Financial Ratios are the ratios that helps the analysts or stakeholders to identify and understand the financial position of the company. Tesco Plc is a multinational general merchandise and groceries retailer. It is the third largest retailer in the world in terms of gross revenues. The head quarter of the company is situated in Welwyn Garden City, United Kingdom. It was incorporated during the year 1919 and it operates its business throughout the world. Financial ratios provides an opportunity for the entrepreneurs to understand and evaluate the financial performance of the company. It enables them to compare the financial ratios with that of previous years or of competitors. The financial ratios measure the relationship between two elements of the financial statements of the company. It provides an efficient tool to compare the financial results of the company over several periods. If you need consumer debt topics then you should contact our experts.
The financial ratios helps the entity to assess the business performance and identify the areas of underperformance. It also guides the businesses for improving critical areas and setting goals of the business. The financial ratios can be compared with the following:
The financial ratios are categorized into liquidity, profitability, efficiency and solvency ratios. All these type of ratios helps in monitoring the financial position of Tesco.
The best financial ratio is the one that gives all the major information regarding the financial performance of the company. In this context, the best financial ratio is the net profit margin as it reflects the ability of the company to convert its revenue into actual profit for the firm. The financial ratios provide an insight on the company’s financial performance over a particular period of time. Any single ratio may not be considered as the best ratio, as it does not reflect all critical information regarding the financial performance of the company. Thus, it is essential for the analysts to look after several ratios to evaluate the actual finance position of the company. However, the most important financial ratios that must be calculated are current ratio, debt-to-equity ratio, quick ratio, return on equity and net profit margin. All these ratios provide information from different aspects of the business. Current ratio and quick ratio form the part of liquidity ratio, debt-to-equity ratio is one of the solvency ratios whereas return on equity and the net profit margin are the profitability ratios. Thus, all these ratios must be considered before evaluating the financial performance of the company. We are also providing hull white model by top experienced experts.
The most important financial ratios comprises of ratios from all categories, namely, liquidity, profitability, solvency, and efficiency ratios. The most important financial ratios are discussed in brief below:
Current ratios: These are the liquidity ratios that compares the current assets of the company with the current liabilities. It reflects the ability of the company to repay the short-term obligations of the company. The current ratio of less than one indicates that the company’s current assets are not enough to repay the current liabilities of the company. It is calculated by dividing the current assets by the current liabilities.
Current ratio = Current assets / Current liabilities
Quick ratios: This ratio is also a part of the liquidity ratio, which compares the quick assets of the company with the current liabilities. The quick assets are the ones that can be converted into cash easily. Inventories are deducted from the total current assets to arrive at the quick assets. Inventories are not expected to be sold at once, as and when desired. It is for this reason that it is not included in the quick assets. The quick ratio is also known as the acid-test ratio. It is calculated by dividing the quick assets by the total current liabilities of the company.
Quick ratio = Quick Assets / Current liabilities
Debt-to-equity ratios: It is also known as leverage or solvency ratios, which reflects the relationship between the total liabilities and the shareholder’s equity. It reflects the proportion of equity and debt used by the company for purchasing the assets and carrying out its daily operations. It is calculated by dividing the total liabilities / shareholder’s equity.
Debt-to-equity Ratio = Total Liabilities / Shareholders equity
Net Profit Margin: It forms the part of the profitability ratios that compares the net sales with the actual profit of the company. It is calculated by dividing the net income by the total net sales revenue of the company during a particular period of time.
Net Profit Margin = Net Profit / Net Sales
The main characteristics or features of the financial ratio analysis include:
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There are several advantages of financial ratios as it is considered to be a powerful tool for the financial statement analysis. It helps the entity in identifying the strengths and weaknesses of the company. Some of the principal advantages of ratio analysis are presented below:
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