Managerial Finance: Analysis of Financial Ratios and Investment Appraisal Techniques

Managerial Finance

Contents
TASK 1............................................................................................................................................3
a. Calculation of 10 financial ratios as given below for two years (2018 and 2019):.................3
b. Analyse performance, financial position and investment potential of both companies:.........5
c. Provide recommendations:.....................................................................................................11
d. Limitations of relying on financial ratios...............................................................................12
TASK 2..........................................................................................................................................13
a. Investment appraisal techniques:...........................................................................................13
b. Limitations of using investment appraisal techniques in long term decision making:..........15
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Management finance is mostly related to the measurement of financial processes rather than to
the financial methods itself. This differs from the realistic approach, which would be highly
concerned only with the assessment and whether money has been allocated to the related regions
(Dandapani, 2017). The aim of the organizational structure is to determine the relevance of
effects, projections, and figures. Management financing looks at how investment decisions
should be improved, where changes can be made to help prevent losses and boost the bottom
line. The report consists of two key sections of the leading UK companies' first component ratio
analysis: Tesco and Sainsbury were conducted to assess their results from an investor viewpoint.
Although the second section includes a realistic total of various methods of investment valuation
as well as their limits.
TASK 1
a. Calculation of 10 financial ratios as given below for two years (2018 and 2019):
Ratio calculation-
Particular Formula Sainsbury
2018 2019
Tesco
2018 2019
Current
ratio
7857/ 10302 =
0.76
7581 / 11417 =
0.66
13600/
19233
=0.71
12570/20980
=0.61
Quick ratio 6047/ 10302 =
0.59
5652/11417 =
0.50
11336/
19233 =
0.57
9953/ 20680 =
0.48
Net profit
ratio
1210/ 57493 =
2.10
1320/ 63911 =
2.07
309/ 28456
= 1.09
219/ 29007 =
0.75
Gross
profit ratio
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 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
309/ 65 = 4.75 219/ 54 = 4.06 1210/ 244 =
4.96
1320/ 215 =
6.14
Return on
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
pay-out
ratio
Dividend per
share/ Earning
per share
235 / 309 =
76.05
247/ 219 = 112.79 82/ 1210 =
6.78
357/ 1320 =
27.05
Evaluation
Capital employed = TA - TCL
Tesco
2018 2019
44735 – 19233 = 25502 48949 – 20680 = 28269
Sainsbury
2018 2019
22001 – 10302 = 11699 23514 – 11417 = 12097