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University of South Wales


School of Business and Society

TESCO Stakeholders
Analysis and Benedict Co.
Financial Evaluation

Tutor: DR Nikki Petrou

Student: Yasmine Amin Khalaf

ID: 74104331

August 2019

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Table of Content
Chapter One: Introduction ....................................................................................................... 3
Report Structure ...................................................................................................................... 4
Chapter Two: Tesco Strategic Financial Analysis ................................................................. 4
Terminologies and Definitions .................................................................................................. 4
Tesco Stakeholder Analysis .................................................................................................... 5
Tesco Corporate Social Responsibility, Environmental and Social Review and Corporate
Governance…………………………………………………………………………………………………
…………………………………………..7

Chapter Three: Benedict Co. Financial Position Analysis .................................................. 11


Introduction............................................................................................................................ 11
Methodology .......................................................................................................................... 11
Analysis of Benedict Co. Financial Position ........................................................................... 12
Chapter Four: Conclusions and Recommendations ........................................................... 18
APPENDIX: Benedict’s Financial Ratios Calculations ........................................................ 19
Bibliography ........................................................................................................................... 23

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CHAPTER ONE: AN INTRODUCTION

There are many reasons one may call a company successful, whether as a reputation,
a company’s worth or simply by the uniqueness of the service/product. However, one of
the main reasons that we may call a company successful is by measuring its financial
performance. That is why it is the aim of this report to strategically analyse the financial
position of Tesco and Benedict Co.

At first, the author will attempt to look at Tesco’s company key stakeholders and utilize
its 2016 annual report to examine the company’s performance, with focus on its
corporate social responsibility and compare it to its actual performance that is exhibited
in its environmental, social review and corporate governance report.

Tesco is a UK based shopping mart, whose sole object when founded was to provide
affordable, quality food that is accessible to everyone. Putting the consumers’ interest at
heart, the retailer created a customer centric product chains and pioneered the grocery
shopping experience in the UK whether via the stores or online (Tesco PLC, 2019).

Any company in the world has it operations revolving around stakeholders such as
customers, employees, suppliers, shareholder and many more. That is why in the first
part of the report, the author will identify, analyse and measure the extent of three
stakeholders to the company’s financial performance.

In the second part of the report, the author will try to examine and evaluate the financial
position of Benedict Co which is “a professional, experienced buyer and reseller of
damaged cargo, abandoned freight, casualty losses and more” (Benedictcompany.com,
2019). This report will determine the validity of Benedict Co as a potential supplier by
financially analysing its performance through financial ratios.

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1. Report Structure

This report will be structured into four chapters; The First Chapter, represents what the
reader should expect in the report with a brief introduction about the company and the
methodologies of the analysis to be done on both Tesco and Benedict Co.

The Second Chapter, will include a complete analysis of Tesco’s three stakeholders
based on their annual review, while The Third Chapter, will be geared towards the
investigating the financial position of Benedict Co. through a series of calculation and
financial ratios. Last in The Fourth Chapter, will provide a conclusion to the data
presented in the report and present recommendations to the respective company.

CHAPTER TWO: TESCO STRATEGIC FINANCIAL ANALYSIS

2. Terminologies and Definitions

According to the business dictionary, Stakeholders are identified as “A person, group or


organizations that has interest or concern in an organization.” (BusinessDictionary.com,
2019).Through the definition one can understand that stakeholder can affect the
company and by turn are affected by the company’s actions. Stakeholders can take
many forms such as “creditors, directors, employees, government (and its agencies),
owners (shareholders), suppliers, unions” (BusinessDictionary.com, 2019).

This understanding agrees with Edwards Freeman’s definition that was presented in
1984, where he stated that “any group or individual who can affect or is affected by the
achievement of the organization’s objectives” (Bryson, 2004), that is why according to
Byson (2004) this could be the most accepted definition of a stakeholder (Bryson,
2004).

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Nutt, Backoff and Bryson, do accept Freeman’s definition, while also they advocated for
importance of adding organization in the definition, which is why it is evident in the
definition provided by the business dictionary (Bryson, 2004).

In his work, Bryson believes that stakeholders are key actors that should be in the
consideration of any company’s management that is why while reviewing Tesco’s report
the author will pay attention to organizations involved (Bryson, 2004).

According to Clarke and Clegg, there are four classifications to stake holders; Primary
Social Stakeholder, Secondary Social Stakeholders, Non-Social Stakeholders and
Secondary Non-Social Stakeholders commonly known as the Clarke and Clegg model
(Clarke and Clegg, 2000).

By following this model, we can identify three main stakeholders under the primary
social classification, who will be the ones the author will analyse such as Customers,
Employees and Suppliers (Clarke and Clegg, 2000).

In a simpler form of categorization, Stakeholders are classified into internal (within the
company) and external stakeholders (outside the company). By following this
classification, the main internal stakeholders for Tesco are the Employees (also known
as Colleagues in all of the company’s communication) and the external stakeholders to
be Customers and Suppliers (Clarke and Clegg, 2000).

In its report, Tesco followed the later form of categorization of stake holders and added
another which is Connected Stakeholder that is why we will follow this categorization in
our analysis.

2.1 Tesco Stakeholders Analysis

2.1.1 Customers

Customers are individual or entities who purchase a product or service from a company,
with frequent purchases and brand advocacy (SANGWA, 2018).

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For Tesco, it is clear that they have a customer centric culture driving their operations
and one of the reasons of the company’s success. In their business model, Tesco
states that “Customers are the priority; we place them at the heart of everything we do
to deliver. Our purpose is serving shoppers a little better every day.”(Tescoplc.com,
2016).

They focus heavily on delivering the best shopping experience in regards to price,
service, range and availability (Tescoplc.com, 2016). In Tesco’s case their major type of
stakeholders are the loyal customers, according to Dick and Basu (1994) a customer’s
loyalty is manifested as the relationship among the client relative behaviour and the
repeated patronage (Dick and Basu, 1994).

In their report Tesco identify loyal customers based on their purchase frequency, the
amount they spend and their brand advocacy; as in how much they recommend Tesco
to their friends and families and creating a word of mouth effect among their peers
(Tescoplc.com, 2016).

So it is clear that customers are an important external stakeholder for Tesco, that is why
Tesco has included them as a key KPI in their “Big 6” KPI scheme (Tescoplc.com,
2016), to maintain this relationship Tesco has met the needs of its customers by
providing them with low prices, product quality, choice, facilities and services to
available from home on 24/7 basis (UKEssays.com, 2018).

2.1.2 Suppliers

Suppliers are a key component in a company’s success and maintaining a competitive


advantage, having a good relationship with a supplier has benefits that outweigh the
costs (Teller et al., 2016), as that would help keep the supplier bargaining power at
lower levels. Maintaining a good relationship helps the company be more responsive to
the market, flexible towards changes, fast to adopt new trends and become more
profitable (Teller et al., 2016)

Tesco’s suppliers like any supplier expects t the payment to be paid regularly and on
time to maintain a good interaction, that is why Tesco has adopted a new approach of

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cash payments to their suppliers in an effort to create a trusted and transparent


relationship with them (Tescoplc.com, 2016). They have also set up The Supplier
Network with its own dedicated helpline to tackle problem, issues and concerns as they
arise. With the changes that have been applied Tesco has seen positive reactions from
the suppliers and increase supplier satisfaction index, treating them more like partners
of success rather than a supplier of goods (Tescoplc.com, 2016).

2.1.3 Colleagues

Tesco considers their staff as colleagues, the company invests a lot in the care of its
colleagues as to create a great working environment that will at the end help maintain a
healthy relationship with the partners and provide the customers with the level of service
they deserve (Tescoplc.com, 2016). With Tesco offering competitive benefits such as
Employee Share Schemes, additional discounts on merchandises, housing options and
many more helps Tesco keep a good retention rate and maintain a good employer
score which is evident in Tesco’s NPS (Net Promoter Score) dubbing it a great place to
work (Tescoplc.com, 2016).

2.2 Tesco Corporate Social Responsibility, Environmental and


Social Review and Corporate Governance

2.2.1 Environmental and Social Review

For the longest time, Tesco has made it clear that it takes corporate social responsibility
seriously. Whether by being an active part of the local community, by taking part or
leading initiatives that enriches that surrounding community.

To be able to capture the impact and the significance of the work that they have
achieved so far, we can start by reviewing what they have been doing locally regarding
increasing wellness and health of their colleagues and partners by looking into their
annual report where it was they started “creating partnerships with health experts like
Diabetes UK and the British Heart Foundation that support prevention and cure for the
biggest health challenges we face. By working together, we’re combining the charities’
expertise in health with Tesco’s ability to reach people in local communities across the
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UK. This gives us a unique opportunity to encourage the nation to make healthier
choices in the way they live their lives. This year we have raised £7.89m and this is
going towards prevention projects and important health research.” (Tescoplc.com,
2016). Their programs also included “Tesco Eat Happy Project”, “Lets Cook” courses
and “Farm to Fork” trails that have so far impacted 1.3 million children, the purpose of
these programs to teach the children to make healthier choices and be more active in
the selection and the cooking of their meals (Tescoplc.com, 2016). Tesco also pays
attention to the feedback given by their customers, for example they replaced the
sweets and chocolate snacks from the check out and replaced it with more healthier
options, they have also taken it a step further, to ease the shopping trips on parents
they are providing kids with free fruits to consume through the shopping trip (An update
on our Corporate Responsibility commitments, 2016). They have also actively
reformulated the ingredients in their products to reducing the amount of salt, fat,
saturated fat and sugar, especially in their soft drinks where they mention in their
updated corporate sustainability report “4.5 billion calories and 1,400 tonnes of sugar
we have already cut from the range.” (An update on our Corporate Responsibility
commitments, 2016).

Tesco also, have been working on food waste program which is “Farm to Fork” and
have been applying it whether with its suppliers and in its own operations.

With the suppliers, Tesco has dedicated its efforts to prevent the waste of edible food
that is why in “In March 2016 we widened our specification and introduced our Perfectly
Imperfect range which includes parsnips, potatoes, strawberries and apples. This
enables us to take more of the crop than ever before and reduce food waste on farms.
We are making links between our growers and our fresh and frozen suppliers to help
tackle waste too. For example, we are supporting our potato supplier, Branston, to
supply one of our own-brand manufacturers, Samworths, with unsold potatoes for
mashed potato products – increasing crop usage and reducing waste.” (An update on
our Corporate Responsibility commitments, 2016).

Regarding its own operation, Tesco has launched “The Community Food Connection”
program, in partnership with Fare Share Food Cloud, this program “aims to deliver
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our overall goal at Tesco to never throw away food that could be eaten. The CFC
programme allows stores to alert local charities and community groups of how much
surplus food are available at the end of each day, through the Fare Share Food Cloud
app. Charities simply respond by text message to confirm that they will collect the
surplus food.” (Tescoplc.com, 2016).

According to their report “add the food provided from our surplus redistribution work to
the food donated by our customers and topped up by Tesco through the Neighbourhood
Food Collection, we have donated food equivalent to over 18 million meals to help
people in need in the UK.” (Tescoplc.com, 2016).

They have also taken part in the nation-wide initiative to decrease the usage of plastic
bags, and are a major key player in the UN Sustainable Development Goals.

It is clear that Tesco cares about their stakeholders, while the above example shows
dedication to the “Customers” and “Suppliers” stakeholders however the effect of their
initiatives can be extended to other by effect. Tesco tried to be active and show initiative
in any issue that might affect their stakeholders and their community.

It is their corporate responsibility vision to do so with their motto “every small step
counts” (Tescoplc.com, 2016) however; it is clear from the communicated numbers in
the report that they have taken major strides to become a valuable member of their
community and a proactive part of the society.

2.2.2 Corporate Governance Framework

Corporate governance maybe a new term into the business world, however it is of huge
importance, in the UK, companies have to state whether they complied with the
Cadbury code or not. The code is not a set of rigid rules merely to facilitate ”efficient,
effective and entrepreneurial management that can deliver shareholder value of the
longer term” (Watson and Head, 2010), the code was then revisited and refined till the
“Combined Code” issue of 2008 which “lays out a number of recommendations in terms
of a company’s board of directors, the remuneration they receive, their accountability,
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the audit committee and the company’s relationship with shareholders, including
institutional investors.” (Watson and Head, 2010).

By analysing the report (P.31), Tesco’s Non-executive Chairman John Allen announces
that “fully compliant with the UK Corporate Governance Code this year.” (Tescoplc.com,
2016), this to commemorate their strong belief; that having a strong corporate governing
framework is key for rebuilding trust and transparency (Tescoplc.com, 2016).

That they have undergone varies initiatives with their suppliers, creating succession
plans as well as improve opportunities of ascension to senior and non-executive ranks
for their colleagues especially women This includes mentoring and development
programmes and circle networks to allow women of different levels of seniority to
connect across the business, in an effort to support talent and diversity (Tescoplc.com,
2016).

By examining Tesco’s Framework in the report (P.31), they show that they have created
a “clear direction on decision making without creating burdensome processes that could
impede progress. We retain the agility to get on with running our business whilst
maintaining high standards of governance that support our aim of rebuilding trust and
transparency.” (Tescoplc.com, 2016). This shows that they are leaving no room for an
“Agency” problem to take effect between the company’s management and the
company’s stockholders.

In accordance to the code, the company’s framework shows compliance to the creation
of committees to account the CEO and the CFO for their actions “the Board operates
through a number of Committees, each made up entirely of members of the Board.
Each Committee meets separately to the Board during the year, providing time to focus
in depth on the particular key matters of audit, remuneration, nominations and corporate
responsibility.” (Tescoplc.com, 2016). The committees will actively work on keeping the
operations whether internally in check (such as keeping any duality problems at bay) or
externally to maintain the company’s public image and operations intact.

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The amount of detail that is presented in the framework, with the composition, the
committees created and the intricate structure, shows Tesco’s commitment towards
transparency and establishing trust in both Stakeholder and Shareholders as well.

CHAPTER THREE: BENEDICT CO. FINANCIAL POSITION ANALYSIS


3.1 Introduction

As mentioned earlier (Introduction chapter) Benedict Co. is a leading UK retailer


salvage company specializing in salvaging damaged cargos, abandoned freight,
casualty losses (Benedictcompany.com, 2019). In this chapter, the author will attempt to
analyse the financial situation of the company and its eligibility for an upcoming contract
tender, by analysing the financial years 20X0 and 20X1 materials that will provide the
author with information on the company’s relevant ratios.

3.2 Methodology

In this analysis the author will be utilizing a series of financial ratios and calculations that
will aid in the evaluation of the financial position of the company. Below are the ratios
and their relevance to the company’s stakeholder:

a. Profitability ratios: To be applied on customers, lenders and suppliers


(Scicluna, 2019).
b. The Use of Resources ratios: Creditor days, stock days, debtor days and cash
conversion cycle (Supplier Performance) (Scicluna, 2019).
c. Liquidity ratios: quick and current ratio (Customers and Suppliers) (Scicluna,
2019).
d. Gearing ratios: Debt, equity and interest cover (Lenders) (Scicluna, 2019).
e. Investor ratios: Return on equity, dividend and earnings yield, dividend and
earnings per share, etc.(Investor Performance) (Scicluna, 2019)

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3.2 Analysis of Benedict Financial Ratios

3.3.1 Profitability Ratios

Ratios 20X1 20X0 Observations

Return on capital employed (ROCE) 24% 27.138% Decreased

Net profit margin 31.168% 36.947% Decreased

Gross profit margin 48.051% 41.767% Increased

Net asset turnover 0.77 0.73 Increased

Return on capital employed (ROCE): As it shows above there is the ROCE has

decreased which can be attributed to two causes, first that the company’s decrease in

the profits before taxes and had an increase in the capital employed, meaning that 20x0

has less current liabilities and less equity that 20x1. This could be a warning sign to the

upcoming investors that there investments in the company are not positive due to the

failure of the company to generate profit.

Net Profit Margin: Despite showing an increase in sales in 20x1, yet the profit margin

showed a decrease about 5% from 20x0, which can be attributed to an increase in the

operations costs inside the company, this is an indicator that the company is unable to

manage its operational cost efficiently.


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Gross Profit Margin: Showing an increase of almost 6% from 20x0 is considered a

good sign for the company, this could be interpreted as a result of an increase in sales

and low cost of sales.

Net asset turnover: This show how the company utilizes their assets and manage their

current liabilities to generate sales, this slight increase from 20x0 shows that the

company is getting better at allocating it capital to generate revenues from sales

(Scicluna, 2019).

3.3.2 Uses of Resources Ratios

Ratios 20X1 20X0 Observations

Stock days 118.625 65.45 Increased

Debtor days 90.064 55.702 Increased

Creditor days 155.125 108.241 Increased

Cash conversion cycle 53.564 12.901 Increased

Stock days: In 20x0 they showed a five days increase over than the industry average

(60), however, in 20x1 they almost needed double of the normal average to sell their

stock, this indicates problems in how they are utilizing their resources to accelerate the

trading of their stock, maybe their marketing schemes or other operational activities.

Debtor days: This calculation is used to see how many days it takes the company to be

able to collect money from the debtors, as shown in the calculations, the debtors

needed almost 45 days more in order to pay Benedict Co, which means that the

company is not efficient in the collection of their money and that the debtors now have
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more bargaining power over the company which is risky especially if those debtors are

suppliers. The company can offer discounts, promotions on early payments to decrease

debtor days.

Creditor days: From the table we see that Benedict Co. also take a long time to pay of

its creditors, it took them almost 47 days more in 20x1 to payoff, this ratio is of a

delicate balance, it is about keeping a good relation with your creditors (suppliers) and

not to lose privileges such as early payment promotion, discounts and to maintain some

capital to buy more stock. Benedict co now find themselves in a risky situation, as now

suppliers may not accept to supply them due to their long creditor days, also sheds light

on why debtors take more time to pay Benedict Co. in return. This is an indicator of an

unhealthy financial relationship with can be problematic for Benedict Co. on the long

run.

Cash conversion cycle: In 20x0 Benedict Co had a shorter conversion cycle that that of

20x1, where the later showed an increase of almost 41 days to generate cash from their

operations, this could be an indicator of shortage of liquidity (which may vary regarding the

industry) which can be problematic when carrying out their day to day operations.

3.3.3 Liquidity Ratios

Ratios 20X1 20X0 Observations

Current ratio 1.185 1.254 Decreased

Quick ratio 0.703 0.745 Decreased

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Current Ratio: Despite showing a decrease from 20x0, and not measuring up to the industry

average of 1.6, yet Benedict Co. still find themselves in the silver lining of being able to at least

cover their liabilities and have some to spare for daily operations, make use of opportunities

arising in the market or to be covered in emergencies.

Quick Ratio: A decrease in the quick ratio and way below the industry average is

problematic; means that they as a company, may have trouble fending off short term liabilities

as they have low liquidity due to problems in liquidating their assets fast enough to cover them.

A decrease in both ratios, indicates that the company is or approaching a liquidity problem.

3.3.4 Liquidity Ratios

Ratios 20X1 20X0 Observations

Capital gearing ratio 30.00% 23.598% Increased

Debt/equity ratio 42.857% 30.888% Increased

Interest cover 7.384 18.40 Decreased

Debt/Equity Ratio: Even though there is an increase in the Debt/Equity Ratio, meaning that

the company is depending more on long term debts to carry on their operations, however; this

increase the author is unable to determine it as a positive or negative, since there is no industry

related data or industry benchmark to compare with, but, it is the belief of this author that

continuing to rely on long term debt for a long time could only increase the company’s financial

costs.

Interest Cover: By analysing the decrease the author believes that the profit before the

interest and tax is not sufficient enough to cover the interest charge, which is justifiable due to

the evident increase in the debt/equity ratio, giving an indication that soon Benedict Co. might
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have a problem or might not able to pay the interest charge, harming the credibility of the

company to future lenders.

3.3.5 Investors Ratios

Ratios 20X1 20X0 Observations

Return on equity 23.571% 27.027% Decreased

Dividend per share (DPS) 0.25 0.2 Increased

Earnings per share (EPS) 36.666 38.888 Decreased

Dividend cover 146.664 194.44 Decreased

Payout ratio 68.181% 51.428% Increased

Price/earnings ratio 15.273 9.257 Increased

Dividend yield 4.464% 5.555% Decreased

Earnings yield 654.75% 1080% Decreased

Return on Equity: A decrease in the ROE shows that the company’s profits after

taxation is decreasing in comparison with the equity invested, meaning that the

shareholders share in the profits will also decrease by time, this is an indicator that the

company’s operations are not generating enough profit to retain the shareholders who

are not getting their investment worth or to attract new shareholders.

Dividend per share: In a desperate attempt to retain shareholders after achieving low

ROE, Benedict Co increased the Dividend per share, which is a misguided move as

they could have invested this money in enhancing their operations thus increasing the

ROE.
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Pay-out Ratio: Benedict Co. increases their pay-out ratio which is obvious also due to

the increase in the DPE; this almost confirms their shareholder desperate retention

strategy.

Price/ Earnings Ratio: Despite it might have looked ill-advised, their retention plan

worked as it is evident in the increase of the price earnings ratio, meaning that the

shareholders are happy with their investments and willing to invest more in the company

due to the return on the investment they had.

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CHAPTER FOUR: CONCLUSIONS AND RECOMMENDATIONS

After reviewing the above analysis, our conclusion is the Benedict Co. may not be the

best tender to be considered for the company. That is attributed to various indicators

found in the analysis; the most evident one is their DPE and Pay-out plan that seemed

to be a desperate plan to attract investors and not invest to enhance the company’s

performance. Its creditor ratio shows that as a partner they may not be most reliable

when it comes to payments, which can be attributed to their low liquidity that is caused

by 1) their low stock turnover 2) inability to collect money from debtors fast enough 3)

operational costs. Another alarming note is that they are almost at the brink of not being

able to cover their liabilities especially their interest charge, making them more of a risk

to rely on in terms of operation. Last but not least the company is not generating enough

revenues; this clearly states that Benedict Co. needs to revise their strategy because

the current one is not working in their favour.

As a start the company needs to decrease its operational costs, find more way to

streamline their stock trade faster to increase liquidity and work on decreasing the

creditor days to initiate a mutual relationship of trust with the suppliers.

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APPENDIX : BENEDICT’S FINANCIAL RATIOS CALCULATIONS

Ratios Ratio Description Formula Calculations Results

20X1 20X0 20X1 20X0


$’000 $’000

Profitability Ratios
Return on It shows the % return earned PBIT x 100 (8,300+1300) (8700+500) x100 24 % 27.138
capital by a company's capital Capital employed (TA- x100 (39,000-5,100) %
employed employed (Scicluna, 2019). CL) (50,800 -10,800)
(ROCE)
Net profit It Shows the % of a company's PBIT x 100 (8,300+1300) x (8,700+500) x100 31.168 36.947
Margin turnover which is represented Sales 100 (24,900) % %
by profit after operating costs (30,800)
(Scicluna, 2019).

Gross profit It Shows the % of selling price GP x 100 14800 x 100 10400 x100 48.051 41.767
Margin that represents profit rather Sales 30,800 24,900 % %
than cost (Scicluna, 2019).
Net asset It shows how efficiently the Turnover 30800 24,900 0.77 0.73
turnover company's capital employed is Capital employed (TA- (50,800-10,800) (39,000-5,100)
used to produce turnover CL)
(Scicluna, 2019).

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Use of resources
Stock days It shows the average no of Inventory x 365 5,200 x 365 2600 x365 118.62 65.45
days’ worth of stock held by a Cost of Sales 16,000 14,500 5 days days
company (Scicluna, 2019).

Debtor days It shows the number of days Trade receivables x 365 7,600 x 365 3,800 x 365 90.064 55.702
(average) that it takes a debtor Sales 30,800 24,900
to pay (Scicluna, 2019). days days

Creditor days It shows the number of days Trade payables x 365 6,800 x 365 4,300 x 365 155.12 108.24
(average) that it takes to pay Cost of Sales 16,000 14,500 5 1
creditors (Scicluna, 2019).
days days
Cash It gives an idea of the average Stock days + Debtors (118.625 + (65.44 + 55.702) - 53.564 12.901
conversion length of time it takes a days – Creditors days 90.064) -155.125 108.241
cycle company to generate cash from days days
its operations (Scicluna, 2019).

Liquidity Ratios
Current ratio It indicates the number of times Current Assets 12,800 6,400 1.185 1.254
that a company's current assets Current Liabilities 10,800 5,100
cover its short-term liabilities times times
(Scicluna, 2019).

Quick ratio This is similar to the current Current asset - stock (12,800 - 5,200) (6,400 - 2,600) 0.703 0.745
ratio but Stock is excluded from Current liabilities 10,800 5,100
the current assets (Scicluna, 2019). times times

Gearing Ratios

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Capital Gearing This ratio shows the level of Long-term debts x 100 12,000 x 100 8,000 x 100 30 % 23.598
ratio long-term borrowings, from the Capital employed (TA- (50,800 – 10,800) (39,000 – 5,100) %
company’s employed capital CL)
(Scicluna, 2019).

Debt/equity This ratio shows the level of Long-term debt x 100 12,000 x 100 8,000 x 100 42.857 30.888
ratio long-term borrowings, from the Share capital and 28,000 25,900 % %
company’s reserves and share reserves
capital (Scicluna, 2019).
Interest cover This indicates the number of PBIT (8,300 + 1,300) (8,700 + 500) 7.384 18.40
times that the company's Interest charges 1,300 500
interest charge, in its income times times
statement, is covered by the
profit before interest and tax
(Scicluna, 2019).

Investor Ratios
Return on A similar measure to the ROCE Earning after tax x 100 6,600 x 100 7,000 x 100 23.571 27.027
equity (Scicluna, 2019). Ordinary share capital 28,000 25,900 % %
plus reserves

Dividend per This shows the amount of Dividend paid to 4,500 3,600 0.25 0.2
share (DPS) dividend (DPS) and profit ordinary shareholders 18,000,000 18,000,000
(EPS) available to each # issued ordinary
ordinary shareholder (Scicluna, shares
2019).

Earnings per This shows the amount of Earning after tax 6,600 7,000 36.666 38.888
share (EPS) dividend (DPS) and profit # of issued ordinary 18,000,000 18,000,000
(EPS) available to each shares
ordinary shareholder (Scicluna,
2019).

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Dividend cover Inverse of pay-out ratio (Scicluna, EPS 36.666 38.888 146.66 194.44
2019). DPS 0.25 0.2 4
Payout ratio Inverse of dividend cover Dividend paid to 4,500 x 100 3,600 x 100 68.181 51.428
(Scicluna, 2019). ordinary shareholders x 6,600 7,000 % %
100
Earnings after tax
Price/earnings This shows the number of Market price per share 5.6 3.6 15.273 9.257
ratio years' earnings that a EPS 36.666 38.888
shareholder would be willing to
sacrifice in order to purchase
one share (Scicluna, 2019).
Dividend yield This shows the returns made to DPS x 100 0.25 x 100 0.2 x 100 4.464% 5.555%
the ordinary shareholders as a Market price per share 5.6 3.6
percentage of the share price
represented by DPS (Scicluna,
2019).

Earnings yield Shows the return to ordinary EPS x 100 36.666 x 100 38.888 x 100 654.75 1080%
shareholders as a % of the Market price per share 5.6 3.6 %
share price represented by
EPS (Scicluna, 2019).

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