Financial Analysis of the Portfolio Contents of Two Companies (2015 and 2016)

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Financial Analysis of the Portfolio

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Contents
Introduction......................................................................................................................................3
Portfolio 1........................................................................................................................................3
Calculation of Financial Ratio of both the companies (2015 and 2016) and Analyzing the
Performance, Financial Position and Investment Potential of both Companies..............................4
Different Ratios and their graphs.....................................................................................................5
Further Research on the performance of both companies.............................................................13
Recommendations..........................................................................................................................14
Limitations of Relying on Financial Ratios to Interpret Firm Performance..................................14
Portfolio 2: Capital investment appraisal......................................................................................15
Part A: Payback, Account rate of return and NPV........................................................................15
Payback Period..............................................................................................................................15
Accounting Rate of Return............................................................................................................16
Net Present Value..........................................................................................................................17
Part B: Limitations of using investment appraisal techniques to aid long-term decision-making 18
Conclusion.....................................................................................................................................19
References......................................................................................................................................20

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Introduction
The present report is developed for providing an understanding of the accounting and
finance techniques that can be used by the investors for analyzing the financial performance of a
company. In this context, the report aims to construct two portfolios for the investors to aid their
decision-making processes by analyzing the financial performance of the companies. The first
portfolio is developed to present an analysis of the financial information of the two companies,
that are, Sports Direct International PLC and JD Sports Fashion PLC on the perspective of the
financial manger of Madhouse Retail Ltd. The analysis is aimed to assist the financial director of
the company for buying shares of the two companies. The evaluations of the financial position of
both the companies are carried out through the use of ratio analysis technique. The second
portfolio is developed for analyzing the potential worth of the two capital investment projects in
order to recommend the best option for capital investment for a local manufacturing company.
The investment appraisal techniques used to analyze the potential worth of both the projects are
NPV, ARR and payback.
Portfolio 1
The portfolio is developed for analyzing the investment worth of the following two
companies:
Sports Direct International PLC
The company is a recognized retailing group of the UK established in the year 1982. It is
attributed to be the largest sports-goods retailer company of the UK operating about 670 stores
across the world. The company carried out its operations through the four segments that are, UK

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Sports Retail, International Sports Retail, Brands and Premium Lifestyle. In addition to this, the
company is also involved in wholesale distribution and sale of sports, leisure, clothing, footwear
and equipment under its brand name (Sports Direct International PLC, 2016).
JD Sports Fashion PLC
The company is the recognized retailer of the UK involved in retailing and distribution of
branded sports and fashion wear products. The company since its establishment in 1982 is
involved in retailing of branded sports fashion wear, clothing, leisure, footwear and sports
products. The company has about 800 stores across the world involved in providing branded
products in the category of sports and clothing. The company has also acquired First Sport in the
year 2002 that further supported its plans of geographical expansion (JD Sports Fashion PLC,
2016).
Calculation of Financial Ratio of both the companies (2015 and 2016) and Analyzing the
Performance, Financial Position and Investment Potential of both Companies
In this section financial ratios of the Sports Direct International PLC and JD Sports
Fashion PLC have been calculated for years 2015 and 2016. In all about 10 financial have been
calculated. All the detailed calculation is presented below. Financial Data used to interpret the
financial Ratio of both the companies (Kaplan and Atkinson, 2015).
Particulars Sports Direct International PLC
2015 2016
Current Assets £ 878,297.00 £ 1,311,437.00
Current Liabilities £ 382,621.00 £ 540,608.00
Inventories £ 517,054.00 £ 702,158.00

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Gross Profit £ 1,240,812.00 £ 1,284,644.00
Net Revenue/Sales £ 2,832,560.00 £ 2,904,325.00
Operating Profit Margin £ 295,581.00 £ 223,178.00
Net Profit Margin £ 241,353.00 £ 278,981.00
Debts (ALL) £ 138,053.00 £ 333,832.00
Shareholders’ Equity £ 1,161,551.00 £ 1,384,728.00
Total Assets £ 1,773,683.00 £ 2,359,856.00
Capital Employed £ 1,391,062.00 £ 1,819,248.00
Average Inventory £ 517,054.00 £ 609,606.00
Dividend Payments £ - £ -
EPS £ 0.40 £ 0.46
Particulars JD Sports Fashion PLC
2015 2016
Current Assets £ 400,259.00 £ 510,695.00
Current Liabilities £ 326,748.00 £ 348,154.00
Inventories £ 225,020.00 £ 238,324.00
Gross Profit £ 739,550.00 £ 884,221.00
Net Revenue/Sales £ 1,522,253.00 £ 1,821,652.00
Operating Profit Margin £ 92,646.00 £ 133,406.00
Net Profit Margin £ 53,971.00 £ 100,630.00
Debts (ALL) £ 78,820.00 £ 47,409.00
Shareholders’ Equity £ 309,991.00 £ 400,825.00

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Total Assets £ 681,670.00 £ 791,296.00
Capital Employed £ 354,922.00 £ 443,142.00
Average Inventory £ 225,020.00 £ 231,672.00
Dividend Payments £ 0.07 £ 0.07
EPS £ 0.35 £ 0.50
Different Ratios and their graphs
Current Ratio: The current ratio measures the ability of a company to meet its short and long-
term obligations with its current asset resources. The formula used for calculating the current
ratio is depicted as:
Current Ratio=Current Assets/Current Liabilities
Particulars Sports Direct International PLC
Liquidity Ratios 2015 2016
Current Ratio 2.30 2.43
JD Sports Fashion PLC
Current Ratio 2015 2016
1.22 1.47