Managerial Finance: Calculation of Ratios and Performance Analysis

MANAGERIAL FINANCE -
SBM203_AS2R

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
PORTFOLIO 1............................................................................................................................................3
a) Calculation of Ratios.......................................................................................................................3
b) Analyzing the performance of both the company from the financial as well investment perspective
by comparing as follows..........................................................................................................................6
c) Providing recommendation for improving poor performance.....................................................15
d) Discussing the limitations of relying on ratios for analyzing company performance.....................16
PORTFOLIO 2..........................................................................................................................................16
a) Investment appraisal techniques for advising project selection......................................................16
b) Discussing the limitations of capital appraisal technique in long term decision making................19
CONCLUSION.........................................................................................................................................20
REFERENCES..........................................................................................................................................21

INTRODUCTION
Managerial finance has the objective to improve the financial performance by applying
suitable techniques so that desirable outcome can be achieved. In current scenario it is essential
for organization to develop managerial fiancé in business for overcoming cut throat competition.
The current report will give emphasis on calculation regarding ratios of Marks & Spencer and
Next plc. It will analyze the performance of both companies along with recommendations for
improving lacking areas. Current case study will involve limitations of relying on ratios for
interpreting financial performance. Investment appraisal technique will be used in order to get
better idea regarding project selection. Present report will provide limitation of investment
appraisal techniques in making long term decision making.
MAIN BODY
PORTFOLIO 1
a) Calculation of Ratios
Ratios are determined for making the complex financial statement in summarized form in turn
better decisions can be taken with help of this technique.
Current Ratios
Particulars Formula Marks & Spencer Next Plc.
2018 2019 2018 2019
Current assets 1,317.9 1,490.4 1,797.5 2,032.2
Current
Liabilities
1,826.0 2,228.4 914.8 1,112.5
Current Ratio Current assets/
Current
Liabilities
0.72 0.66 1.96 1.82
Quick Ratio

Particulars Formula Marks & Spencer Next Plc.
2018 2019 2018 2019
Quick assets 536 790 1330.8 1529.4
Current
Liabilities
1,826.0 2,228.4 914.8 1,112.5
Quick Ratio Quick assets/
Current
Liabilities
0.29 0.35 1.45 1.37
Net Profit Margin
Particulars Formula Marks & Spencer Next Plc.
2018 2019 2018 2019
Net Profit 29.1 37.3 591.8 590.4
Sales 10,698.2 10,377.3 3,867.5 3,917.1
Net Profit
Margin
Net Profit /
Sales*100
0.27 0.35 15.30 15.07
Gross Profit Margin
Particulars Formula Marks & Spencer Next Plc.
2018 2019 2018 2019
Gross Profit 66.8 84.6 1,397.8 1,474.2
Sales 10,698.2 10,377.3 3,867.5 3,917.1
Gross Profit
Margin
Gross Profit /
Sales*100
0.62 0.81 36.14 37.63
Gearing Ratios

Particulars Formula Marks & Spencer Next Plc.
2018 2019 2018 2019
Total Debt 4,596.0 4,519.3 2,078.9 2,257.5
Total Equity 2,954.2 2,680.9 482.6 553.8
Gearing Ratios Total Debt/
Total Equity
1.55 1.68 4.30 4.07
P/E Ratio
Particulars Formula Marks & Spencer Next Plc.
2018 2019 2018 2019
Share Price 258.42 266.75 5218 4777
Earnings Per
share
1.6 2.1 416.7 435.3
P/E Ratio Share Price/
Earnings Per
share
161.51 127.02 12.52 10.97
Return on capital employed
Particulars Formula Marks & Spencer Next Plc.
2018 2019 2018 2019
Operating Profit 156.5 162.4 759.9 762.0
Capital
employed
5724.2 4971.8 1646.7 1699
Return on
capital
employed
Operating Profit/
Capital
employed*100
2.73 3.26 46.14 44.84
Average Inventory Turnover Period

Particulars Formula Marks & Spencer Next Plc.
2018 2019 2018 2019
Sales 10,698.2 10,377.3 3,867.5 3,917.1
Average
Inventory
781.0 700.4 466.7 502.8
Average
Inventory
Turnover
Period
sales/ Average
Inventory
13.69 14.81 8.28 7.79
Dividend Payout Ratio
Particulars Formula Marks & Spencer Next Plc.
2018 2019 2018 2019
Dividends 303.4 303.5 158.0 165.0
Net income 29.1 37.3 591.8 590.4
Dividend
Payout Ratio
Dividends/ Net
income
10.42 8.13 0.266 0.27
b) Analyzing the performance of both the company from the financial as well investment
perspective by comparing as follows
Following are the graphical presentation of computed ratios: