International Financial Management Assignment (GC01356)

Table of Contents

1.0 Introduction.

2.0 Part A.

Recent developments in the international financial environment

Impact on Capita plc’s recent performance and development

Impact related to near future.

Part B Analysis of financial performance.

Profitability Ratio.

Liquidity Ratio.

Efficiency ratio.

Part C International Financial strategy – three key elements.

Capital structure and sources of finance.

Dividend Policy.

Part D Financial Risk Management Strategy.

Currency risk mitigation.

Interest rate risk management strategy.

Conclusion.

References.

1.0 Introduction

The current business and trade are increasing worldwide. In this competitive business environment, every company wants to make maximum profit and increase total cumulative shareholders return. So, to achieve a company’s goals and objectives it is very important for every company to do financial analysis. This report critically analyzes the financial performance of Capita Plc that started its business in 1984 and was listed on the London Stock Exchange in 1991. The key business operation of Capita Plc is to provide professional services and outsources business processes in the international market. Additionally, it provides various services including an adaptation of data analytics, digitalization of businesses and consultancy to businesses as well as asset commercialization and risk reduction for the public sector.

The company divides its services into 5 segments among which Private Sector Partnerships and Public Sector Solutions account for 65% of revenues collectively. Capita Plc operates its business in three key market areas- Asia, Africa and Europe. Capita Plc has been growing up slowly and steadily with its market share and customer base, whereas it gained 29% of market share in 2016 (Capita plc Annual Report, 2016). This paper, first, analyzes the recent developments in the global financial environment and their impact on the performance of Capita Plc. The second part of this paper analyzes the financial performance (including profitability, efficiency, liquidity and equity) of Capita Place. The third part of this report analyzes the international financial strategies and their impact on the financial performance of Capita Plc. The fourth section of the papers discusses the financial risk management strategies and risk-mitigating strategies (including mitigating currency risk) developed by Capita Plc.

2.0 Part A

Recent developments in the international financial environment

The present business and exchange are expanding around the world. In current years, businesses have experienced various changes. Apparently leading changes in financial markets has been their simulation of integration and globalization. This improvement, which has been encouraged by the progression of business sectors, fast mechanical advancement and significant advances in media communications, has made new speculation and financing advantages for organizations and individuals around the globe( European Central Bank, 2018). As indicated by Davis (2018), financial retreat influences large organizations’ performance by declining their incomes and benefits, falling stock and profit collapse, credit failure and liquidation, staff lay-offs and decreases benefits. Technological advancement, an extension of subordinates markets, telecommunication advances have made the international financial environment more developed. But these advantages have both positive and negative impacts on business. In addition, the Brexit issue can be considered as one of the major developments in the current business world and it may have impact businesses negatively because of the debasement of GBP will increase the expenses of doing business, many economists have said that foreign direct investment (FDI) economic growth will also be affected by Brexit (Tetlow,2018).

In the current business world mergers and acquisitions, initial public offerings (IPOs) are very important issues in the financial environment. Merger and acquisition illustrate a path for basic improvement for many organizations and initial public offerings offer fundamental methods through which growing organizations obtain effective funds for equity. The use of derivatives like futures, forwards, swaps, options is also recent progress in financial markets.

Impact on Capita plc’s recent performance and development

The use of derivatives helps a company to mitigate financial risks. To mitigate financial risks Capita plc use derivatives like interest rate swaps. The use of derivatives helps a company to increase revenue and reduce risks. In 2016 currency and interest rate swaps of the company were £365.6m and in 2017 was £182.2m (Capita plc Annual Report, 2017). It is seen that interest rate swaps decreased in 2017 which means the company managed to make less liability and the company also generate revenues in 2016 and 2017.

In addition, technological advancement and their disruption along with the social and market networks significantly affect the performance of Capita Plc. According to Ambler and Styles (2014), social and market networks play important role in the success of an international business (like Capita Plc) in terms of the business transition, and understanding the overall global market structure.

Impact related to near future

The annual report of Capita Plc shows that the company has been using financial derivatives to minimize the company’s risks and the use of these derivatives could be effective for the company in the future. Capita plc also maintains a cash flow hedging reserve to for compensate the potential effects of specific risks. So by taking effective strategies the company would be able to reduce risk to an adoptable level.

Additionally, the effective uses of modern and innovative technologies used in Capita Plc are providing competitive advantages in the global market. A study by Roberts (2016) disclosed that technologies (mainly information and communication technologies) used in a business helps a lot to understand customer changing needs and expectation, and to develop a long-time relationship with the customers……………………………………..

Accounting & Finance