EME-215.docx - Financial Ratio Analysis Words 1000 Table of Contents List of Tables.3 List of Figures.4 1 2 Financial Ratio Analysis.5 1.1 Current

EME-215.docx - Financial Ratio Analysis Words 1000 Table of...

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“Financial Ratio Analysis” Words: 1000Table of ContentsList of Tables...............................................................................................................................................3List of Figures.............................................................................................................................................41Financial Ratio Analysis......................................................................................................................51.1Current Ratio...............................................................................................................................51.2Acid Test Ratio.............................................................................................................................51.3Net Profit Margin.........................................................................................................................62Investment in the companies................................................................................................................6References...................................................................................................................................................8Appendices..................................................................................................................................................9List of Table
Table 1: Financial Ratio analysis.....................................................................................................8Table 2: Data for ratios....................................................................................................................9Table 3: Tesco SWOT analysis......................................................................................................11Table 4: Sainsbury SWOT analysis...............................................................................................12Table 5: Marks & Spencer SWOT analysis...................................................................................13Table 6: EPS and P/E ratio.............................................................................................................13List of FigureFigure 1: Current ratio.....................................................................................................................8Figure 2: Acid test ratio...................................................................................................................9Figure 3: Net profit margin............................................................................................................101Financial Ratio AnalysisThe financial ratio analysis is done to analyse the financial statement of a company in order totake decisions about the different areas (Healy and Palepu, 2012). In this report, analysis is doneby comparing the performances of Tesco, Sainsbury and Marks and Spencer in order to identifythat which company is performing better. The analysis is done on the basis of current ratio, acidtest ratio and net profit margin ratio of all the three companies. The calculations of these threeratios for the year 2015-2016 can be identified in the table 1.1.1Current RatioCurrent ratio shows the ability of a company to pay off its liabilities by using its assets. Thebenchmark for the current ratio is 2:1 which means that a company holds 2 assets against 1liability (Brigham and Ehrhardt, 2013). Table 1 show that in 2016 Tesco has performed well ascompare to the other Sainsbury and Marks & Spencer as the current ratio is highest (Tesco,2016). It is also observed that the efficiency of Tesco is dramatically improved while managingits current assets and current liabilities as the previous ratio is 0.604. The better evaluation of thecompanies on the basis of current ratio can be done by analysing figure 1. It shows that theperformance of the Tesco is better than the other two companies while the current ratios of
Sainsbury and Marks & Spencer are almost similar (Sainsbury, 2016). However, it should also benoted that the current ratio of all the companies is less than 1 which does not show much stableposition. It can also be observed in the table 2 that the liabilities of the companies are morespeedily growing as compare to the company’s assets (Marks & Spencer, 2016).1.2Acid Test RatioAcid test ratio also defines the liquidity position of a company; however, the results are moreaccurate as compare to the current ratio (Healy and Palepu, 2012). In table 1 it can be identifiedthat the acid test ratio is good for the Tesco showing a value of 0.629 in 2016 in comparison withthe 0.517 for Sainsbury and 0.314 for Marks and Spencer. The best acid test ratio is 1.5:1 and theresults of the company’s ratio analyse shows that they are nit evenly matched with thebenchmark. The further illustration of the acid test ratio can be seen in the figure 2. It depicts thatthe most low acid test ratio is faced by the Marks & Spencer which has a value of only 0.314. Ithas been increased by only 0.003 which shows that the company is unable to manage its liquidassets (Marks & Spencer, 2016).

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