Evaluating T plc: A Comprehensive Ratio Analysis for Investors

This report provides a detailed financial analysis of T plc, a retailing firm, through the evaluation of key financial ratios. It assesses profitability ratios (net and gross profit margins), liquidity ratios (current and quick ratios), working capital management, and stock market performance ratios (earnings per share, price earnings ratio, dividend yield). The analysis reveals that T plc has strong profit margins but declining liquidity ratios. Despite this, the report suggests that T plc presents a reasonable investment opportunity due to satisfactory profit margins and returns, though potential investors should be aware of the short-term liquidity risks. The report concludes that a comprehensive ratio analysis is crucial for informed financial decision-making.

Business

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Evaluation of the ratios of T plc..................................................................................................1
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Management of finances is a very crucial aspect as it helps the company to utilise and
maintain its resources in a very well and critical manner that can serve the purpose of the
company in the long run (Davidsson, 2016). In this report there is an elaborated discussion done
of a firm which is T plc which is a retailing firm and is operating in a market since a pretty long
time and thus has captured a larger share in the market. Apart from that the report also includes
an evaluation of all the ratios and related aspects of the firm which is very important with regard
to the mentioned firm in the industry.
MAIN BODY
Evaluation of the ratios of T plc
Ratios are very crucial as it help the company to compare and contrast its performance in
the day to day manner so that it can analyse the performance of the organisation which can prove
beneficial in taking appropriate decisions regarding the working of the firm. There are a number
of different ratios that are evaluated by a firm so that it can stand well ahead in the market as
compared to its rivals and thus the most important as well as crucial ones are elaborated in this
report which includes profitability ratios, liquidity ratios, working capital management, and stock
market performance ratios (Engwall, Kipping and Üsdiken, 2016).
Profitability ratios- These ratios further include sub ratios which are net profit margin and
gross profit margin and thus it can be said that these ratios helps in evaluating the overall
profitability of the firm so that profit generating resources can be analysed in an effective and
efficient manner. From the given data it can be said that both the profit margins that is net and
gross profit margin are in a good position of the company which is T plc in all the 3 years as the
gross margin is 39, 40, and 40% for the year 2018, 2019, and 2020 respectively, while the net
profit margin is 5.8, 5.9, 6.05 for the year 2018, 2019, and 2020 respectively. Both the ratios are
situated in a good position with respect to the industry ratios as they are 37 and 4 for gross profit
and net profit margin respectively.
Liquidity ratio- These ratios measure the short term paying capacity of the firm and thus
it can be said that these ratios are very crucial in determining the paying capacity of the firm and
thus these ratios include current ratio and quick ratio. Both the ratios that is current and quick are
declining on a constant basis and it is not a very good situation for the firm as the current ratio

declined from 1.1:1 in 2018 to 0.95:1 in 2019 and further 0.8:1 in the year 2020, whereas quick
ratio also declined from 0.65:1 in 2018 to 0.55:1 in 2019 and 0.4:1 in the year 2020. The industry
average is 1.05:1 for current ratio while it is 0.5:1 for quick ratio and thus it can be said that the
firm has to look at the performance so that the declining trend could be stopped as soon as
possible which can help the company to increase its market value in terms of short term paying
capacity which can help the firm to grab a better place in the market (Forkmann, Henneberg and
Mitrega, 2018).
Working capital management ratio- It is a ratio which is related with the current assets
as well as current liabilities and thus it can also be considered as current ratio and the company
which is T plc is not in a very good position regarding this ratio as it is mentioned in the above
mentioned aspect also so it can be said that the firm has to take initiatives and have to take
appropriate decisions so that it can help the company to grow and foster in the long term scenario
in the industry in which it is operational.
Stock market performance (Investment ratios)- These are ratios that are very crucial in
terms of investing and thus decisions regarding to invest or not to is taken after analysing and
evaluating these ratios so these includes earning per share, price earnings ratio, dividend yield,
etc. and thus it is very crucial for a firm to have a good position in these ratios so that it can help
in attracting new and potential investors which can further help in raising the value of the firm n
the long run. It can be said that the firm which is T plc is doing reasonably well in this scenario
and is just par with the industry averages as its price earnings ratio is 20, 22, and 25 for the year
2018, 2019, and 2020 respectively while the industry average is 22 so it can be said that the firm
is doing pretty good in this scenario.
Investment decision-If I am the potential investor in the retailing market in which T plc is
operating so I would have invested in the firm as its profit margins are also satisfactory and the
return which the firm is giving to its investors in terms of earnings are also satisfactory so I
would have been interested in investing in the firm in the long run. Though the short term
liquidity of the firm is not very good but there is risk and for that the company is giving
satisfactory returns so it’s not a very bad decision to invest in the organisation (Gielnik, Zacher
and Schmitt, 2017).

CONCLUSION
It can be concluded from the above that there are a number of different ratios that are very
crucial form a firm’s point of view and thus it is very essential as well as important to analyse
and evaluate all of those ratios in a very precise format so that it can add to the value of the firm
in the long run and can carter the needs and requirements of the company in the market in which
it is operational.

REFERENCES
Books and journals
Davidsson, P., 2016. A “business researcher” view on opportunities for psychology in
entrepreneurship research. Applied Psychology, 65(3), pp.628-636.
Engwall, L., Kipping, M. and Üsdiken, B., 2016. Defining management: Business schools,
consultants, media. Routledge.
Forkmann, S., Henneberg, S.C. and Mitrega, M., 2018. Capabilities in business relationships and
networks: Research recommendations and directions. Industrial Marketing
Management, 74, pp.4-26.
Gielnik, M.M., Zacher, H. and Schmitt, A., 2017. How small business managers’ age and focus
on opportunities affect business growth: a mediated moderation growth model. Journal
of Small Business Management, 55(3), pp.460-483.