TABLE OF CONTENTS INTRODUCTION 1 Portfolio 1 1 A) Computation of financial ratios of organisations

Managerial Finance

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Portfolio 1........................................................................................................................................1
Question 1...............................................................................................................................1
A) Computation of financial ratios of organisations..............................................................1
B) Analyse financial performance of companies...................................................................4
C) Suggestions to initiate improvement for poor performing company...............................14
D) Limitations of financial ratios.........................................................................................15
Portfolio 2......................................................................................................................................16
Question 2.............................................................................................................................16
A) Investment appraisal techniques and suggestions to management of entity...................16
B) Limitations of investment appraisal methods to aid in long-term decision-making.......20
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22

INTRODUCTION
Managerial finance plays crucial role in the company so that finance can be utilised in
proper way and meeting operational requirements. Present report deals with two companies such
as JD Sports Fashion Plc and Sports-Direct International Plc engaged in retail sector of sports
products. Financial ratios are being computed for company to assess performance of both rivals.
On the other hand, investment appraisal methods such as NPV, ARR and payback period are
calculated which clarifies whether investment should be made or not. Thus, overall financial
performance can be analysed with the help of such techniques in effective manner.
Portfolio 1
Question 1
A) Computation of financial ratios of organisations
2015 2016
Particulars Formula
Sports Direct
International Plc
JD Sports
Fashion Plc
Sports Direct
International
Plc
JD Sports
Fashion Plc
Current
assets 878297 400259 1311437 510695
Current
liabilities 382621 326748 540608 348154
Current
ratio
Current assets /
Current liabilities 2.3 1.22 2.43 1.47
Current
assets 878297 400259 1311437 510695
Current
liabilities 382621 326748 540608 348154
Inventories 517054 91024 702158 106336
1

Prepaid
expenses 0 0 0 0
Acid Test
ratio
Liquid assets /
Current liabilities 0.94 0.53 1.13 0.78
Gross profit
margin 1240812 739550 1284644 884221
Net sales 2832560 1522253 2904325 1821652
Gross
profit
margin
Gross profit / net
sales * 100 43.81% 48.58% 44.23% 48.54%
Operating
profit
margin 8345 92646 11137 133406
Net sales 2832560 1522253 2904325 1821652
Operating
profit
margin
Operating profit /
net sales * 100 0.29% 6.09% 0.38% 7.32%
Net profit
margin 241353 53971 278981 100630
Net sales 2832560 1522253 2904325 1821652
Net profit
margin
Net profit / net
sales * 100 8.52% 3.55% 9.61% 5.52%
2

Debt 136849 374 333063 247
Equity 1161551 309991 1384728 400825
Gearing
ratios Debt / Equity 11.78% 0.12% 24.05% 0.06%
Income
available
for equity
stakeholder
s 241353 53971 278981 100630
Outstandin
g equity
shares 9798931.8 2707185.36 13056310.8 3539157.1
Earnings
per share
(EPS)
Income available
for equity
stakeholders /
Outstanding equity
shares 2.46 1.99 2.14 2.84
Operating
profit 8345 92646 11137 133406
Capital
Employed
(Total
assets –
current
liabilities) 1391062 354922 1819248 443142
3

Return on
capital
employed
(ROCE)
Operating profit /
Capital Employed 0.60% 26.10% 0.61% 30.10%
Cost of
Sales 1591748 782703 1619681 937431
Average
stock 517054 91024 702158 106336
Stock
turnover
period
Cost of Sales /
Average stock 119 days 43 days 158 days 41 days
Dividend
paid 0 13260 0 13820
Net income
available to
equity
shareholder
s 241353 53971 278981 100630
Dividend
payout
ratios
Dividends / Net
income available to
equity shareholders 0.00% 24.57% 0.00% 13.73%
B) Analyse financial performance of companies
Financial ratios are quite helpful in determining performance of the company in that way
by which improvement if any required can be made by interpreting results in the best possible
manner (Arena and Ferris, 2017). It can be said that computation of ratios are beneficial for
4