Financial Information for Business Decisions: British Sky Broadcasting Company
A global renowned company, BSkyB is a leading UK broadcasting company, supplying a range of services and pay TV channels among other products and services to its millions of subscribers. The company controls a large percentage of the broadcast operation market with most of its branches situated in the UK and Ireland. BSkyB Company has been supplying quality broadcast services using over 600 TV and audio channels in countries they operate attaining legendary status through their advanced and entertaining programs. The company’s global audience can be reached through a comprehensive network of cables and satellites explaining why the firm has been successful in its short years of operation. The growth of the company’s brand has been because of a number of positive marketing strategies, for instance, aggressive advertising policies. Although BSkyB is branded as a broadcasting company, it also specializes in other entertainment services attracting clients of diverse tastes and preferences. The company has an expanded target market with a wide range of diverse products each appealing to a specified group of clients. The primary objective of the company is to meet the limitless demands of its customer bases of different age cohorts. This strategy has made the Media Company to attain a large customer base making big profits in the process. The company’s consumer base is the whole youth market but a specified brand policy is directed towards households.
With an objective of firmly gripping the youth market, the company has been offering free viewership of some of its TV channels to its loyal customers. Over the past decade, the company has managed to expand its operations into other markets such as Germany and other parts of Europe. B Sky B Company has occasionally viewed itself as a company with strong ethical background (Crisell 1999, p. 66). As such, a group of stakeholders with strong internal and external auditors closely monitors the company’s activities. These stakeholders have invested heavily in the company and expect maximum standards and strong ethical values. Their argument on the company’s motto, trust, cooperation, trustworthiness, and commitment to quality products defines B Sky B as outlined by the stakeholders. Some of the significant stakeholders to the company includes; the operating environment and the community that they serve. Minimizing impacts on the environment and listening to the plights of the community explains why B Sky B Company has been successful at the global stage.
The establishment has been operating successfully in a market that is maligned with market competition and unfair business practices and dealings. As such, the company has stood the test of time and is currently on a positive rise towards market control. B Sky B Company also provides its customers with High Definition (HD) programs with a large range of customer base traversing across millions of households in both the UK and Ireland. They also provide various broadband services given that is transmitted on its channel. This report aims at giving an articulate analysis of the company’s competitive forte and setting. The report further analyses the company’s financial performance over the last five years of operation. A brief history of financial performance, growth operational and corporate strategies, and business objectives. The study will further use various business models, for instance, the ration analysis model, SWOT model and PESTLE model in its explanations. These models will explicitly explain how the company effectively uses its diverse strengths in achieving its ultimate objectives, and the best way through which they can efficiently fix their flaws. The financial reporting done in this document will be derived from the company’s records from the year 2010 to 2015.
Critical explanation of business model and location within market
The company thrives at initiating sustainable value by going after expanded growth and development opportunities, and attaining a competitive market advantage (O’Regan & Ghobadian, 2011, p. 182). This is achieved through an in-depth analysis of the company’s primary fortes and the manner in which they conduct their various transactions. The organization uses the below stipulated typical customer’s demographic survey template when seeking more information on the potential clients and the type of services or products to sell. Similarly, the company occasionally carries out a market analysis enriched with the client’s profiles that in most cases are detailed and accurate demographic characteristics of the customer bases.
Such information enables the organization to take absolute control of the customers’ preferences and inclinations thus attaining a competitive market advantage over other competing firms (Cave & Crandall, 2001, p. 13). The statistical characteristics of a human population define the concept of demographics, for instance, age and levels of income. These characteristics are essential in the identification of the appropriate market for the goods and services the company is planning to release to the market for trading (Chippindale, & Franks, 1991, p. 18). The study of the existing and potential customers through demographics is essential in establishing the inherent needs and demands of the dynamic market. Most of the establishments are not willing to make errors in decision making that can ultimately cause them to lose grip of their market base (Chippindale, & Franks, 1991, p. 19).
The core business model at the company is the diverse growth opportunities that have cemented the role of the firm as a leading service provider. This entails instituting pay TV programs among other household communications (O’Regan & Ghobadian, 2011, p. 184). In addition, the company has been exploring new market niches and analyzing potential business opportunities in other sectors. The company further offers very lucrative market opportunities that are constantly growing covering other market dynamics (Corporate, 2010, p. 5). For instance, the firm recently embarked on an expansion program for its primary area of operation, pay TV to those markets that are largely considered less exploited.
The ‘new’ markets includes; advertising opportunities and online sports betting among other relevant and related services. The company’s strength is purely on its ability to deliver appropriate content to its loyal customer base. Similarly, the company focuses on market innovation with a core purpose of satisfying their customer bases (Corporate, 2010, p. 9). This is through harnessing the best and appropriate technology giving the consumers the finest viewing experiences at the comfort of their homes. In addition, the firm has a deep comprehension of the consumer’s needs conducted by an in-class customer relation team (Fairey, 2004, p. 191). The company has also invested in efficient personnel with an arduous focus on successfully delivering their market objectives. The result of such positive initiatives includes an expansion of the firm’s profits and keeping loyal clients to their brand (Fairey, 2004, p. 198).
Based on these assertions, business will analyze the profiles of its customer base to determine and ascertain the important issues that will enhance decision-making, the supply and pricing of commodities (O’Regan & Ghobadian, 2011, p. 186). These includes; an analysis of the income, levels of education, values, political and religious affiliations and the eating habits among other inherent characteristics. For instance, through a comprehensive demographic analysis, the firm ascertained that the general income of the targeted population tend to accelerate with the age of individual members of the populace (Gabriel, 2013, p. 25). Similarly, married couples were affirmed to be having higher incomes given that either of the spouses was in active employment. This is crucial in the determination of the pricing policy, type and the number products to supply to such an assortment of customers given their higher income levels (Gabriel, 2013, p. 25). The age of the targeted customer base and geographical locations are also crucial elements of the demographic analyses.
This describes a comprehensive analysis of various financial reports explicitly giving an insight on the company’s prowess. The calculation is done based on the firm’s present years financial figures compared to other previous performances. The financial records and percentages from the initial years will also be used to compare performances for other market players. This analysis can be applicable as a part of a company’s strategic analysis enabling the firm to identify some of the inherent financial issues it may be facing (Lee, 1999, p. 98). Different forms of ratio analyses can be used effectively when making a comparison of the company’s financials. For instance, profitability ratio assesses the firm’s performances in terms of its ability to make profits as stipulated in the table below.
|ROCE (Return on Capital Employed)||42.0 %||34 %||37 %||14 %||15 %|
|Net Profit||23 %||18 %||16 %||17 %||15 %|
|Gross Profit||26 %||22 %||21 %||21 %||22 %|
From the table, the company’s sales and net profit has been on the rise every year since the year 2010. The reason behind these can be associated with expansion of business transactions in various regions the company has started engaging in (Sealy & Vinnicombe, 2011, p. 2). The company’s return on capital returns has been relatively unstable. The company has also been more effective in utilizing their capital prowess increasing their gross profits. This can be accredited to the market competitions coupled with a loyal customer base despite the low economic progress in the UK (Sealy & Vinnicombe, 2011, p. 4). Another type of ratio analyzed in this report is the liquidity ratio, which describes and analyzes the BSkyB Company’s ability to pay its short-term debts (liabilities). Liquidity ratio analysis is crucial on how the media company can effectively manage its working capital as stipulated in the table below.
From the table, it is clear that the liquidity position of the company has significantly improved from the year 2010 with the increase in their current assets. The current ratio has also increased significantly as depicted from the above table. The table below indicates the company’s efficiency ratio over the last five years they have been in operation.
|Fixed Asset Turnover||4.21||2.41||2.98||1.30||1.41|
From the above table, it is explicit that the company has significantly improved its inherent ability to effectively utilize its assets. However, the company’s turnover ratio has also been on a decline especially from the year 2010 and 2011, but recorded a slight increase from the year 2012. Both the Asset and Stock Turnover 2013 and 2014 are relatively low indicating B Sky B Company was not in a better situation to articulately utilize their assets to properly generate more revenue to the firm.
The company’s investor ratio from the year 2010 to 2014 is also as stipulated in the subsequent table analyses.
|Earnings Per Share (EPS)||0.31||0.28||-0.07||0.15||0.50|
|Payout Ratio (PR)||1.88||2.25||-6.42||3.05||1.41|
|Dividend Per Share||0.11||0.13||0.16||0.17||0.18|
The company’s earnings per share have increased over the last five years analyzed. This is an indication of the company’s efficiency in market operation coupled with a strong desire to control TV industry market in the UK and Ireland. The dividend per share and yield has however been fluctuating depending on the inherent market conditions.
Pestle analysis refers to an inclusive framework used by most organizations in the analysis and supervision of various macro-environment issues. Under pestle analysis, the present business setting of the company in question is analyzed to ascertain whether it is limiting the successful operation of the firm. Given that BSkyB bases most of its operations in the UK, the business environment in the country of operation is critically analyzed (Sealy & Vinnicombe, 2012, p. 3). For instance, the political setting (UK’s) in which the company operates, though has been undergoing serious transformations over the years, has serious influence on the performances of BSkyB Corporation. For instance, the UK Government is responsible for setting the country’s tax rates, and depending on the rate at a particular time, a firm operating in the country can easily save. Moreover, the change in regimes in both the UK and Ireland do affect businesses (Susan, Doldor, & Turner, 2014, p. 4). For instance, a new government formed may be overly cognizant about reducing its expenditures and may opt for job cuts as a policy towards achieving this. The result is a government with low spending ability and very few households and individuals will be in a position to afford the services offered at BSkyB Media Corporation.
Other important facet under Pestle model analysis is the economic condition and challenges that occasionally do face the UK’s economy. When the economy is facing recession, most people will lose their jobs, implying less disposable income and, therefore, such people will not readily spend on the media services. In addition, lost jobs imply that the populaces will be more sensitive to prices with more people less willing to spend on entertainment (Walsh &, 1999, p. 9). The BSkyB Media Corporation has over the past years developed effective mechanism through which they can cope with various economic circumstances as depicted in the graph below. The company also takes into serious contemplation various environmental, legal, and social issues affecting the corporation.
BSkyB takes all issues relating to the environment, for instance, environmental tracks seriously (Young, 2009, p. 405). The company has also paid particular interest in its social footprint by thoroughly encouraging its clients to consider their items through a range of promotional campaigns. The company is also under very strict regulation from the government with most of the channels concentrating only on the most important issues affecting the populace. Most of the facets of the company, for example, its banking sector must also comply with certain regulations set by the government (Young, 2009, p. 415). The company further concentrates on the socio-cultural aspects of the customer bases. These entails comprehending the religious and educational status, work attitudes, and the manner in which they do spend most of their time.
Table and Graphical comparison of different models used by BSkyB
|Price to Book Ratio||0.0002864||0.000296||0.0002466||0.000175||0.000121|
Current year (2015) valuation
|P/E High- Last 5 years||30.8||56.022||34.58|
|P/E Low- Last 5 years||13.99||17.35||9.74|
P/E Ratio (Price Earnings ratio) describes a form of valuation ratio that regulates the present share prices of a company. From the above analysis, the P/E ratio of the BSkyB Corporation depreciated from the year 2010 to 2011, a fact accredited to the low economic downturns. After 2012, the P/E ratio figures increased sharply, an indication of increased earnings with the introduction of HD TV channels. The PEG ratio, on the other hand, is an indication that the firm has developed a fair trade-off between growth and costs incurred. The PEG ratio for the year 2014 is an indication that the firm did attain better returns in the year 2015. Tobin’s Q ratio and price to book ratio are also indications of undervaluation of the company’s stocks over the last five years.
5 Year Summary of Income Statements and metrics
BSkyB production inputs for the last five years (overall)
|Sales||$ 6, 000 ($ m)|
|Sales growth||11 %|
|Operating profit margin||19 %|
|Incremental working capital investment||15 %|
|Required rate of return||10 %|
|Marketable securities||$ 60|
|Required rate of return||0.1||0.1||0.1||0.1||0.1|
|Present value factor||0.90909||0.82644||0.75131||0.68301345|
|Sales growth index||1||1.11||1.2321||1||1.51507|
|Sales year 0||$ 6, 000||$ 6, 000||$ 6, 000||$ 6, 000||$ 6, 000|
|Sales||$ 6, 000||$ 6, 600||$ 7, 400||$ 8, 200||$ 9, 700|
|Incremental sales||$ 600||$ 800||$ 800||$ 1, 500|
|Operating profit margin||19 %||19 %||19 %||19 %|
|Profit||$ 1, 265||$ 1, 405||$ 1,559||$ 1, 731|
|Tax rate||27 %||27 %||27 %||27 %|
|Tax||$ 342||$ 379||$ 421||$ 467|
|Percentage of sales||15 %||15 %||15 %||15 %|
|Incremental capital investment||$ 99||$ 110||$ 122||$ 135|
|Percentage of sales||7 %||7 %||7 %||7 %|
|Incremental working capital||46||51||57||63|
|Operating free cash flows||$ 779||$ 864||$ 959||$ 1, 065|
|Discounted cash flows||$ 708||$ 714||$ 721||$ 727|
|Total||$ 2, 870|
Consolidated financial results for the last 5 years
|Year||2014 ($ m)||2013 ($ m)||2012 ($ m)||2011 ($ m)||2010 ($ m)|
|Whole sale subscription||422||396||351||323||238|
|Installation, hardware and service||85||87||98||112||174|
|Operating expense||(6, 471)||(5, 944)||(5, 548)||(5,524)||(4,865)|
|Litigation settlement income||–||–||–||–||269|
|Share of result of joint ventures and associates||35||46||39||34||32|
|Investment income on litigation settlement||–||–||–||–||49|
|Profit on disposable of available-for-sale investment||–||–||–||9||115|
|Profit before tax||1,082||1,257||1,189||1,014||1,190|
|Taxation||1, 082||1, 257||1.189||1, 014||1,190|
|Profit for the year from continuing operations||(217)
|Profit (loss) for the year from discontinued operations||–||–||–||52||(18)|
|Profit for the year||865||979||906||810||878|
|Net profit (loss) recognized directly in equity||73||129||64||(8)||61|
|Total comprehensive income for the year||938||1108||970||802||939|
|Earnings per share from profit for the year|
|Dividends per share||32.0p||30.0p||25.4p||23.3p||19.4p|
A consolidated balance sheet for the BSkyB Company for the last 5 years
|Year||2014 ($ m)||2013 ($ m)||2012 ($ m)||2011 ($ m)||2010 ($ m)|
|Non-current assets||3, 876||3,776||3,234||3, 025||2, 818|
|Current assets||2, 573||2, 569||2,275||2,329||1,986|
|Number of shares in issue (in millions)||1, 563||1,594||1,674||1,753||1,753|
Critical analysis of Revenue (using appropriate mathematical models)
In instituting a strong brand name, the media company has developed an effective and relevant marketing mix that spin around its subscription products, pricing, place, and promotion. The company has a well-comprehended and articulated marketing mix coupled with well-defined strategies discussed below.
The company has invested heavily in its products to ensure that they remain relevant and competitive in the media market (Arundel & Roche, 1998, p. 67). For example, the company invested in the development of HD TV channels, a broadband that is known for quality pictures giving the viewers an awesome experience. Furthermore, the company’s vigorous promotional campaigns have ensured a loyal customer base. BSkyB’s new products also offer unique selling preposition ensuring that they remain relevant and competitive in the market (Arundel & Roche, 1998, p. 69). With increased customization and maintenance of products, the company aims at dominating the TV and in general, a large portion of the media market. The company recently developed an application that is capable of monitoring the performance of its devices through radio equipment that is glued to the products, for instance, TV sets. This, among other services makes BSkyB’s subscription products to be quality additions to various consumers in the UK and Ireland further explaining why it has been dominating these markets.
In terms of pricing as one of the standards of the marketing mix, BSkyB’s products and services are, relatively expensive compared to those from other related media companies. However, given the quality of these subscription products, most of the customers are willing to purchase at the set price and have remained loyal to the brands. In essence, the prices charged by the firm to its different products are to ensure that they remain competitive in the media industry. The pricing is purely based on targeted customer base commanding higher premiums in most instances (Huhtamo, 2009, p. 336). The pricing strategy applies the theory of vertical amalgamation in prices of products effectively controlling and influencing costs. As such, the company occasionally operates on a relatively low overhead costs given their abilities to avail convenient customer services and delivery options in more convenient manner (Huhtamo, 2009, p. 346). With the current advent of technological applications, the establishment is currently contemplating expanding its online business platform to accommodate clients from diverse social backgrounds and to reduce other associated expenses.
The company’s products are sold mostly at their various retail outlets in different parts of the UK and Ireland (Hilmes & Jacobs, 2003, p. 11). With an expanded control of these marketplaces, the company has been selling its subscription products to independent retailers who are responsible for the sale and distribution processes. BSkyB Company has also managed to open more branches in most urban centers around the UK with their primary targets being households. With a viable business plan to expand even further and to have more influence in the global media market, the firm is projected to record more growth and development of its premises (Hilmes & Jacobs, 2003, p. 16). The company’s various retail outlets provide a face-to-face client subscription products and services from a number of physical store locations that are distributed across the UK and Ireland. As such, the firm do adequately benefit from possessing the inherent ability to form a personalized relationship and connection with its customer bases. The employees, therefore, are in a position to provide customized products conveniently that vehemently fits the needs of its clienteles. The company also offers mobile services to its clients wherever called upon to do so making it more flexible in terms of general operations and service delivery (Oliver, 2012, p.88). The company does operate and supply its products to and from different locations depending on the market demand among other significant factors. The company has been utilizing this type of business transaction to reach an expanded base of customer within a short period.
The company’s promotional campaigns are mostly dependent on accessibility of the store locations (Oliver, 2012, p.88). Currently, the company is mainly reliant on print and virtual ads and distribution flyers. The company’s present advertising strategies and objectives include increasing its overall market share, attracting more customers annually, improving their customer retention rate, and reaching breakeven profits doubling the current number of customers (Oliver, 2012, p.92). The company has also used several websites to help with their advertising and promotional campaigns. Through the company’s online portal, a customer located in diverse places may make orders or inquire about certain specifications on the company’s products without necessarily making physical appearances in the company’s physical retail stores.
With such a system in place, the company is in a position where they can easily meet the needs and demands of a broad client base that do not have to move about searching for the company’s products (Robertson, 2004, p. 301). The firm also currently offers personalized customer services to its clients making them feel part of the enterprise. The company also offers a large assortment of products to its clients who are also thrilled with the sensory experiences they are subjected to thanks to beautiful display of products and excellent customer management (Robertson, 2004, p. 309). Equally, they also offer credit to some of its loyal customers with an explicit confidence that their money will be repaid.
Critical comparison with competitors
The company’s primary competitor is the Virgin Media Company that deals in the same services, for instance, satellite broadcasting in the UK and Ireland among other related services. As per the 2009 annual report, Virgin Media was reported to have acquired a significant portion of the Media market (approximately 50 % of the United Kingdom TV network and High Definition TV). In the past, rival companies have introduced more lucrative and desirable channels and TV programs explaining why some of the B Sky B customers have been switching allegiance to Virgin Media. The market is also maligned with unfair competition with an objective of overtaking each other in market control. For instance, in the year 2007, Virgin Media started a market propaganda insinuating that B Sky B Company had increased its asking price of channels for consumers. The result was high profile litigations and legal redresses with B Sky B Company trying to protect their brand image. The main struggle has been in the distribution of low-priced TV services.
Summary of the Cash Flow
The present value of the firm’s cash flow (also known as the terminal value) is calculated in cases where the company is expecting a relatively stable rate of growth. From the above financial flows, it is explicit that this company must start being conscious about its increasing debt financing. The firm should further make a clarification on their sales challenges and be alert about possible increments in the rates of return. With a massive increase in stakeholder value, the company is, however, poised for good times ahead.
Critical explanation and analysis of Cash Flow
The analysis and valuation of cash flow is necessary in instituting the basic banking and valuation of future financial capabilities and performances. This report, in the analysis of the BSkyB cash flow relied on certain inherent assumptions and predictions. The data was derived from a number of financial publications, for example, Yahoo Finance and from LSE (London Stock Exchange). Additionally, the official website of the company contained some crucial data and information of the company’s history of performances among others. From the analysis of the cash flow, the firm’s sales have been in a constant rise since 2010 with the company attaining its market target of approximately 10 million consumers and subscription products and services. A satisfied customer base has also ensured customer loyalty to the firm’s services attracting more in the process, and leading to the achievement of higher growth of broadband and ARPU. From the cash flows, it is apparent that the firm’s operating cash flow has been on the rise with the increase in revenues collected mainly from channels subscriptions and advertisement levies. The company’s operating profit margin has also been subjected to a number of economic downturns with the firm registering massive losses during harsh economic conditions. In 2010, the exceptional and quality items from the company attracted more subscriptions and, therefore, increased profit margin (at approximately 19 %).
In essence, from this report on the business and financial performance of B Sky Broadcasting Corporation, it is very clear that the company’s performance and position has been improving every fiscal year. For instance, the firm is doing extremely well in meeting all its corporate objectives and that is resulting into more customers’ subscriptions every year and hence the corporation is making more profits and gaining ground in a competitive market niche. A keen understanding of the firm’s ratio analyses from the report is an easy indication of an improving performance, as the firm is getting ever stronger than before in both financial terms and as a viable media corporation. More prominently is the fact that the firm’s last five years of operation has resulted into the growth of their other business sectors making their expansion project to other unexploited markets and products largely successful. Additionally, the company’s online broadband service system has also been on a positive massive growth over the last five years. For instance, the company has in the past introduced new HD channel, relatively cheap services and yet still did contribute much of their revenues to charitable organizations and projects. The current UK and Ireland’s business environment is also relatively favorable providing room for the B sky Broadcasting Company to grow its operations and expand market control. However, just like in most big economies, the UK sometimes do faces periods of low economic downturns and in the process affecting the performances of B Sky company.
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