Managerial Finance Portfolio: Calculation of Ratios and Assessment of Financial Performance

This portfolio provides a detailed analysis of the financial performance of Tesco and Sainsbury through the calculation of various ratios. It includes the current ratio, quick ratio, net profit ratio, gross profit margin, gearing ratio, and price earnings ratio. The analysis helps in assessing the liquidity, profitability, and financial position of the companies.

Managerial Finance
Portfolio

Table of Contents
INTRODUCTION...........................................................................................................................3
PORTFOLIO 1.................................................................................................................................3
a) Calculation of ratio..................................................................................................................3
b) Assessment of financial performance, investment portfolio & financial position of
company.......................................................................................................................................8
Recommendation related with main reason of poor performance of organization....................18
d) Disadvantage of ratio.............................................................................................................18
PORTFOLIO 2...............................................................................................................................19
a) Methods of capital investment appraisal...............................................................................19
b)Limitations of investment appraisal techniques.....................................................................21
CONCLUSION..............................................................................................................................22
REFERENCE ................................................................................................................................23

INTRODUCTION
Managerial finance this term is used to assess ways which define how business financial
techniques or tools are used at various level of operations of organization. To understand this
term in systematic way, this report has been formulated. This report divided into two parts, the
first one define relevance of ratio by measuring performance of Tesco and Sainsbury and also
define limitation of this technique as well as main reason of poor performance of business units.
In second part of this report, relevance of capital budgeting technique has been define by
calculating it tools. This report also define limitation of using net present value and pay back
ratio during the process of decision making.
PORTFOLIO 1
a) Calculation of ratio
Ratio: This is part of financial management technique which is used by manager to
recognize number of business issue arises within entity. This includes issue related with
efficiency, profitability, liquidity and effectiveness of business operations. Theses are help in
finding out relation between items of financial statements (Baker, Kumar and Pandey, 2020).
Ratio also use for measure monetary performance of organizations. By using this tool of
financial management manager able to recognize their organizations position in market. Tesco is
groceries retail organization which is take place in top ten revenue trading company on the other
side Sainsbury is established in 1869 and since its incorporation it maintain as third largest retail
supermarket organization within the world. Tesco and Sainsbury are rival industries although
these consider top leading MNC of UK. Investors to recognize whether Tesco is good or
Sainsbury is beneficial for investment use ratio analysis. Following are calculation of different
types of ratio
Current ratio
Particular 2018 2019
Tesco 0.71 0.61

Current ratio
Sainsbury 0.76 0.66
Quick ratio
Tesco 0.57 0.48
Sainsbury 0.59 0.5
Net profit
Tesco 1.09 0.75
Sainsbury 2.1 2.07
Gross profit
Tesco 5.83 6.48
Sainsbury 6.61 6.92
Gearing ratio
Tesco 3.28 2.31
Sainsbury 1.97 1.78
Price / Earning ratio
Tesco 38.22 41.56
Sainsbury 106.39 123.6
Earning per share

Current ratio
Tesco 4.06 4.96
Sainsbury 4.75 4.06
Return on capital employed
Tesco 6.14 9.34
Sainsbury 4.43 4.97
Average stock turnover
Tesco 23.73 24.5
Sainsbury 14.83 14.44
Dividend payout ratio
Tesco 6.78 27.05
Sainsbury 76.05 112.79
Current ratio = Current asset / Current liabilities
Tesco = 2018 = 13600/ 19233 = 0.71
2019 = 1250 / 20980 = 0.61
Sainsbury
2018 = 7857 / 10302 = 0.76
2019 = 7581 / 11417 = 0.66
 Quick ratio
Quick assets/ Current liabilities
Tesco
2018 = 11336/ 19233 = 0.57
2019 =9953/ 20680 = 0.48

Sainsbury
2018 = 6047/ 10302 = 0.59
2019 =5652/11417 = 0.50 Net profit
Tesco
2018 = 309/ 28456 = 1.09
2019 =219/ 29007 = 0.75
Sainsbury
2018 = 1210/ 57493 = 2.10
2019 = 1320/ 63911 = 2.07 Gross profit
Tesco
2018 = 3352/ 57493 = 5.83
2019 = 4144/ 63911 = 6.48
Sainsbury
2018 = 1882/28456= 6.61
2019 =2007/ 29007 = 6.92 Gearing ratio
Tesco
2018 = 34404/ 10480 = 3.28
2019 =34213 / 14834 = 2.31
Sainsbury
2018 = 14590/ 7411 = 1.97
2019 =15085/ 8456 = 1.78 Price / Earning ratio
Tesco
2018 = 189.55/4.96 = 38.22
2019 = 255.2/ 6.14 = 41.56
Sainsbury
2018 = 264.9/ 2.49 =106.39
2019 = 229.9 / 1.86 = 123.60

 Earning per share
Tesco
2018 = 1210/ 244 = 4.96
2019 = 1320/ 215 = 6.14
Sainsbury
2018 = 309/ 65 = 4.75
2019 = 219/ 54 = 4.06 Return on capital employed
Tesco
2018 = 1566 / 25502 = 6.14
2019 = 2639 / 28269 = 9.34
Sainsbury
2018 = 518/ 11699 = 4.43
2019 = 601/ 12097 = 4.97 Average stock turnover
Tesco
2018 = 54141/ 2282 = 23.73
2019 = 59769/ 2440 = 24.50
Sainsbury
2018 = 26574/ 1792.5 = 14.83
2019 = 27000/ 1869.5 = 14.44 Dividend payout ratio
Tesco
2018 = 82/ 1210 = 6.78
2019 = 357/ 1320 = 27.05
Sainsbury
2018 = 235 / 309 = 76.05
2019 = 247/ 219 = 112.79
Capital employed = Total assets- Total current liabilities
Tesco =

2018 = 44735 – 19233 = 25502
2019 = 48949 – 20680 = 28269
Sainsbury =
2018 = 22001 – 10302 = 11699
2019 = 23514 – 11417 = 12097
Financial ratio
b) Assessment of financial performance, investment portfolio & financial position of company.
 Current ratio: This is use to measure liquidity position of an organization within given
time period (Chesney and et.al., 2020). It is define relationship between current assets
with current liabilities. According to accounting norms 2:1 is ideal current ratio. An
organization must have sufficient assets as compare to their liabilities. Higher current
ratio is showcase that organization have sufficient balance to deal with their day to day
business operations. To understand the relation of this ratio in context to Tesco and
Sainsbury , graphical representation has been formulated.
On the basis of calculation of current ratio it has been identifying that value of Tesco is
comparative low in both year as compare with Sainsbury Which represent that Sainsbury have
sufficient working capital to manage and run their business operations (Currie and Pandher,
2020).
Tesco Sainsburry
Current
0
500
1000
1500
2000
2500
3000
3500
4000
4500

 Quick ratio: This ratio is used to measure the liquidity assets position an entity have for
particular time period. Higher quick ratio define that organization have sufficient amount
of cash through which they can deal with their current liabilities. On the other side lower
rate of quick ratio showcase that organization not have sufficient cash amount to run their
business. By using chart measurement of quick ratio of Tesco and its rival organization
can be interpret in efficient way.
Value of quick ratio of Sainsbury in 2018 was measure at 0.59 and in 2019 it was 0.5 % on the
other side Tesco 's quick ratio was measure at 0.59 in 2018 and 0.48 % in 2019 which showcase
that Sainsbury have more liquid asset to fulfil their day to day debt liability (Di Simone and
Zanardi, 2020).
 Net profit ratio: This ratio consider as part of profitability ratios. Through which
organization can interpret level of generating income by selling their products or
providing services. This ratio calculated by dividing sales with net profit which
organization generate for particular period of time. By using chart performance of Tesco
and Sainsbury on the basis of net profit ratio can be identified.
Tesco Sainsburry
Liquid
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Tesco
Sainsbury
00.51 0.59 0.590.48 0.5
Quick Ratio
2018 2019

On the basis of calculating net profit ratio, it has been find out that Tesco generate 2.1 in
2018 and in 2019 it was 2.07 % on the other side Sainsbury generate 1.09 and 0.75 % of net
profit ratio, it indicate that performance rate of net profit has been decrease although but for the
purpose of comparison Tesco able to generate more profit then its rival industry. Which means
that Sainsbury ned to focus on improve their operating business activity.
 Gross profit margin: This ratio define relation between gross profit and sales before any
kind of operating business adjustment. Higher gross profit ratio showcase strong
operations performance of entity.
Tesco Sainsburry
Net profit ratio
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Tesco
Sainsbury
0123
2.1
1.09
2.07
0.75
Net profit margin
2018 2019

From the graphical representation it find out that gross profit ratio of Sainsbury is
comparatively high tern their rival industry. Which means that organization generate more profit
from their trading business activities.
 Gearing ratio: This ratio is part of earning ratios. It is used for measure the part of
companies borrowed fund as compare to its equity source. This will help in measuring
Tesco Sainsburry
Gross profit ratio
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Tesco
Sainsbury
5
6
7
5.83
6.616.48
6.92
Gross profit margin
2018 2019

ability of organization to pay their long term debt liabilities. By using graph the
measurement of gearing ratio between Tesco and Sainsbury can be easily evaluate.
Tesco value of gearing ratio was 3.28 and i2.31 in 2019 and value of Sainsbury was 1.97
and 1.78 which means that Tesco is far better position in case of valuation of borrowed capital
with their availability of equity funds. This indicates that management department of Tesco use
their external source in better way for fulfilling their tax liability (Hoffmann, Ahlemann and
Reining, 2020).
 Price earnings ratio: This ratio is used to measure the relation of current price of share
with its earning per share. On the basis of this ratio investor can easily understand which
organization's share price are under or over valued. Higher pricing ratio showcase strong
position of organization.
Tesco Sainsburry
capital gearing
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Tesco
Sainsbury
024 3.28 1.972.31 1.78
Gearing ratio
2018 2019

Value of price earning ratio of Sainsbury is higher then Tesco which means that
Sainsbury offer high rate of earning for their investors.
 Earnings per share: Manager evaluate this ratio to identifying percentage of earnings an
organization gin over their shares or profits their shareholders earn by investing in shares.
By using graphical representation manager can easily recognize which company' is in
comparatively in better financial position.
Tesco Sainsburry
P/E ratio
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Tesco
Sainsbury
050100150
38.22
106.39
41.56
123.6
Price earnings ratio
2018 2019

From the above chart it recognized that average value of earning per share of Tesco was 5
and on the other side Sainsbury average value of share's earning was 4 which means that Tesco 's
value of share is much higher Sainsbury.
 Return on capital employed: Manager evaluate or calculated return on capital employed
to define relation between capital employed and net profits. In other words, this ratio
calculate identify rate of return or percentage of profit generate by using capital. With
Tesco Sainsburry
Earning per share
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Tesco
Sainsbury
01234567
4.96 4.75
6.14
4.06
Earnings per share
2018 2019
Tesco
Sainsbury
0246810 6.14 4.43
9.34
4.97
Return on capital employed
2018 2019

the use of charts manager identify position of Tesco & Sainsbury (Kumar and Park,
2019).
This graph showcase that Tesco return on capital employed ratio valued at 6.14 and 9.34
and Sainsbury able to generate 4.43 in 2018 and 4.97 in 2019 which indicated that management
department of Tesco able to more profit by investing their capital as compare to Sainsbury.
 Stock turnover ratio:This ratio is used to calculated or define particular time required
for organization to compete their operating cycle. Stock turnover is calculated by finding
cost of good sold or revenue with average stock.
Tesco Sainsburry
return on capital
0
500
1000
1500
2000
2500
3000
3500
4000
4500

On the basis of information collected from this graphical representation it has been
analysis that Sainsbury need to take average of 14 days to cover up their operating cycle and on
the other side in case of Tesco, it took 24 days for Tesco to complete its operating cycle. Which
means that Sainsbury took less time to produce, sell or order their stock.
 Dividend pay-out ratio: This ratio is measure the relation between profit and number of
outstanding share. By calculating dividend pay out ratio manager can to find out the rate
Tesco Sainsburry
inventory
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Tesco
Sainsbury
051015202530 23.73
14.83
24.5
14.44
Average inventories turnover ratio
2018 2019

of dividend they distribute or given to their shareholder (Lagoarde-Segot, 2019).
Distribution rate of dividend is totally depend on the rate of generating net profit.
Shareholders on the basis of anguishing rate of dividend took decision regarding their
investment , in which they invest their capital. To analysis which company provides
higher rate of dividend graph has been formulated.
On the basis of analysis this chart it find out that rate of dividend distribute by Sainsbury
is much higher then as compare to Tesco, it only provides 6 in 2018 and 27 per share dividend
on the other side Sainsbury distribute average of of 100 per share to their potential shareholders.
Tesco Sainsburry
dividend
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Tes c o
S a in s b u ry
0
1 0 0
2 0 0
6 .7 8
7 6 .0 5
2 7 .0 5
1 1 2 .7 9

Recommendation related with main reason of poor performance of organization
On the basis of calculating financial ratio and measuring performance of Tesco and
Sainsbury , it has been finding out that even though the value of earning ratio an net profit as
well as gearing ratio of Tesco is higher but as compare to profitability and liquidity ratio ,
Sainsbury is in good position. Which means that this organization use effective tools for
managing their financial resource. The main reason behind poor performance of Tesco is define
below
 Tesco not use stock management tool to control or manage wastage of stock and cost of
maintaining their product stock. Management department not formulate policies
regarding with controlling additional business activities which become the reason of
incurring high rate of generating cash outflow.
 Management department of Tesco focusing on enhancing their business operations thus
they invest in spreading their market area, which directly impact on reducing their
availability of cash resource (Li and Wu, 2019).
 Due to increment in number of non performing assets and default debtors, organization
not able to maintain strong liquid position.
 Tesco to overcome their issue related with financial performance Need to focus on
implement those strategies through which they can control cost of managing stock.
 They need to apply attractive offer which influence customer for cash purchase instead of
credit purchase.
 By using attractive tools of promotion they can increases selling rate which help in
increasing cash inflow business activities.
d) Disadvantage of ratio
 Information collected by using ratio is not accurate as it based on historical data.
 While calculating ratio, manager not consider effective element which include,
contingent liability, cash flow, size of business, capacity and skills of human resource,
all these are essential element which directly impact on measuring performance of
business (Pamungkas, 2019).
 Financial ratio only measure quantitative not qualitative measurement of resources.

 It is not universally accepted tool for measure financial performance as different
industries apply different kind of accounting standard and norms for maintaining their
accounting records.
 Financial ratio not include the impact of changes in current environment conditions thus
data is not reliable
PORTFOLIO 2
a) Methods of capital investment appraisal
Capital investment appraisal method:
Pay Back Period: This method is used to define the time period required for cover up
initial cost investing in particular project. Pay back period technique is the easiest and time
saving technique which manager can be use for their decision making process. Higher pay back
period showcase adversely impact on value of profitability rate of business activities.
Calculation of pay back period for project A
Formula: Completed years + (Cost of project - Cumulative cash inflow in the completed
year) / cash inflow of next year
Year
Cash
inflow
Cumulative
cash inflow
2020.. 45000.. 45000
2021.... 45000.. 90000..
2022... 45000.. 135000
2023.... 35000.. 170000
2024... 35000.. 205000
2025...
25000..
. 230000
= 2 + (110000 – 90000 / 45000 = 2.44 years
Project B
Years.
Cash
inflow.
Cumulative
cash inflow.
2020 10000.. 10000..
2021 15000.. 25000..
2022 25000.. 50000..

2023 55000.. 105000..
2024 65000.. 170000..
2025 50000.. 220000..
= 4 + (110000 – 105000) / 65000 = 4.08 years
Interpretation: From the calculation of pay back period of both projects it has been
analysis that project A is more profitable as compare to project B as when organization choose
project A they only need 2.44 years of time period to cover up their initial cost.
Net present value: This is also part of capital budgeting technique which help in take
decision n the basis of evaluating value of net present value by differential cash inflow and
outflow activities (Souza and et.al., 2019).
Project A:
Years
Cash
inflow
PV Factor
@ 16%
Discounted
cash inflow
2020 45000.. 0.862.. 38790..
2021 45000.. 0.743.. 33435..
2022 45000.. 0.641.. 28845..
2023 35000.. 0.552.. 19320..
2024 35000.. 0.476.. 16660..
2025 25000.. 0.41.. 10250..
Total discounted cash inflow 147300..
= 147300 – 110000 = 37300
Project B:
Years
Cash
inflow
PV Factor
@ 16%
Discounted cash
inflow
2020.. 10000.. 0.862.. 8620..
2021.. 15000.. 0.743... 11145..
2022.. 25000.. 0.641... 16025..
2023.. 55000.. 0.552... 30360..
2024.. 65000.. 0.476.. 30940..
2025.. 50000.. 0.41.. 20500..
Residual
value... 8000.. 0.41.. 3280..

Total discounted cash inflow 120870
On the basis of calculating net present value it recognize that net present value of project
A is much higher then as comparison with project B thus manager need to take decision
regarding choose project A for operating future business activities.
b)Limitations of investment appraisal techniques.
Capital budgeting technique help in take financial decision by evaluating value of profits
and rate of business profits, but these technique also have some drawbacks which define below:
Pay back period This method is not provides accurate and reliable information regarding
time take by organization to cover up their cost as in this time value element is not consider.
 While calculating pay back period cash flow are not used which comes after completion
of initial cost.
 This tool of financial management is not realistic as it not consider qualitative elements.
 Pay back period is reliable only for small enterprise, as in case of large organizations, this
method is not valuable (Vo and et.al., 2019).
 It does not consider fluctuation of price value which is essential while take decisions.
Net present value
 organizations need to hire accounting expert who has degree and experience of working
in financial field.
 Net present value is complex and complicated procedure of capital budgeting.
 It is not essential that information collected from this method is accurate a manager not
consider sunk cost while calculating net present value.
 This method only give accurate business result on the time when cost of capital of
projects or alternative are same, in case of different value of cost of capital manager are
not able to apply this method.
 Net present value is demanding technique of capital budgeting as result is base on
discounting rate.
CONCLUSION
From the above analysis it has been concluded that organization need to use tools of
managerial finance. These tools includes ratio analysis and technique of capital investment

appraisal. By using ratio analysis manager can easily measure their performance and find cause
of their poor performance. On the other side it also useful to compare financial performance of
organization with their rival companies. Which is beneficial for shareholder and for the
organization as on the basis of that they tool decision regarding investment of portfolio ad
organization formulate polices and strategies by evaluating value of different ratio. By using pay
back period or net resent value technical manage able to recognize future cash flow and took
decision which alternative gives them profitable future opportunities.

REFERENCE
Books and Journal
Baker, H. K., Kumar, S. and Pandey, N., 2020. A bibliometric analysis of managerial finance: a
retrospective. Managerial Finance.
Chesney, M., and et.al., 2020. Managerial incentives to take asset risk. Journal of Corporate
Finance. 65. p.101758.
Currie, R. R. and Pandher, G. S., 2020. Finance journal rankings: Active scholar assessment
revisited. Journal of Banking & Finance. 111. p.105717.
Di Simone, L. and Zanardi, D., 2020. On the relationship between sport and financial
performances: an empirical investigation. Managerial Finance.
Hoffmann, D., Ahlemann, F. and Reining, S., 2020. Reconciling alignment, efficiency, and
agility in IT project portfolio management: Recommendations based on a revelatory
case study. International Journal of Project Management. 38(2). pp.124-136.
Kumar, R. L. and Park, S., 2019. A portfolio approach to supply chain risk
management. Decision Sciences. 50(2). pp.210-244.
Lagoarde-Segot, T., 2019. Sustainable finance. A critical realist perspective. Research in
International Business and Finance. 47. pp.1-9.
Li, X. and Wu, W., 2019. Portfolio pumping and fund performance ranking: A performance-
based compensation contract perspective. Journal of Banking & Finance. 105. pp.94-
106.
Pamungkas, A., 2019, August. Management of Human Resources in Community Learning
Center to Achieve the Objectives of Social Development Goals. In Padang
International Conference on Educational Management And Administration (PICEMA
2018). Atlantis Press.
Souza, A. U. D., and et.al., 2019. Monitoring aeronautical operations: visions of the portfolio
management in the aviation and defense sector exports support.
Vo, D. H., and et.al., 2019. Risk, return and portfolio optimization for various industries in the
ASEAN region. Borsa Istanbul Review. 19(2). pp.132-138.