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FINANCIAL MANAGEMENT April, 2013 Contents

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FINANCIAL MANAGEMENT (April, 2013 Contents INTRODUCTION 1 PART 1 1 Company Overview 1 1.1 Ratio Calculation 1 Profitability Ratios 1 Liquidity Ratio 2 Performance Ratio 3 Efficiency Ratios 3 1.2 Evaluation and Recommendations 4 1.3 Summarised Report 7 PART 2 8 2.1 Assessing the viability of the competing investment projects 9 2.2: Payback Period Method 12 2.3 Advantages and Disadvantages 13 2.4 Summarised Report 15 CONCLUSION 167.00 References 17 APPENDIX 18 List of Tables Table 1 Ratio Calculation 4 Table 2 Summa

FINANCIAL MANAGEMENT April, 2013 Contents

   Added on 2019-12-03

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FINANCIALMANAGEMENTApril, 2013
FINANCIAL MANAGEMENT April, 2013 Contents_1
ContentsINTRODUCTION...........................................................................................................................1PART 1............................................................................................................................................1Company Overview.....................................................................................................................11.1 Ratio Calculation...................................................................................................................1Profitability Ratios...................................................................................................................1Liquidity Ratio.........................................................................................................................2Performance Ratio...................................................................................................................3Efficiency Ratios.....................................................................................................................31.2 Evaluation and Recommendations........................................................................................41.3 Summarised Report...............................................................................................................7PART 2............................................................................................................................................82.1 Assessing the viability of the competing investment projects...............................................92.2: Payback Period Method......................................................................................................122.3 Advantages and Disadvantages...........................................................................................132.4 Summarised Report.............................................................................................................15CONCLUSION..............................................................................................................................16References......................................................................................................................................17APPENDIX....................................................................................................................................18
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List of TablesTable 1 Ratio Calculation................................................................................................................4Table 2 Summarised Report of Ratio Analysis...............................................................................7Table 3 Calculation of NPV for Project 1.......................................................................................9Table 4 Calculation of NPV for Project 2.......................................................................................9Table 5 Calculation of IRR for Project 1.......................................................................................10Table 6 Calculation of IRR for Project 2.......................................................................................11Table 7 Calculation of Payback Period for Project 1....................................................................12Table 8 Calculation of Payback Period for Project 2....................................................................13Table 9 Summarised Report..........................................................................................................15
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INTRODUCTION In the present business environment, the key role is played by financial manager inbusiness performance. The financial manager has to plan, organize, direct and control thefinancial activities of the organization. Finance is one of the most important resources for anyorganization and in order to have effective business performance a manager needs to takeoptimum utilization of its financial resources. The role of financial manager is to apply thegeneral management principles to financial resources of the organization.The aim of the study is to provide an in-depth understanding of financial tools andtechniques that help a manager in making effective decisions. This report will be divided intotwo major parts, first part includes the financial analysis of an organization and another partincludes the evaluation of two strategic investment projects.PART 1Company OverviewWm Morrison Supermarkets plc (registered on LSE i.e. London Stock Exchange) is thefourth largest food retailer in UK with its more than 400 stores. It was founded in 1899 andpresently branded as Morrisons. As on January, 2013 Company’s total revenue was £18,116m(LSE, 2013).1.1 Ratio Calculation: Most of the organizations publish their annual reports including theirfinancial statements for the year. Ratio analysis is the tool that is used for quantitative analysis ofthose financial statements. The monetary growth of the organization can be identified bycalculating the ratios and comparing them with previous year ratios. Ratios can also be used forcomparing the business performance with any other organization or industry. On the basis offinancial statements, several ratios can be calculated that indicates the performance, financing,activities and liquidity of the company (Arnold, 2005). Some common ratios for Wm MorrisonSupermarkets plc are being calculated below:Profitability Ratios: It is a class of financial metrics that indicates the ability of company togenerate earnings as compared to its expenses and other relevant costs. Some key profitabilityratios are gross profit margin, net profit margin and return on equity (Collier, 2012).Gross profit margin and Net Profit Margin for the past three years:Page | 1
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GrossProfitMargin=GrossProfitNetSales∗100NetProfitMargin=NetProfitNetSales∗100201320122011Net Sales (£m)181161766316479Gross Profit (£m)120612171148Net Profit (£m)637621636Gross Profit Margin6.6570996.8901096.966442Net Profit Margin3.5162293.5158243.859457Return on Equity for the past three years:ROE=NetIncomeShareholder'sEquity∗100201320122011Net Income (£m)637621636Shareholder’s Equity (£m)523053975420ROE12.1797323111.506411.7343Liquidity Ratio: It is a class of financial metrics that indicates the ability of a company to pay offits short-terms debts obligations (Bertoneche, 2001). The common liquidity ratios are quick ratiocurrent ratio.CurrentRatio=CurrentAssetsCurrentLiabilities∗100QuickRatio=CurrentAssets−StockCurrentLiabilities∗100201320122011Current Assets134213221138Stock781759638Current Liabilities233423032086Current Ratio0.5749785780.574030.54554Quick Ratio0.2403598970.244460.23969Performance Ratio: This set of ratio indicates that how different aspects of a company’s financesare performing. Some of the key performance ratios are fixed-assets turnover ratio and Return onAssets.Page | 2
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Return on Assets for the past three years:ROA=NetIncomeTotalAssets∗100201320122011Net Income (£m)637621636Total Assets (£m)10,5279,8599,149ROA6.057.006.91Debt ratio for past three years:DebtRatio=TotalLibilitiesTotalAssets201320122011Total Liabilities (£m)5,2974,4623,729Total Assets (£m)10,5279,8599,149DR0.500.450.41Efficiency Ratios: This set of ratios indicates the ability of the company to use its assets andliability internally. Some common efficiency ratios are Assetsturnover and sales to net workingcapital (Hunjra, Shaheen, Niazi and Rehman, 2012).Assets turnover ratio for past three years:AssetsTurnover=NetSalesTotalAssets201320122011Net Sales (£m)188161766316479Total Assets (£m)10,5279,8599,149ATR1.7209081411.7915611.801180457Working capital turnover ratio for Past three years:Workingcapitalturnoveratio=SalesWorkingCapital201320122011Sales Revenue (£m)188161766316479Working capital-992-971-948Working capital turnover-18.2621-18.0051-17.3829Table 1 Ratio CalculationPage | 3
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