Ratio Analysis and Investment Appraisal of Greggs plc. and Tekna Electronics

FINANCE AND
ACCOUNTING FOR
BUSINESS

TABLE OF CONTENTS
INTRODUCTION.....................................................................................................................................4
CALCULATIONS TASK.........................................................................................................................4
a) Ratio analysis of Greggs plc. for the year ended 28 December, 2019..................................................4
b) Investment appraisal of various projects undertaken by Tekna Electronics.........................................4
c) Cash budget of Tekna Electronics.......................................................................................................4
REPORT WIRTING TASK.....................................................................................................................4
a) Profitability and cash operating cycle analysis of Greggs plc..............................................................4
b) Types of budgets and its suitability for Tekna Electronics..................................................................4
CONCLUSION..........................................................................................................................................4
REFERENCES..........................................................................................................................................5

CALCULATIONS TASK
a) Ratio analysis of Greggs plc. for the year ended 28 December, 2019
These are the ratios that are calculated using the financial statements of Gregg plc which
can be used to compare the data of the company with the other entities and also discloses the
profitability and the financial position of the company.
S.NO RATIOS FORMULA CALCULATIONS
Liquidity Ratios
1 Current ratio Current assets / Current liabilities 0.682
Current assets 142.3
Current liabilities 208.7
2 Quick ratio (Current assets- Inventory) / Current liabilities 0.567
Current assets 142.3
Inventory 23.9
Current liabilities 208.7
Solvency Ratios
3 Debt equity ratio Debt / Equity 0.82
Short term borrowings 48.8
Long term borrowings 226.9
Provisions 4
Shareholders fund 341.1
4 Interest Coverage ratio Earnings before interest and tax / Interest 17.662
Earnings before interest and tax 114.8
Interest 6.5
Profitability ratios
5 Gross profit ratio Gross profit / Net sales*100 9.83%
Gross profit 114.8
Net sales 1167.9
6 Net profit ratio Net profit / Net sales*100 7.45%
Net profit 87
Net sales 1167.9
7 Return on capital employed Earnings before interest and tax / Capital employed 19.90%
Earnings before interest and tax 114.8
Total assets 785.5
Current liabilities 208.7
Capital employed 576.8

Efficiency ratios
8 Inventory turnover ratio Net sales / Average inventory 52.255
Net sales 1167.9
Average inventory 22.35
9 Asset turnover ratio Net sales / Average total assets 1.834
Net sales 1167.9
Average total assets 636.8
b) Investment appraisal of various projects undertaken by Tekna Electronics
Tekna Electronics wants to manufacture the underwater battery for the cameras for which
it is planning to invest in a machinery for the same. It has three different options which are
Machine A, Machine B and Machine C, out of which it is to select the most feasible option
providing the highest returns to the company. This can be ascertained on the basis of applying
the different investment appraisal techniques like the net present value, payback period and the
accounting rate of return.
Calculation of the amount of depreciation:-
Machine A Machine B Machine C
Initial Investment £440000 £525600 £884600
Life of the machine 4 years 5 years 3 years
Scrap value £440000*20%=
88000
£525600*20%=
105120
£884600*20%=
176920
Depreciation 440000-88000/4=
£88000
525600-105120/5=
£84096
884600-176920/3=
£235893
Calculation of the cash flows that are generated by the company:-
Machine A Machine B Machine C
Sales 1000*600= £600000 900*600= £540000 1300*600= £780000
Less Variable cost 1000*360=
(£360000)
900*325= (£292500) 1300*285=
(£370500)
= Contribution £240000 £247500 £409500
Less Fixed cost (£80000) (£80000) (£130000)
Less Depreciation (£88000) (£84096) (£235893)
= Profit £72000 £83404 £43607
Add Depreciation £88000 £84096 £235893
= Cash flows £160000 £167500 £279500
Discounting rate for Machine A= 9%