AF4S31 ASSESSMENT 1 (V2)
AF4S31- Strategic Financial Management
STRATEGIC FINANCIAL EVALUATION AND ANALYSIS OF TESCO AND BENEDICT CO.
Table of Contents
1 INTRODUCTION AND ESSAY STRUCTURE …………………………………………………………………. 1
2 TESCO’S CORPORATE STRATEGIC FINANCIAL ANALYSIS ………………………………………… 2
2.1 Stakeholder Definitions……………………………………………………………………………………………… 2
2.2 Tesco’s Stakeholders ………………………………………………………………………………………………… 2
2.3 Analysis of Tesco’s Environmental and Social Review and the Corporate Governance Report. 3
Under this section an attempt will be done to analyze………………………………………………………………….. 3
2.3.1 Tesco’s Performance in Terms of its CSR to its Customers and Suppliers ………………………. 3
3 STRATEGIC FINANCIAL ANALYSIS AND EVALUATION OF BENEDICT CO. ……………….. 5
3.1 Introduction and Chosen Financial Ratios…………………………………………………………………….. 5
3.2 Calculations, Interpretations and Analysis of Benedict Co. Financial Ratios ………………………. 8
3.2.1 Profitability Ratios ……………………………………………………………………………………………. 8
3.2.2 Benedict Co. Liquidity Ratios………………………………………………………………………………. 9
3.2.3 Benedict Co. Use of Resources Ratios …………………………………………………………………. 10
3.2.4 Financial Position Analysis of Benedict Co. (Gearing Ratios)………………………………….. 11
3.2.5 Benedict Co. Investor Ratios………………………………………………………………………………. 12
4. CONCLUSION ……………………………………………………………………………………………………………. 13
5. REFERENCES…………………………………………………………………………………………………………….. 14
6. APPENDICES……………………………………………………………………………………………………………… 16
6.1 Industrial Financial Data ………………………………………………………………………………………….. 16
6.2 Benedict Co.’s Income Statement ……………………………………………………………………………… 16
6.3 Benedict Co.’s Balance sheet ……………………………………………………………………………………. 17
6.4 Calculated Capital employed…………………………………………………………………………………….. 17
6.5 Calculation of Benedict Co.’s financial ratios………………………………………………………………. 18
Tables
Table 1. Financial Ratios…………………………………………………………………………………………………….. 6
Table 2. Financial Ratios……………………………………………………………………………………………………. 7
Table 3.Benedict Co. Profitability Ratio for 20X1 and 20X0 …………………………………………………. 8
Table 4. Benedict Co. Liquidity Ratios in 20X0 and 20X1 …………………………………………………….. 9
Table 5. Benedict Co. Use of Resources Ratios…………………………………………………………………. 10
Table 6. Benedict Co. Gearing Ratios for Years 20X1 and 20X0 ………………………………………… 11
Table 7. Benedict Co. Investor Ratios for Years 20X0 and 20X1 ………………………………………… 12
1 INTRODUCTION AND ESSAY STRUCTURE
The essay attempts to carry out a strategic financial evaluation and analysis of two companies:
TESCO and Benedict Co. Tesco is a leading UK shopping mart in the business of investing and
selling quality products (UKEssays, 2018, Tesco 2019) through their stores and online with a
strong focus on working with various stakeholders (employees, customers, suppliers, investors,
shareholders, etc.,. (Tesco 2019)). The essay will define the term “stakeholder” and identify
Tesco’s three key stakeholders. Further, using Tesco’s annual report 2016, a review of the
company’s financial performance in terms of corporate and social responsibilities against its
environmental, social and corporate governance report will be carried out.
The report will also attempt to evaluate and analyze the financial position of Benedict Co. which
is a provider of superior salvage solutions. The Company buys and sells damaged or abandoned
freight and other items. (Benedict Co. 2019). The report will calculate, interpret and analyze a
range of financial ratios to measure the company’s financial performance. Finally, a summary of
the findings and recommendations will be drawn.
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2 TESCO’S CORPORATE STRATEGIC FINANCIAL ANALYSIS
2.1 Stakeholder Definitions
Stakeholders are persons and groups that have a vested interest in a business. A basic
definition of stakeholder is: “…any group or individual who can affect or is affected by the
achievement of an organization’s objectives.” (Freeman, 1984 pp46; Freeman and Reed 1983
pp93). Other variants of stakeholder definition were put forward by Nutt and Backoff, (1992),
Bryson, (1995, pp27) and Eden and Ackermann (1998, pp117). These persons and groups
would have different levels of interest in the business and can be classified as either primary or
secondary. Primary stakeholders have control of activities that are internal to the business.
Bryson (2003) argues that stakeholder analysis is the ‘smart move’ by which companies get to
understand, craft strategies and manage internal and external environment for the company to
achieve superior profitability.
To sum up, stakeholders are people, firms, organizations, entities or simply the entire community
that can affect or be affected by the company’s activities. Tesco’s annual report 2016, classified
its stakeholders into three major categories: internal (primary), external (secondary) and
connected stakeholders (Tesco 2017, pp40).
2.2 Tesco’s Stakeholders
From Tesco’s annual report 2016 (Tesco, 2017, pp48, 53), three key primary stakeholders are
colleagues (staff), customers and suppliers. Others are environmental groups, shareholders,
investors, financiers, owners and partners. Secondary ones are government, councils, counties,
competitors, media and journalists, regulators and CSR charities.
Tesco has three stakeholders specifically highlighted in the corporate governance report namely:
staff and colleagues, customers and suppliers. Colleagues are referred to by the company as
Tesco’s employees, in whom the company invests in order to better serve its customers. Tesco
Customers are referred to as people or entities who buy the company product and services or
come back again or recommend the company to other shoppers. Suppliers are the Tesco’s key
stakeholders that belong to partnerships under connected stakeholders.
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2.3 Analysis of Tesco’s Environmental and Social Review and the Corporate
Governance Report
Under this section an attempt will be done to analyze how environmental and social review and
corporate governance report helps Tesco to demonstrate its performance in terms of corporate
and social responsibilities (CSR) to two of its key stakeholders. These are customers and
suppliers who have been highlighted and their significance underscored in the annual report
2016 (Tesco, 2017).
The company’s performance has been shown to depend on these two stakeholders. Further, in
measuring Tesco’s performance, customers’ and suppliers’ KPIs were introduced (Tesco 2017,
pp12), suggesting that, the company highly values their contribution to its profitability.
Specific measures and objectives, to measure the performance of customers and suppliers to
support its corporate governance objectives of rebuilding trust and transparency, have been put
in place (Tesco, 2017, pp. 30, 48, 50). Under this objectives, strong CSR activities on community
and charity projects have been put in place. The company adopted the UK Corporate
Governance Code by adopting specific reporting structures, highlighting relationships between
its social and environmental actors (Tesco, 2017, pp.30).
2.3.1 Tesco’s Performance in Terms of its CSR to its Customers and Suppliers
The corporate governance report underscores Tesco’s non-financial objectives, social and
environmental responsibilities. These are evidently seen in the report especially on (pp. 8, 12-
13, 30, 39, 43, 51 and 126). According to the CEO’s statement, Tesco priorities are threefold:
regain competitiveness, protect and strengthen the balance sheet and rebuild trust and
transparence (Tesco, 2017). To do so, it has 476,000-strong staff, 6,902 retailer shops serving
millions of customers (with 78M shopping trips every week) with strong mantra: “Serving
Shoppers a Little Better Every Day” and has defined strategy on how it works with its suppliers.
Key to this is its strong CSR where 18M meals have been donated through their surplus
redistribution work and neighborhood food collection.
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Following from the above paragraph, Tesco’s CSR and corporate governance is key to
rebuilding trust and transparency among its customers and suppliers. This is demonstrated and
reported by Tesco (2017) as follows:
Tesco has created Local Communities around its 6,902 retailer shops,
Community Food Collection Nationwide drive,
Building floods temporary store,
All surplus food from Tesco stores in UK goes to charity and note wasted,
Local charities work with local stores (Local Food Collection and Distribution Community)
to help feed the needy. This was extended to 100 large stores by end of year 2016,
Charity partnership with Diabetes UK and the British Heart Foundation to raise $30M to
promote healthy living,
Customers have chosen specific community projects to receive $11.5M raised from sale
of Tesco bags since 2015; donated through Bags of Help (biggest environmental
improvement drive in UK)
Performance of these non-financial CSR initiatives are tied with financial objectives of Tesco as
reported in Tesco (2017).
Page 5 of 22
3 STRATEGIC FINANCIAL ANALYSIS AND EVALUATION OF BENEDICT CO.
3.1 Introduction and Chosen Financial Ratios
Since 1983, Benedict Co has been a provider of superior salvage solutions. The Company buys
and sells damaged or abandoned freight and other items, from transport claims or warehouse
losses (Benedict Co. 2019)
Figure 1. Benedict Co. Salvage Solutions.
The use of financial ratios is a time-tested method of analyzing a business. Managers, investors,
customers, suppliers and lenders all use financial ratio analysis to learn more about a company’s
current financial health as well as its potential (Zions Business Center, Undated). Under this
section, a range of financial ratios will be used to analyze and evaluate the Benedict Co. financial
health and performance in meeting its stakeholders’ expectations by using the company’s
provided financial statements for the years 20X0 and 20X1 and its industry economic data. The
chosen financial ratios are tabulated below.
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Table 1. Financial Ratios
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Augustus Muli. ID: 74105027
Table 2. Financial Ratios
Adapted from: Scicluna, C. (2019), Module Handout Notes and Corporate FinancialTM Institute
(Undated).
Page 8 of 22
3.2 Calculations, Interpretations and Analysis of Benedict Co. Financial Ratios
This sections presents calculations, interpretations and analyses of Benedict Co.’s financial
ratios using appendices 6.1 to 6.5.
3.2.1 Profitability Ratios
Table 3 shows ROCE and Net profit margin ratios have decreased from 24.19% to 17.50% and
32.93% to 22.73% respectively. The decrease in ROCE may be due to the company’s profit
before taxes decrease from $8.7M to $8.3M in years 20X0 and 20X1 respectively (Appendix
6.2). At the same time, ROCE may have decreased due an increase in the capital employed
from $33.9M to 40.0M.
Table 3.Benedict Co. Profitability Ratio for 20X1 and 20X0
Profitability Ratio 20X1 20X0 Observations
Operating profit
Return on capital employed (ROCE) 17.50% 24.19% Decreased
Net profit margin 22.73% 32.93% Decreased
Gross profit % 48.05% 41.77% Increased
Net asset turnover 0.77 0.73 Increased
The decreased ROCE may imply that, the company’s efficiency to use capital to generate profit
has gone down; or the company bought more products to sale at low competitive prices to attract
and build a strong customer base as seen in the increase in sales. This scenario explains also
the decrease in net profit margin ratios.
Gross profit ratio increased from 41.77% to 48.05% from 20X0 to 20X1 (Table 3). This can be
explained by parallel increases in sales (23.69%) and the gross profits from $10.4M to $14.8M
(42.31%) thus the growth of the gross profit ratio. This scenario may support my earlier
suggestion that, though ROCE decreased under the two years in review, there were more sales
which may have been low priced to attract customers. Increasing sales and reducing cost of
sales in this scenario may explain the increase in gross profit margin.
Net asset turnover increased during the years in review from 0.73 to 0.77 times. This may be
attributed to the reported increase in sales than the capital employed. This shows an
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improvement in Benedict Co.’s ability to generate revenue from capital employed as opined by
Scicluna (2019, pp9).
3.2.2 Benedict Co. Liquidity Ratios
Table 4. Benedict Co. Liquidity Ratios in 20X0 and 20X1
Liquidity Ratios 20X1 20X0 Observations
Current ratio 1.19 1.25 Decreased
Quick ratio 0.70 0.75 Decreased
From Table 4, the current ratio and quick ratio decreased slightly from 1.25 to 1.19 and from
0.75 to 0.70 respectively during the years under review. In 20X1 for every $1.19 of current
assets, the company had $1.0 liabilities. Thus Benedict Co. can cover its liabilities marginally.
The decrease in current ratio may have been caused by increased sales reported earlier. To
increase current ratio, Benedict Co can re-invest back its profits by buying more assets or
acquire a long-term loan or pay its debts. A very high current ratio may mean that, cash is not
being utilized in an optimal way. Jim (2011) argued that current ratios of 1.0 to 1.5 may imply
that, a business may struggle to pay its liabilities.
Quick ratio or ‘Acid Test’, looks at the most liquid assets and compares it with current liabilities.
From Table 4, it’s observed that, though quick ratio decreased from 0.75 to 0.70, it remained
high and satisfactory to recommended figures of between 0.5 to 1 (Corporate Finance Institute,
Undated). It may have reduced due to the reported increase in sales in year 20X1.
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3.2.3 Benedict Co. Use of Resources Ratios
Stock days normally measures the average number of days that the company keeps its stock
before selling. Benedict Co. stock days / inventory days has increased from 65.45 days to
118.68 days (Table 5) compared to the industry average of 60 days (Appendix 6.1). This is
despite the earlier reported increase in sales.
Table 5. Benedict Co. Use of Resources Ratios
Ratios 20X1 20X0 Observations
Stock/ Inventory days 118.63 65.45 Increased
Debtor/ Trade Receivable days 90.06 55.70 Increased
Creditor/ Trade Payable days 155.13 108.24 Increased
Cash conversion cycle 53.56 12.91 Increased
Debtor days ratio measures the average number of days required for a company to receive
payment (trade receivables) from its customers for invoices issued to them (Bragg 2018). Table
5 shows an increase in debtor days’ ratio from 55.7 to 90.06, a significant increase of 43.9 days
(62.66%) in 20X1 compared to the previous year. This shows a notable decrease in the
company’s ability to collect trade receivables and in my opinion reflects poorly on its performance
in 20X1. Benedict Co compares poorly with industry players with an average of 55 trade
receivable days. On a positive note, this may be a deliberate policy to attract more trade and
compete with its industry players (Kaplan Financial, 2012).
From table 5, Benedict Co. increased creditor days from 108.24 to 155.13, a difference of 43.31
days in the years 20X0 to 20X1. This trade payables are way more than the average in the
industry players. Further, though payables are longer than receivables, Benedict Co.’s trade
suppliers may opt not to give credit to the company and opt to deal with other industry players.
This may also be interpreted that, the company financial position is poor.
Cash conversion cycle is a cash flow calculation that measures the time it takes a company to
convert its investment in inventory and other resource inputs into cash. Table 5 shows a notable
increase in Benedict Co.’s cash conversion cycle from a mere 12.91 to 53.56 from 20X0 to 20X1.
This is attributed to the increase in stock, debtor and credit days observed in Table 5. Thus it
can be concluded that, Benedict Co. has been underperforming and has been inefficient in use
of its resources to generate cash from its capital assets.
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3.2.4 Financial Position Analysis of Benedict Co. (Gearing Ratios)
Kaplan Financial (2012) argues that assessment of financial position of a business mainly
focuses on its stability and exposure to risk by considering the way the business is structured
and financed. This is referred to as gearing. Gearing measures the level of external debt a
company has (outstanding loans) in comparison to equity finance (share capital and reserves).
From our calculation in Table 6, gearing ratio increased slightly from 23.60 % to 30.00% from
20X0 to 20X1, which is below the recommended 50% (Scicluna, 2019). The increase may be
attributed to the company’s increase in long term debt from $8M to $12M (50%) compared to a
slight increase in capital employed from $33.9M to $40M (17.99%).
Table 6. Benedict Co. Gearing Ratios for Years 20X1 and 20X0
Gearing Ratios 20X1 20X0 Observations
Gearing ratio% 30.00 23.60 Increased
Debt/equity ratio% 42.86 30.89 Increased
Interest cover 5.38 16.40 Decreased
The liquidity ratios above, means that the company has increased its risk to cover its long-term
debts by its capital employed (Edwards, 2003). Debt/equity ratio has remarkably increased from
30.89% in 20X0 to 42.86% in 20X1 (50%) which is due to an increase in the company’s longterm debt acquisition than that of its stock capital and reserves (8.11% in Appendix 6.3). Thus,
the increase of capital and reserve was not able to balance a respective increase in debts of up
to 50% as opined by Rushinek (1987, pp. 93–100). Highly geared companies are considered to
be riskier but comparatively cheaper to service than lower geared companies.
Interest cover ratio measures the ability of a company to pay interest out of profits generated.
(Scicluna 2019 and Kaplan Financials, 2012). From Table 6, interest cover ratio decreased from
16.40 times to 5.38 times, reflecting the decline in Benedict Co.’s profits (4.6% which also led to
an increase financial costs, having increased from $500.000 to $1.3 M (up by 160%).Though
there is a decline I opine that, still the company is able to pay its interest from the declined profits.
Page 12 of 22
Though as a shareholder, this ratio should be monitored closely in the next financial year and
for it encouraged to invest in trade receivables recovery. As Edward (2003) argues Benedict
Co.’s interest cover ratio deterioration may pose a risk to shareholders dividends.
3.2.5 Benedict Co. Investor Ratios
Investor ratios measure the returns to the owner of the business (Kaplan Financials, 2012).
Table 7. Benedict Co. Investor Ratios for Years 20X0 and 20X1
Ratios 20X1 20X0 Observations
Return on equity 23.57% 27.03% Decreased
Dividend per share (DPS) 0.03 0.02 Increased
Earnings per share (EPS) 0.00004 0.00004 Unchanged
Dividend cover 0.001 0.002 Decreased
Payout ratio % 68181.82 51428.57 Increased
Price/earnings ratio 152727.27 92571.43 Increased
Dividend yield % 0.45 0.56 Decreased
Earnings yield % 0.0007 0.0011 Decreased
Table 7 shows that return on equity decreased while DPS increased. The DPS increase can be
explained by the 25% increase in the total dividends paid (Appendix 6.2). Dividend Cover
decreased from 0.002 times to 0.001 times, because of the decreased earnings after tax and
the high dividends paid. EPS remained unchanged and significantly low. Payout ratio is
inversely proportional to dividend cover ratio and thus as one tends to zero the other grows to
infinity. Dividend yield ratio decreased from 0.56% to 0.45% as a result of increased stock’s
market price of 55.56% (from $ 3.6 per share to 5.6 per share), offsetting the DPS by 25% as
observed. Earnings yield ratio decreased due to the observed deterioration of profitability and
EPS values tending to zero.
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4. CONCLUSION
The analysis depicts Benedict Co. as a company whose financial position is weak, with strong
financial and business risks. Its profitability and performance is seen to have deteriorated. The
company’s creditor and debtor days has increased significantly as well as cash conversion cycle.
Liquidity of the company is also straining its operations. This worsening state is disputed by an
increase of the gross profit margin and a slight increase in net asset turnover. Thus more
analysis may be needed for these findings to be conclusive.
Use of resources ratios show that Benedict Co. failed to accelerate its stock trading, collect
revenues and to turn stock into cash. The calculated liquidity ratios shows that the company may
not be able to meet its short-term liabilities and that it may be unable to cover its operational and
sales costs. The 2 years in review shows the company business and financial risks are
increasing. Gearing ratios confirms this position. Finally, investor ratios demonstrate Benedict
Co.’s inability to generate earnings for its investors, due to the observed earning lesser than its
dividends values.
Based on the analysis and data provided, Benedict Co. cannot meet the requirements of
potential customers, investors, lenders and suppliers.
Page 14 of 22
5. REFERENCES
Benedict Co. (2019). Benedict Company profile. Available online at:
http://www.benedictcompany.com/services/ (Accessed on 20 April 2019).
Bragg S. (2018). Accounting Tools: The Debtor Days Calculation. Online:
https://www.accountingtools.com/articles/what-is-the-debtor-days-calculation.html.
[Accessed: 23 April 2019]
Bryson, J. (1995). Strategic planning for public and non-profit organization (Rev. Ed.). San
Francisco: Jossey-Bass Publishers.
Bryson, J.M. (2003). ‘What to do when stakeholders matter: A guide to stakeholder
identification and analyses’, London School of Economics and Political Science, 10
February 2003.
Corporate FinancialTM Institute (Undated). Financial Ratios: The Use of Financial Figures to
Gain Significant Information About a Company
https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios/
[Accessed: 23 April 2019]
Eden, C. and Ackermann, F. (1998). Making Strategy: The Journey of Strategic Management,
pp117, London: Sage Publications. Latest edition
Edwards, C. (2003). Fundamentals of Corporate Finance. Available at:
http://highered.mheducation.com/sites/dl/free/0070898669/65177/Chapter17.ppt.
[Accessed: 28 April 2019]
Freeman, R.E (1984). Strategic Management: A Stakeholder Approach. Boston: Pitman.
Freeman, R.E. and Reed, D.L. (1983). Stockholders and Stakeholders: A New Perspective on
Corporate Governance. California Management Review. Available at:
http://journals.sagepub.com/doi/10.2307/41165018 [Accessed: 24 April 2019].
Jim R. (2011). Q&A – How is the current ratio calculated and interpreted? Tutor2U.
https://www.tutor2u.net/business/blog/qa-how-is-the-current-ratio-calculated-andinterpreted [Accessed: 24 April 2019].
Kaplan Financial (2012). Interpretation of Financial Statements: Efficiency Ratios. Available:
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Efficiency%20Analysis.aspx?
mode=none. [Accessed: 26 April 2019].
Nutt, P. C. and Backoff, R. W. (1992). Strategic management of public and third sector
organisations. San Francisco, CA: Jossey-Bass Publishers.
Rushinek, A. and Rushinek, S.F. (1987). Using financial ratios to predict insolvency. Journal of
Business Research 15:93–100.
Page 15 of 22
Scicluna, C. (2019). Strategic Financial Management AF4S31: Interpretation of Financial
Statements. [Online]:8–17. Available at: http://vleusw.unicaf.org/mod/resource/view.php?id=36393 [Accessed: 6 April 2019].
Tesco (2019). Company profile. Available online at https://www.tescoplc.com/about-us/
[accessed on 8 April 2019]
Tesco PLC (2017). Annual Report and Financial Statements 2016 pp. 1-172 [Online] Available
at: https://www.tescoplc.com/media/264194/annual-report-2016.pdf [Accessed: 18 April
2019]
UKEssays. November 2018. Analysis of Tesco’s Stakeholders. [Online]. Available from:
https://www.ukessays.com/essays/business/investigate-profit-tesco-and-non-profit-oxfambusiness-essay.php?vref=1 [Accessed 19 April 2019].
University of South Wales (2018). Summative Assessment 1 Brief and Marking Scheme V2.
United Kingdom: University of South Wales. Available at: http://vleusw.unicaf.org/mod/resource/view.php?id=36408. [Accessed on 12 April 2019]
Zions Business Center (Undated). Business Builder 6. How to Analyze Your Business Using
Financial Ratios. Available: https://www.zionsbank.com/pdfs/biz_resources_book-6.pdf.
[Accessed on 22 April 2019]
Page 16 of 22
6. APPENDICES
6.1 Industrial Financial Data
Current ratio 1.6
Quick ratio 1.0
Trade receivable days 55 days
Trade payable days 90 days
Inventory days 60 days
University of South Wales (2019).
6.2 Benedict Co.’s Income Statement
In $’000
A D E F
11 20X1 20X0 Diff. %
12 Sales 30800.0 24900.0 23.69
13 Cost of sales 16000.0 14500.0 10.34
14 Gross profit 14800.0 10400.0 42.31
15 Admin expenses 1700.0 400.0 325.00
16 Distribution costs 3500.0 800.0 337.50
17 Finance costs 1300.0 500.0 160.00
18 Profit before taxation 8300.0 8700.0 -4.60
19 TAXATION 1700.0 1700.0 0.00
20 Profit after taxation 6600.0 7000.0 -5.71
21 Dividends $’000 4500 3600 25.00
22 Share price 31 Jan $/share 5.6 3.6 55.56
23 Issued shares Items 180000000 180000000 0.00
24 Nominal value $/spare 1 1 0.00
University of South Wales (2019).
Page 17 of 22
6.3 Benedict Co.’s Balance sheet
In $’000
A D E F
28 20X1 20X0 Diff. %
29 Non-current assets 38,000 32,600 16.56
30 Inventory 5,200 2,600 100.00
31 Account receivables 7,600 3,800 100.00
32 Current assets 12,800 6,400 100.00
33 Total assets 50,800 39,000 30.26
34 Share capital 18,000 18,000 0.00
35 Reserves 10,000 7,900 26.58
36 Capital and reserves 28,000 25,900 8.11
37 6% bonds 12,000 8,000 50.00
38 Non-current liabilities 12,000 8,000 50.00
39 Trade payables 6,800 4,300 58.14
40 Overdraft 4,000 800 400.00
41 Current liabilities 10,800 5,100 111.76
42 Total liabilities 50,800 39,000 30.26
University of South Wales (2019).
6.4 Calculated Capital employed
In $’000 20X1 20X0 Diff. %
Total assets 50,800 39,000 30.26%
Minus Current liabilities 10,800 5,100 111.76%
Capital employed 40,000 33,900 17.99
Student ID: 74105027 / Reg. No. R1711D3986419
6.5 Calculation of Benedict Co.’s financial ratios
Ratios Formulas Calculations Results
20X1 20X0 20X1
20X0
Profitability Ratios
Operating Profit PBITx100
Revenue
8,300-1300)x100
30,800
8700-500)*100
24,900
Return on capital
employed (ROCE) PBITx100
TA-CL
(8,300-1300)x100
(50,800 -10,800)
(8700-500)*100
(39,000-5,100)
17.5% 24.1
9%
Net profit margin PBITx100
Sales
(8,300-1300)x100
(30,800)
(8,700-500)x100
(24,900)
22.73% 32.9
3%
Gross profit % GPx100
Sales
14800 x100
30,800
10400 x100
24,900
48.05% 41.7
7%
Net asset turnover Turnover
Capital
employed
30800
(50,800-10,800)
24,900
(39,000-5,100)
0.77 0.73
Use of resources
Stock days Inventory x 365
Cost of Sales
5,200 x365
16,000
2600 x365
14,500
118.63 65.4
5
Debtor days Trade
receivablesx365
Sales
7,600 x365
30,800
3,800 x365
24,900
90.06 55.7
0
Creditor days Payablesx365
Cost of Sales
6,800 x365
16,000
4,300 x365
14,500
155.13 108.
24
Cash
conversion
cycle
Stock days + Debtors
days – Creditors days
(118.63 + 90.06) –
155.13
(65.45 + 55.70) –
108.24
53.56 12.9
1
Liquidity Ratios
Current ratio Current Assets
Current Liabilities
12,800
10,800
6,400
5,100
1.19 1.25
Quick ratio Current asset less stock
Current liabilities
(12,800 -5,200)
10,800
(6,400 – 2,600)
5,100
0.70 0.75
Gearing Rations
Gearing ratio Long-term debts x100
Total assets less
current liabilities
(12,000 x100)
(50,800 – 10,800)
(8,000 x100)
(39,000 – 5,100)
30.00% 23.6
0%
Debt/equity
ratio
Long-term debt x100
Share capital and
(12,000 x100)
(28,000)
(8,000 x100)
(25,900)
42.86% 30.8
9%
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reserves
Interest cover
Profit before tax
Interest charges
(8,300 – 1,300)
(1,300)
(8,700 – 500)
(500)
5.38 16.4
0
Return on
equity
Earning after tax x100
Ordinary share capital
plus reserves
(6,600 x100)
(28,000)
(7,000 x100)
(25,900)
23.57% 27.0
3%
Investor Ratios
Dividend per
share (DPS)
Dividend paid to
ordinary share
# issued ordinary
shares
(4,500 x1,000)
180,000,000
(3,600 x1000)
180,000,000
0.03 0.02
Earnings per
share (EPS)
Earning after tax
# of issued ordinary
shares
6,600
180,000,000
7,000
180,000,000
0.0000
4
0.00
004
Dividend cover EPS
DPS
0.00004
0.03
0.00004
0.02
0.001 0.00
2
Payout ratio Dividend paid to
ordinary shareholders
x 100 / earnings after
tax
(4,500 x 1000×100)
6,600
(6,600 x 1000×100)
7,000
68181.
82%
5142
8.57
%
Price/earnings
ratio
Market price per
share / EPS
5.6
0.000038888889
3.6
0.000038888889
152727
.27
9257
1.43
Dividend yield DPSx100
Market price per
share
(0.025 x 100)
5.6
(0.02 x 100)
3.6
0.45% 0.56
%
Earnings yield EPSx100
Market price per
share
(0.000038889 x 100)
5.6
(0.000038889 x 100)
3.6
0.0007
%
0.00
11%
