CORPORATE MANAGEMENT & FINANCE- Assessment Element 2 Essay

CORPORATE MANAGEMENT & FINANCE- Assessment Element 2 - Essay Example Financial Position Key Financial Indicator: This part of the report includes some key financial performance indicators for the three-retail giant of UK. This three company shares almost 72% of UK retail market share. Looking at the size of the company it is very important for management to identify the key financial performance indicator for their organisation. Sales Growth This is one of the major performance indicator for most of the companies particularly companies within retail sector. These companies are serving consumers by providing their basic and luxury items. Sales growth indicates company’s current position in the market as compare to its peer group. Since UK retail market is almost an oligopoly market it can be easily evaluate the performance and efficiency of the management of these three companies. Operating Profit Operating profit is another appropriate performance measurement indicator. Since these companies are largely utilising their fixed asset and labor, it is very important for this companies to maintain their operating cost efficiently. High labour cost or operating expenses can lead to a humongous loss to any firm and its shareholders. Financial Ratio: Any investors or potential investors generally analyse the financial ratios of a company before making an investment on it as they properly indicate the current position of the company. At the same time, these financial ratios are important from manager’s point of view also to assess their performance. While creditors also look at those ratios before giving any loan to the company. Precisely speaking everybody analyse the ratios before involving with any organisation. Ratios like ROE, EPS, and Dividend Payout are the most relevant from investor’s point of view as they are specifically indicate return generate by a company using invested capital. Whereas leverage ratios, efficiency ratio, operating or net profit depending on business (in retail industry operating) are of more interest to managers. While creditors i.e. lenders are more interested to see the efficiency and cash conversion ratios of a particular firm. Accordingly the below explained ratios are very important for retail industry. Operating Profit Margin: This indicates the operating profit as a percentage of sales. OPM signifies firm’s capability of generating profit from its operating activities. Generally, higher operating profit creates some tremendous investment opportunities for both investors and lenders. Total Asset Turnover: The ratio is an appropriate indicator of the fact that how efficiently and effectively company is utilising their assets to generate revenue. This ratio is very important for a retail company as they posse’s lots of fixed assets. The higher asset turnover signifies higher asset utilisation. This ratio is a good indicator of management efficiency. Higher asset turnover implies efficient management team. Current Ratio: This ratio is very importa nt from retail industry point of view as it indicates the liquidity position of the c