing operational costs, and utilizing equity rather than new debt.
What scientific methods are used for the financial evaluation?
The author employs horizontal analysis, ratio analysis (including current/quick ratios, ROCE, and asset turnover), and the Mendelow Framework for stakeholder classification.
How is the implementation of the strategy planned?
The implementation is planned through the establishment of a specialized team following the Deming Wheel (PDCA cycle) and the introduction of a Balanced Scorecard to align financial goals with overall business objectives.
Which key metrics characterize the financial analysis in this work?
Key metrics include profit margins, return on capital employed (ROCE), leverage ratios, current and quick ratios, and cash flow analysis.
Why does the author consider BT’s current leverage position to be problematic?
The author identifies that approximately 89.4% of assets were financed by borrowing in 2006, which is viewed as an excessively high dependency on debt, posing a risk to the company's long-term financial stability.
How does the author propose to improve operational costs?
Proposals include shifting customers to e-billing to reduce administration costs and increasing the use of flexible workstations to minimize accommodation expenses.
- Quote paper
- BA (Hons) Business Management and Administration Josephine Stadler (Author), 2007, Business Deconstructed BT, Munich, GRIN Verlag, https://www.grin.com/document/67530
