Managerial Finance: Ratio Analysis and Financial Performance Assessment of Tesco & Sainsbury

MANAGERIAL
FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
PORTFOLIO 1.................................................................................................................................3
A Calculation related with financial ratio...................................................................................3
B. Explanation of assessment of financial performance of Tesco & Sainsbury.........................5
C Explanation of main cause of poor performance of organization...........................................8
D. Limitation of financial ratio technique for measures performance of organization...............8
PORTFOLIO 2.................................................................................................................................9
A. Use of various types of investment appraisal technique for investment decision..................9
B. Limitation of capital budgeting techniques..........................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................12
.......................................................................................................................................................12

INTRODUCTION
Managerial finance is define as essential branch of finance which help in create value of
organizations performance and its agility. To understand this concept this report has been
formulate. It divided into two parts. The first part is related with the relevance of ratio analysis as
essential tool of managerial finance. This define how manager use ratio to measure or compare
performance of Tesco & Sainsbury. It also define he limitations of this tool. In another portfolio
the relevance of managerial finance technique for determine or take decision has been mention
specifically. This report define how technique of capital budgeting calculated and their use for
take decision and limitation of theses techniques. All these information are define in systematic
manner.
PORTFOLIO 1
A Calculation related with financial ratio.
Ratio: In practical life the term ratio , define as tool which use for measure or define
quantitative relation between 2 elements. By using ratio person can evaluate the number of times
one item contains another in particular statement. Generally business organizations use ratio for
measure financial performance of their business transactions or activities within given time
period. This will help in determine impact of organizations activities on performance and earning
gain for the organization.
Tesco & Saisbury are run their business in supermarket sector, both are considers
multinational organization which contribute toward economy of UK. Theses entities use ratio
tool for measure financial performance .The main reason of use this tool to compare the
performance of each other by identifying performance in quantitative terms.
Following are calculation of some ratio through which manager can easily recognize and
compare performance of rival companies (Ahuja and Kalra, 2020).
Particular Formula Sainsbury
2018 2019
Tesco
2018 2019
Current ratio.. Current assets 7857/ 10302 =
0.76
7581 / 11417
= 0.66
13600/ 19233
=0.71
12570/20980

/ Current
liabilities......
=0.61
Quick ratio.. Quick assets/
Current
liabilities....
6047/ 10302 =
0.59
5652/11417 =
0.50
11336/ 19233
= 0.57
9953/ 20680 =
0.48
Net profit
ratio...
Net profit/
Sales*100....
1210/ 57493 =
2.10
1320/ 63911 =
2.07
309/ 28456 =
1.09
219/ 29007 =
0.75
Gross profit
ratio..
Gross profit/
Sales *100...
1882/28456=
6.61
2007/ 29007 =
6.92
3352/ 57493 =
5.83
4144/ 63911 =
6.48
Gearing ratio.. Total debt /
Capital
employed....
14590/ 7411 =
1.97
15085/ 8456 =
1.78
34404/ 10480
= 3.28
34213 / 14834
= 2.31
P/E ratio.. Market value
per share/
Earning per
share....
264.9/ 2.49
=106.39
229.9 / 1.86 =
123.60
189.55/4.96 =
38.22
255.2/ 6.14 =
41.56
Earning per
share ratio....
Net income/
Number of
outstanding
share.....
309/ 65 = 4.75 219/ 54 = 4.06 1210/ 244 =
4.96
1320/ 215 =
6.14
Return on
capital
employed....
Operating
profit/ Capital
employed...
518/ 11699 =
4.43
601/ 12097 =
4.97
1566 / 25502
= 6.14
2639 / 28269
= 9.34
Average stock
turnover...
Cost of goods
sold/ Average
stock...
26574/ 1792.5
= 14.83
27000/ 1869.5
= 14.44
54141/ 2282 =
23.73
59769/ 2440 =
24.50
Dividend
payout ratio...
Dividend per
share/ Earning
235 / 309 =
76.05
247/ 219 =
112.79
82/ 1210 =
6.78
357/ 1320 =
27.05

per share...
Capital employed = Total assets- Total current liabilities
Tesco
2018 2019
44735 – 19233 = 25502 48949 – 20680 = 28269
Sainsbury
2018 2019
22001 – 10302 = 11699 23514 – 11417 = 12097
B. Explanation of assessment of financial performance of Tesco & Sainsbury
 Current ratio: This ratio is treated a liquidity ratio as by computing level of this ratio
manager can find out ability of their business organization to pay short term debt liability
which is generally arise or have time period less then of one year.
Ideal current ratio should be treated as 2:1 which means that business entity must have excess of
current assets so they can fulfilled liability and maintain their level of financial liquidity.
Manager use chart or graphical representation through which they can easily interpret the
measurement of ratio. This will help in attract customer an useful for easily understand financial
position of organization (Bhaumik, 2016).
On the basis of recognizing value of chart it has been observe that current ratio value of
Sainsbury is much better then as compare with value of Tesco. Which means that Tesco need to
focus on managing their current asset for better management of their working capital assets.

 Quick ratio: The main purpose of using to calculate quick ratio is to determine the
ability of having liquid asset in the form of cash as compare to their current liabilities. By
calculating quick ratio manager find out relation between organizations quick asset with
their liabilities. Higher ratio showcase strong financial position of organization and vice
versa. This graph represent that value of quick ratio in 2018 was same but as compare
with 2019 the value of Sainsbury is higher then quick ratio of Tesco. This represent that
management department of Sainsbury effective manager and control their cash asst thus
a compare to their rival company they are in strong liquid position.
Tesco Sainsburry
Current
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Tesco
Sainsbury
01 0.59 0.590.48 0.5
Quick Ratio
2018 2019