Using financial ratios, you are required to produce a critical analysis of the profitability of the UK based global tobacco company Imperial Brands PLC. You should use the financial statements for both the years 2017 and 2018 which attached on file. This analysis should assess the profitability of the company. Comparisons for both of these years to one peer group company of your choice should be made. This should be based on the following 3 ratios Return on Capital Employed Operating profit margin Earnings per Share how to answer the above questions, you need to follow instruction You should use approx. 1,000 words. You will probably only use 1 or 2 text books as well as the annual reports of Imperial Brands and BAT as evidence that you reference within the answer. To be clear this would be 3-4 reference sources in total, which might be quoted a total of 6-10 times in the text that you write. For example Dyson page 238 might help. This will be used to support your view on what the ratios. You might reference these books as well as the annual reports of both Imperial brands and BAT where you have obtained evidence. Accounting for non-accounting students. J.R Dyson 8th Edition 2010 Prentice Hall (e-version available) Chapter 10 interpretation of accounts Introduction About 100 words to explain what Imperial Brands strategy is, and how they measure success and why you are using BAT as a peer group company (page 3 of the annual report 2018 is a good place to start) Main body of answer about 800 words Operating Profit Margin (2018 46.0%) Higher margin than BAT Discuss factors affecting this margin Explain why the margin is high. (Barriers to entry, brand equity, monopoly pricing) Explain why the margin is declining slightly. (Sales growth is slightly higher than operating profit growth, due to investment in NGP) Return on Capital Employed (2018 14.2%) Higher ROCE than BAT Discuss factors affecting ROCE. (operating profit and capital employed are both similar levels to 2017 and therefore ROCE has not changed.) Compare to BAT. EPS 272.2p (an increase of +2%, but +5% at constant currency excluding FX) This is driven by 1) sales growth 2) profit growth 3) lower interest expense. Compare to BAT EPS growth. Conclusion About 100 words to explain your own conclusions. note: important files 1. imperial -brand/ annual report 2. BAT-annual-report
