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Introduction

International finance mainly reflects the financial transition across the nation. When business transactions take places at international level among two or more countries than it is recognised under the category of international finance (Gambacorta, Illes and Lombardi, 2015). The report critically talks about two recent developments in the international environment that impacted Ted Baker’s organisational performance. The risk management strategy that affect the financial performance of organisation also defined in the given context. the source of finance and the dividend policy are the key focused areas considered subject to analyse the key trend. The evaluation of financial ratios of past two years is done in order to determine the financial performance of organisation.

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a) Two recent developments in the international trade environment and its impact upon company

Developments and growth mainly depends upon the favourable business conditions of the nation. If an organisation is efficiently performing at national or domestic level than only It would be able to go across the border (Heuson and et. al., 2015). Hence, expansion of business at international not only helps to boost the structure of business more feasible but also enhance the capability to compete with rivals and get competitive edge. Here in the given context the recent development trends are discussed in the context UK’s and its impact is evaluated upon performance of Ted Baker.

BREXIT

It will not be a trivial task to disengage the United Kingdom from the different European institutions into which it has become woven; it will probably be the most complicated demerger ever envisaged. Impacts involve potentially disrupting the millions of lives of European citizens living within their home country, disrupting complicated suppliers in sectors like manufacturing and retail, banking as well as financial industries.

UK downgrade: There are some negative impact fall upon retail and manufacturing industries. The industries have overseas business in the EU nations would have to face major down fall due to this vast demerger. The tariffs on goods introducing in the EU nations get increased and the product lines related to the customs and unions also get impacted due to this major separation. Form the economic point of view UK had to lose the trading facilities and the cost of exports increased in EU nations. The struggling Scottish chain, which published three profit warnings from £ 8.5 m a year earlier in the last six months of the year to March 31, made a pre-tax gain of just £ 200,000 on £ 131 m revenues.

UK retail sales: There were huge downfall recoded in the UK retail industry because the supply chain structure of manufacturing and retail industries in the European nations had been completely broken and regulatory reforms were taking too much time to revise the import and export rates from UK to EU nations (Kenny, 2015). The cost of moving goods form UK to European nations was consistently increased which net impact fall upon the retail sales in European nations. There is possibility to enhance the productive initiatives in order to retrieve the damages due to BREXIT. One of the major impact upon retail sales of Ted Baker due to buyout of 35% stakes by David Bernstein the key stake holder of company. It is anticipated that the retail sales will increase by 9% with new opening of stores for the eighth week of January. The surge mainly helps in undertaking the tactical discounting policy to boost the sales for Christmas.

Store closure: Chief executive of company stated that it is going to ram down its least contributing stores in Britain due to difficult trading situation (Khan, 2015). Ted Baker now predicts underlying non-tax profits for that year up to Jan 2020 to drop in around £ 50 m and £ 60 m. Originally, investors had expected revenue of around £ 70 m. In February, the company had desired about earnings.

News: The annual report for the year 2019 does not reflects an impressive news reading one of the global lifestyle brand Ted Baker. It states that the profit before tax decreased by 26.1% to £50.9m for the month end of January, 2019. At last year it had profit of £68.8m. It came as rival retail retailer Quiz also blamed the slump on the street for yearly profits being wiped out. The upcoming expansion and innovative actions of company presents the favourable results and expectations for future growth and development of business in near future (Liu, Schmidt-Eisenlohr and Guo, 2017).

Uncertainty in the manufacturing industry: Factory doors closing in the last moment; large steelworks lurching on bankruptcy; indications of sale hauled over one of British industry's greatest stars (Newman and Posner, 2018). Have used the collaboration resources located at the top either side of the products via the record button. From either the fall of UK Steel into bankruptcy and the planned closures by Honda and Ford to the blocking of Bombardier's aviation facilities in Quebec, there will be concerns that British industry would undergo a period of stagnation comparable to the 1980s, When Margaret Thatcher's Current government's laissez-faire policies permitted malignant companies to diminish or collapse. Scenes like this that disfigured societies in the recent decades are now returning to haunt the UK, following a series of alarming changes at some of the biggest factories in the world that have left hundreds of jobs on the line. It is recorded that the Monthly declines since 2002 shows dropped out of 4.1%.

b) Key elements of the MNE’s international finance and risk strategy

Business risks reflect possible challenges for a business operation may be occurs in near future. Risk is integral part of business as well as important element of organisation to grab the effective and sustainable business structure and growth opportunities. There are some key risk management elements are defining below that assists business to manage the associated risk with in organisation

Vision: Effective ERM should be fundamentally important to the local bank and its "vision." COSO says, "One of the most crucial leadership tasks is to assess what uncertainty the company is ready to and embraces as it seeks to generate credit value." As such, ERM must determine where the local bank is today or where it wants to pursue its significance-creation efforts. This is one of the common treatment of enterprise planning and resourcing in order to succeeded the predictability of business risk in near future. The projection mainly undertakes the effectiveness of entity in volatile business situations (Morri and Mazza, 2015).

Correlation: this element mainly helps in assessing the relation between departments. As per this element the effectiveness in operations cannot be attained with a “silo mentality”. The risk assessment mainly carried out with effective pursuit within enterprises. It is analysed that the credit unions respond towards chief risk oriented categories and it also assist the logical process of retaining a strategic approach to proposed risks.

Target driven: this element helps in managing the risk by focusing upon key areas as strategic, operations, reporting and compliance. The objective categories mainly assist in managing the challenges and implementation of various events. The corresponding plans and strategies also assist in building the framework with more strategic approach.

Measurable: this element also recognised as an evaluating part of risk management. In this approach the internal environment helps in understating the key objectives and bifurcation of risk possibilities in separate sections. The measurable has sub internal facts as internal environment, objectives, event identification, impact upon likelihood and risk responses and control activities.

Risk management strategy of Ted Baker

The most important foreign currency variability exposure refers to currency transactions, mainly the US dollar and the pound. A percentage of the Organization's investments were hedged in line with the Band's risk mitigation strategy, which enables the hedging of foreign currency up to 24 days in advance. The Board states that there was an ongoing process to identify, evaluate and handle the Group's major risks that have been in effect for the duration and up to the date certain financial statements were approved and also that the Board periodically reviews this system.  The hedging difference is managed with categorising the working capital requirement for the year ended 2018 and the key difference between the actual sources available to organisation in order to retrieve these differences. The internal funds as retain earnings are being used by organisation in order to maintain an effective order of utilising the financial resources within operations (Annual report of Ted Baker, 2018).

Dividend policy

Generally, the Board is responsible for the risk management and internal control process of the Group and for assessing its efficacy and evaluating the risk appetite of the Group. The board of directors decided to retain the dividend cover of 2.1 times. Nonetheless, these systems are built to manage risk of achieving business goals instead of remove them, and can only provide rational and not complete subject to material misstatement and losses (Annual report of Ted Baker, 2018).

c) Evaluation of financial ratios

Financial performance of organisation mainly affects the interest of stakeholders and shareholders. There are some financial measures are made with the help of which accountants and financials be able to analyse the financial strength of organisation in effective manner. Ratio analysis is one of the key branch of financial analysis that reflects the efficiency of business by evaluating type of financial ratios (Fratzscher, Duca and Straub, 2016). Few financial ratios are assessed below to measure the financial performance of Ted Baker.

(i) Operating profit margin

This ratio mainly defines the relation between the cost of goods sold and revenues. It reflects that how proportion of revenues left out after bearing cost of goods and operating cost.

PBIT = (operating profit / Revenues) * 100

 

2017 (£’000)

2018 (£’000)

Calculation

( 62497 / 530986 ) * 100 =

( 70727 / 591670) * 100 =

Operating profit margin

11.76%

11.95%

Interpretation

The operating profit margin states the slightly increase in the profitability of business for the year 2018. The operating margin increased by 0.21% which is favourable signs for management of Ted Bakers.

(ii) Return on equity

This ratio defines the relation between equity retained in business and net profitability. With the help of this ratio equity shareholders be able to analyse that how much profitability is generated by the organisation in respect of net profitability (Wiesel, 2018).

(ROE) = Net profit / shareholder’s equity *100

 

2017 (£’000)

2018 (£’000)

Calculation

( 46,568 / 210,544 ) * 100 =

(52,744  / 224,050 ) * 100 =

Return on equity

22.11%

23.54%

Interpretation

Return on equity shoes an increase for the year 2018 due to increased number of shareholder’s equity in the end of 2017. The share slightly increased by 1.43% for the succeeding year.

(iii) Debt equity ratio

The equity-equity level is a calculation of the relative investment in the assets worked in company by lenders and investors or shareholders. Stated, the debt-equity balance is also the sum of total deep-term debt and equity assets in the company.

D/E ratio = Total liability / Total shareholder’s equity

 

2017 (£’000)

2018 (£’000)

Calculation

( 80965 / 210,544 )

( 210,544 / 449164 )=

Debt to equity

0.38

0.47

Interpretation

The above calculated figures shows the debt to equity ratios for the year ending 2017-2018. It is evaluated that the ratio gets increased by 23.68% for the year 2018 due to increase in total liabilities and long term debts of organisation.

(iv) Earning per share ratio

Earnings per share (EPS) is a monthly or annually calculated figure that describes the profit of a public company per exceptional share of the inventory (Annual report of Ted Baker, 2018). EPS is achieved by trying to take monthly or expected annual income from a firm and splitting it by the number of its excellent stock shares.  

EPS = Net profit / Number of ordinary shares

 

2017 (£’000)

2018 (£’000)

Calculation

( 50,178 / 44,034,459 ) * 100 =

( 56597 / 44,306,134 ) * 100 =

Earnings per share ratio

114.0p

127.7p

Interpretation

The Basic income per share rose to 119.0p (2017: 105.7p) rising 12.6 percent. Calibrated earnings per share, excluding outstanding items4, rose to 127.7p (2017: 114.0p) through 12.0 percent. The expected final dividends of 43.5p per share would result in a maximum of 60.1p per share for the year (2017: 53.6p per share), a 12.1% improvement over the period.

(v) Price earnings ratio (P/E ratio)

P/E ratio = Market share price / Earnings per share

 

2017 (£’000)

2018 (£’000)

Calculation

( 2830 / 114.0 )

(1590 / 127.7 )

Price earnings ratio

2480p

1245p

Interpretation

The above calculation shows the price earnings ratio for the year 2017 and 2018. It is observed that the price earnings ratio gets decreased by 49.79%. the main reason behind the decreased amount is considered as decrease in profitability of entity.

(vi) Dividend coverage ratio

This ratio basically states the capacity to pay the dividend for the possible year. the pay-out ratio is calculated in respect of preferred stock holders. The dividend coverage ratio also indicates towards divided owed for upcoming year.

Dividend cover = Net profit / Total dividend declared

 

2017 (£’000)

2018 (£’000)

Calculation

( 50,178 / 23658 )

( 56597 / 19346.280 )

Dividend coverage

2.12

2.92

Interpretation

The above calculation shows the Dividend coverage ratio the year 2017 and 2018. It is observed that the price earnings ratio gets decreased by 37.74%. the main reason behind the decreased amount is considered as increase in payable amount of dividend to shareholders.

(vii) Dividend pay-out ratio

A pay-out ratio states that how much dividend was paid by the organisation through the year from current year’s net profit after tax.

DPR = (Total dividend / Net profit) or (Earning per share / Dividend per share)

 

2017 (£’000)

2018 (£’000)

Calculation

 (2016: 34.6p)

(2017: 53.6p per share)

Dividend pay-out ratio

38.8p per share

60.1p per share

Interpretation

The above calculation shows the Dividend pay-out ratio the year 2017 and 2018. It is observed that the price earnings ratio gets decreased by 54.89%. the main reason behind the decreased amount is considered as increased amount payable in the form of dividend.

(viii) Dividend per share

Dividend per share states the payable dividend per share by the company throughout the year.

Dividend per share = Total dividend paid / share outstanding (share in issue)

 

2017 (£’000)

2018 (£’000)

Calculation

(2016: 34.6p)

(2017: 38.8p)

Dividend per share

53.6p per share

43.5p per share

Interpretation

The Board recommends a final dividend of 43.5p per share (2017: 38.8p) representing the Group's continued good results as well as the Management's faith in the future, giving a total of 60.1p per share (2017: 53.6p per share), an improvement of 12.1% over the previous period.

Conclusion

The above report clearly defines the concept of international finance in the context of UK economy. the recent development trends in the UK’s business environment presents favourable outcomes for chosen organisation. Both the favourable outcomes in overseas business outside the UK and unfavourable outcomes in EU nations are highlighted authentically.  risk management approaches may lead the business to overcome the financial challenges with more competitive and determined manner. The performance measurement of cited organisation that presents optimistic performance of company for upcoming years.

References

  • Gambacorta, L., Illes, A. and Lombardi, M.J., 2015. Has the transmission of policy rates to lending rates changed in the wake of the global financial crisis?. International Finance. 18(3). pp.263-280.
  • Heuson, C. and et. al., 2015. Voluntary international climate finance under the post-Kyoto framework: The strategic consequences of different modes of funding. Climate Change Economics. 6(03). p.1550013.
  • Kenny, C., 2015. Finding Cash for Infrastructure in Addis: Blending, Lending, and Guarantees in Finance for Development. Center for Global Development, Washington, DC Policy Paper. 66.
  • Khan, M. M., 2015. Sources of finance available for SME sector in Pakistan. International Letters of Social and Humanistic Sciences. 47. pp.184-194.
  • Liu, L., Schmidt-Eisenlohr, T. and Guo, D., 2017. International transfer pricing and tax avoidance: Evidence from linked trade-tax statistics in the UK. FRB International Finance Discussion Paper. (1214).
  • Newman, A. L. and Posner, E., 2018. Voluntary Disruptions: International Soft Law, Finance, and Power. Oxford University Press.
  • Morri, G. and Mazza, A., 2015. Property Finance: an international approach. John Wiley & Sons.

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