Financial Analysis & Capital Investment Appraisal - Desklib

Financial Analysis & Capital
investment appraisal

TABLE OF CONTENT
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
A. Calculating the 10 financial ratios .........................................................................................3
B. Analysing the performance of both the companies.................................................................5
C. Providing recommendation to the company whose financial performance was poor.............8
D. Discussing the limitation of relying over the financial ratios for interpreting the
performance of the company.......................................................................................................8
TASK- Capital Investment Appraisal..............................................................................................9
Comparison between two projects through investment appraisal techniques.............................9
Limitation of investment appraisal techniques..........................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial analysis is the process which is used for the evaluation of the business, projects,
budgets and other financial transactions that are helpful for the determination of the
organizations performance. Capital investment is the acquisition of the physical assets by a
company which helps in the management of the long-term business goals and objectives. In this
project there has been comparison between the financial performance of two retailers of UK
B&M and Morrison’s. Different financial ratios are compared for these organizations in order to
understand the difference in the financial performances. This project also provides
recommendations to the financial performance of the organization. In this project two projects
Alpha and Beta are compared for analysing the differences between the
TASK 1
A. Calculating the 10 financial ratios
Profitability ratio
analysis B&M Morrison
2020 2021 2020 2021
Gross Profit
128280
8
176997
0 629 388
Operating profit 332812 613414 521 254
Sales revenue
381338
7
480142
5
1753
6
1759
8
Capital employed 260499 262732 7524 8055

5 5
GP ratio Gross profit / sales * 100 34% 37% 4% 2%
OP ratio
operating profit / sales *
100 9% 13% 3% 1%
Return on capital
employed EBIT / capital employed 13% 23% 7% 3%
Liquidity
ratio
analysis B&M Morrison
2020 2021
202
0
202
1
Current assets
109349
5
86873
5
131
9
143
0
Current
liabilities 965128
73112
9
339
6
298
1
Inventory 588000
60512
6 660 814
Current ratio Current assets / current liabilities 1.13 1.19 0.39 0.48
Quick ratio
Current assets - (stock + prepaid
expenses) 0.52 0.36 0.19 0.21
Efficiency ratio analysis B&M Morrison
2020 2021 2020 2021
Cost of goods sold
25305
79
30314
55
1690
7
1721
0
Average Inventory
58800
0
60512
6 660 814
Turnover or sales revenue
38133
87
48014
25
1753
6
1759
8
Receivables or debtors 60588 42160 353 336
Creditors or payables
41999
9
52426
0 2837 3051
Average inventories turnover
period 4 5 26 21
Debtor days
(Debtors * 365) / Credit
sales 6 3 7 7
Creditors days
(Creditors * 365) /
COGS 61 63 61 65