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Financial Ratios Assignment Report

   

Added on  2020-07-22

26 Pages3977 Words77 Views
Portfolio

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1Portfolio 1........................................................................................................................................1A. Computation of 10 financial ratios....................................................................................1B. Interpretation of ratios of both the companies...................................................................5C. Recommendations to increase financial performance of companies...............................14D. Limitations of financial ratios..........................................................................................15Portfolio 2: Capital Investment Appraisal ....................................................................................16A. NPV, ARR, Payback period computations......................................................................16B. Limitations of the investment appraisal:..........................................................................20CONCLUSION..............................................................................................................................21REFERENCES..............................................................................................................................22CONCLUSION..............................................................................................................................24

INTRODUCTIONFinancial ratios play an important role in organisation as it guides them and show themwhether they are performing well or not (Atoom, Malkawi and Al Share, 2017). This report dealswith two companies such as Sports direct international plc and JD sports fashion plc. Both firmsare in sports goods retailer in UK. The comparison of financial ratios are included in this reportand how one can improve upon its financial position in the market.Portfolio 1A. Computation of 10 financial ratiosFor Sports Direct International Plc1. Current ratio-Formula- Current Assets/ Current LiabilitiesFor 2015 = 2.30 %For 2016 = 2.43 %2. Quick ratio-Formula- Current Assets - Stock - Prepaid Expenses / Current LiabilitiesFor 2015 = 0.94 %For 2016 = 0.62 %3. Gross Profit margin-Formula- Revenue - Cost of goods sold / RevenueFor 2015 = 43 %For 2016 = 44 %4. Operating Profit margin-Formula- Operating income / Net sales * 100For 2015 = 10.43 %1

For 2016 = 7.68 %5. Net Profit margin-Formula- (Net profits / Net sales) x 100For 2015 = 8.52 %For 2016 = 9.60 %6. Gearing ratios-Formula- (Long-term debt + Short-term debt + Bank overdrafts) / Shareholders' equityFor 2015 = 0.52 %For 2016 = 0.70 %7. Earnings per share-Formula- (net income – dividends on preferred stock) / average outstanding commonsharesFor 2015 = 46.8 %For 2016 = 40.6 %8. Return on capital employed-Formula- Earning Before Interest and Tax (EBIT) / Capital employedWhere capital employed = Total Assets - Current LiabilitiesFor 2015 = 0.17 %For 2016 = 0.19 %9. Average inventories turnover period-Formula- Cost of Goods Sold or Sales ÷ Average InventoryWhere average inventory = Opening inventory + Closing inventory / 22

For 2015 = 2.61 % 139 daysFor 2016 = 2.65 % 137 days10. Dividend payout ratio-Formula- Dividends / Net income For 2015 = 0For 2016 = 0For JD Sports Fashion Plc1. Current ratio-Formula- Current Assets/ Current LiabilitiesFor 2015 = 1.22 %For 2016= 1.46 %2. Quick ratio-Formula- Current Assets - Stock - Prepaid Expenses / Current LiabilitiesFor 2015 = 0.53 %For 2016 = 0.78 %3. Gross Profit margin-Formula- Revenue - Cost of goods sold / RevenueFor 2015 = 48 %For 2016 = 49 %4. Operating Profit margin-Formula- Operating income / Net sales * 100For 2015 = 6.1 %For 2016 = 7.3 %5. Net Profit margin-3

Formula- (Net profits / Net sales) x 100For 2015 = 11.83 %For 2016 = 14 %6. Gearing ratios-Formula- (Long-term debt + Short-term debt + Bank overdrafts) / Shareholders' equityFor 2015 = 1.9 %For 2016 = 0.97 %7. Earnings per share-Formula- (net income – dividends on preferred stock) / average outstanding commonsharesFor 2015 = 35.17 %For 2016 = 50.61 %8. Return on capital employed-Formula- Earning Before Interest and Tax (EBIT) / Capital employedWhere capital employed = Total Assets - Current LiabilitiesFor 2015 = 0.25 %For 2016 = 0.29 %9. Average inventories turnover period-Formula- Cost of Goods Sold or Sales ÷ Average InventoryWhere average inventory = Opening inventory + Closing inventory / 2For 2015 = 2.38 % 153 daysFor 2016 = 2.47 % 147 days4

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