Managerial Finance: Financial Ratios and Performance Analysis

Managerial Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
(a) Calculation of different financial ratios for two years (2017 – 2018):..................................1
(b) Analysis of performance of both of companies.....................................................................5
...................................................................................................................................................10
(c). Recommendations of how the financial performance of the poorly performing business
can be improved:.......................................................................................................................11
(d) Limitations of financial ratios:............................................................................................11
TASK 2..........................................................................................................................................12
(a). Calculation of financial ratios for two years (2017 – 2018):..............................................12
(b) Limitations of using investment appraisal techniques.........................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................19

INTRODUCTION
Managerial finance is way of finance which is an interdisciplinary approach that carry out
both types of accounting management and corporate. Through financial management develop
values and business eligibility based on the resources amongst competing business possibilities.
It is related with the term of financial activities that focus on the financial structure of an
organisation. On the basis of different roles and tasks management can take appropriate decision
and according that manage all the financial activities (Huang, Shieh and Kao, 2016). The
particular project study mainly based on the Glaxo smith Kline plc and Reckitt Benckiser Group
plc. Glaxo is British international Pharmaceutical production company which is established in
Brentford, England. On the other side, Reckitt plc is UK's international consumer goods
organisation the headquarter of the company is situated at Slough, England (About Reckitt
Benckiser Group plc, 2019). Both are manufacturing organisation and aware for hygiene, health
care and home products which is offer to customers. The main aim of this study that provide help
to all investors in decision making procedure which is related with the business which is more
viable as per the investment purpose. Along with there are defined about the different investment
appraisal techniques and compute all the relevant calculations in the context in decision making
procedure.
TASK 1
(a) Calculation of different financial ratios for two years (2017 – 2018):
Current ratio = Current assets/Current liabilities
All data in £
million except
current ratio
Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
.......CA 15907 16927 5424 4952
.......CL 26569 22491 6576 7614
.......Ratio
Analysis
15907/26569 16927/22491 5424/6576 4952/7614
.......Current ratio 0.60 times 0.75 times 0.82 times 0.65 times
1

 Quick ratio = Quick assets / current liabilities
All data in £
million except
Quick ratio
Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
.......Quick assets 10042 11121 4223 3676
........CL 26569 22491 6576 7614
.......Ratio
Analysis
10042/26569 11121/22491 4223/6576 3676/7614
.........Quick ratio 0.38times 0.49 times 0.64 times 0.48 times
 Net profit margin = Net profit / net sales x 100
All data in £
million except net
profit margin
Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
.......Net profit 1532 3623 6172 2161
.......Net sales 30186 30821 11512 12597
.......Ratio
Analysis
1532/30186*100 3623/30821*100 6172/11512*100 2161/12597*100
......Net profit
margin
5.07% 11.75% 53.61% 17.15%
 Gross profit margin = Gross profit / Net sales x 100
All data in £
million except
gross profit
margin
Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
........GP 19844 20580 6870 7635
...........Net sales 30186 30821 11512 12597
2

.......Ratio
analysis
19844/30186*100 20580/30821*100 6870/11512*100 7635/12597*100
.......Gross profit
margin
65.74% 66.77% 59.68% 60.61%
 Gearing ratio = Total Debt / Equity
All data in £
million except
Gearing Ratio Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
......Total Debt 56449 53706 23480 22908
........Equity -68 4360 13533 14742
........Ratio
Analysis 56449 / -68 53706 / 4360 23480 / 13533 22908 / 14742
........Gearing
Ratio -830.13 12.32 1.74 1.55
 Price earning ratio = Market value per share / earning per share
All data in £
million Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
......Market Price
Per Share 1361 1491.2 6841 5964
.......Earning Price
Per Share 0.3152 0.7455 8.3859 2.9361
.......Ratio Analysis 1361 / .3152 1491.2 / .7455 6841 / 8.3859 5964 / 2.9361
3

......Price Earning
Ratio 4317.89 2000.27 815.77 2031.26
 Earning per share = Net Profit / Ordinary Numbers of Shares
All data in £ Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
.......NP 1532 3623 6172 2161
.....Ordinary
Numbers of Shares 4860 4860 736 736
.......Ratio
Analysis 1532/4860 3623/4860 6172/736 2161/736
.......EPS 0.3152 0.7455 8.3859 2.9361
 Return on capital employed = Operating profit (EBIT) / Capital employed *100
All data in £
million except
Return on capital
employed ratio
Glaxo Smith Kline plc Reckitt Benckiser Group plc
2017 2018 2017 2018
......EBIT 6061 7064 2963 3280
......Capital
employed
29812 35575 30437 30036
.......Ratio
Analysis
6061/29812*100 7064/35575*100 2963/30437*100 3280/30036*100
........ROCE 20.33% 19.86% 9.73% 10.92%
Working Note:
Capital employed = Total assets – current liabilities
4