Financial Analysis Assignment Sample (Doc)
Added on 2021-02-20
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TABLE OF CONTENTSINTRODUCTION...........................................................................................................................11. financial analysis.....................................................................................................................1........................................................................................................................................................12........................................................................................................................................................12........................................................................................................................................................132. Importance of working capital in the organization...............................................................133. Evaluation of cash flow of last 2 year of the Sainsbury and Tesco company.......................15Sainsbury's.....................................................................................................................................18CONCLUSION..............................................................................................................................18REFERENCES..............................................................................................................................20
INTRODUCTIONFinancial analysis helps in predicting the financial statements of the company in a viable andreliable manner in order to assess the profitability and financial position of the company. This study will evaluate the financial performance of the company which in turn resultsin evaluating the financial position of the company. This study will analyse the financial ratios ofthe Sainsbury and Tesco which in turn helps in examining the performance of the company. Thisstudy will also detailed analysis of vertical and horizontal statement in order to predict thefinancial statement and helps in taking necessary decision. This study will further outline theimportance of working capital in order to make necessary decision making. Lastly, this reportwill critically analyse the cash flow statements of Sainsbury and Tesco. Sainsbury company is one of the largest retail company which was established in the year1869 by John James Sainsbury. This company deals in various products and services such asgroceries, forecourt shop, food products, etc. Tesco plc. Was founded in the year 1919 by Jack Cohen. This company deals in variousproducts and services such as furniture, software, telecom services, groceries, petrol, electronics,financial services, etc. 1. financial analysisProfitability ratiosGross profit ratio- It refers to the profitability ratio that depicts the relationship inbetween the gross profit and the total sales revenue. This ratio is the most powerful tool thathelps in evaluating performance in relation to operational efficiency of an entity. It is beencalculated by dividing the gross profit with that of sales. 1
Interpretation- From the table it has been analysed that the gross profit ratio ofSainsbury's is greater than Tesco over the last 4 years. This means that Sainsbury's operations areefficiently functioning in comparison with the Tesco and the resulting profits after the cost ofthe sales is higher of the Sainsbury's. However, the ratio of the Tesco is showing an increasingtrend over the years which means that its performance is improving as the year passes. Net profit ratio- It is the ratio that reveals the profits earned by the company afterdeducting all the cost relating to production, financing and the administration which are beensubtracted from the income tax and the sales. It is the measure that is commonly plotted on thetrend line in order to judge the performance of the business over the time period. It is computedby dividing the resulted net profit with that of net sales. Interpretation- The above table depicts that the net profit ratio of Sainsbury's in the year2016 and 2017 is higher than Tesco which means that after making payment of all its interestexpenses and the tax liability the former company is earnings higher profits. However, Tescoresulted negative results or net loss in the year 2017, which reflects that its expenses and thefinance cost were more than its revenue. On the other state, in the year 2018&19, the resulted netincome of Tesco, resulted higher than Sainsbury's which clearly indicates that Tesco has takencorrective measures for increasing its sales and the profit margins. Liquidity ratios2
Current ratio- It is the type of the liquidity ratio that reflects the ability of the companyin paying off its current obligations. It tells the ways that the company can uses for maximizingits current assets for satisfying their current debts or the other payables. It is been evaluated bysubtracting the current liabilities from the current assets. Quick ratio- This ratio indicates the current liquidity position of an organization and thecapability of an enterprise in meeting its short term liabilities by using its assets that are mostliquid. This ratio is been designed for producing the instant results. It is been computed bydividing the quick assets with the current liabilities. Under which, the quick assets is resulted bydeducting stock and prepaid expenses if any from the current assets. Interpretation- The table shows that for the year 2016&17, the current ratio of the Tescois higher than Sainsbury's but in the year 2018&19, the ratio of Sainsbury's is greater than Tesco.This means that presently, Sainsbury's is having a better liquidity position which in turn meansthat it has sufficient cash to pay off its current liabilities as compared to Tesco. Ita lso reflectsthat Sainsbury's has the ability to meet its short-term obligations adequately. 3
Interpretation- The above evaluation is been stating that as per the quick ratio, theimmediate liquid position of Tesco is better than Sainsbury's over the years as its resultant ratiosare higher when it is been compared to Sainsbury's. This indicates that Tesco has the ability tomeet its obligations by using its immediate cash. Solvency ratiosDebt-equity ratio- It means the solvency ratio that measures the relationship in betweencapital contributed by shareholders and the creditors. It depicts the extent of the shareholdersequities through which the company can fulfil its obligations towards its creditors in case ofliquidation. It is computed by dividing the long term debts with that of the shareholders funds. Interpretation- By interpreting the above ratio it has been highlighted that lower theratio, better the solvency position of the enterprise. Therefore, as the debt-to-equity ratio ofSainsbury's is resulting as lower than Tesco, this reflects that it is having adequate owners fundsfrom which it non-current debts can be met easily over its rivalry that is Tesco. However, ratio ofTesco is higher which the means that the proportion of its debts are similar to that of its equities.Efficiency ratios4
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