Managerial Finance: Ratio Analysis and Investment Appraisal

Managerial
Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
PORTFOLIO 1.................................................................................................................................1
Ratio analysis:..............................................................................................................................1
Analysis of financial position of both entities by interpretation of ratio analysis:......................3
Recommendations:.....................................................................................................................10
Limitations associated with financial ratios:..............................................................................11
PORTFOLIO 2...............................................................................................................................11
Utilization of appropriate techniques of investment appraisal for advising project that is should
be opted:.....................................................................................................................................11
Limitations of utilizing investment appraisal techniques:.........................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Finance can be elaborated as activities that links banking, credit or debt, capital markets,
investments etc. The term 'finance' is an essential element for business as it focuses on creation
and management of money which enables expansion of an entity. Hence, financing is a
procedure of providing monetary value for activities of an organization for purchase or
investment purpose. Managerial finance can be described as that branch of finance which is
concerned towards managerial applications for techniques of finance. It enables value creation
with adequate allocation of resources (Agyei-Mensah and Buertey, 2019). Basis of this report is
analysis of managerial finance in context to Tesco and Sainsbury's. Tesco is a multinational firm
that serves in the sector of retailing. It is founded in 1919 and founder of this organization is Jack
Cohen. Firm is based in England, United Kingdom. Sainsbury's is a retailing entity which was
founded by John James Sainsbury's in 1869. Sainsbury's is based in London, United Kingdom.
This report consists ratio analysis of both organizations along with its interpretation,
graphs, recommendations and limitations. Further, investment appraisal techniques are applied
for selection of appropriate project and its limitations are described.
PORTFOLIO 1
Ratio analysis:
Ratio analysis can be explained as a quantitative method which is useful for gaining
insight about liquidity position of an organization, its operational efficiency as well as
profitability factor by study of finance statements that consist income statement as well as
balance sheet of company (Bouaddi, Farooq and Ahmed, 2020). Ratio analysis of Tesco and
Sainsbury's is computed below for the years 2018 and 2019 with the motive of analysis their
financial position:
Ratios SAINSBURY'S TESCO
PARTICULARS 2019 2018 2019 2018
Current ratio
Formula= Current assets/current liability ......
Current assets......... 7581 7857 12570 13600
current liabilities....... 11417 10302 20680 19233
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Results........ 0.66 0.76 0.61 0.71
Quick ratio
Formula= quick assets/ current liability........
Quick assets........ 5652 6047 9953 11336
Current liabilities......... 11417 10302 20680 19233
Results......... 0.5 0.59 0.48 0.59
Net profit margin
Formula= net profit/ revenue*100......
Net profit...... 219 309 1320 1210
Revenues...... 29007 28456 63911 57493
Results......... 0.75 1.09 2.07 2.1
Gross profit margin
Formula= Gross profit/ revenue *100.......
Gross profit ........ 2007 1882 4144 3352
Revenues....... 29007 28456 63911 57493
Results......... 6.92 6.61 6.48 5.83
Gearing ratio
formula= Debts/ equity .......
Debts........ 15085 14590 34213 34404
Equity....... 8456 7411 14834 10480
Results......... 1.78 1.97 2.31 3.28
Price earning ratio
Formula= share price/ EPS........
Share price........ 229.9 264.9 255.2 189.55
Earnings per share......... 1.86 2.49 6.14 4.96
Results......... 123.6 106.39 41.56 38.22
Earning per share
Formula= total earnings/ outstanding shares .......
Total earnings........ 219 309 1320 1210
Outstanding shares........ 54 65 215 244
Results......... 4.06 4.75 6.14 4.96
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