Accounting and Finance Assignment Sample

Added on -2020-02-05

| 15 pages| 3527 words| 39 views

Trusted by 2+ million users,
1000+ happy students everyday

Showing pages 1 to 4 of 15 pages

ACCOUNTING AND FINANCE
Table of ContentsACCOUNTING AND FINANCE..................................................................................................1INTRODUCTION ..........................................................................................................................1TASK 1............................................................................................................................................11) Justification of the financial position and performance of the both the companies by usingvarious financial and non financial ratios...................................................................................12) Graphical presentation of ratios in the form of charts...........................................................33) Recommendation to H&M to improve financial performance and position..........................74) Limitation and drawbacks of using ratio analysis..................................................................8TASK 2 Capital Investment Appraisal ...........................................................................................81) Analysing the viability of the project by using investment appraisal techniques...................8Accounting rate of return (ARR)..............................................................................................112) Limitation of investment appraisals techniques...................................................................11CONCLUSION..............................................................................................................................11REFERENCES..............................................................................................................................12
INTRODUCTION Financial accounting is the procedure of recording, analysis and summarising all thetransaction that take place within an organisation in order to find out the exert position of thebusiness (Ahmed and Duellman, 2011). In the project report financial and non financial ratio ofNext plc and Hennes & Mauritz has been analyses to interpret which company financial positionis good. In regard to which charts have been prepared with an aim to compare the actualperformance of both the companies. In this report recommendation has been discussed in orderto improve the poor performance of the business. Besides this, limitation of completelydepending on the financial ratio for examine the financial position and performance ismentioned. At last in this report investment techniques are used in order to decide which projectis best out of the given two projects. Along with this limitation of using this technique in longrun decision making is also depicted. TASK 11) Justification of the financial position and performance of the both the companies by usingvarious financial and non financial ratios.Financial ratiosGross profit ratio:- On the basis of the given data it can be interpreted that gross profitmargin of Next plc is continuously growing. It gross ratio increase from 29.27% to 33.59%within a period of five years, while that of H & M ratio declines from 62.93% to 58.81%. Thisindicates that H&M is not able to serve its best. The reason behind this could be increase in theCOGS/revenue ratio from 37.07% to 41.19%, whereas on Next plc it decreases from 70.73% to66.41% (Anandarajan, Anandarajan and Srinivasan, 2012). Net profit ratio:- Net profit ratio of Next plc. grows from 11.93% to 15.87% which is agood sign, but on the other hand NP of H&M reduces from 17.22% to 13.19% which indicatesfinancial performance of the company is not good. This situation has been occur due to theincrease in operating expenses. Operating cash flow/share:- It has been seen that operating cash flow/share of Next plchas improved from 2.49 to 4 .86. On the other hand H&M ratio also increase but at adiminishing rate as compared to Next plc. H&M ratio increase from 1.20 to 1.25. High increasein share rate indicates that company is highly able to satisfy its shareholders.1
Current ratio:- Current ratio of N. plc increase from 1.28 to 1.82 whereas of H&Mdecrease from 2.96 to 2.11. Low current ratio indicates that company is not having enoughworking capital to run its business. On the hand high current ratio of N. plc enhance thatenough amount of working capital is available with the company to meet its daily requirements(Baum and Crosby, 2014). Quick ratio :- According to the given calculation it can be concluded that quick ratio ofNext plc has improved from 0.72 to 1.16 while on the other hand H&M quick ratio declines from2.06 to 1.07 . Increased ratio indicates that company liquidity position is good and is easily ableto cope with the sudden uncertainties. Assets turnover ratio:- This ratio of Plc. has been declining from 1.89 to 1.81 whereas ofH&M is growing from 1.91 to 2.14. This in turn indicates that H&M is effectively utilizing itsavailable assets . On the other hand diminishing ratio of N.plc betoken that they are not able toproperly utilize its available assets (Brown, Beekes and Verhoeven, 2011). Inventory turnover ratio:- Inventory ratio of H&M has been reduced from 3.70 to 3.46,and that of Next plc. also reduces from 6.89 to 6.62. difference between the ratio of Next is less,this in turn betoken that they are using its available inventory in a proper manner. Return on assets:-Return on asset ratio of H&M has been weakened by 32.91% to28.28% which indicates that company is not able to manage all the operations of theorganization in an effective manner. Thus, on the other hand ROA of Next plc. increases from22.55% to 28.68%. proper management of the operating lead the company towards theachievement of long rum goals.Return on equity:- ROE of Next has reduced from 214.98% to 208.75% and on the otherhand ROA of H&M also declines from 44.07% to 41.27%. Low ratio indicates that company isonly using equity its capital structure. Low business profit can be another cause for decrease inROE (Chan and Liano, 2009). Non financial ratioEBITDA/Employees:- In Next plc number of employees is increasing from 23869 to31864 within a period of five year while on contrary it is seen that number of employees hasreduce at a high rate from 42580 to 28008. this in turn indicates that non financial position ofthe company Next plc is better as compared to H&M. The reason behind this be could be thatcompany has been making a great efforts to encourage and motivate its employees.2

Found this document preview useful?

You are reading a preview
Upload your documents to download
or
Become a Desklib member to get accesss

Premium

$45

Q&A Library Access

Chat support

12

Document Unlocks

4

Answer Unlocks

Students who viewed this