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
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Tesco PLC
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Annual Ratios
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[GBP Millions]
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22-Feb-2014
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23-Feb-2013
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25-Feb-2012
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26-Feb-2011
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27-Feb-2010
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Financial Strength
|
|
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Current Ratio
|
0.61
|
0.66
|
0.64
|
0.65
|
0.71
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Quick/Acid Test Ratio
|
0.42
|
0.43
|
0.43
|
0.45
|
0.51
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Working Capital
|
-8,314.0
|
-6,520.0
|
-6,896.0
|
-6,123.0
|
-4,623.0
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Long Term Debt/Equity
|
0.63
|
0.60
|
0.56
|
0.59
|
0.80
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Total Debt/Equity
|
0.76
|
0.65
|
0.66
|
0.67
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0.91
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Long Term Debt/Total Capital
|
0.36
|
0.37
|
0.34
|
0.35
|
0.42
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Total Debt/Total Capital
|
0.43
|
0.39
|
0.40
|
0.40
|
0.48
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Interest Coverage
|
24.82
|
32.63
|
-
|
217.61
|
72.02
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Payout Ratio
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62.15%
|
77.40%
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37.51%
|
42.00%
|
44.49%
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Effective Tax Rate
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15.36%
|
25.72%
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21.64%
|
23.73%
|
26.45%
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Total Capital
|
25,928.0
|
27,477.0
|
29,524.0
|
27,610.0
|
27,869.0
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Efficiency
|
|
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|
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Asset Turnover
|
1.27
|
1.26
|
1.30
|
1.30
|
1.24
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|
Inventory Turnover
|
16.27
|
16.14
|
17.31
|
18.78
|
19.38
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Days In Inventory
|
22.43
|
22.61
|
21.08
|
19.43
|
18.84
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Receivables Turnover
|
11.87
|
12.76
|
13.90
|
14.61
|
15.95
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Days Receivables Outstanding
|
30.75
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28.61
|
26.26
|
24.98
|
22.89
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Revenue/Employee
|
124,513
|
125,097
|
122,993
|
123,795
|
120,548
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Operating Income/Employee
|
5,154
|
4,700
|
8,047
|
8,021
|
7,323
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EBITDA/Employee
|
8,177
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7,766
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10,855
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10,929
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10,254
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Profitability
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Gross Margin
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6.31%
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6.55%
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8.44%
|
8.48%
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8.10%
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Operating Margin
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4.14%
|
3.76%
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6.54%
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6.48%
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6.07%
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EBITDA Margin
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6.57%
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6.21%
|
8.83%
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8.83%
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8.51%
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EBIT Margin
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4.14%
|
3.76%
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6.54%
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6.48%
|
6.07%
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Pretax Margin
|
3.55%
|
3.24%
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6.32%
|
6.02%
|
5.58%
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Net Profit Margin
|
3.01%
|
2.42%
|
4.94%
|
4.57%
|
4.09%
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COGS/Revenue
|
93.69%
|
93.45%
|
91.56%
|
91.52%
|
91.90%
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SG&A Expense/Revenue
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2.61%
|
2.34%
|
2.52%
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2.71%
|
2.68%
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Management Effectiveness
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Return on Assets
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3.81%
|
3.03%
|
6.46%
|
5.96%
|
5.10%
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Return on Equity
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12.22%
|
8.90%
|
18.40%
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17.74%
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16.96%
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Valuation
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Free Cash Flow/Share
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0.00
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-0.02
|
0.09
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0.09
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0.22
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Operating Cash Flow/Share
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0.36
|
0.35
|
0.55
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0.53
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0.59
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Current Market Multiples
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Market Cap/Earnings (TTM)
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17.55
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Market Cap/Equity (MRQ)
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1.12
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Market Cap/Revenue (TTM)
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0.24
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Market Cap/EBIT (TTM)
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6.02
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Market Cap/EBITDA (TTM)
|
3.75
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Enterprise Value/Earnings (TTM)
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28.04
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Enterprise Value/Equity (MRQ)
|
1.79
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|
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Enterprise Value/Revenue (TTM)
|
0.39
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|
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Enterprise Value/EBIT (TTM)
|
9.62
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Enterprise Value/EBITDA (TTM)
|
5.99
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b) Morrisons PLC
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WM Morrison Supermarkets PLC
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Annual Ratios
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[GBP Millions]
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02-Feb-2014
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03-Feb-2013
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29-Jan-2012
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30-Jan-2011
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31-Jan-2010
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Financial Strength
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|
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|
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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
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Long Term Debt/Equity
|
0.53
|
0.46
|
0.29
|
0.19
|
0.21
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|
Total Debt/Equity
|
0.65
|
0.47
|
0.31
|
0.19
|
0.25
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|
Long Term Debt/Total Capital
|
0.32
|
0.31
|
0.22
|
0.16
|
0.17
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Total Debt/Total Capital
|
0.39
|
0.32
|
0.24
|
0.16
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0.20
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Payout Ratio
|
-127.08%
|
44.28%
|
40.10%
|
40.10%
|
35.96%
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Effective Tax Rate
|
-
|
26.39%
|
27.14%
|
27.69%
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30.30%
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Total Capital
|
7,725.0
|
7,662.0
|
7,094.0
|
6,472.0
|
6,169.0
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Efficiency
|
|
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Asset Turnover
|
1.66
|
1.78
|
1.86
|
1.84
|
1.81
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Inventory Turnover
|
20.34
|
21.96
|
23.54
|
25.24
|
26.79
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Days In Inventory
|
17.95
|
16.62
|
15.50
|
14.46
|
13.62
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Receivables Turnover
|
87.31
|
81.97
|
78.15
|
88.84
|
77.05
|
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Days Receivables Outstanding
|
4.18
|
4.45
|
4.67
|
4.11
|
4.74
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Revenue/Employee
|
337,953
|
322,481
|
308,961
|
282,722
|
276,646
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|
Operating Income/Employee
|
-1,816
|
16,893
|
17,020
|
15,509
|
16,283
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|
EBITDA/Employee
|
5,620
|
23,373
|
22,827
|
20,982
|
21,776
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Profitability
|
|
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Gross Margin
|
6.07%
|
6.66%
|
6.89%
|
6.97%
|
6.89%
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Operating Margin
|
-0.54%
|
5.24%
|
5.51%
|
5.49%
|
5.89%
|
|
EBITDA Margin
|
1.66%
|
7.25%
|
7.39%
|
7.42%
|
7.87%
|
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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%
|
|
|
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Management Effectiveness
|
|
|
|
|
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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%
|
|
|
|
|
|
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Valuation
|
|
|
|
|
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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
|
|
|
|
|
|
|
|
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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
|
|
|
|
|
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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.
(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?