Financial Strength   | My Assignment Tutor

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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