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Corporate Reporting and Analysis Barclays PLC

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Part A

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Corporate Reporting and Analysis: Barclays PLC

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Barclays PLC’s Financial Performance 2020-2021

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As a multinational financial service holding corporation, Barclays PLC is headquartered in London. In addition to consumer and consumer lending banking, the bank offers commercial and private equity to its clients. Barclays UK and Barclays Corporate & International are only a few of the many divisions inside the organization (Barclays PLC, 2020). Barclaycard UK’s consumer credit card business, as well as its UK personal, UK small corporate, and UK wealth divisions, are all part of the organization. For the purposes of this report, Barclays Corporate & International refers to all of Barclays’ UK and international organisational and capital businesses as well as its international Barclaycard operations (which include the company’s consumer operations in the rest of the world). More than 20 million people use its individual and card banking services, and one million people utilize its investment management, entrepreneurial, and commercial lending services (Barclays PLC, 2021). The analysis focuses on the 2020-2021 period.

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Barclays PLC has announced a full-year profit of £1.53 billion for 2020, which is a 38 percent drop from the previous year, but it still above analysts’ projections (Barclays PLC. 2021). A net profit of £220 million attributable to shareholders was reported by British lender in the fourth quarter, despite the United Kingdom imposing extra lockdown measures in response to the reappearance of Covid-19 (Mugaloglu et al., 2021). Despite the pandemic’s dismal economic forecast, the business and investment bank’s full-year revenue climbed 22% to £12.5 billion, despite a large rise in impairment losses as a consequence (Barclays PLC, 2021). After another good performance by its investment bank and a steady decline of the coronavirus’s effect on the business’s consumer divisions, Barclays’ third-quarter earnings more than quadrupled, posting that its third-quarter net income above analysts’ estimates by £1.45 billion (Barclays PLC, 2021). This was an increase from the previous year’s net income of £611 million (Barclays PLC, 2020. Revenue increased by 5% to £5,47 Billion, compared to the predicted number of £5.2 billion (Barclays PLC, 2021). New loan loss provisions plummeted from £608 million last year to only £120 million this year, but the investment bank once again outperformed, aided by a trade negotiation boom that boosted its performance (Barclays PLC, 2022). Equity trading increased by 10%, while fixed-income trading fell by 20% when market volatility returned to normal in the middle of 2020 (Chouaibi, Chouaibi, and Rossi, 2021). According to the most recent statistics, the British economy has witnessed a considerable resurgence in consumer spending. Since 1948, Barclays has boosted its GDP growth prediction for the United Kingdom to 7% for this year. In addition, it suggested that future interest rate increases may occur sooner than originally expected (Ahmed, Bangassa, and Akbar, 2020). Profits from retail banking in the United Kingdom increased from £196 million to £451 million (AlAli, 2020), as a result of decreased impairment charges and increased revenues from recovering consumer activity.

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In great part, the success of Barclays PLC may be ascribed to the company’s overall strategic approach to business, which includes connections, collaborations, and technical innovation, among other things. Furthermore, despite the fact that consumer financial services are continuing to be transformed by technology, Barclays has continued to innovate and deliver additional goods and services to its customers, leveraging payments interconnection and increasing overall operational efficiency as a result. According to a study by Lu and Boateng (2018), the capital markets have evolved, and Barclays has had to strive to maintain its market position as a major global investment bank while simultaneously investing in new capabilities for its clients. Whenever it comes to working with customers and clients as they make the transition to a low-carbon economy, Barclays is dedicated to using its consulting and financial expertise to help them navigate this period of remarkable upheaval (Barclays PLC, 2021). Additionally, Barclays has placed a high priority on the development of digital capabilities in order to improve customer service while also creating additional income streams. In order to accomplish these objectives, it was vital to expedite digital adoption and access while also ensuring that no consumers were left behind in the process. Barclays gained a significant competitive edge in the banking industry by establishing a more cost-effective infrastructure and using data quality and volume to better understand customer expectations, foresee trends, and deliver more competitive products and services. In the wake of the COVID-19 pandemic, for example, Barclays quickly made new products intended at helping consumers and generating revenue for uncertain times. In its 2022 report, Barclays PLC reports that businesses and individuals were provided with lower interest “COVID loans” as a way to boost its image and to meet the needs of its clientele.

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As a consequence of COVID-19, the world’s financial markets have experienced substantial volatility and instability, leading to a period of severe turbulence and destabilization. It is thought that the virus’s knock-on effects will continue to be severe, despite the fact that the full extent of the virus’s influence is now unclear (Barclays PLC, 2021). Following the outbreak of the COVID-19 virus, the whole economy was thrown into turmoil, culminating in the worst recession the world has experienced in more than a decade (NatWest Group, 2022). In contrast, even if global growth is anticipated to increase, it is likely to be unevenly distributed across countries, with strong growth in wealthier economies being contrasted by poor development in many emerging economies (Mugaloglu et al., 2021). As a consequence of government-led attempts to manage the epidemic and uncertainty about the disease’s long-term survival, the economies and economic institutions of impoverished countries continue to struggle, making recovery more varied, difficult, and unpredictable in nature for Barclays’ overall profitability. Performance in key financial services is being lost in mature countries as a consequence of low interest rate conditions combined with the significant impact of COVID-19 rules (HSBC UK Bank plc, 2022). Because of this, financial institutions have become more dependent on commission-based income from businesses such as payments and technology. According to reports by Mukumbi, Eugine, and Jinghong (2020), one of the most immediate impacts of the global health disaster on the real economy is an increase in the credit risk of banks’ corporate and individual clients. The same is highlighted through Barclays’ financial report for 2020-2021 period. The financial services industry must distinguish between occurrences that are mostly ephemeral and will be quickly absorbed and those that will need the implementation of management and reclassification processes in order to continue sustaining the economic growth and contribute to its recovery.

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Even though COVID-19 has the potential to trigger a major catastrophe, the impact it will have on the financial system and the interaction between financial institutions and their clients will almost certainly be beneficial, particularly in terms of the sector’s digitization and ability to provide excellent customer service to its customers. It is becoming more difficult for even the most regionally and divisionally oriented banks in the United Kingdom not to advocate the usage of channels that were never meant to be a primary purpose. A particularly challenging phase is now being navigated by financial institutions, during which they must show actual connection to their clientele. Following COVID-19, financial institutions are likely to be more aware than ever before of their service gap, which has become more apparent than ever as a result of the regulations. This may prompt financial institutions to accelerate their digital transformation journey through partnerships and engagement with the fintech industry. During the 2020-2021 period, the technical innovation of Barclays PLC was vital to the bank’s continued existence. Modern technology has permitted the development of technologically enabling solutions such as robots and artificial intelligence (such as sophisticated BOTs that aid in the adoption processes of technologies presented on the channels direct), as well as the ability to move about more freely. When applied to critical jobs, technology enabled more straightforward security while requiring less interaction with workers and consumers than had previously been achievable.

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Evaluation of the Use of Performance Measurement

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The term “financial performance” refers to an objective assessment of a company’s ability to manage its assets and generate income via the execution of its primary business strategy. As a side note, the word is often used to characterize a company’s overall financial health throughout the course of its whole commercial life cycle. When studying companies within the same industry or when reviewing whole sectors or segments, analysts and investors look at financial performance in order to make judgments about which companies to invest in (Ahmed, Bangassa, and Akbar, 2020). Lines of credit, investors, stockholders, employees, and corporate leadership are all examples of parties that have a vested interest in the operation of a firm. In order for a corporation to be financially successful as a whole, the financial performance of each of its divisions is critical. When it comes to financial performance, a company’s capacity to generate money while simultaneously managing its assets, responsibilities, and corporate interests of shareholders and stakeholders is the most important factor to consider. Every one of the several approaches for assessing financial success should be utilized in conjunction with one another, but they should also all be used in collaboration with one another as well. Furthermore, line items such as operational income, operating cash flow, and operating profit might be included in conjunction with total unit sales in order to present a fuller view of the company’s financial performance (Camilleri, 2018). If an analyst or investor wants to uncover proof of high profit margins or a decrease in total debt, it may be essential for them to look further into the financial data.

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Barclays PLC uses liquidity, turnover, cash reserve, and its profit margins as the basic financial performance indicators. To determine this, the company reports on the said indicators in its balance sheets, income statements, and cash flow statements as the main tools to measure performance. Balance sheets are financial statements that describe the financial situation of a firm at a certain moment in its history. It provides a high-level representation of the organization’s asset and liability management. The difference between long-term and short-term debt is disclosed on the balance sheet of a company. Aside from that, they may be able to get information on the company’s asset mix as well as the percentage of assets backed by liabilities to shareholder equity. The revenue statement is a summary of all of the company’s activities for the year. In accordance with the accounting method in use, the income statement begins with revenue or sales and ends with profit or net income. The gross profit margin, cost of goods sold, operational profit margin, and net profit margin are all included in the income statement, which is also referred to as the profit and loss statement (Omran et al., 2021). Additionally, the report contains information on the number of shares presently in circulation, as well as a comparison of the company’s performance with that of the previous year. Profit and loss statements, as well as the balance sheet, are combined into a cash flow statement. According to some financial experts, the cash flow statement is the most important financial statement since it reconciles net income with cash flow (and vice versa) (or vice versa). Dividends, capital expenditures, stock repurchases, and stock dividends paid by the company are all included in this area of the financial statement. In addition, it offers information on the sources and uses of cash generated via operations, investment, and borrowing, among other things.

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The banking and financial services sector uses non-financial performance measures as an extra indicator to analyze the activities that a firm feel is vital to attaining its strategic objectives. A few examples of non-financial performance indicators often used by corporations include customer connections, people, operations, quality, cycle time, and the firm’s supply chain or pipeline of commodities, among others. In order to show that all indices of organizational success are ultimately related to the financial side, which is the company’s major emphasis, Barclays PLC intends to use non-financial statistics to illustrate this. Consumer and business trends around interactions with one’s social and environmental settings are changing (Maama and Mkhize, 2020), and this is causing difficulties for Barclays in the development of performance metrics. Effective performance assessment tools are crucial in the development of strategy, the evaluation of organizational objectives, and the compensation of managers. There is increasing demand on financial services businesses in the United Kingdom as well as elsewhere in Europe to incorporate more non-financial indicators in their financial statements and reports. According to client feedback, traditional financial institutions are no longer in operation or are failing. Recent research by Ahmed, Bangassa and Akbar (2020) into financial services businesses in the United Kingdom revealed that the vast majority of stakeholders were dissatisfied with the present evaluation methods in place. Profitability and accounting returns are the primary focus at the moment, with less attention placed on value drivers like as customer and employee satisfaction, innovation, and product quality. In order to improve its performance management systems, Barclays PLC is now in the process of implementing new systems.

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The business activities of Barclays PLC are clearly demonstrating that the corporation is shifting away from focusing only on financial success indicators as the primary criterion for decision-making. This change was influenced by a number of different circumstances. Stakeholders have expressed concern about the way in which information is presented to different groups of Barclays stakeholders, accounting process distortions, and a growing disparity between a company’s market and book values, which ultimately results in changes in the company’s corporate valuation. Also noteworthy is the fact that financial reports do not always make it feasible to identify whether the results are beneficial to the company’s operations (NarkunienÄ— and UlbinaitÄ—, 2018). In other cases, financial data may improve for a variety of causes that are unrelated to the organization’s activity External conditions including new business laws, government subsidies amid the COVID-19 pandemic, shifts of the bargaining powers of different stakeholder groups and changes in the general environment are causing Barclays PLC to reconsider financial reporting. For example, the issue of corporate social responsibility, sustainable business models, and environmental consciousness feature heavily in Barclays’ annual performance since 2018. The same trend is seen in the entire banking and financial services industry with other players such as Lloyds Banking Group and NatWest Group incorporating newer non-financial performance measures in their annual reports. New accounting procedures, in addition to other considerations, may have an influence on financial statistics in the future. Further, financial indicators show historical company activity that may be compared across other firms, which can be deceptive when interpreted in the wrong way. Barclays understands this issue is greater than most firms want to admit. Financial indicators, on the other hand, may be used to evaluate which firms have done better in the past; but what investors really want to know about a company’s long-term prospects and returns is what it plans to accomplish in the future, with other stakeholders such as consumers, the government, the media, and activist community pushing for better social, political, environmental, and sustainability reporting.

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Barclays PLC, NatWest Group, and HSBC UK Bank performed well in 2018, 2019, and in the first quarter of 2020. Overall, their performances followed a similar curve (HSBC UK Bank plc, 2022; NatWest Group, 2022, Barclays PLC, 2020). The economy of the United Kingdom, as well as the economy of the rest of the globe, has continued to recover from the effects of the epidemic in recent years. Concerns about public health dangers and the economy’s long-term prospects, on the other hand, continue to be widespread. Supply and inflationary pressures in the short term, as well as the possibility that Covid will have a greater effect on activities, are just a few instances of what might happen. In 2020, financial services would provide £164.8 billion to the UK economy, accounting for 8.6 percent of the country’s total gross domestic product (GDP) (Khan et al., 2020). The industry’s headquarters were in London, which, at the time of writing, was responsible for more than half of the sector’s total production. When it comes to its contribution to national economic output, the financial services business in the United Kingdom was placed third in the Organization for Economic Cooperation and Development in 2020 (Dias et al., 2020), with contributions from Barclays PLC, NatWest Group, and HSBC UK Bank. As a result of this era’s lack of extraordinary losses, significant capital calls, or any major mergers and acquisitions, banks had their first period of stability since the last economic downturn (AlAli, 2020). Indeed, bank earnings outperformed the expectations of the vast majority of industry observers. When measured in percentage points, the return on equity (ROE) in 2020 came in at 6.7 percent, which was lower than the cost of equity, but higher than the 4.9 percent recorded during the financial crisis in 2008 (Ngwakwe, 2021). It was also higher than projections.

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Part B

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“Budgeted performance is a better criterion than past performance for judging managers”

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For the reason that inefficiencies in prior outcomes may be recognized and addressed in planning, budgeted performances can be regarded as stronger measures in an effort to rate the performance of a managers in an organization. Since the budget has no concealed redundancies and can also be based on actual instead of previous economic circumstances (Ho, 2018), budgeted performance is preferable to past performance as a foundation for measuring current performance for managers and the overall performance of an organization (Zor, Linder, & Endenich, 2019). Future circumstances will most certainly vary from previous positions, an element that is well articulated and considered in a budgeting approach. When it comes down to it, a budget is nothing more than a prediction created in advance for the period of time to which it applies. Because of rigorous preparation and thinking, everything has come to fruition. Budgets may be thought of in a variety of ways, but they always center on a set of goals that must be completed during the course of the fiscal year. The only people who have the authority to approve a company’s budget are the company’s senior management. Planning, coordination, and control are all made simpler as a result of these improvements. Human resource management techniques such as this one are quite successful. It is beneficial in keeping track of and evaluating the performance of each department when it is used. Actual results are compared to desired constraints or objectives in order to keep expenditures under control and to decrease them as much as possible.

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The budgeting process involves concerns for future profitability in order to secure a reasonable return on resources invested, which is a basic business aim. Pratolo, Sofyani, and Anwar (2020) argue that every company’s plan for coping with the uncertainty of tomorrow should have been established. By failing to plan, a corporation is left scrambling for answers when things go awry. On the other hand, the great majority of businesses plan ahead of time for how they would respond in the event of an accident. Operating plans for the next several months are spelled out in a budget, which also serves to measure the company’s action plan. All levels of management need to be involved in strategic planning and projecting results; it may even act as a motivator for staff to work hard to attain their goals. Businesses may utilize budget-to-actual comparisons to evaluate the effectiveness of certain management teams.

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Consistent operational circumstances, on the other hand, make it feasible to place a greater reliance on previous budgetary accomplishments. A company’s budget, on the other hand, takes into consideration more than only the company’s historical performance. Long-term aims and operations are also taken into account while developing a budget for the organization. Therefore, budgeted performance is substantially more essential than prior performance when reviewing actual outcomes as a foundation for decision-making (Belardinelli et al., 2018). In order for management to plan ahead and take necessary decisions, all of these considerations, as well as the competitive structure of the sector and the effects of current or potential government legislation, should be integrated into a budget. It is critical for managers to keep an eye out for adjustments in expectations during the budgeting process and to include these shifts into their performance assessments based on actual outcomes as soon as they are identified.

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In summary, a performance report is primarily and often used by the management of a firm as both a follow-up technique to evaluate the actual outcome to the budgeted objectives and outcomes and to gauge the overall fairing of the team.   The implementation of performance budgeting can be connected to a wider scope of attempts to enhance spending oversight, and the productivity and effectiveness of key internal stakeholders within an organization. As a consequence, performance budgeting could be merged with greater adaptability for management teams in exchange for increased involvement and transparency for results, allowing them to choose the best way to deliver services.

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References

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Adegbite, E., Guney, Y., Kwabi, F., & Tahir, S. (2019). Financial and corporate social performance in the UK listed firms: the relevance of non-linearity and lag effects. Review of Quantitative Finance and Accounting, 52(1), 105-158.

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Ahmed, S., Bangassa, K. and Akbar, S., 2020. A study on trust restoration efforts in the UK retail banking industry. The British Accounting Review, 52(1), p.100871.

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AlAli, M.S., 2020. Risk velocity and financial markets performance: measuring the early effect of covid-19 pandemic on major stock markets performance. International Journal of Economics and Financial Research, 10.

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Barclays PLC. 2019. Barclays PLC Results Announcement. Available at https://home.barclays/content/dam/home-barclays/documents/investor-relations/ResultAnnouncements/2019FYResults/20200213-Barclays-PLC-FY19-Results-Announcement.pdfBarclays PLC. 2020. Making a difference: Barclays PLC Annual Report 2020. Available at https://www.fundslibrary.co.uk/FundsLibrary.dataretrieval/Documents.aspx/?type=sl.ra.full&id=ebad6ac4-3d3c-44b6-8620-10c5630dfc7d&user=pt1FLClFkj%2bnc6ZAbN3oGNAw%2fgJd0rSUr3CBU0yhNxVmsg08SOQSuxSgoZ2AGdJD&r=1Barclays PLC. 2021. Barclays PLC: 2021 Results Announcement. Available at https://home.barclays/content/dam/home-barclays/documents/investor-relations/ResultAnnouncements/2021FYResults/20220223-BPLC-FY2021-Results-Announcement.pdfBelardinelli, P., Bellé, N., Sicilia, M., & Steccolini, I., 2018. Framing effects under different uses of performance information: An experimental study on public managers. Public Administration Review, 78(6), p. 841-851.

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Camilleri, M.A., 2018. Theoretical insights on integrated reporting: The inclusion of non-financial capitals in corporate disclosures. Corporate Communications: An International Journal.

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Chouaibi, S., Chouaibi, J. and Rossi, M., 2021. ESG and corporate financial performance: the mediating role of green innovation: UK common law versus Germany civil law. EuroMed Journal of Business.

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Dias, R., Teixeira, N., Machova, V., Pardal, P., Horak, J. and Vochozka, M., 2020. Random walks and market efficiency tests: evidence on US, Chinese and European capital markets within the context of the global Covid-19 pandemic. Oeconomia Copernicana, 11(4), pp.585-608.

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Ho, A. T. K., 2018. From performance budgeting to performance budget management: theory and practice. Public Administration Review, 78(5), p.748-758.

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HSBC UK Bank plc. 2022. Interim Report and Accounts 2021. Available at https://www.hsbc.com/-/files/hsbc/investors/hsbc-results/2021/interim/pdfs/hsbc-uk-bank-plc/210802-interim-report-2021.pdfKhan, K., Zhao, H., Zhang, H., Yang, H., Shah, M.H. and Jahanger, A., 2020. The impact of COVID-19 pandemic on stock markets: An empirical analysis of world major stock indices. The Journal of Asian Finance, Economics, and Business, 7(7), pp.463-474.

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Lu, J. and Boateng, A., 2018. Board composition, monitoring and credit risk: evidence from the UK banking industry. Review of Quantitative Finance and Accounting, 51(4), pp.1107-1128.

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Maama, H. and Mkhize, M., 2020. Integration of non-financial information into corporate reporting: a theoretical perspective. Academy of Accounting and Financial Studies Journal, 24(2), pp.1-15.

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Mugaloglu, E., Polat, A.Y., Tekin, H. and Dogan, A., 2021. Oil price shocks during the COVID-19 pandemic: evidence from United Kingdom energy stocks. Energy Research Letters, 2(1), p.24253.

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Mukumbi, M.C., Eugine, K.W. and Jinghong, S., 2020. Effect of capital structure on the financial performance of non-financial firms quoted at the Nairobi Securities Exchange. International Journal of Science and Business, 4(4), pp.165-179.

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Narkunienė, J. and Ulbinaitė, A., 2018. Comparative analysis of company performance evaluation methods. Entrepreneurship and sustainability issues, 6(1), pp.125-138.

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NatWest Group. 2022. NatWest Group 2021 Annual Report. Available at https://investors.natwestgroup.com/annual-report

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Ngwakwe, C., 2021. COVID-Vaccination and Performance in Five Global Stock Market Indexes. Acta Universitatis Danubius. Œconomica, 17(5).

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Omran, M., Khallaf, A., Gleason, K. and Tahat, Y., 2021. Non-financial performance measures disclosure, quality strategy, and organizational financial performance: a mediating model. Total Quality Management & Business Excellence, 32(5-6), pp.652-675.

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Pratolo, S., Sofyani, H., & Anwar, M., 2020. Performance-based budgeting implementation in higher education institutions: Determinants and impact on quality. Cogent Business & Management, 7(1), p.1786315.

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Zor, U., Linder, S., & Endenich, C., 2019. CEO characteristics and budgeting practices in emerging market SMEs. Journal of Small Business Management, 57(2), p.658-678.

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Appendices

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Appendix 1: Barclays PLC Income Statement 2018-2021

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Appendix 2: Consolidated Summary Income Statement and Balance Sheet 2018-2020

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Appendix 3: Consolidated Cash Flow Statement

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Appendix 4: Income Statement Information 2020-2021

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