Accounting and Finance for Managers- ACC3015

Accounting and Finance for Managers- ACC3015 Referencing Styles : Harvard | Pages : 38 The following financial data (a,b,c) is for three retail businesses, which…

Accounting and Finance for Managers- ACC3015

Referencing Styles :
Harvard | Pages :
38

The following financial data (a,b,c) is for three retail businesses, which are listed on the London Stock Exchange. 

a) Tesco PLC

Tesco PLC  

Annual Ratios  

[GBP Millions]  

  22-Feb-2014 23-Feb-2013 25-Feb-2012 26-Feb-2011 27-Feb-2010

Financial Strength  

Current Ratio 0.61 0.66 0.64 0.65 0.71

Quick/Acid Test Ratio 0.42 0.43 0.43 0.45 0.51

Working Capital -8,314.0 -6,520.0 -6,896.0 -6,123.0 -4,623.0

Long Term Debt/Equity 0.63 0.60 0.56 0.59 0.80

Total Debt/Equity 0.76 0.65 0.66 0.67 0.91

Long Term Debt/Total Capital 0.36 0.37 0.34 0.35 0.42

Total Debt/Total Capital 0.43 0.39 0.40 0.40 0.48

Interest Coverage 24.82 32.63 – 217.61 72.02

Payout Ratio 62.15% 77.40% 37.51% 42.00% 44.49%

Effective Tax Rate 15.36% 25.72% 21.64% 23.73% 26.45%

Total Capital 25,928.0 27,477.0 29,524.0 27,610.0 27,869.0

Efficiency  

Asset Turnover 1.27 1.26 1.30 1.30 1.24

Inventory Turnover 16.27 16.14 17.31 18.78 19.38

Days In Inventory 22.43 22.61 21.08 19.43 18.84

Receivables Turnover 11.87 12.76 13.90 14.61 15.95

Days Receivables Outstanding 30.75 28.61 26.26 24.98 22.89

Revenue/Employee 124,513 125,097 122,993 123,795 120,548

Operating Income/Employee 5,154 4,700 8,047 8,021 7,323

EBITDA/Employee 8,177 7,766 10,855 10,929 10,254

Profitability  

Gross Margin 6.31% 6.55% 8.44% 8.48% 8.10%

Operating Margin 4.14% 3.76% 6.54% 6.48% 6.07%

EBITDA Margin 6.57% 6.21% 8.83% 8.83% 8.51%

EBIT Margin 4.14% 3.76% 6.54% 6.48% 6.07%

Pretax Margin 3.55% 3.24% 6.32% 6.02% 5.58%

Net Profit Margin 3.01% 2.42% 4.94% 4.57% 4.09%

COGS/Revenue 93.69% 93.45% 91.56% 91.52% 91.90%

SG&A Expense/Revenue 2.61% 2.34% 2.52% 2.71% 2.68%

Management Effectiveness  

Return on Assets 3.81% 3.03% 6.46% 5.96% 5.10%

Return on Equity 12.22% 8.90% 18.40% 17.74% 16.96%

Valuation  

Free Cash Flow/Share 0.00 -0.02 0.09 0.09 0.22

Operating Cash Flow/Share 0.36 0.35 0.55 0.53 0.59

Current Market Multiples  

Market Cap/Earnings (TTM) 17.55  

Market Cap/Equity (MRQ) 1.12  

Market Cap/Revenue (TTM) 0.24  

Market Cap/EBIT (TTM) 6.02  

Market Cap/EBITDA (TTM) 3.75  

Enterprise Value/Earnings (TTM) 28.04  

Enterprise Value/Equity (MRQ) 1.79  

Enterprise Value/Revenue (TTM) 0.39  

Enterprise Value/EBIT (TTM) 9.62  

Enterprise Value/EBITDA (TTM) 5.99  

b) Morrisons PLC

WM Morrison Supermarkets PLC  

Annual Ratios  

[GBP Millions]  

  02-Feb-2014 03-Feb-2013 29-Jan-2012 30-Jan-2011 31-Jan-2010

Financial Strength  

Current Ratio 0.50 0.58 0.57 0.55 0.51

Quick/Acid Test Ratio 0.16 0.20 0.21 0.21 0.19

Working Capital -1,443.0 -992.0 -981.0 -948.0 -1,060.0

Long Term Debt/Equity 0.53 0.46 0.29 0.19 0.21

Total Debt/Equity 0.65 0.47 0.31 0.19 0.25

Long Term Debt/Total Capital 0.32 0.31 0.22 0.16 0.17

Total Debt/Total Capital 0.39 0.32 0.24 0.16 0.20

Payout Ratio -127.08% 44.28% 40.10% 40.10% 35.96%

Effective Tax Rate – 26.39% 27.14% 27.69% 30.30%

Total Capital 7,725.0 7,662.0 7,094.0 6,472.0 6,169.0

Efficiency  

Asset Turnover 1.66 1.78 1.86 1.84 1.81

Inventory Turnover 20.34 21.96 23.54 25.24 26.79

Days In Inventory 17.95 16.62 15.50 14.46 13.62

Receivables Turnover 87.31 81.97 78.15 88.84 77.05

Days Receivables Outstanding 4.18 4.45 4.67 4.11 4.74

Revenue/Employee 337,953 322,481 308,961 282,722 276,646

Operating Income/Employee -1,816 16,893 17,020 15,509 16,283

EBITDA/Employee 5,620 23,373 22,827 20,982 21,776

Profitability  

Gross Margin 6.07% 6.66% 6.89% 6.97% 6.89%

Operating Margin -0.54% 5.24% 5.51% 5.49% 5.89%

EBITDA Margin 1.66% 7.25% 7.39% 7.42% 7.87%

EBIT Margin -0.54% 5.24% 5.51% 5.49% 5.89%

Pretax Margin -1.00% 4.85% 5.36% 5.30% 5.57%

Net Profit Margin -1.35% 3.57% 3.91% 3.84% 3.88%

COGS/Revenue 93.93% 93.34% 93.11% 93.03% 93.11%

SG&A Expense/Revenue 2.01% 1.85% 1.86% 1.96% 2.04%

Management Effectiveness  

Return on Assets -2.24% 6.35% 7.26% 7.06% 7.04%

Return on Equity -4.80% 12.18% 12.76% 12.19% 12.63%

Valuation  

Free Cash Flow/Share -0.13 0.05 0.05 0.12 -0.06

Operating Cash Flow/Share 0.31 0.47 0.37 0.34 0.28

Current Market Multiples  

Market Cap/Earnings (TTM) -12.70  

Market Cap/Equity (MRQ) 0.88  

Market Cap/Revenue (TTM) 0.24  

Market Cap/EBIT (TTM) 6.64  

Market Cap/EBITDA (TTM) 4.09  

Enterprise Value/Earnings (TTM) -20.63  

Enterprise Value/Equity (MRQ) 1.43  

Enterprise Value/Revenue (TTM) 0.39  

Enterprise Value/EBIT (TTM) 10.78  

Enterprise Value/EBITDA (TTM) 6.64  

c) Sainsbury PLC

J Sainsbury plc  

Annual Ratios  

[GBP Millions]  

  15-Mar-2014 16-Mar-2013 17-Mar-2012 19-Mar-2011 20-Mar-2010

Financial Strength  

Current Ratio 0.64 0.61 0.65 0.59 0.66

Quick/Acid Test Ratio 0.48 0.25 0.33 0.27 0.36

Working Capital -2,403.0 -1,214.0 -1,104.0 -1,221.0 -940.0

Long Term Debt/Equity 0.37 0.45 0.46 0.43 0.47

Total Debt/Equity 0.46 0.48 0.48 0.44 0.49

Long Term Debt/Total Capital 0.26 0.30 0.31 0.30 0.32

Total Debt/Total Capital 0.32 0.32 0.33 0.31 0.33

Payout Ratio 45.83% 52.19% 50.36% 43.86% 44.22%

Effective Tax Rate 20.27% 22.02% 25.16% 22.61% 20.19%

Total Capital 8,787.0 8,619.0 8,488.0 7,837.0 7,396.0

Efficiency  

Asset Turnover 1.64 1.86 1.88 1.90 1.91

Inventory Turnover 22.65 22.88 24.09 26.34 27.15

Days In Inventory 16.11 15.95 15.15 13.86 13.44

Receivables Turnover 25.04 85.67 78.64 93.17 129.22

Days Receivables Outstanding 14.58 4.26 4.64 3.92 2.82

Revenue/Employee 484,798 474,603 456,844 438,711 422,072

Operating Income/Employee 20,425 17,963 17,910 17,692 15,011

EBITDA/Employee 31,579 28,493 28,135 27,713 25,137

Profitability  

Gross Margin 5.79% 5.48% 5.43% 5.50% 5.42%

Operating Margin 4.21% 3.78% 3.92% 4.03% 3.56%

EBITDA Margin 6.51% 6.00% 6.16% 6.32% 5.96%

EBIT Margin 4.21% 3.78% 3.92% 4.03% 3.56%

Pretax Margin 3.75% 3.31% 3.58% 3.92% 3.67%

Net Profit Margin 2.99% 2.58% 2.68% 3.03% 2.93%

COGS/Revenue 94.21% 94.52% 94.57% 94.50% 94.58%

SG&A Expense/Revenue 1.82% 1.98% 1.88% 1.98% 2.00%

Management Effectiveness  

Return on Assets 4.90% 4.81% 5.04% 5.75% 5.60%

Return on Equity 12.09% 10.42% 10.73% 12.32% 12.52%

Valuation  

Free Cash Flow/Share 0.01 -0.06 -0.10 -0.16 -0.02

Operating Cash Flow/Share 0.49 0.52 0.56 0.46 0.54

Current Market Multiples  

Market Cap/Earnings (TTM) 185.15  

Market Cap/Equity (MRQ) 0.83  

Market Cap/Revenue (TTM) 0.19  

Market Cap/EBIT (TTM) 5.26  

Market Cap/EBITDA (TTM) 3.15  

Enterprise Value/Earnings (TTM) 248.56  

Enterprise Value/Equity (MRQ) 1.12  

Enterprise Value/Revenue (TTM) 0.26  

Enterprise Value/EBIT (TTM) 7.06  

Enterprise Value/EBITDA (TTM) 4.23  

You are required to:

(a) Select and justify at least 10 financial ratios and calculate 2
non-financial ratios to analyse the performance and financial position
of the three companies. You are expected to use charts to compare
performance of the three companies.  You will need to look at the
audited financial statement and carry out further research to explain
the performance of the company over the five years.  For clarity, you
are expected to rank the companies based on the individual benchmarks
and overall. (50 Marks)

(b) Write a memo to the managing director of the worst performing
company with recommendations of how the financial performance of the
business can be improved. (15 marks)

(c) Outline the limitations of relying on financial ratios to interpret firm performance? (5 Marks)

You are expected to research for more information on the companies
and cite the material correctly. You can use the Global Business Browser
database to access analysts’ and SWOT reports. 
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