Financial Ratios and Firm Performance
Added on 2020-02-24
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Pearson BTEC Level 5 HND Diploma in BusinessManaging financial resources anddecisions
TABLE OF CONTENTSIntroduction................................................................................................................................3Part 1..........................................................................................................................................3A. Potential sources of finance available to business and importance of financial planning3B. Evaluation of short term and long term sources of finance...............................................4C. Analysis of cost associated with different financial sources and its impact on financialstatements...............................................................................................................................5D. Information needs of stakeholders....................................................................................6Part 2..........................................................................................................................................6A. Net value and net present value.........................................................................................6B. Undiscounted Payback period and the Discounted Payback period.................................8C. Recommendation to Aston Ltd..........................................................................................9Part 3........................................................................................................................................10A. The purpose of the two main financial statements..........................................................10B. Different formats of financial statements........................................................................11C. Calculation and interpretation of financial and liquidity ratios.......................................11Liquidity ratios.....................................................................................................................12Conclusion................................................................................................................................13References................................................................................................................................14
LIST OF TABLESTable 1: Statement showing calculation of financial ratios.....................................................13Table 2: Profitability ratios of Tesco.......................................................................................14Table 3: Liquidity ratios of Tesco............................................................................................15Table 4: Gearing ratios of Tesco..............................................................................................16LIST OF FIGURESFigure 1: Profitability ratios of Tesco......................................................................................15Figure 2: Liquidity ratios of Tesco...........................................................................................16Figure 3: Gearing ratios of Tesco.............................................................................................17
INTRODUCTIONManagement of financial resources is the primary objective of business. Due to thisfactor; it is essential to ensure funds are collected from viable sources and allocated in anoptimum manner to ensure maximum returns and profitability (Minsky, 2015). Thus presentstudy deals with the financial aspects of companies of listed in Hong Kong in order to assistmanagerial authorities in making better decisions. For this aspect, various tools will beapplied in present study such as ratio analysis and methods of capital appraisal by consideringpractical cases for a better understanding of subject matter. PART 1A. Potential sources of finance available to business and importance of financial planningSources of finance can be categorised into two primary categories from which businesses cangenerate funds for their operational activities:(i)Long-term finance - The issue of share - Companies, can issue new shares to either existingshareholder or to new shareholders in order to raise funds. For this financialsource; the company will be required to pay a dividend as per profitability ofbusiness (Lee, Sameen and Cowling, 2015). Further; the principal amount isnot required to be repaid because shareholders are owners of the companywith the controlling authority. Loan stock – It is used when companies require long-term capital fund butalso they want to hold their controlling power. For this company is required topay interest charges.Bank lending – It is a most common form of lending money. Companiesborrow money from banks on long-term basis as per their requirement. Forthis financial resources; assets are providing to the bank or financialinstitution as security (Gitman, Juchau and Flanagan, 2015). To avail fundingfrom this financial sources, business is required to pay interest charges alongwith the repayment of principal amounts as per provisions of their contractualagreement. (ii)Short term finance – Cash credit – Banks allows the organization to withdraw funds up to thespecified limit. With this facility, a business can avail cash for short-term
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