Financial analysis and management enterprise (Doc)

Financial analysis and
management enterprise

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Vertical and horizontal analysis of financial statements between two companies......................1
Importance of working capital analysis.....................................................................................11
Critical analysis of cash flow statement.....................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
APPENDIX....................................................................................................................................15

INTRODUCTION
In order to interpret performance of a company's financials, ratio analysis is used which
compares performance of two companies for two or more years. This interpretation can be in
terms of liquidity, profitability, efficiency, long-term solvency, shareholder's investment etc. To
analyse the working capital performance of a company, a deep understanding of cash flow
position is required. It can be done through preparing a cash flow statement which records
inflows and outflows of cash during an accounting year. It also involves preparation of activities
for different purpose i.e. investing, operating & financing (Borodin and et.al., 2015).
For this report, a large Asian food manufacturing company has been selected i.e. Letus
Legend whose clients are Sainsbury's & Tesco. These are U.K. Based departmental stores that
offer a variety of products ranging from dairy items to packaged meals etc. The following report
highlights on the financial performance of both companies by calculating ratios, working capital
position. A critical analysis of annual cash flow statement for both companies over the last two
years is also included in this document.
MAIN BODY
Vertical and horizontal analysis of financial statements between two companies
Ratio analysis is a technique which is used to measure overall financial performance of
companies. In this report, we have to interpret financial position of Sainsbury's and Tesco so for
that purpose ratios are calculated (Financial ratios, 2019). Some of them are mentioned below:
PROFITABILITY RATIOS: These ratios measure the profitability of a company by
analysing the ROCE, NPM, GPM etc. Below are the calculations for the mentioned ratios:
 ROCE: It is a profitability ratio which measures how efficiently a firm generate profits
from its capital employed by comparing it with net operating margin.
ROCE: (Profit before interest and tax/capital employed)*100
Particulars 2015 2016 2017 2018
Tesco 31.74 -0.65 -1.36 5.71
Sainsbury's -0.55 5.53 5 3.66
1

 Gross profit margin: It is a ratio which calculates percentage of gross profit by sales
revenue during an accounting year.
Gross profit margin: (Gross profit/sales)*100
Particulars 2015 2016 2017 2018
Tesco -3.39 5.24 5.19 5.83
Sainsbury's 5.08 6.19 6.23 6.61
2

 Net profit margin: It is a ratio which calculates percentage of new profit by sales
revenue during an accounting year.
Net profit margin: (Net
profit/sales)*100
Particulars 2015 2016 2017 2018
Tesco -10.24 0.3 0.26 2.26
Sainsbury's -0.3 2.33 1.91 1.43
3