Assignment Sample on AAF044-6 Accounting and Finance
1. Introduction
This study will evaluate different types of financial ratios for the previous two years to9 understand their performance. Performance of Ocado Group plc will be compared with Sainsbury group PLC to find gaps in financial and non-financial activities. Along with this investment ratio and capital structure ratio of Ocado Group plc will be calculated in this study to provide recommendations on investment decisions. Moreover, evaluation of financial and non-financial activities will be critically analysed in this study and necessary steps to improve performance will be enlightened.
2. Evaluation performance of Ocado Group Plc over last two years
Financial performance of Ocado Group Plc for last two years
Profitability ratio
Gross profit ratio
Gross profit ratio of Ocado Group Plc in 2019 is around26% and has increased to 28%. As cited by Miransyah and Dempo (2021), the ratio of gross profit is calculated to measure a company’s profitability before deducting indirect expenses. Gross profit ratio is high in Ocado Group Plc the price of products are comparatively higher than competitors.
| Gross profit ratio | 2020 | 2019 |
| Gross profit/ sales | ||
| Gross profits | 650 | 464 |
| sales | 2,332 | 1,757 |
| Gross profit ratio (%) | 27.87307 | 26.40865111 |
Table 1: Gross profit ratio
(Source: MS Excel)
Net profit ratio
Net profit ratio of Ocado Group Plc is around-12% in 2019 and that will increase to more than -5% in 2020. As opined by Wei et al. (2018), a margin of net profit is actual earnings of a company because every indirect expense has been deducted during calculation of net profit. Ocado Group Plc has been running at a loss for the last two years due to a lack of a proper supply chain.
| Calculation of Net profit margin | 2020 | 2019 |
| net profit | -126 | -213 |
| Sales | 2,332 | 1,757 |
| Net profit margin | -5.403087 | -12.12293682 |
Table 2: Net profit margin
(Source: MS Excel)
Liquid ratio
Current ratio
Ocado Group Plc has managed around2.19 in 2019 and more than 4.81 in 2020 current ratio. As per the opinion of Chireka and Fakoya (2017), more than 1.5 currency ratios is considered as an effective ratio that can pay all current liabilities by selling available current assets. Current ratio is significantly high for Ocado Group Plc because the management team is unable to utilise available resources to earn profit.
| Current ratio | 2020 | 2019 |
| current assets/ current liability | ||
| current assets | 2,381 | 1,009 |
| current liabilities | 494 | 459 |
| Current ratio | 4.819838 | 2.198257081 |
Table 3: Current ratio
(Source: MS Excel)
Quick ratio
The Quick ratio of Ocado Group Plc is around2 in 20196 and around 4.69 in 2020 (ocadogroup.com, 2021). As cited by Haralayya (2021), a large number of current assets are available in Ocado Group Plc but lack of managing financial activities reduced profitability.
| Quick ratio | 2020 | 2019 |
| current assets | 2,381 | 1,009 |
| current liabilities | 494 | 459 |
| Inventory | 62.00 | 52.00 |
| Liquid ratio | 4.694332 | 2.08496732 |
Table 4: Quick ratio
(Source: MS Excel)
Efficiency ratio
Trade receivable days
Days of trade receivable are around26 days in 2019 and more than 26 days in 2020. As opined by Gong et al. (2019), trade receivable days represent days that are allocated to debtors to pay them due to the company. Ocado Group Plc does not allow its consumers to purchase credit that trade receivable days are low.
| Trade receivable days | 2020 | 2019 |
| Trade receivable | 167.00 | 124.00 |
| Sales | 2,332 | 1,757 |
| Trade receivable days | 26.13851 | 25.75981787 |
Table 5: Trade receivable days
(Source: MS Excel)
Trade payable days
Payable days of trade are more than 38 days in 20196 that have decreased to 34 days in 2020 in Ocado Group Plc. Ocado Group Plc has faced competition in management due to the unexpected situation that it takes a long time to pay its suppliers. As per the opinion of Crouzet and Eberly (2018), this company has suffered from managerial issues that it is not efficient enough to pay its dues and suppliers do not allow this company to get materials of credit. Ocado Group Plc is not financially stable because it cannot utilise its available current assets and liabilities efficiently.
| Trade payable days | 2020 | 2019 |
| Trade Payable | 139 | 121 |
| cost of sales | 1,518 | 1,159 |
| Trade payable days | 33.42227 | 38.10612597 |
Table 6: Trade payable days
(Source: MS Excel)
Investor’s ratio
Earnings per share
Loss per share of Ocado Group Plc is around -0.29 in 2019 and -1.17 in 2020. As cited by Ko et al. (2017), earning per share represents profitability of a company to attract investors. A large number of investors have withdrawn their investment from Ocado Group Plc because of a consistent loss. Inefficiency of managing available financial resources and lack of controlling power has decreased the share value of Ocado Group Plc.
| Earnings per share | 2020 | 2019 |
| Profit after tax and dividend | -126 | -213 |
| Number of an ordinary share | 107 | 730 |
| Earnings per share | -1.17757 | -0.291780822 |
Table 7: Earnings per share
(Source: MS Excel)
Capital structure ratio
Debt equity ratio
Debt Equity ratio of Ocado Group Plc is almost 0.57 in 2019 that has increased to 0.76. Higher ratio of debt to equity represents high risk and the risk of this organisation has increased over the last two years.
| Debt equity ratio | 2020 | 2019 |
| Total debt | 1405 | 608 |
| Total Equity | 1,837 | 1,058 |
| Debt equity ratio | 0.764834 | 0.574669187 |
Table 8: Debt equity ratio
(Source: MS Excel)
Assets to equity ratio
Asset to equity ratio of Ocado Group Plc is around 2.16 in 2019 and approximately 2.19 in 2020 that it is necessary to make effective decisions to utilise equity capital to purchase fixed assets that will improve efficiency of this company. Total assets are almost 2293 million GBP in 2019 that will increase to 1837 million GBP in 2020 in Ocado Group Plc.
| Assets to equity ratio | 2020 | 2019 |
| Total asset | 4,028 | 2,293 |
| Total Equity | 1,837 | 1,058 |
| Assets to equity ratio | 2.192705 | 2.167296786 |
Table 9: Assets to equity ratio
(Source: MS Excel)
Non-financial performance of Ocado Group Plc for last two years
Online supermarket Ocado Group Plc has cancelled a lot of orders of consumers due to a fire that broke out in a warehouse. This abnormal loss has affected profitability of Ocado Group Plc. As opined by Qin et al. (2019), Ocado Group Plc has invested a lot of funds to build a sustainable supply chain. This company has a large number of financial resources but it has lost its operating area and its performance has declined over the last two years. Around 100 fire-fighters and around15 fire engines have been implemented to control the fire. Ocado Group Plc has invested a large number of funds in developing digital infrastructure of retail marketing but this incident has burnt down every possible success measure of Ocado Group Plc.
preliminary expenses of digital infrastructure are so high that it is hard to compete within the retail industry. As per the opinion of Pinto and Joseph (2019), investors have withdrawn their investments due to consistent loss over the last two years. Ocado Group Plc uses robotic automation technology to provide service to its potential and real consumers. More than 777,000 active consumers are there in Ocado Group Plc that motivates it to create a new sustainable infrastructure that will generate more profit and sustain for a long period.
Online retail store of Ocado Group Plc is based on futuristic technology that allows consumers to buy all necessary groceries for one month within one minute. As cited by Zissis et al. (2017), consumer demand is an ever-changing process that’s affected companies performance and the extra burden of maintaining the sanitisation process has reduced the affected profitability of Ocado Group Plc in 2019.
3. Compare performance of Ocado Group plc to Sainsbury
Gross profit ratio is comparatively lower in Sainsbury than in Ocado Group Plc where consumers get products at a low price. Sainsbury does not include robotic technology that’s its can easily manage uncertainties but Ocado Group Plc has to stop entire production process that cancels so many online orders. Average gross profit is around 7% in Sainsbury over the last two years.
| Gross profit ratio | 2020 | 2019 |
| Gross profit/ sales | ||
| Gross profits | 2294 | 2,200 |
| sales | 28,993 | 29,007 |
| Gross profit ratio (%) | 7.91225 | 7.58438 |
Table 10: Gross profit ratio
(Source: MS Excel)
Net profit is around0.44% in 2020 and 0.57% in 2019 in Sainsbury. As opined by Saghiri et al. (2017), competitor companies maintain a consistent gross profit ratio to attract investors. . Ocado Group plc is unable to manage its robotic technology because the entire process is automatic but a sudden breakdown of digital tools has affected this organisation.
| Calculation of Net profit margin | 2020 | 2019 |
| net profit | 129 | 168 |
| Sales | 28,993 | 29,007 |
| Net profit margin | 0.44493 | 0.57917 |
Table 11: Net profit margin
(Source: MS Excel)
Current ratio of Sainsbury is approximately 0.62 in 2020 and more than 0.63 in 2019 that shows its ability to utilise available assets to manage daily activities. Ocado Group plc is not as efficient as Sainsbury to manage its current assets and liabilities.
| Current ratio | 2020 | 2019 |
| current assets/ current liability | ||
| current assets | 7,582 | 7,550 |
| current liabilities | 12,047 | 11,849 |
| Current ratio | 0.62937 | 0.63718 |
Table 12: Current ratio
(Source: MS Excel)
Quick ratio is around0.48 in 2020 and around 0.47 in 2019 in Sainsbury it shows an inability of managing current liabilities. Sainsbury will not be able to pay its liabilities without selling inventories. As per the opinion of Walmsley et al. (2018), Ocado Group plc is efficient enough to pay its liabilities without selling its inventories. More than 1 quick ratio helps to reduce managerial complications by providing available working capital to the company and that has been maintained by Ocado Group plc.
| Quick ratio | 2020 | 2019 |
| current assets | 7,582 | 7,550 |
| current liabilities | 12,047 | 11,849 |
| Inventory | 1,732 | 1,929 |
| Quick ratio | 0.4856 | 0.47439 |
Table 13: Quick ratio
(Source: MS Excel)
Sainsbury is more efficient than Ocado Group plc in that it allows potential debtors to pay their dues within a long period. Trade receivable days are around 54 days in 2019 that has increased to around 60 days in 2020.
| Trade receivable days | 2020 | 2019 |
| Trade receivable | 4,762 | 4,268 |
| Sales | 28,993 | 29,007 |
| Trade receivable days | 59.95 | 53.705 |
Table 14: Trade receivable days
(Source: MS Excel)
Trade payable days are around 38 days in 2019 that have been decreased to 37 days in 2020. As opined by Wilczyński (2020), managing financial resources effectively and paying dues within a short period attracts potential investors and suppliers who provide credit services without any complications. Ocado Group plc is more efficient than Sainsbury because it has paid its dues within a shorter period than Sainsbury takes to pay its creditors.
| Trade payable days | 2020 | 2019 |
| Trade Payable | 2,960 | 3,044 |
| cost of sales | 28,993 | 29,007 |
| Trade payable days | 37.2642 | 38.3032 |
Table 15: Trade payable days
(Source: MS Excel)
Earnings per share of Sainsbury are around 0.08 in 2019 that has decreased to 0.06 in 2020 due to Covid-19 pandemic period (sainsburys.co.uk, 2021). Sainsbury has executed an attractive EPS during epidemics but share values are in a negative balance in Ocado Group plc.
| Earnings per share | 2020 | 2019 |
| Profit after tax and dividend | 129 | 168 |
| Number of an ordinary share | 2130 | 2100 |
| Earnings per share | 0.06056 | 0.08 |
Table 16: Earnings per share
(Source: MS Excel)
Capital structure of Sainsbury is balanced because its debt-equity ratio is around1.06 in 2019 and more than 0.98 in 2020 (sainsburys.co.uk, 2021). Ocado Group plc is dependent on Equity capital and does not have financial infrastructure to manage sources of funds.
| Debt equity ratio | 2020 | 2019 |
| Total debt | 7419 | 8014 |
| Total Equity | 7,525 | 7,534 |
| Debt equity ratio | 0.98591 | 1.06371 |
Table 17: Debt equity ratio
(Source: MS Excel)
Assert to Equity ratio is calculated to measure utilisation of equities to purchase assets. Around 3.75 in 2019 asset to equity has been maintained in Sunbury that has been increased to 3.74 in 2020 (sainsburys.co.uk, 2021). As per the opinion of Rahadjeng and Fiandari (2020), this company follows robotic technology to operate daily activities that do not require too many assets to operate business as these technologies are faster than usual speed of operational activities in retail industry. Ocado Group plc is not efficient enough to utilise its available equities to purchase assets.
| Asset to Equity ratio | 2020 | 2019 |
| Total asset | 28,166 | 28,280 |
| Total Equity | 7,525 | 7,534 |
| Asset to Equity ratio | 3.74299 | 3.75365 |
Table 18: Asset to Equity ratio
(Source: MS Excel)
4. Recommendation for buying shares of Ocado Group plc
Investment ratio has been discussed in this study to study expected investors’ approach towards Ocado Group Plc for investment. It has seen that As cited by Nugroho and Nurcahyo (2019), Ocado Group Plc has invested a large number of funds to develop automatic warehouse technology but an accident has removed predetermined goals. It is hard to reconstruct a digital infrastructure because it consumes a lot of time and money. Investors will not be able to get a good rate of return on investment within a short period but investing in Ocado Group Plc for a long period can give a high return rate to investors. Net loss of Ocado Group Plc is more than -213 million GBP and that has increased to approximately -126 million GBP.
EPS of Ocado Group Plc has been in a negative balance in the last two financial years due to lack of efficient utilisation of available resources. As opined by Amar et al. (2019), investing in Ocado Group Plc is not profitable because of its inefficient management. Competitor s companies like Tesco and Sainsbury have executed a consistent EPS over years and they are in a financially stable position. Using robotic technology automated data is evaluated through digital tools in Ocado Group Plc that there is a lack of professional viewpoint.
Different effective decisions are made by Ocado Group Plc to recover its loss that purchasing shares at current price will provide excellent growth in upcoming years. Current share price of Ocado Group Plc is around 1635 GBP which has decreased over the year’s ocadogroup.com, (2021). There is no opportunity for short term gain in Ocado Group Plc’s share but can be beneficial for the long term.
5. Conclusion
Based on this study it can be concluded that Ocado Group Plc has suffered to manage profitability for the last two years. Fire broke out and incidents affected the share price of Ocado Group Plc and a large number of investors have withdrawn their funds from it. This company has maintained its liquidity but is unable to manage its current liabilities and assets to operate business activities. It has been found that this company does not allow a longer period for its consumers to recover its dues and it pays its suppliers within short period compared to competitors.
Competitors’ companies focus on total utilisation of available resources but lack of management controlling power entire operational activities are affected. Market competitors of the retail industry have provided consistent growth and high EPS in the last two years as compared to Ocado Group Plc. investing in this company is not profitable for a short period but long term investment can be profitable for investing in Ocado Group Plc.
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Website
ocadogroup.com, (2021), ANNUAL REPORT. Available at: https://www.ocadogroup.com/ [Accessed on 10th December 2021]
sainsburys.co.uk, (2021), ANNUAL REPORT. Available at: https://www.sainsburys.co.uk/
[Accessed on 10th December 2021]
