Financial Management Essay Example | Topics and Well Written Essays - 1250 words

Financial focussing - Essay ExampleThe caller-out is deemed to be the third largest retailer with respect to the amount of revenue that it produces (Potter, 2011 Deloitte, 2010). To influence and analyze the financial performance of the company, the ratio analysis technique needs to be used. Ratio analysis is a technique which uses a set of different financial appreciates known as financial ratios, in order to analyze the financial performance of a company. These financial ratios of the company would be compared with its prior socio-economic class ratios to understand whether there is any improvement in the performance of the company (Shim et al, 2000). The financial ratios for Tesco plc are as follows Ratios 2010 2009 Liquidity Ratios Current ratio 0.73 1 0.75 1 Quick ratio 0.44 1 0.61 1 geared wheel Ratios swinish debt-equity ratio 74.9% 109.6% simoleons interest cover 3.1 times 7 times usefulnessability Ratios Gross Profit Margin 8.22% 7.76% Net Profit Margin 4.1% 3. 99% Investment ratios Earnings per share 29.33 cents 27.50 cents (Annual Report, Tesco plc, 2011) . Liquidity Ratios assess a companys ability to pay mutilate their debts when they fall due. Basically it gives a staple fiber picture of a running position of a company. Current ratio illustrates a companys ability to pay off its short term obligation/ current liabilities (amount due within 12 months time) with the current assets that it holds whilst the quick and the cash ratio illustrates a companys ability to pay off their debts with the most liquid assets and cash respectively. Current ratios on the other hand analyze a companys ability to pay off their respective debts/liabilities through their most liquid (easily converted to cash) assets. The ratios in the above table indicate that the liquidity position of the company has worsened in 2010 as compared to 2009 two the current and the quick ratios have deteriorated over the year. The current ratio has fallen from universe 0.7 51 in 2010 to 0.731 in 2009. The quick ratio has also fallen from being 0.611 in 2010 to 0.441 in 2009. This should be a concern for the company as the liquidity ratios are a measure of companys subtleness and long term sustainability. With the assistant of the profitability ratio, a company can ascertain the increase/decrease in the level of costs, revenues and profits over any given period of time. These ratios help in ascertaining the companys performance with respect to the profits that the company/organization has generated. Gross Profit Margin/Net Profit Margin ratios help in ascertaining a companys staring(a) profit/net profit with respect to the revenue that the company has generated this ratio helps in understanding the ever-changing trends of the operational costs within any particular period of time. Both the Gross Profit and the Net Profit margin ratios have improved for the company over the one year concerned. This is a nifty sign for the company with respect to its growth, the companys gross profit margin has improved from being 7.76% in 2009 to 8.22% in 2010, this is both because of the fact the company has increased its sales revenue and it has controlled its cost as well. The net profit margin has also increased from being 3.99% in 2009 to 4.1% in 2010, although the throw is non a huge one but still for a large company like Tesco plc, this change is worth noting as it has increased the company