COVENTRY UNIVERSITY
SCHOOL OF ENGINEERING
Postgraduate Engineering Programs
Financial Statement Analysis
Report on Somerfield plc's performance
and financial position
MODULE LEADER: Mr. GRAHAM SARA
STUDENT'S NAME: AMIN SAADAIE
Session date: 2004/05
TABLE OF CONTENTS
I- INTRODUCTION çÂÂçÂÂçÂÂçÂÂ3
II- PERFORMANCE çÂÂçÂÂçÂÂçÂÂ4
RETURN ON CAPITAL EMPLOYED (ROCE) çÂÂçÂÂçÂÂçÂÂ4
RETURN ON SALES (ROS) AND ASSET TURNOVER çÂÂçÂÂçÂÂçÂÂ5
GROSS PROFIT MARGIN (GPM) çÂÂçÂÂçÂÂçÂÂ6
STOCK HOLDING PERIOD çÂÂçÂÂçÂÂçÂÂ7
DEBTORS DAY çÂÂçÂÂçÂÂçÂÂ8
CONCLUSION çÂÂçÂÂçÂÂçÂÂ9
III- FINANCIAL POSITION çÂÂçÂÂçÂÂçÂÂ10
CURRENT AND LIQUID (ACID TEST) RATIOS çÂÂçÂÂçÂÂçÂÂ10
GEARING RATIO çÂÂçÂÂçÂÂçÂÂ11
INTEREST COVER RATIO çÂÂçÂÂçÂÂçÂÂ12
CONCLUSION çÂÂçÂÂçÂÂçÂÂ13
IV- CASH FLOW çÂÂçÂÂçÂÂçÂÂ14
THE IMPORTANCE OF CASH MANAGEMENT çÂÂçÂÂçÂÂçÂÂ14
SOMERFIELD PLC'S CASH FLOW çÂÂçÂÂçÂÂçÂÂ14
V- REFERENCES çÂÂçÂÂçÂÂçÂÂ16
VI- APPENDIX çÂÂçÂÂçÂÂçÂÂ17
I- Introduction
The purpose of this report is to analyse the Somerfield plc Company's performance and financial position. In chapter II, the company's performance is evaluated by profitability and efficiency ratios and some conclusion are drawn. In chapter III, by relying on liquidity and gearing ratios, the financial position of the company is discussed.
Finally, the importance of cash management is described and the cash situation of the company is analysed in chapter IV.
The two competitors in the same industry, which were the J Sainsbury plc and Tesco plc, were chosen for assessing the ratios. The outcomes of calculating same ratios for these companies were compared with a set of four-year trend in Somerfield plc Company's ratios.
In order to evaluate the ratios, all of them are benchmark against Time, Industry competitors and Expectations (TIE method).
II- Performance
Return On Capital Employed (ROCE)
ROCE is one of the most important ratios for measuring performance of companies. The ratio expresses the relationship between the company's profit and total capital which is invested in the company. Therefore, the more ROCE shows that more profit has been generated by certain amount of...