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Financial Statement Analysis Assignment: Portfolio Case Study

   

Added on  2020-06-04

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Portfolio-Case Study

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1Portfolio 1........................................................................................................................................1A. Computation of 10 financial ratios....................................................................................1B. Interpretation of above calculated financial ratios.............................................................3C. Recommendations to increase performance of companies..............................................13D. Discuss limitations of ratios............................................................................................14Portfolio 2......................................................................................................................................15Capital Investment Appraisal ........................................................................................................15A. NPV, ARR and Payback period calculations..................................................................15B. Limitations of the investment appraisal...........................................................................18CONCLUSION..............................................................................................................................19REFERENCES..............................................................................................................................20

INTRODUCTIONFinancial statements are important elements of business. From this, financial ratios arecomputed which provides financial position of the company and are useful for comparison aswell with another company. This report deals with comparison of two companies such as Sportsdirect plc and JD Sports organisation which are retailers of sport goods. For such comparison,financial ratios are being calculated so that financial position of both the organisations may behighlighted with much ease (Rodrigues and Rodrigues, 2018). Various capital investmentappraisal techniques are also highlighted and there limitations as well. Both the firms arerequired that they perform well in the market by increasing efficiency so that financial positionmay be strengthen up to great extent with much ease. The poor performance of both of them maybe reduced by implementing strategies so that they may gain efficiency in the market with muchease. Portfolio 1A. Computation of 10 financial ratiosSports Direct International PlcRatiosFormula20162015Current ratioCurrent Assets/ Current Liabilities2.43 :12.3 :1Quick ratioCA- Stock - Prepaid Expenses / Current Liabilities0.62 :10.94 :1Gross Profit marginRevenue - Cost of goods sold / Revenue44.00%43.00%Operating Profit marginOperating income / Net sales * 1007.68%10.43%Net Profit marginNet profits / Net sales x 1009.60%8.52%1

Gearing ratiosTotal debt + Bank overdrafts / Shareholders' equity0.70%0.52%Earnings per shareNet income/ Outstanding shares40.60%46.80%Return on capital employedEBIT / Capital employed0.19%0.17%Average inventories turnover periodSales / Average Inventory2.65%2.61%Dividend payout ratioDividends / Net income 00JD Sports Fashion PlcRatiosFormula20162015Current ratioCurrent Assets/ Current Liabilities1.46 :11.22 :1Quick ratioCA- Stock - Prepaid Expenses / Current Liabilities0.78 :10.53 :1Gross Profit marginRevenue - Cost of goods sold / Revenue49.00%48.00%Operating Profit marginOperating income / Net sales * 1007.30%6.10%Net Profit marginNet profits / Net sales x 10014.00%11.83%Gearing ratiosTotal debt + Bank overdrafts / Shareholders' equity0.97%1.90%2

Earnings per shareNet income/ Outstanding shares50.61%35.17%Return on capital employedEBIT / Capital employed0.29%0.25%Average inventories turnover periodSales / Average Inventory2.47%2.38%Dividend payout ratioDividends / Net income 16.20%27.60%B. Interpretation of above calculated financial ratios1. Current ratio -The current ratio is an important aspect to firm as it ensures that whether it is capable tomeet obligations or not. The above calculations show that sports direct international plc has 2.30and 2.43 ratio in 2015 and 2016 years that directly indicates it will be able to pay off liabilitieswithin stipulated time with much ease (Borin, Donato and Sinapi, 2018). While, JD sportsfashion plc has current ratio in 2015 and 2016 as 1.22 and 1.46 which is not at all good. It has notwelled liquidity position then sports direct international plc. Ideal ratio is 2 : 1. 3Sports Direct International PlcJD Sports Fashion Plc00.0050.010.0150.020.0250.0320152016

2. Quick ratio-The quick ratios calculated for both the companies may be interpreted that quick ratio ofsports direct international plc is 0.94 and 0.62 in the year 2015 and 2016 which means that it haspoor liquidity position and will be unable to meet its extreme short-term obligations. On theother hand, JD sports fashion plc has 0.53 and 0.78 in 2015 and 2017 which is also poor. Quickratios of both companies are not good to meet obligations on time. 3. Gross profit margin-4Sports Direct International PlcJD Sports Fashion Plc00.0010.0020.0030.0040.0050.0060.0070.0080.0090.0120152016

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