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Accounting Ratio Analysis: Doc

   

Added on  2021-01-01

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FINANCIAL ACCOUNTINGANALYSIS

Table of ContentsINTRODUCTION...........................................................................................................................1TASK 2............................................................................................................................................1Accounting Ratio Analysis.........................................................................................................1Financial factors affecting the performance of organisation are as follows:-.............................7Non financial factors affecting the performance of organisation................................................7TASK 3............................................................................................................................................7Sustainability reporting of the two companies ...........................................................................7Potential weaknesses of Ratio Analysis .....................................................................................8CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9.........................................................................................................................................................9

INTRODUCTIONFinancial Accounting is the process of recording, summarizing and reporting financialstatements (Bryer, 2013). It will use by companies to present their financial position andperformance to external peoples who are connected with company in direct and indirect waysuch as investors, creditors, customers and suppliers. For financial accounting analysis companyhas applied different types of analysis like Dupont analysis, fundamental analysis, horizontal andvertical analysis and the use of financial ratios. In the presenting report selecting company Tescoand Morrison's. Tesco is a British multinational groceries and general merchandise retailer whichwas founded in 1919 by Jack Cohen. Morrisons is the largest supermarket in the United kingdomwhich was founded in 1899 by William Morrison. In the report consist of two parts, in part onecalculate appropriate accounting ratios and interpreted that. In part second, report onsustainability report of two companies and analysis of potential weaknesses of ratio analysis. TASK 2Accounting Ratio AnalysisRatio Analysis is a kind of financial statement analysis, which is analysed with the helpof quantitative method of gaining and obtain quick indication of a firm's financial performance invarious key areas. These ratios are divided into different terms like short-term solvency ratios,asset management ratios, debt management ratios, market value ratios and profitability ratios.There is analysing of ratio of two companies to compare for evaluate financial performance andstatus (Callen, 2015). Ratio Analysis of Tesco PLCLiquidity RatioCurrent Ratio = Current Assets / Current LiabilitiesLiquidity Ratio20172018Current Assets 1541713726Current Liabilities 1940519238Current Ratio 0.790.71Interpretation – Liquidity ratio is described about the liquidity of a business to know cashflow in the company. In liquidity ratio, included current ratio that is ideal ratio of a company is2:1. The current ratio of the company calculated through current assets and current liabilities.1

The ratio indicates that how much current assets and current liabilities generate to paying offtheir liabilities. There has been identified in 2018 current assets lesser than to 2017 so it wasshowing impact on current ratio. So current ratio of the company in 2018 lesser than to 2017. Quick Ratio = Quick assets / Current Liabilities Liquidity Ratio20172018Quick Assets 1311611463Current Liabilities 1940519238Quick Ratio 0.680.60Interpretation – Quick ratio through identify those assets which is helpful in repayment ofcreditors of a company. With the help of this ratio know above ability of a company and theirideal ratio is 1:1. As per the above calculation it is getting that in 2017 quick assets more than to2018 but their quick ratio cannot touch to ideal ratio. Profitability RatioNet Profit ratio - Net profit / Sales*100Profitability Ratio20172018Net Profit (40)1206Sales5591757491Net Profit Ratio 0.071%2.09%Description – Net profit ratio calculate by company to know about actual position of acompany and it will present to investors to attract for investment. It can indicate profitability of acompany. However, there is in 2017 the company has faced net loss due to increase expenses butit is reduce in 2018 and company earn net profit. Therefore, it was showing impact on net profitratio and it will increase in 2018 in compare to 2017. Gross Profit Ratio = Gross profit / Sales*100Profitability Ratio20172018Gross Profit29023350Sales5591757491Gross Profit Ratio 5.19%5.82%Interpretation – Gross profit ratio is the profitability ratio can show relationship betweengross profit and total sales revenues. It is famous tool for determinate the operationalperformance of the business. The ratio is computed by dividing the gross profit figures by net2

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