Finance: Ratio Analysis and Investment Appraisal Techniques

Finance

Table of Contents
INTRODUCTION...........................................................................................................................................3
PORTFOLIO 1...............................................................................................................................................3
Ratio analysis...........................................................................................................................................3
Interpretation .........................................................................................................................................4
Recommendations ..................................................................................................................................4
Limitation of ratio analysis.......................................................................................................................4
PORTFOLIO 2...............................................................................................................................................6
Investment appraisal techniques.............................................................................................................6
Limitation of using investment appraisal techniques in long term decision making................................7
CONCLUSION...............................................................................................................................................9
REFERENCES..............................................................................................................................................10

INTRODUCTION
Finance is the backbone of every business and to determine true and fair position of
financial situation of every business is as necessary as bread for a human being. In this context,
there are various tools and techniques those can be used as a way of determining the financial
position of a business (Agustina and Suprayitno, 2020). This action is necessary so that after
investigating into financial position of that firm, efficient strategic planning can be done for
future course of action. This report is divided into two portfolios. First part is concentrating on
analysis of financial position of Tesco plc and Sainsbury's plc through tool of ratio analysis.
Excess dependence of financial ratios is also not a good strategy in long run and it is also
explained in this report. Furthermore, second portfolio is talking about importance of investment
appraisal techniques which are used in order to determine and identify correct and appropriate
investment decision for a company.
PORTFOLIO 1
Ratio analysis
Tesco plc
Name of ratio Calculation Result
2018 2019
Current ratio Current assets/ current
liabilities
13,726 / 19,238
= 0.713484
12668/2
0680
=
0.61257
3
Quick ratio Quick assets/ current
liabilities
4379/ 19238
= 0.227622
3373/ 20680
= 0.163104

Net profit margin Net profit/ total sales (1206/57491)*100
=2.097%
(1322/63911)*100
= 2.068%
Gross profit margin Gross profit/ total sales (3350/57491)*100
= 5.827%
(4144/63911)*100
= 6.484%
Gearing ratio
(Debt to Equity Ratio)
Total debt/ total equity 44862/10480
= 4.280%
49047 / 14858
= 3.301%
P/E ratio Market value per share/
Earnings per share
229/ 9.35
=24.49
213.6/13.65
= 16.97
Earnings per share Income available/ total
number of shares
outstanding
9.35 13.65
Return on capital
employed
Operating profit/
capital employed
5.13 6.86
Average inventories
turnover period
Net sales/ average
inventory
57491/2282.5
= 25.91 days
63911/2240.5
= 28.52 days.
Dividend pay-out ratio Dividend paid/ net
income
82/1206
= 0.68.
357/1322
= 0.27
Sainsbury plc
Name of ratio Calculation Result
2018 2019
Current ratio Current assets/ current
liabilities
7857/10302
=0.73
7550/11849
=0.63
Quick ratio Quick assets/ current
liabilities
1933/10302
=0.19
1283/11849
=0.19
Net profit margin Net profit/ total sales 309/28456
=0.11%
186/29007
=0.006%
Gross profit margin Gross profit/ total sales 518/28456 601/29007