Managerial Finance of Sports Goods Retailer Company in UK : Report

Managerial Finance

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Question 1. Comparing share of which company to be bought.......................................................1
A) Calculation of 10 financial ratios 2015 and 2016..................................................................1
B) Analysing the performance of both the companies for 2 years..............................................2
C) Recommendations of how financial performance could be improved.................................11
D) Discussing limitations of financial ratios.............................................................................12
Question 2 Capital investment appraisals......................................................................................12
A) Using appropriate investment appraisal techniques to advise which should be selected....12
B) Discussing limitations of using investment appraisals techniques in long term decision
making.......................................................................................................................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Finance is the most important part of everyday working of any company whether big or
small and the also need to manage it by identifying all potential sources of finance and selecting
best from alternative. The present report will be covering two of the major companies of UK in
sports goods retailers. As been the finance manager at Madhouse Retail Ltd who is interested in
buying shares of one of the two companies which are Sports direct international PLC and JD
sports fashion PLC. Sports direct international is famous British retailing company in sports
goods in UK and all over the world operating since 1982 and having 670 stores. While JD sports
fashion is also leading sports company of UK which was first to be listed on London Stock
exchange and is having 800+ stores including sports and branded fashion. The report will be
including the financial statements of both company like ratios and capital appraisals to show
which company is better and in what sense.
Question 1. Comparing share of which company to be bought.
A) Calculation of 10 financial ratios 2015 and 2016.
Companies Sports Direct International
PLC.
JD Sports fashion PLC.
Ratios 2015 2016 2015 2016
Current 2.29 2.42 1.22 1.47
Quick 0.94 1.13 0.54 0.78
Gross profit margin 43.81% 44.25% 48.62% 48.52%
Operating profit margin 10.13% 7.30% 6.04% 7.24%
Net profit margin 8.47% 9.54% 3.48% 4.36%
Gearing 9.85% 18.91% 12.11% 9.48%
Earning per share 0.39 0.46 0.05 0.1
Return on capital employed 0.28 0.26 0.39 0.41
1

Average inventories turnover
period
1.93 1.87 2.62 2.72
Dividend payout 0 0 0.19 0.1
B) Analysing the performance of both the companies for 2 years.
Current ratio:
This ratio of any company will be depicting its ability to pay all its short and long term
obligations or debt (Liang and et.al., 2016). Current ratio is taking into account both current
assets and current liabilities of firm. If company is having higher liquidity ratio that this will be
indicating that firm is having too much liquid cash which they can use and lower will be
indicting less amount of cash with the firm. In the report as there are two companies i.e., Sports
direct and JD sports whose ratios have been taken it is noted that Sports direct is having an
adequate current ratio as compared to JD sports.
2015 2016
0
0.5
1
1.5
2
2.5
3
Sports Direct International
PLC
JD Sports fashion PL
In the year 2015 it is having ratio of about 2.29 as compared to 1.22 of JD Sports this
indicate that Sports direct is having more capabilities to repay all its debts and having higher
amount of funds as compared to that of JD sports. This was same in year 2016 Sports direct is
2
Current ratios