Managing Finance Assignment
Managing Finance – Retail Finance Fundamentals Within this paper I aim to explain the purpose of the following accounting terms, and how they are calculated, giving example calculations to illustrate these terms using 2012 accounts from J Sainsbury’s Plc & Wm Morrison Supermarkets PLC. For the purpose of the
Accounting Term Like for Like Sales Sales Per Square Foot Profit Margin Return on Capital Employed Asset Turnover Stock Turnover Creditor Payment Period Quick Ratio Gearing Ratio Price Earnings Ratio
Type Trading Performance Measures Profitability Ratios Efficiency & Effectiveness Ratios Liquidity Ratio Gearing Ratios Investors Ratios
Like for Like Sales (LFL): When looking at accounts you are unable to gain a real perspective on gains and losses within a company. Especially if the retailer you are look at has grown its overall headline sales over the past year, this can hide poor performance areas within their existing portfolio skewing the perception of a company’s success. For example Morrison turnover grew by 3.9% vs. 2011 which against a market only growing at 3.78% (IGD, UK Grocery Retailing) shows a strong performance in line with the market where actually like for like stores where only quoted as 1.8% of the growth. Using Like for Like sales allows you to understand how the core business is preforming by only looking at year on year sales for the same base (same stores’) There are two calculations for calculating Like for like which are below, one provides a percentage to reflect growth or decline and the other will just return the cash value of growth or decline:
Using the Morrison’s example from earlier I have calculated the LFL sales. (Morrison, Annual report, pg.5) which represents a like for like growth of 1.3% worth £175m ( )
LFL sales can give you a perspective of the trading floor performance and support a wider understand of what is going on within the retailers business outside of headline sales and profit figures. There are
Accounting Term Like for Like Sales Sales Per Square Foot Profit Margin Return on Capital Employed Asset Turnover Stock Turnover Creditor Payment Period Quick Ratio Gearing Ratio Price Earnings Ratio
Type Trading Performance Measures Profitability Ratios Efficiency & Effectiveness Ratios Liquidity Ratio Gearing Ratios Investors Ratios
Like for Like Sales (LFL): When looking at accounts you are unable to gain a real perspective on gains and losses within a company. Especially if the retailer you are look at has grown its overall headline sales over the past year, this can hide poor performance areas within their existing portfolio skewing the perception of a company’s success. For example Morrison turnover grew by 3.9% vs. 2011 which against a market only growing at 3.78% (IGD, UK Grocery Retailing) shows a strong performance in line with the market where actually like for like stores where only quoted as 1.8% of the growth. Using Like for Like sales allows you to understand how the core business is preforming by only looking at year on year sales for the same base (same stores’) There are two calculations for calculating Like for like which are below, one provides a percentage to reflect growth or decline and the other will just return the cash value of growth or decline:
Using the Morrison’s example from earlier I have calculated the LFL sales. (Morrison, Annual report, pg.5) which represents a like for like growth of 1.3% worth £175m ( )
LFL sales can give you a perspective of the trading floor performance and support a wider understand of what is going on within the retailers business outside of headline sales and profit figures. There are