Financial Performance Analysis of Sports Direct and JD Sports: A Comparative Study

MANAGERIAL FINANCE

Table of contents
Portfolio 1...................................................................................................................................3
a. Calculating the financial ratios of Sports Direct and JD Sports.............................................3
b. Performance analysis of the companies.................................................................................5
c. Recommendations to the company.........................................................................................8
d. Limitations of financial ratio analysis....................................................................................9
Portfolio 2.................................................................................................................................11
a. Use of investment appraisal techniques...............................................................................11
b. Limitations of investment appraisal techniques in long-term decision making...................11
Reference list............................................................................................................................13
2 | P a g e

Portfolio 1
a. Calculating the financial ratios of Sports Direct and JD Sports
Financial ratios of Sports Direct:
2015 2016
Short term solvency or liquidity ratios
Current Ratio 2.2741 2.4259
Quick Ratio 0.9353 1.1270
Cash Ratio 0.0987 0.6166
Net Working Capital to Current Liabilities 1.2741 1.4259
Asset Utilization or efficiency ratios
Average Collection Period
24.240
0
36.267
3
Inventory Turnover Ratios 5.4783 4.1363
Receivable Turnover
14.851
5 9.9263
Fixed Asset Turnover 6.7004 4.9572
Total Asset Turnover 1.5970 1.2307
Financial Leverage or gearing ratios
Total Debt Ratio (TD/TA) 0.3471 0.4132
Debt/Equity 0.5288 0.7034
Equity Ratio (TE/TA) 0.6565 0.5875
Profitability ratios
Gross Profit Margin 0.4381 0.4423
Net Profit Margin 0.1107 0.0961
ROA (NI/TA) 0.1767 0.1182
ROE (NI/TE) 0.2692 0.2012
ROEWGW (NI/TEWGW): This accounts for Goodwill 0.2333 0.1718
3 | P a g e

Market value or investment ratio
Price/Earnings Ratio
12.300
0
13.000
0
(Source: Sportsdirect.com, 2018)
Financial ratios of JD Sports:
2015 2016
Short term solvency or liquidity ratios
Current Ratio 2.0015 2.2044
Quick Ratio 1.5401 1.7479
Cash Ratio 0.4816 0.7316
Net Working Capital to Current Liabilities 1.0015 1.2044
Asset Utilization or efficiency ratios
Average Collection Period 57.6514 51.1960
Inventory Turnover Ratios 16.7236 17.1311
Receivable Turnover 6.2444 7.0318
Fixed Asset Turnover 19.3602 20.5704
Total Asset Turnover 2.5678 2.5655
Financial Leverage or gearing ratios
Total Debt Ratio (TD/TA) 0.3827 0.3746
Debt/Equity 0.6199 0.5989
Equity Ratio (TE/TA) 0.6173 0.6254
Long-term Debt Ratio (LTD/TA) 0.0011 0.0449
Profitability ratios
Gross Profit Margin 0.4858 0.4854
Net Profit Margin 0.0586 0.0564
ROA (NI/TA) 0.1504 0.1448
ROE (NI/TE) 0.2437 0.2315
ROEWGW (NI/TEWGW): This accounts for Goodwill 0.2367 0.1992
4 | P a g e