Financial Analysis of B&M and Morrison: Managerial Finance

Managerial finance

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY ..................................................................................................................................3
PORTFOLIO 1.................................................................................................................................3
A. FINANCIAL RATIOS............................................................................................................3
B. Analysis of performance, financial position and investment potential of both companies.....4
C. RECOMMENDATION........................................................................................................11
D. Limitations of ratio analysis..................................................................................................11
PORTFOLIO 2...............................................................................................................................12
A. INVESTMENT APPRAISAL TECHNIQUES FOR ALPHA AND BETA:.......................12
B. LIMITATIONS OF INVESTMENT APPRAISAL TECHNIQUES...................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Managerial finance is the concept that is responsible for taking business decisions that
directly impacts the profits, losses, cash flow as well as revenue generation within the
organisation. The process contributes to the overall growth of the business in a significant
manner. Managerial finance is interested in the external as well as internal importance of the
financial figures of the firm (Akhtar, Thyagaraj and Das, 2017). This present report consists of
two portfolios in which the first portfolio is of financial analysis of two companies, that are,
B&M and Morrison. In this portfolio, financial ratios are going to be calculated along with the
performance analysis of both companies. Recommendations regarding financial performance
will also be taken into consideration. The limitations of relying on financial ratios for
interpreting the performance of company will also be discussed in this portfolio. The next
portfolio consists of capital investment appraisal in which these techniques will be considered to
advise the senior management regarding acceptance of the appropriate project (Al Islami and
Madyan, 2020). In this portfolio, the limitations regarding the use of investment appraisal
techniques in long-term decision making is also going to be explained.
MAIN BODY
PORTFOLIO 1
A. FINANCIAL RATIOS
B&M MORRISON
Ratio Formula 2019 2020 2019 2020
Current ratio Total current assets / Total
current liabilities 1.13:1 1.18:1
0.48:1 0.39:1
Quick ratio Total current assets -
Inventory / Total current
liabilities 0.52:1 0.36:1
0.19:1 0.21:1
Operating profit Operating income/ 8.73% 13.15% 2.97% 1.44%

margin Revenue
Gross profit margin Gross profit/Revenue 33.64% 36.80% 3.59% 2.20%
Return on capital
employed
EBIT/Total assets-Current
liabilities 12.81% 23.42%
5.78% 2.0 5%
Average inventories
turnover period
Average inventory/cost of
goods sold*365 42.41
days
71.83
days
7.12
days
15.63
days
Debtor's days Average debtors/Net credit
sales*365 2.90
days
3.91
days
3.67
days
14.29
days
Creditor's days Average creditors/Net
credit purchases*365 422.79
days
744.56
days
31.75
days
26.42
days
Gearing ratios Total debt / Total equity 3.12% 3.58% 1.40% 1.65%
Earnings per share EPS (Taken from annual
reports) 18.8 85.5 7.94 29.04
B. Analysis of performance, financial position and investment potential of both companies
Current ratio states the relation of current assets as well as current liabilities and is
concerned with the ability of the company to pay short-term obligations within one year. The
ideal ratio of current ratio is 2:1 and at this ratio, it shows that the company is at better position
to pay its obligations (Cabello, Gaio and Watrin, 2019). By calculating current ratio, it has been
analysed that the company B&M has ability to pay its current or short-term liabilities with its
current or short-term assets like cash, inventories and receivables. In context to Morrison, it has
been analysed that the company has lack of current assets in 2020 in comparison to 2019, so it
could not pay the short-term liabilities or expenses that will occur in next year. The company
will take time to recoup the expenses and will find difficulty in meeting the obligation.