This report evaluates the financial ratios of T plc, a retailing firm, including profitability, liquidity, working capital management, and stock market performance ratios. It also includes an investment decision for potential investors.
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Contents Contents...........................................................................................................................................2 INTRODUCTION...........................................................................................................................1 MAIN BODY..................................................................................................................................1 Evaluation of the ratios of T plc..................................................................................................1 CONCLUSION................................................................................................................................3 REFERENCES................................................................................................................................4
INTRODUCTION Management of finances is a very crucial aspect as it helps the company to utilise and maintain its resources in a very well and critical manner that can serve the purpose of the company in the long run(Davidsson, 2016). In this report there is an elaborated discussion done of a firm which is T plc which is a retailing firm and is operating in a market since a pretty long time and thus has captured a larger share in the market. Apart from that the report also includes an evaluation of all the ratios and related aspects of the firm which is very important with regard to the mentioned firm in the industry. MAIN BODY Evaluation of the ratios of T plc Ratios are very crucial as it help the company to compare and contrast its performance in the day to day manner so that it can analyse the performance of the organisation which can prove beneficial in taking appropriate decisions regarding the working of the firm. There are a number of different ratios that are evaluated by a firm so that it can stand well ahead in the market as compared to its rivals and thus the most important as well as crucial ones are elaborated in this report which includes profitability ratios, liquidity ratios, working capital management, and stock market performance ratios(Engwall, Kipping and Üsdiken, 2016). Profitability ratios-These ratios further include sub ratios which are net profit margin and gross profit margin and thus it can be said that these ratios helps in evaluating the overall profitability of the firm so that profit generating resources can be analysed in an effective and efficient manner. From the given data it can be said that both the profit margins that is net and gross profit margin are in a good position of the company which is T plc in all the 3 years as the gross margin is 39, 40, and 40% for the year 2018, 2019, and 2020 respectively, while the net profit margin is 5.8, 5.9, 6.05 for the year 2018, 2019, and 2020 respectively. Both the ratios are situated in a good position with respect to the industry ratios as they are 37 and 4 for gross profit and net profit margin respectively. Liquidity ratio-These ratios measure the short term paying capacity of the firm and thus it can be said that these ratios are very crucial in determining the paying capacity of the firm and thus these ratios include current ratio and quick ratio. Both the ratios that is current and quick are declining on a constant basis and it is not a very good situation for the firm as the current ratio
declined from 1.1:1 in 2018 to 0.95:1 in 2019 and further 0.8:1 in the year 2020, whereas quick ratio also declined from 0.65:1 in 2018 to 0.55:1 in 2019 and 0.4:1 in the year 2020. The industry average is 1.05:1 for current ratio while it is 0.5:1 for quick ratio and thus it can be said that the firm has to look at the performance so that the declining trend could be stopped as soon as possible which can help the company to increase its market value in terms of short term paying capacity which can help the firm to grab a better place in the market(Forkmann, Henneberg and Mitrega, 2018). Working capital management ratio-It is a ratio which is related with the current assets as well as current liabilities and thus it can also be considered as current ratio and the company which is T plc is not in a very good position regarding this ratio as it is mentioned in the above mentioned aspect also so it can be said that the firm has to take initiatives and have to take appropriate decisions so that it can help the company to grow and foster in the long term scenario in the industry in which it is operational. Stock market performance (Investment ratios)-These are ratios that are very crucial in terms of investing and thus decisions regarding to invest or not to is taken after analysing and evaluating these ratios so these includes earning per share, price earnings ratio, dividend yield, etc. and thus it is very crucial for a firm to have a good position in these ratios so that it can help in attracting new and potential investors which can further help in raising the value of the firm n the long run. It can be said that the firm which is T plc is doing reasonably well in this scenario and is just par with the industry averages as its price earnings ratio is 20, 22, and 25 for the year 2018, 2019, and 2020 respectively while the industry average is 22 so it can be said that the firm is doing pretty good in this scenario. Investment decision-If I am the potential investor in the retailing market in which T plc is operating so I would have invested in the firm as its profit margins are also satisfactory and the return which the firm is giving to its investors in terms of earnings are also satisfactory so I would have been interested in investing in the firm in the long run. Though the short term liquidity of the firm is not very good but there is risk and for that the company is giving satisfactory returns so it’s not a very bad decision to invest in the organisation(Gielnik, Zacher and Schmitt, 2017).
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CONCLUSION It can be concluded from the above that there are a number of different ratios that are very crucial form a firm’s point of view and thus it is very essential as well as important to analyse and evaluate all of those ratios in a very precise format so that it can add to the value of the firm in the long run and can carter the needs and requirements of the company in the market in which it is operational.
REFERENCES Books and journals Davidsson, P., 2016. A “business researcher” view on opportunities for psychology in entrepreneurship research.Applied Psychology,65(3), pp.628-636. Engwall, L., Kipping, M. and Üsdiken, B., 2016.Defining management: Business schools, consultants, media. Routledge. Forkmann, S., Henneberg, S.C. and Mitrega, M., 2018. Capabilities in business relationships and networks: Research recommendations and directions.Industrial Marketing Management,74, pp.4-26. Gielnik, M.M., Zacher, H. and Schmitt, A., 2017. How small business managers’ age and focus on opportunities affect business growth: a mediated moderation growth model.Journal of Small Business Management,55(3), pp.460-483.