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SAMPLE ANSWER 03

ABP

ABP Level 7
MA / MBA Advanced entry
Level 7 Business and Strategy
Level 7 Business and Strategy Marketing
Management of Financial Resources & Performance

April 2013

Kindly note that these sample answers have been


developed in lieu of the assessment term mentioned in
the cover page and may not necessarily reflect the
structure that you are required to present in your final
answer. You are advised to use this only for reference
and not as a guideline for structure, content and
presentation.

Contents
1.Barclays;

1.1 Missions and Goals;

1.2 Internal and External stakeholders & meeting their objectives;

1.3 Legal responsibilities;

1.4 Business current performance;

2. BP Plc.,

2.1 Financial performance, strategy and decision making;

2.2 Limitations;

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3. Investment appraisal analysis

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References;

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1.Barclays Plc;
Barclays Plc was founded in 1690, top 20 in the FTSE 100 headquarters in London, listed in
LSE, UK, and leading financial services provider, has operations worldwide (Barclays, 2013a)
,has 147,500 employees working in more than 50 countries.
Barclays Plc, provides various financial products and services including commercial, retail
banking, investment banking, credit cards, wealth management and investment
management services and other banking and mortgage products through Woolwich. And,
supports businesses from microenterprises to multinationals, through Barclays investments
banking and investment management portfolio (Barclays, 2013a,b,c,d).

1.1 Missions and Goals;


build a bank that is diversified and balanced by geography and business line, by customers
and by funding sources, The goal of Barclays is to offer the best solutions for their
customers, stakeholders and to operate profitably throughout the crisis, offering security for
customers as well as stability to the financial system as a whole.

1.2 Internal and external stakeholders & meeting their objectives;


Barclays finance team is responsible to monitor budgets, ensuring stakeholders with the
business to have the precise information(Barclays Group-Investor, 2013).
According to Barclays Group-Investor,(2013), banks internal stakeholders are the individuals
who participate in the day-to-day operations. They are employees, board of directors and
shareholders, who will help in the process of planning, making decisions, making
commitments & communicating to process plans and activities identifying budget sources,
reviewing and appraising by establishing the requirement and resolving issues (Caralli et al,
2010). Board of Directors of the Barclays team are supported by the secretarial service by
the corporate secretariat team and is based at the headquarters at London (Barclays Annual
Report, 2012).

All the share holders of the Barclays group are regularly communicate through their
investor relations team all over the world, to collate financial results (Barclays GroupInvestor, 2013).
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External stakeholders are;

Customers of banking,
Suppliers- global sourcing team is providing the support to reduce Barclays costs and
improve the value of purchasing decisions when selecting suppliers for products and
services.
Competitors -other banks, performing the same banking operation e.g. HSBC, RBS etc.,
Media- corporate affairs team protects the trusted reputation ensuring both international
audiences and internal colleagues are kept informed of the groups news and objectives.
NGOs- working with charity Junior Achievement Worldwide helps young people in 14
countries to improve opportunities towards employment.
Society- partners with Plan and CARE to improve the quality of life for poor people by
extending and developing access to basic financial services through the development of
savings-led community finance. Also, supports disadvantaged people in the UK to make
informed responsible and sustainable financial decisions (Barclays Group-Investor, 2013).
And, lending support through British Red Cross for the immediate relief efforts and longterm recovery programme for natural disasters and emergencies across the globe. And, with
UNICEF, empowering young people.
Governments-The corporate real estate service mitigating the environmental impact of
Barclays buildings to ensure the organisation complies with property governance. And, the
Barclays property team manages the groups premises.
Barclays advices the internal and external stakeholders through the compliance team to
advice on litigation affecting the global groups business activities and assets.

1.3 Legal responsibilities;


The compliance of legal and regulatory requirements to full-fill the legal and social
responsibilities for the stakeholders are necessary (Barclays, 2013c). The rock solid capital,
liquidity and funding options provide Barclays with the flexibility and confidence to meet the
economic and regulatory challenges ahead. The maintenance and enhancement of a robust
control environment is the key priority for the organisation, and are committed to delivering
this with a highest standard. By allocating the substantial resources like investing in IT and
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people driven solutions, Barclays enhances the system and processes. As a financial
institution, Barclays is at the forefront of the fight against criminals who attempt to defraud,
launder money or finance terrorism and against weapons proliferation. And, Barclays shows
a legal, regulatory, moral and social responsibility to restrict the access of criminals to the
financial services market.

Employees;
The employees of the Barclays are trained in Anti-Money Laundering policy (AML), zerotolerance approach to bribery & corruption and complying data protection in all
jurisdictions of operation and obligations, in relevant legislation, rules and industry guidance
to enable to prevent organised crime and terrorism. The employees failure to comply with
these can result in personal liability like fines, imprisonment, disciplinary and dismissal
(Barclays, 2013 a,b,c).
Barclays rewards and benefits one of the best in the banking sector, which often get
criticism from the environment, to attract and retain talented people and stimulate high
performance. And, 35,000 UK employees have signed up for the share-save scheme of the
bank. Also, the employees benefit with the child care payment scheme since 2002, benefits
them from the exemption of NI contributions.

Customers & Suppliers;


The Barclays AML policy, on scrutiny requires identifying whether customers or related
parties are politically exposed or not. Barclays operates a fraud risk control framework to
reflect the necessity to manage the risks posed by fraud. The groups fraud management
committee meets every month to review fraud levels and controls to prevent losses.
(Barclays, 2013c) .The Protection of customers from the fraud is a key priority and manages
the balance between the accessibility of the products & services by ensuring the legal, social
and regulatory obligations. Also, being a member of the Wolfsburg group financial services
industry standards relating to know the customer, AML and counterterrorist financing
policies.

Environment;
Barclays has the sanction policies which are operated as official restrictions on activity with
targeted countries, individuals, entities and industries. And, committed to complying with
financial sanctions and export controls in order to comply with the law, help to prevent
weapons proliferation, organised crime and terrorism. Also, set out the guidelines and
places restrictions on the individuals and entities. And, failure to comply with AML and
sanctions requirements will expose Barclays to civil and criminal liability, fines, loss of
reputation, public reprimand, limitation on business and other serious consequences.
The community investments are channelised in five key areas, education, and people with
disabilities, social inclusion, the arts and the environment. And, Make A Difference Day
(MADD), innovative action practised to renovate schools, orphanages and local hospitals,
taking disadvantaged and disabled children on outings, repairing roads, pedestrian
crossings, speed bumps, clearing parks and play areas.
In the UK, Barclays is the first UK high street bank to receive ISO14001 environmental
certification for their Environmental management system (EMS), which reflects their
business in the environment index of corporate environmental engagement ranking.

1.4 Business current performance;


The business performance is depends on the planning of strategy to achieve objectives and
any major/small decisions will play a vital role in providing the crucial evidence helps
Barclays to make the right decision. The ultimate objective is to create the value for its
stake holders. These values can be created through two ways; economic performance and
stocks market performance, shown by dividend paid out, and capital gains conveys current
and future cash flows. During 2012, the economic environment in Barclays operating
markets are generally weak and had negative growth (Barclays Annual Report, 2012)

Strategic review By Anthony Salz;


Barclays committed by restructuring charge of approximately 500 million in the first
quarter of 2013 in the reduction of head counts across the group and to implement the
strategic plan an estimated cost of 1 billion each in 2013, 2014 and 0.7 billion in 2015. An
independent review by Anthony Salz reported in April 2013, highlighted the insufficient
strong controls exercised by group and cautioned Barclays must not take comfort from
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this (Salz, 2013).Moreover, cautioned the short-term financial returns and employee
rewards are ever too dominant in the Barclays culture are the cause of problems.

2. BP Plc.,
BP Plc, an integrated oil and gas operative company, listed in LSE since1954, has an
employee strength of 85700, revenue of 245 Billion (net income of 7.60 Bn) by 2012
headquarters at London. The company operates in 80 countries, having capacity of 2.4
million barrels of oil refined per day (BP, 2013a; FT, 2013) with a proved reserves of 17,000
million barrels of oil equivalent. Recently, there are no major mergers or acquisitions. They
provide fuel for transportation; energy for light and heat, petrochemical and lubricants
helps the day-to-day life like clothes, packaging and paints (FT, 2013).
The major two business segments are,
Exploration and Production and Refining and Marketing-

2.1 Financial performance, strategy and decision making;


The subdued global growth is expected to continue beyond 2013, and the emerging
economies of China and India with other developed countries need to address the internal
fiscal imbalances, which expected to increase the fuel (BP Annual report,2012),

consumption to 36% in between 2011 to 2030, where most of the demand is from NonOECD countries.

According to Maheswaran (2013), the operating and net profit margin in 2012 is 5.25% and
3.08%, far beyond industry average of 13.99% and 7.84%. Whereas operating and net profit
margin were at 10.6% and 6.84 % in 2011 reduced to half in 2012. However, it was in
negative (-1.25%) in 2010 due to its major oil spill in Gulf of Mexico, which ate away the
operating profit elements. In 2012, sales and other operating revenues were 245 Bn ($
375,580 million), income before interest and income tax revenues 12.9 Bn ($19733
million)and a net income of 7.6 Bn ($11,582million). Correspondingly, the total assets
increased by 0.24% (an increase of 4.6 Bn & $ 7125 millions) and the share holders equity
also increased too (by 6949). The operating cash flow was decreased from 14.5 Bn ($
22154 million) in 2011 to 13.33 Bn ($20397 million) in 2102, due to the increase in capital
expenditure of 34% (15.08 Bn / $23078 in 2012 and 11.67 / $17845 millions) and
decrease of free cash flow 1.76Bn ($ 2681 million).
The current business environment-2013 is challenged by the dynamics shaped by future
technology developments, policy choice, and changes in tastes considering the energy
security, affordability and environmental impacts. BP strongly believe, these demands can
be met by strategising the diverse mix of fuels and technologies with supporting lowercarbon economy with their stronger portfolio of products of oil sands, shale gas, natural gas,
deep water oil production, wind and bio-fuels.
Moreover, their strategy relatively
-to drive forward the financial performance and not by just increasing production volumes,
-to give priority for operating cash flow and replacement cost operating profit over
production achievements,
-to propose investment in the greater potential areas to generate strong and reliable growth
in operating cash flow through deep water operations and exploration to gas value chains
and giant fields giving emphasis on safety and risk management (BP Annual Report, 2012) to
edge over the competition.

BP Annual Report 2012, 2011 ;


Balance sheet elements

In

In

Million

Million

31st Dec 31st Dec

2012

2011

Fixed ( non-current assets)

116,402

125,786

Current Assets

68275

62791

Current Liabilities

(47731)

(54255)

Net Current Assets( or working capital) 20544

8536

Total Assets

184,677

188,577

Non-Current Liabilities

(63357)

(61945)

Net Assets

73590

72378

Total share holders equity

73590

72378

Source; LSE, (2013a).

Balance sheet revenue In Million

In Million

elements

31st Dec 2012 31st Dec 2011

Sales Revenue

231055

241629

Operating Profit

11990

25513

Profit after tax

7269

16792

Source; LSE, (2013b).

Return on capital employed, (ROCE); profitability and the level of profit made
corresponding to the value of capital deployed in the business
ROCE = operating profit / (equity+ non-current liabilities)

For the year 2012,

For the year 2011,

= 11990 / [73950 +( - 63357)]

= 25513 / [72378 +(-61945)],

= 11990/ 10593

= 25513 / 10433

= 1.13 %

= 2.45%

The ROCE is more in 2011 than in 2012, which showed more command over its business
gaining. There was a rise in 2011 then, the previous year, but, it got declined in 2012
(Maheswaran, 2013).
Profit Margin ;profitability ratio and identifies the percentage of the revenue which is the
profit after all the costs met.
Profit Margin = operating profit / sales *100,
For the year 2012

For the year 2011

= 11990 / 231055, =25513/ 241629,


=0.05 %

=0.11%

The profit margin ratio in 2012 is nearly half of that of the ratio in 2011. So, BP enjoyed a
higher profit margin in 2011 than that of 2012.
The decision of sale of non-current assets in upstream (North Sea oil and gas fields, Maclure,
Harding and Devenick, Brea complex and Braemar field) and downstream (Carson refinery,
California), will help the disposal programme of various assets and associated liabilities to
the tune of US$ 846 million will help the adjustments in working capital and operating profit
attributes.

Current Ratio; liquidity state of the BP and its ability to meet its short term debts. Current
Ratio = Current assets / Current liabilities,
For the year 2012

For year 2011

= 68275 / 47731,

=62791 / 54255,

= 1.43;1.

=1.16;1

In 2012, BP has higher current ratio (1.43;1) than 2011 (1.16;1), shows that the situation in
2012 has favourably increased and BP invested more in long-term assets and alternative
project assets than in 2011. However, the favourable current ratio does measures the
quantity and not the quality, and the higher ratio may be in trouble, and the Work in

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progress, which cannot be convert in to cash and therefore it may have a less cash to pay off
to the current liabilities and most of the times the companies will manipulate by over
valuing (Kaplan et al ,2011).
Gearing Ratio; the long-term loan to payback with interest, where the higher gearing ratio
shows the risk the business faces.
=non-current liabilities (equity + non-current liabilities),
2012

2011

=63357 [73590+ (- 63357)],

= 61945 [72378 + (-61945)],

= 63357 / 10233,

=61945 / 10433,

= 6.19.

=5.94

The non-current liabilities are the long term loans due more than a year like preference
shares and mortgages. The higher gearing leverage is more risky as it denotes more
liabilities and less equity (Kaplan et al, 2011). So, in 2012 the gearing ratio was higher than
that of 2011 shows that BP entered in 2012 with more risk by having more long-term
liabilities. BP aimed to increase the level of gearing in the lower half of the 10-20% range
over time (BP Annual Report, 2012).
Moreover, the decision making is the critical managerial function and can be classified in to
strategic and tactical and long run and short run decisions, and the primary objective are to
achieve optimum utilisation of businesss resources and capital. So, the effective decision
making need to be given special attention with the relevant information and analysis of data
(Kaplan et al, 2011).
In annual report 2012, the strategies of 10 point plan includes the focus on
-safety and managing risk,
-gain strength in exploration,
-stronger and more standardised assets,
-active portfolio management to continue by completing US $ 38 Bn to focus on strengths,
-new upstream projects to double the unit cash margins with 2011,
-increase of 50% in net cash in comparison to 2011,
-intend to use half of incremental operating cash for reinvestment, half for other purposes,
-strong balance sheet with intention to target the level of gearing in the lower half of the
10-20% range over time.
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2.2 Limitations;
The BP figures were differed from those given out in LSE, where LSE figures (LSE, 2013) are
taken for consideration for calculations with analysis provided by Maheswaran (2013) and
converted in to GB from US$. Even though, other type of figures available through FT and
chart websites. For e.g., in FT (2013b), the total assets were given as US$ 300,193 million
(2012), and if we convert in GB 195,780 million, and in LSE, (2013a) it was given as GB
184677 millions. So, there was confusion among the numbers in performing calculations. So,
decided to take the LSE, which is the final authority to decide up on the performance of the
company and accounting statements.

3. Investment appraisal analysis


Under this task you should briefly explain the investment appraisal techniques that could be
used by an organisation, and should apply those techniques to conduct a investment
appraisal for the give scenario.
Note: Sample answers for this section could not be provided since this is a calculation based
task. However, candidates can use several investment appraisal techniques such as payback
period, NPV, IRR, ARR to evaluate the given scenario.

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References;
Barclays (2013a), Our History, accessed [online] on 02.04.2013 from:http://group.barclays.
com/about-barclays/about-us/our-history
Barclays (2013b), Barclays Strategic Review, accessed [online] on 02.04.2013 from: http://
group.barclays.com/transform/strategicreview
Barclays (2013c), Aiming High, accessed [online] on 02.04.2013 from:http://www. barclays.
com/supplier/aiming_high_commercial_principles.html
Barclays (2013d), Aiming High, accessed [online] on 02.04.2013 from:http://www.
barclays.com/supplier/aiming_high_our_vision.html
Barclays Annual Report(2012), Building the Go-To bank, accessed *online] on 02.04.2013
from:http://group.barclays.com/Satellite?blobcol=urldatablobheader=application%2Fpdfblo
bheadername1=Content-Dispositionblobheadername2=MDTTypeblobheadervalue1=inline%3B+filename%3D2012-Barclays-Bank-PLC-Annual-ReportPDF.pdfblobheadervalue2=abinary%3B+charset%3DUTF8blobkey=idblobtable=MungoBlobsblobwhere=1330696635849ssbinary=true
Barclays Group- Investor(2013), Corporate social responsibility-Making business sense,
accessed [online] on 02.04.2013 from:http://www.investor.barclays.co.uk/ results/2002
results/annual_report/website/impact/responsibility.html
Barclays Plc., (2011), Consolidated Balance Sheet, accessed [online] on 03.04.2013
from:http://reports.barclays.com/ar11/financialstatements/consolidatedfinancialstatement
s/balancesheet.html
Bloomberg,(2012), Barclays Plc,(BARC: London), accessed [online] on 01.04.2013
from:http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=BA
RC:LN
BP (2013a). BP at a glance, accessed [online] on 05.04.2013 from:http://www.bp.
com/sectiongenericarticle.do?categoryId=3&contentId=2006926
BP Annual report (2012), accessed [online] on 05.04.2013 from:http://www.bp
.com/sectionbodycopy.do?categoryId=9039423&contentId=7072266
Caralli R.A., Allen J.H., Curtis, P.D. White, D.W., and Young L.R., (2010), Financial Resource
Management (FRM), Resilience Management Model, version1.0, Hanscom, SEI- Carnegie
Melon University.
FT (2013a), BP PLC, Markets data, accessed [online]on 04.04.2013 from:http://
markets.ft.com/research/Markets/Tearsheets/Business-profile?s=BP.:LSE
FT,(2013b), BP Plc
Balance sheet, accessed [online] on 04.04.2013 from:
http://markets.ft.com/research//Markets/Tearsheets/Financials?s=BP.:LSE&subview=Balan
ceSheet&period=a
Kaplan , R.S. Atkinson, A.A., Matsumara, E.M. and Young S.M.(2011), Management
accounting: information for decision making and strategy execution, Essex, Pearson.
LSE, (2013a), BP Plc, accessed [online] on 04.04.2013 from: http://www.london stock
exchange.com/exchange/prices/stocks/summary/fundamentals.html?fourWayKey=GB0007
980591GBGBXSET0

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LSE, (2013b), BP Plc, Fundamentals, accessed [online] on 05.04.2013 from:http://


www.londonstockexchange.com/exchange/prices/stocks/summary/fundamentals.html?fou
rWayKey=GB0007980591GBGBXSET0
Maheswaran, V (2013), BPs rise to profitability and beyond, accessed [online] on
04.04.2013 from: http://seekingalpha.com/article/1322301-bp-s-rise-to-profitability-andbeyond?source=yahoo
Salz, A(2013), Salz Review, An Independent review of Barclays business practices, accessed
[online]
on
03.04.2013
from:
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blobcol=
urldata&blobheader=application%2Fpdf&blobheadername1=ContentDisposition&blobheadername2=MDTType&blobheadervalue1=inline%3B+filename%3DRead-the-Salz-Review-report-PDF3MB.pdf&blobheadervalue2=abinary%3B+charset%3DUTF8&blobkey=id&blobtable=MungoBlobs&blobwhere=1330697040891&ssbinary=true

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