Managerial Financial: Ratio Analysis and Investment Appraisal

Managerial Financial

Table of Contents
INTRODUCTION...........................................................................................................................3
PORTFOLIO 1................................................................................................................................3
Ratio analysis:..............................................................................................................................3
Interpretation:..............................................................................................................................5
Recommendations:....................................................................................................................13
Limitations for using ratio analysis for knowing firms financial position:...............................13
PORTFOLIO 2..............................................................................................................................14
Investment appraisal techniques for project A and project B:...................................................14
a. Investment appraisal techniques:...........................................................................................14
Limitations of using investment appraisal techniques for long term decision-making:............16
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
In managerial finance, word Finance relates to managing funds, borrowing, credits,
liability, capital, investing and other financial operations. Finance aspect is mostly about
managing monies and the procurement of funding. Finance is core base of every corporation, as
it allows insights and money management for organisational operations within the entity.
Management finance is mainly relating to determining how the organisation uses accounting
strategies at different stages. That is the management finance inside a business how much the
company makes use of the existing capital through its operations. Every enterprise sought for
capital, finance operations help in the acquisition and disposal of resources of businesses (Ameer
and Othman, 2017). The businesses chosen for this study-assessment are Tesco Company
and Sainsbury Plc. Tesco is UK's international supermarket chain, incorporated in year-1919
while Sainsbury is a retail-based corporation incorporated in year-1869 and headquartered in
UK. This study-assessment covers issues such as the study of the ratios of these firms, the
shortcomings of the ratios including charts for the contrast of the two companies. In addition to
this, report also includes problems like the investments appraisal capital, the limitation/restraint
of ratios in relation to long-term decision-makings.
PORTFOLIO 1
Ratio analysis:
Particular Formula Sainsbury
2018 2019
Tesco
2018 2019
Current ratio Current
assets /
Current
liabilities
7857/ 10302 =
0.76
7581 / 11417
= 0.66
13600/ 19233
=0.71
12570/20980
=0.61
Quick ratio Quick assets/
Current
liabilities
6047/ 10302 =
0.59
5652/11417 =
0.50
11336/ 19233
= 0.57
9953/ 20680 =
0.48
Net profit ratio Net profit/ 1210/ 57493 = 1320/ 63911 = 309/ 28456 = 219/ 29007 =

Sales*100 2.10 2.07 1.09 0.75
Gross profit
ratio
Gross profit/
Sales *100
1882/28456=
6.61
2007/ 29007 =
6.92
3352/ 57493 =
5.83
4144/ 63911 =
6.48
Gearing ratio Total debt /
Capital
employed
14590/ 7411 =
1.97
15085/ 8456 =
1.78
34404/ 10480
= 3.28
34213 / 14834
= 2.31
P/E ratio Market value
per share/
Earning per
share
264.9/ 2.49
=106.39
229.9 / 1.86 =
123.60
189.55/4.96 =
38.22
255.2/ 6.14 =
41.56
Earning per
share ratio
Net income/
Number of
outstanding
share
309/ 65 = 4.75 219/ 54 = 4.06 1210/ 244 =
4.96
1320/ 215 =
6.14
Return on
capital
employed
Operating
profit/ Capital
employed
518/ 11699 =
4.43
601/ 12097 =
4.97
1566 / 25502
= 6.14
2639 / 28269
= 9.34
Average stock
turnover
Cost of goods
sold/ Average
stock
26574/ 1792.5
= 14.83
27000/ 1869.5
= 14.44
54141/ 2282 =
23.73
59769/ 2440 =
24.50
Dividend
payout ratio
Dividend per
share/ Earning
per share
235 / 309 =
76.05
247/ 219 =
112.79
82/ 1210 =
6.78
357/ 1320 =
27.05
Capital employed = Total assets- Total current liabilities
Tesco
2018 2019
44735 – 19233 = 25502 48949 – 20680 = 28269