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Corporate Governance Of Companies In China

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Question:

Discuss About The Corporate Governance Of Companies In China?

 

Answer:

Introduction:

Investors plays a crucial role in every company as they provides the fund to the company to invest into various proposals and projects and enhance the revenue of the company, in consideration, company offers some proportion of the profit to the investors in terms of dividends. This dividend % is depending upon the profit and performance of the company. Investors must look over various factors of the company and the economics condition before investing the amount of the company as it would help them to get more dividend amount. Investors could analyze the financial ratio, governance policy of the company and the assets value, share price current value etc. for this report, Barr, A.G. has been taken into the context.

Company overview:

A.G. Barr plc is also known as Barr’s. This company is a drink manufacturing company. Headquarter of the company is Cumbernauld, Scotland. Popular Scottish drink is manufactured by this company. This company has listed itself in LSX (London stock exchange). This company has been founded in 1875. According to the annual report of the company, revenue of the company is     £257.1 million. And currently, the number of employees is 1032. Further, it has been found that the performance of the company is enhancing gradually (A. G. Barr, 2017)

 

Financial ratio analysis:

For analyzing the performance of the company, financial ratio analysis of the company of last 5 years have been analyzed (Borio, 2014). For analyzing the financial ratio, annual report of the company has been analyzed.

Profitability ratio:

 

2017

2016

2015

2014

2013

Gross Profit Margin

47.08%

46.72%

45.98%

45.28%

45.38%

Operating profit Margin

16.73%

16.22%

14.56%

13.78%

13.45%

Return on capital employed (ROCE)

16.44%

14.98%

15.08%

15.38%

16.15%

(morning star, 2017)

According to the above table, the ratio of gross profit margin of the company is 47.08%, 46.72%, 45.98%, 45.28% and 45.38% in 2017, 2016, 2015, 2014 and 2013 respectively. Through these rates, it has been found that the gross profit rate of the company is stable from last 5 years. The gross profit of the company is GBP 121 million in 2017 which is enhancing rapidly and depicts about the good performance of the company. The gross profit rate of the company depict about the gross profit of the company in terms of total revenue (Brealey, Myers and Marcus, 2007). From last 5 years, the revenue of the company is quite constant and consequently, the cost of revenue is also constant and thus the gross profit margin rate is almost similar in last 5 years. this depict that in near future, the gross profit rate of the company would be similar and would offer high return to the investors as there are less chances of the company to face any financial risk.

Further, operating profit margin and the ROCE of the company has also been analyzed to identify the financial performance and profitability of the company. The operating profit margin of the company is 16.73%, 16.22%, 14.56%, 13.78% and 13.75% in 2017, 2016, 2015, 2014 and 2013 respectively (De and Amtenbrink, 2011). Through these rates, it has been found that the operating profit rate of the company is enhancing rapidly from last 5 years. The operating profit of the company is GBP 43 million in 2017 which is enhancing rapidly and depicts about the good performance of the company. The operating profit rate of the company depict about the operating profit of the company in terms of total revenue. From last 5 years, the revenue of the company is quite constant and consequently, the operating expenses of the company have been lowered and thus the operating profit margin rate of the company has been enhanced in last 5 years. this depict that in near future, the operating profit rate of the company would be enhanced and would offer high return to the investors as there are less chances of the company to face any financial risk (Deegan, 2013).

Lastly, the ROCE of the company has been analyzed which is 16.44%, 14.98%, 15.08%, 15.38% and 16.15% in 2017, 2016, 2015, 2014 and 2013 respectively. Through these rates, it has been found that the ROCE of the company is enhancing rapidly from last 5 years. The ROCE of the company depict about the positive performance of the company and it is enhancing rapidly (Brigham and Ehrhardt, 2013). The ROCE of the company depict about the net profit of the company in terms of total assets minus current liabilities of the company. From last 5 years, the revenue of the company is quite constant and consequently, the total assets and total current liabilities are also almost similar in last 5 years. this depict that in near future, the company would offer high return to the investors as there are less chances of the company to face any financial risk.

 


Thus it has been analyzed that the profitability position and the performance of the company is quite positive and it is expressing about a good future position of company.

Profit, earning & dividends:

 

2017

2016

2015

2014

2013

Earnings per share Basic ( Pence)

0.31

0.3

0.26

0.24

0.22

Dividend Cover

51.61

46.67

50.00

12.50

86.36

Dividend Yield

0.088

0.078

0.083

0.019

0.145

(Yahoo Finance, 2017)

According to the above table, the ratio of EPS of the company is 0.31, 0.3, 0.26, 0.24 and 0.22 in 2017, 2016, 2015, 2014 and 2013 respectively. Through these rates, it has been found that the earnings per share of the company is enhancing rapidly from last 5 years. The earnings per share of the company are enhancing rapidly and depicts about the good performance of the company. The earnings per share of the company depict about the total earnings of the company in terms of total profit. From last 5 years, the net profit of the company is quite constant and consequently, the total profit of the company in terms of total number of shares (Davies and Crawford, 2011). This depict that in near future, the earnings per share of the company would be enhanced rapidly and would offer high return to the investors as there are less chances of the company to face any financial risk.

Further, Dividend cover and the dividend yield of the company have also been analyzed to identify the financial performance and profitability of the company. The Dividend cover of the company is 51.61, 46.67, 50, 12.5 and 86.36 in 2017, 2016, 2015, 2014 and 2013 respectively. Through these rates, it has been found that the dividend cover of the company is enhancing rapidly from last 5 years. The dividend cover of the company is enhancing rapidly and depicts about the good performance of the company. The dividend cover of the company depict about the dividend of the company in terms of total earnings per share of the company (CORREIA et al., 2013). From last 5 years, the dividend cover of the company is quite constant and consequently, the dividend cover of the company has been lowered and thus the dividend cover of the company has been enhanced in last 5 years.

Lastly, the dividend yield of the company has been analyzed which is 0.088, 0.078, 0.083, 0.019 and 0.145 in 2017, 2016, 2015, 2014 and 2013 respectively. Through these rates, it has been found that the dividend yield of the company is enhancing rapidly from last 5 years. The dividend yield of the company depicts about the positive performance of the company and it is enhancing rapidly. this depict that in near future, the company would offer high return to the investors as there are less chances of the company to face any financial risk (Brigham and Ehrhardt, 2013).

Thus it has been analyzed that the profitability position and the performance of the company is quite positive and it is expressing about a good future position of company.

Financial stability and liquidity:

Lastly, financial stability of the company has been analyzed.

 

2017

2016

2015

2014

2013

Current Assets

80

1522.6

1590.4

1785.3

1848.7

Current liabilities

57

1637.9

1347.1

1432

1504

Current ratio

1.40:1

0.93:1

1.18:1

1.25:1

1.23:1

Acid-test ratio

1.11:1

0.92:1

1.17:1

1.24:1

1.22:1

The above table depict that the current ratio and quick ratio of the company is quite competitive. The ratio of current assets and current liabilities has been set by the company in such a manner that entire current debt of the company could be repaid by the company easily. Further, it has been found that the current ratio of the company is 1.40:1, 0.93:1, 1.18:1, 1.25:1 and 1.23:1 in 2017, 2016, 2015, 2014 and 2013 respectively (Du and Girma, 2009). Through these ratio, it has been found that the company has managed the current assets and current liabilities has in such a manner that entire current debt of the company could be repaid by the company easily.

 

Critical Reflection:

The annual report of the company and the market condition of the company has been analyzed of last 5 years. Through these calculations, it has been found that the performance of the company is enhancing rapidly and so the dividend offered by the company would also be enhanced and further, it has been found that the position of the company in terms of stability and managing the factors of the company are according to the industry position of the company (A. G. Barr, 2017). The MD and CEO of the company depict that the equity funds would be enhanced by the company and through it the diversification would be done in the company’s market. From last few years’ performance of the company, it has been analyzed that it is a good opportunity for the investors to invest their amount in this company. The revenue and other performance of the company are either constant or enhancing.

Corporate governance:

According to the study over Barr AG governance structure, it has been found that four groups are there of committee which have different functions that provides the similar reason to support the board of the company.

Audit Committee: this committee has at least three members that are all non – executive self-governing directors. The major functions of this audit committee are:

  • To observe the honesty of annual report and financial statement and various announcement done by the company in concern of financial position.
  • To re-evaluate the corporation’s internal financial managing activities and the arrangement of risk management and internal control (FIRER et al., 2012).
  • To observe and re-evaluate the efficiency of the corporation through internal audit purpose.
  • To preserve a suitable relations along with external auditors so that the review over the company could be done with freedom, impartiality and efficiency of the audit procedure.

Nomination committee: It would be selected by the company’s board and at least three members must be there. The people of this nomination committee must be chosen from non-executive self – governing directors of the firm. The chief function of this committee is to investigate over the activity of the company in terms of legal activities. This committee looks over the financial performance and position and statement of the company and makes a judgement accordingly (Fulin, 2011).

Remuneration committee: This committee is composed as a group of directors of the board. It has the entrust power of the corporate governance board and might subordinate or allot all of its power or any of its power and influence without boundaries. The main role of this remuneration committee is to support the board to complete its accountability to investor to make sure that remuneration strategies and management of the corporation reward responsibly and fairly, with an obvious link to company and personal performance which have a regard over the regulatory and statutory requirements of the company.

Health and safety committee: this committee uses the capital and other assets of the company to manage the health trends and safety of the manpower of the company. It is required for every company to make sure corporation’s health and safety presentation as it helps the company to remains on the leading position in the industry (Lacalle, 2017).

Further, it has been analyzed that the performance of the company is increasing rapidly and the board committee of the company is performing their work with honesty and as well as with the responsibility and thus the investors could rely over the annual reports of the company and could also relay that there power would not be diluted.

Assets value per share:

 

2017

2016

2015

2014

2013

Total assets

276

269

255

227

215

(morning star, 2017)

Further, assets value per share of the company has been analyzed.   According to the above table, the total assets of the company is 276, 269, 255, 227 and 215 in 2017, 2016, 2015, 2014 and 2013 respectively. Through these rates, it has been found that the total assets of the company is enhancing rapidly from last 5 years. The total assets of the company are enhancing rapidly and depicts about the good performance of the company. The total assets of the company depict about the few financial and asset ratios which are expressing a good health of the company in terms of total profit. From last 5 years, the total assets of the company are rapidly enhancing and consequently, the total profit of the company in terms of total assets of the company is also constant. This depict that in near future, the total assets and total net profit of the company would be enhanced rapidly and would offer high return to the investors as there are less chances of the company to face any financial risk.

 

Current market and share price:

(Yahoo Finance, 2017)

The above graph of the AG Barr depict about the current market share of the company and the performance of the company in terms of share price of last 5 years. Through this graph report, it has been found that the current market share price is average from last 5 years and according to the trend, in future, the share price of the company would enhance. Currently the share price of the company is $ 616.5.

Investment opportunity:

Through the above analysis over the A. G. Barr, it has been found that the financial performance, financial position and the financial stability of the company are quite stable and depicting about the good performance of the company. Through the analysis, it has been found that the company has managed the financial figures in such a manner that entire performance, position and stability of the company in terms of finance could offer high return to the company and according to the dividend policy of the company, high dividend is offered by the company to its investors. Thus according to the analysis, it has been found that this company is a good option to invest the amount and enhance the worth of the amount with concern of high dividends.

So it is suggested to the investors to invest into this company for a short term as well as long term as the share price of the company is also enhancing rapidly and the dividend offered by the company is also stunning.

 

References:

G. Barr. 2017. Home. Reterived from https://www.agbarr.co.uk/ as on 26- Sept 2017.

Borio, C., 2014. The financial cycle and macroeconomics: What have we learnt?. Journal of Banking & Finance, 45, pp.182-198.

Brealey, R., Myers, S.C. and Marcus, A.J., 2007. FundamentalsofCorporate Finance. Mc Graw Hill, New York.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

CORREIA, C. et al. 2013. Financial Management. 7th Edition. Cape Town: Juta andCompany Ltd.2.

Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.

De Haan, J. and Amtenbrink, F., 2011. Credit rating agencies.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Du, J. and Girma, S., 2009. Source of finance, growth and firm size: evidence from China (No. 2009.03). Research paper/UNU-WIDER.

Elmuti, D. & Kathawala, Y. 2001. “An overview of strategic alliances”. Management Decision, vol. 39, no. 3, pp. 205-217.

FIRER, C. et al. 2012. Fundamentals of Corporate Finance. 5th Edition.Berkshire.McGraw-Hill Companies, Inc.

Fulin, S. 2011. Preface by SHANG Fulin. Corporate Governance of Listed Companies in China, 9-10.

Lacalle, D., Credit?rating agencies. Life in the Financial Markets: How they really work and why they matter to you, pp.95-98.

Morningstar. 2017. A. G. Barr. Reterived from https://financials.morningstar.com/cash-flow/cf.html?t=BAG&region=gbr&culture=en-US as on 26- Sept 2017.

Yahoo finance. 2017. A. G. Barr. Reterived from https://finance.yahoo.com/quote/BAG.L?p=BAG.L as on 26- Sept 2017.

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