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(solved) Financial Ratios Report

   

Added on  2020-12-09

14 Pages4030 Words491 Views
MANAGERIAL FINANCESTUDENT’S NAME:STUDENT’S ID:

Executive summaryThe present report has focused on evaluating and calculating the financial report of both Marksand Spencer PLC and Next PLC for the years 2018 and 2017. Based on the financial ratios thisreport has compared the current financial position of both organisations in the market. Finally,this report has analysed the project of Brooks Private Limited. Using relevant investmentappraisal technique the report has determined the most profitable project for the company. Thefinancial position of Marks and Spencer PLC is better than Next PLC. The liquidity ratios ofboth companies have shown that Marks and Spencer PLC has high current and quick ratio ratecompared to Next PLC. This has increased financial crisis for Next PLC in the current financialyear. Additionally, Next PLC can face difficulties to meet their short-term and long-term marketliabilities compared to Marks and Spencer PLC. Based on the investment appraisal techniques ofboth projects it can be understood that Alpha project is more appropriate compared to Betaproject. The Beta project can reduce the payback period for the company. Nonetheless, the rateof returns can decrease and the cash expenses can expand in future. 2

Table of ContentsIntroduction......................................................................................................................................4Task 1:.............................................................................................................................................4Calculation of 10 financial ratios of both companies..................................................................4Analysis the performance, financial position and investment potential of both companies........6Recommendations for the financial performance of poorly performing business improvement8Discussion of limitations of relying on financial ratios to interpret companies’ performance....9Task 2: Capital Investment Appraisal............................................................................................10Advising senior management on whether they should opt for the Alpha project or Beta project based on investment appraisal techniques.................................................................................10Discussion the limitations of using investment appraisal techniques to help in long-term decision making.........................................................................................................................11Conclusion.....................................................................................................................................12Reference list.................................................................................................................................133

IntroductionRatio analysis can help business organisations to identify their current financial health. Thepresent report has focused on evaluating and calculating the financial report of both Marks andSpencer PLC and Next PLC for the years 2018 and 2017. Marks and Spencer PLC is a largeretailing organisation of United Kingdom. The organisation has more than 1,025 stores in thecountry (Marksandspencer, 2018). Next PLC is a retail organisation that has been launched inFebruary 1982. In the current year Next has more than 500 stores in the United Kingdom (Next,2018). Based on the financial ratios this report has compared the current financial position ofboth organisations in the market. Finally, this report has analysed the project of Brooks PrivateLimited. Using relevant investment appraisal technique the report has determined the mostprofitable project for the company.Task 1:Calculation of 10 financial ratios of both companiesRatioMarks and SpencerPLCNext PLC2018201720182017Current ratios0.720.73-1.94-2.29Quick ratios0.760.89-2.48-2.91Net Profit Margin1.001.010.150.16Gross Profit margin0.990.990.330.34Debt-to-equity ratio1.551.63-4.31-3.71P/E ratio0.1%1.6%0.3%0.3%Earnings per share1.67.2416.7441.3Return on capital employed0.0170.0240.470.49Average inventories turnover period-0.15-0.15-5.51-6.01Dividend payout ratio11.6882.3610.0050.012Table 1: Ratio analysis of Marks and Spencer PLC and Next PLC(Source: Nextplc, 2018; Corporate, 2018)The above table has clearly shown that Marks and Spencer PLC has been able to maintainfavourable financial ratios compared to Next PLC. However, Marks and Spencer PLC has failed4

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