Financial Analysis Management & Enterprises Assignment
Added on -2021-02-21
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Financial AnalysisManagement & Enterprises
Table of ContentsINTRODUCTION...........................................................................................................................1MAIN BODY ................................................................................................................................11. Vertical and horizontal ratio analysis of financial statements for the both company:.............12. Working capital analysis:.......................................................................................................203. Cash flow analysis:................................................................................................................21CONCLUSION..............................................................................................................................22REFERENCES..............................................................................................................................24
INTRODUCTIONThe financial analysis can be defined as a combination of tools and techniques that areused to analysis and interpret the financial statements and business reports. Management of thebusiness firm conducts the detailed analysis regarding the financial statements by evaluating thecertain technical analysis like cash flow management, Ratio analysis to know the businessposition in the market. It is defined as process of assessing and analysing a firms’ financial reportin terms of ascertained the standard data that helps to recognise the business performance. Ratioanalysis helps to management in determinant the business position of an entity. So that they cantake the strategic decision as per market performance in the particular industry. Working capitalmanagement is a fundamental concept to find out basic needs of the fund in the particularbusiness in short term period to operate the operational function of the business. Cash flowanalysis provides the information regarding the firm operational cycle period of cash inflow andout flow. To understand the financial aspect two retail sector firm Sainsbury's and TESCO areselected that are involved in retail sales of product at supermarket or departmental stores. Thisreport justifies the definition and computation of financial ratios and interpretation of thefinancial ratios. In this report, Cash flow and working capital analysis of these firm are alsodiscussed in detail. MAIN BODY1.Vertical and horizontal ratio analysis of financial statements for the both company:Ratio analysis is particular method that states that financial position of the business atcertain level and it is a comparative analysis of two or more year of the business reports (Palepuand Healy, 2013). It may include the profitability, liquidity, solvency and efficiency position ofthe firm. This analysis includes the comparative study of the financial statement, profitability andsolvency ratio with another company. For this comparative study, Ratio analysis of the both firmare as under:Profitability Ratios:1
These are the ratio that are computed by the firm to assess the profitability of the businessin consequence to its basic business activities that are performed in the business circle. These arefinancial metrics that are used to measure firm's ability to gain the earning or income from salesrevenue, operating cost, assets etc. These are the standard ratio that used to measure theprofitability condition of the corporation. Computation of profitability ratio of the bothcompanies are discussed as follows:Gross profit ratio: It is computed by the business to find out the business profit from thesales revenue generated by the firm (Ward, 2012). Gross profit ratio shows the relationshipbetween gross profit and net sales revenue. It is most preferred tools of the firm in order tomeasure the performance of the entity.Year / companiesSainsburyTesco2015-166.19%5.24%2016-176.23%5.19%2017-186.61%5.83%2018-196.92%6.48%2
Here, Gross profit Ratio = Gross profit / Net sales revenue *100Interpretation:After the detailed analysis of this computation of gross profit margin of the Sainsbury'sfirm, it states that gross profit margin is increasing year by year. But in the previous year itincreased most among the year. It directly means that company is in stable position to earningthe profit (Banerjee, 2012). In order to discussion of the profit margin of TESCO firm, it is clearly shows thatcompany is in-stable in the market. But it is earning the profits in different manner like in theyear of 2015-16, firm bears loss but in the next year company earns a profit and ratio increases to6.48 % in 2018-19. As per the above computation of the gross profit, it is identified that gross profit of theSainsbury'sis comparatively higher than that of TESCO's in all the year starting from the2015-16Profit of the Sainsbury's and TESCO are continuously increasing from the year of 2015-16 so that's a good sign for the both company. Net profit ratio: It is a ratio that is calculated profit after tax to net sales revenue. It shows therelationship between net profit and revenue generated by the firm (Williams and Dobelman,2017). Net profit ratio is measured the ability of the company to earn profit out of its sales bydeducting the indirect expenses. Determination of the net profit ratio of both companies are asunder: Year / companiesSainsburyTesco2015-162%0.25%2016-171.44%-0.07%2017-181.09%2.10%2018-190.75%2.07%3
Here,Net profit ratio = Net profit / Net sales volume *100Interpretation:After analysing the net profit ratio, it is interpreted that profit of the Sainsbury are lowand inconsistent from the year starting of 2015-16. (Rigamonti, Ferreira, Grosso and Marques,2015). As per the above data affiliated to TESCO, it is obviously very low or adverse situation todeal with. Management of the company needs to take proper actions for improving its profitratio. It is stated that firm has negative ratio in year 2015-16 or bearing the loss but after that it isfavourable situation to handle the business operations.By evaluating the data related to the net profit ratio, due the high cost of product theprofit of Sainsbury's is decreases from the year of 2015-16. but TESCO's NP ratio isincreases year by year. In 2018-19, TESCO has maintained almost same the NP ratio as per considering the lastyear ratio. It is required to focus on the increasing sales revenue and reduce the operatingcost to both the company in order to higher the ratio. Liquidity Ratios:This ratio shows how quickly a firm can convert its current assets into cash and cashequivalent in order to pay their short term liability. Liquidity ratio are computed by a firm toascertain liquidity position. Computation of its ratios are as under:4
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