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Accounting and Finance for Managers-ACC3015
Question
The following financial data (a,b,c)is forthree 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
0.45
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
0.67
0.91
Long Term Debt/Total Capital
0.36
0.37
0.34
0.35
Total Debt/Total Capital
0.39
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
1.24
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%
8.51%
EBIT Margin
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
0.22
Operating Cash Flow/Share
0.55
0.53
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)
Enterprise Value/EBIT (TTM)
9.62
Enterprise Value/EBITDA (TTM)
5.99
b) Morrisons PLC
WM Morrison Supermarkets PLC
02-Feb-2014
03-Feb-2013
29-Jan-2012
30-Jan-2011
31-Jan-2010
0.50
0.58
0.57
0.16
0.20
0.21
0.19
-1,443.0
-992.0
-981.0
-948.0
-1,060.0
0.46
0.29
0.47
0.31
0.25
0.32
0.17
-127.08%
44.28%
40.10%
35.96%
26.39%
27.14%
27.69%
30.30%
7,725.0
7,662.0
7,094.0
6,472.0
6,169.0
1.66
1.78
1.86
1.84
1.81
20.34
21.96
23.54
25.24
26.79
17.95
16.62
15.50
14.46
13.62
87.31
81.97
78.15
88.84
77.05
4.18
4.45
4.67
4.11
4.74
337,953
322,481
308,961
282,722
276,646
-1,816
16,893
17,020
15,509
16,283
5,620
23,373
22,827
20,982
21,776
6.66%
6.89%
6.97%
-0.54%
5.24%
5.51%
5.49%
5.89%
1.66%
7.25%
7.39%
7.42%
7.87%
-1.00%
4.85%
5.36%
5.30%
5.57%
-1.35%
3.57%
3.91%
3.84%
3.88%
93.93%
93.34%
93.11%
93.03%
2.01%
1.85%
1.86%
1.96%
2.04%
-2.24%
6.35%
7.26%
7.06%
7.04%
-4.80%
12.18%
12.76%
12.19%
12.63%
-0.13
0.05
0.12
-0.06
0.28
-12.70
0.88
6.64
4.09
-20.63
1.43
10.78
c) Sainsbury PLC
J Sainsbury plc
15-Mar-2014
16-Mar-2013
17-Mar-2012
19-Mar-2011
20-Mar-2010
0.33
0.27
-2,403.0
-1,214.0
-1,104.0
-1,221.0
-940.0
0.44
0.49
0.26
0.30
45.83%
52.19%
50.36%
43.86%
44.22%
20.27%
22.02%
25.16%
22.61%
20.19%
8,787.0
8,619.0
8,488.0
7,837.0
7,396.0
1.64
1.88
1.90
1.91
22.65
22.88
24.09
26.34
27.15
16.11
15.15
13.86
13.44
25.04
85.67
78.64
93.17
129.22
14.58
4.26
4.64
3.92
2.82
484,798
474,603
456,844
438,711
422,072
20,425
17,963
17,910
17,692
15,011
31,579
28,493
28,135
27,713
25,137
5.79%
5.48%
5.43%
5.50%
5.42%
4.21%
3.78%
3.92%
4.03%
3.56%
6.51%
6.00%
6.16%
3.75%
3.31%
3.58%
3.67%
2.99%
2.58%
2.93%
94.21%
94.52%
94.57%
94.50%
94.58%
1.82%
1.98%
1.88%
2.00%
4.90%
4.81%
5.04%
5.75%
5.60%
12.09%
10.42%
10.73%
12.32%
12.52%
0.01
-0.10
-0.16
0.52
0.54
185.15
0.83
5.26
3.15
248.56
7.06
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.
(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.
(c) Outline the limitations of relying on financial ratios to interpret firm performance?
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