LSBM203 Managerial Finance: Investment Portfolio & Financial Analysis

This managerial finance report provides a comprehensive portfolio analysis of Tesco and Sainsbury, focusing on key financial ratios to assess their performance, investment portfolios, and financial positions. The report includes calculations and graphical representations of current ratio, quick ratio, net profit margin, gross profit margin, gearing ratio, price-earnings ratio, earnings per share, return on capital employed, and stock turnover ratio. It evaluates the liquidity, profitability, and solvency of both companies, highlighting their strengths and weaknesses. Furthermore, the report discusses various capital investment appraisal methods, such as net present value and payback period, along with their limitations in decision-making. The analysis aims to provide insights for investors and managers to understand the financial health and investment potential of Tesco and Sainsbury, with the complete assignment available on Desklib, where students can find a wide array of solved assignments and past papers.

Managerial Finance
Portfolio

Table of Contents
INTRODUCTION...........................................................................................................................3
PORTFOLIO 1.................................................................................................................................3
a) Calculation of ratio..................................................................................................................3
b) Assessment of financial performance, investment portfolio & financial position of
company.......................................................................................................................................8
Recommendation related with main reason of poor performance of organization....................18
d) Disadvantage of ratio.............................................................................................................18
PORTFOLIO 2...............................................................................................................................19
a) Methods of capital investment appraisal...............................................................................19
b)Limitations of investment appraisal techniques.....................................................................21
CONCLUSION..............................................................................................................................22
REFERENCE ................................................................................................................................23

INTRODUCTION
Managerial finance this term is used to assess ways which define how business financial
techniques or tools are used at various level of operations of organization. To understand this
term in systematic way, this report has been formulated. This report divided into two parts, the
first one define relevance of ratio by measuring performance of Tesco and Sainsbury and also
define limitation of this technique as well as main reason of poor performance of business units.
In second part of this report, relevance of capital budgeting technique has been define by
calculating it tools. This report also define limitation of using net present value and pay back
ratio during the process of decision making.
PORTFOLIO 1
a) Calculation of ratio
Ratio: This is part of financial management technique which is used by manager to
recognize number of business issue arises within entity. This includes issue related with
efficiency, profitability, liquidity and effectiveness of business operations. Theses are help in
finding out relation between items of financial statements (Baker, Kumar and Pandey, 2020).
Ratio also use for measure monetary performance of organizations. By using this tool of
financial management manager able to recognize their organizations position in market. Tesco is
groceries retail organization which is take place in top ten revenue trading company on the other
side Sainsbury is established in 1869 and since its incorporation it maintain as third largest retail
supermarket organization within the world. Tesco and Sainsbury are rival industries although
these consider top leading MNC of UK. Investors to recognize whether Tesco is good or
Sainsbury is beneficial for investment use ratio analysis. Following are calculation of different
types of ratio
Current ratio
Particular 2018 2019
Tesco 0.71 0.61

Current ratio
Sainsbury 0.76 0.66
Quick ratio
Tesco 0.57 0.48
Sainsbury 0.59 0.5
Net profit
Tesco 1.09 0.75
Sainsbury 2.1 2.07
Gross profit
Tesco 5.83 6.48
Sainsbury 6.61 6.92
Gearing ratio
Tesco 3.28 2.31
Sainsbury 1.97 1.78
Price / Earning ratio
Tesco 38.22 41.56
Sainsbury 106.39 123.6
Earning per share

Current ratio
Tesco 4.06 4.96
Sainsbury 4.75 4.06
Return on capital employed
Tesco 6.14 9.34
Sainsbury 4.43 4.97
Average stock turnover
Tesco 23.73 24.5
Sainsbury 14.83 14.44
Dividend payout ratio
Tesco 6.78 27.05
Sainsbury 76.05 112.79
Current ratio = Current asset / Current liabilities
Tesco = 2018 = 13600/ 19233 = 0.71
2019 = 1250 / 20980 = 0.61
Sainsbury
2018 = 7857 / 10302 = 0.76
2019 = 7581 / 11417 = 0.66
 Quick ratio
Quick assets/ Current liabilities
Tesco
2018 = 11336/ 19233 = 0.57
2019 =9953/ 20680 = 0.48

Sainsbury
2018 = 6047/ 10302 = 0.59
2019 =5652/11417 = 0.50 Net profit
Tesco
2018 = 309/ 28456 = 1.09
2019 =219/ 29007 = 0.75
Sainsbury
2018 = 1210/ 57493 = 2.10
2019 = 1320/ 63911 = 2.07 Gross profit
Tesco
2018 = 3352/ 57493 = 5.83
2019 = 4144/ 63911 = 6.48
Sainsbury
2018 = 1882/28456= 6.61
2019 =2007/ 29007 = 6.92 Gearing ratio
Tesco
2018 = 34404/ 10480 = 3.28
2019 =34213 / 14834 = 2.31
Sainsbury
2018 = 14590/ 7411 = 1.97
2019 =15085/ 8456 = 1.78 Price / Earning ratio
Tesco
2018 = 189.55/4.96 = 38.22
2019 = 255.2/ 6.14 = 41.56
Sainsbury
2018 = 264.9/ 2.49 =106.39
2019 = 229.9 / 1.86 = 123.60

 Earning per share
Tesco
2018 = 1210/ 244 = 4.96
2019 = 1320/ 215 = 6.14
Sainsbury
2018 = 309/ 65 = 4.75
2019 = 219/ 54 = 4.06 Return on capital employed
Tesco
2018 = 1566 / 25502 = 6.14
2019 = 2639 / 28269 = 9.34
Sainsbury
2018 = 518/ 11699 = 4.43
2019 = 601/ 12097 = 4.97 Average stock turnover
Tesco
2018 = 54141/ 2282 = 23.73
2019 = 59769/ 2440 = 24.50
Sainsbury
2018 = 26574/ 1792.5 = 14.83
2019 = 27000/ 1869.5 = 14.44 Dividend payout ratio
Tesco
2018 = 82/ 1210 = 6.78
2019 = 357/ 1320 = 27.05
Sainsbury
2018 = 235 / 309 = 76.05
2019 = 247/ 219 = 112.79
Capital employed = Total assets- Total current liabilities
Tesco =

2018 = 44735 – 19233 = 25502
2019 = 48949 – 20680 = 28269
Sainsbury =
2018 = 22001 – 10302 = 11699
2019 = 23514 – 11417 = 12097
Financial ratio
b) Assessment of financial performance, investment portfolio & financial position of company.
 Current ratio: This is use to measure liquidity position of an organization within given
time period (Chesney and et.al., 2020). It is define relationship between current assets
with current liabilities. According to accounting norms 2:1 is ideal current ratio. An
organization must have sufficient assets as compare to their liabilities. Higher current
ratio is showcase that organization have sufficient balance to deal with their day to day
business operations. To understand the relation of this ratio in context to Tesco and
Sainsbury , graphical representation has been formulated.
On the basis of calculation of current ratio it has been identifying that value of Tesco is
comparative low in both year as compare with Sainsbury Which represent that Sainsbury have
sufficient working capital to manage and run their business operations (Currie and Pandher,
2020).
Tesco Sainsburry
Current
0
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4500

 Quick ratio: This ratio is used to measure the liquidity assets position an entity have for
particular time period. Higher quick ratio define that organization have sufficient amount
of cash through which they can deal with their current liabilities. On the other side lower
rate of quick ratio showcase that organization not have sufficient cash amount to run their
business. By using chart measurement of quick ratio of Tesco and its rival organization
can be interpret in efficient way.
Value of quick ratio of Sainsbury in 2018 was measure at 0.59 and in 2019 it was 0.5 % on the
other side Tesco 's quick ratio was measure at 0.59 in 2018 and 0.48 % in 2019 which showcase
that Sainsbury have more liquid asset to fulfil their day to day debt liability (Di Simone and
Zanardi, 2020).
 Net profit ratio: This ratio consider as part of profitability ratios. Through which
organization can interpret level of generating income by selling their products or
providing services. This ratio calculated by dividing sales with net profit which
organization generate for particular period of time. By using chart performance of Tesco
and Sainsbury on the basis of net profit ratio can be identified.
Tesco Sainsburry
Liquid
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Tesco
Sainsbury
00.51 0.59 0.590.48 0.5
Quick Ratio
2018 2019

On the basis of calculating net profit ratio, it has been find out that Tesco generate 2.1 in
2018 and in 2019 it was 2.07 % on the other side Sainsbury generate 1.09 and 0.75 % of net
profit ratio, it indicate that performance rate of net profit has been decrease although but for the
purpose of comparison Tesco able to generate more profit then its rival industry. Which means
that Sainsbury ned to focus on improve their operating business activity.
 Gross profit margin: This ratio define relation between gross profit and sales before any
kind of operating business adjustment. Higher gross profit ratio showcase strong
operations performance of entity.
Tesco Sainsburry
Net profit ratio
0
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Tesco
Sainsbury
0123
2.1
1.09
2.07
0.75
Net profit margin
2018 2019

From the graphical representation it find out that gross profit ratio of Sainsbury is
comparatively high tern their rival industry. Which means that organization generate more profit
from their trading business activities.
 Gearing ratio: This ratio is part of earning ratios. It is used for measure the part of
companies borrowed fund as compare to its equity source. This will help in measuring
Tesco Sainsburry
Gross profit ratio
0
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Tesco
Sainsbury
5
6
7
5.83
6.616.48
6.92
Gross profit margin
2018 2019

ability of organization to pay their long term debt liabilities. By using graph the
measurement of gearing ratio between Tesco and Sainsbury can be easily evaluate.
Tesco value of gearing ratio was 3.28 and i2.31 in 2019 and value of Sainsbury was 1.97
and 1.78 which means that Tesco is far better position in case of valuation of borrowed capital
with their availability of equity funds. This indicates that management department of Tesco use
their external source in better way for fulfilling their tax liability (Hoffmann, Ahlemann and
Reining, 2020).
 Price earnings ratio: This ratio is used to measure the relation of current price of share
with its earning per share. On the basis of this ratio investor can easily understand which
organization's share price are under or over valued. Higher pricing ratio showcase strong
position of organization.
Tesco Sainsburry
capital gearing
0
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4000
4500
Tesco
Sainsbury
024 3.28 1.972.31 1.78
Gearing ratio
2018 2019