AFM010: Financial Accounting Frameworks Assessment

Assessment Brief and Requirements

Introduction & Context

The focus of the assignment is financial ratios analyses and interpretation.
Any calculations should be carried out on an Excel spreadsheet and copy-pasted into the word-processed document submitted.

Case Study

You are working as an investment analyst and have been asked to evaluate the financial performance of two food retailers listed on the London Stock Exchange. The two companies of interest are:

• Tesco

• Sainsbury’s

Both companies operate food retail stores, amongst other activities.

You are required to prepare a report which is a year-on-year financial comparison of both companies (over a three-year period). You are looking to assess relative performance over a three-year period and to evaluate each company’s underlying financial position.

You should use the 3 most recent years of FULL year accounts for each company. No interim or quarterly reports should be used.

• Tesco: Reports for years ending 2024, 2023 and 2022.

• Sainsbury’s: Reports for years ended 2024, 2023 and 2022.

Please use the annual reports only and not any other quarterly or half-yearly publications these companies may have issued.

Required

a) Carefully select and calculate 10 ratios for each company (these must be the same for each company to make a meaningful comparison) which give most insight into the performance of companies in this sector.

• You are required to calculate ratios for the 3 FULL years of financial reports.

• Please use the year-end figures provided in the accounts.

• Do not get bogged down in the detail and focus on key subheadings in the consolidated/group financial statements.

• Limit: 2 pages maximum – deemed to be the equivalent of 1,000 words

• Marks: 15 marks

b) Write a report analysing and evaluating the relative financial performance of both companies for the past three years.

• Your report should make a fully justified recommendation on which one of the two companies you would advise your clients to invest in.

• Limit: 2,000 words maximum

• Marks: 85 marks

Total: 100 marks

Assessment Requirements Summary

The AFM010 Financial Accounting Frameworks assessment focuses on analyzing and interpreting financial ratios to evaluate company performance. Key pointers of the assessment include:

1. Context: Act as an investment analyst evaluating two food retailers listed on the London Stock Exchange — Tesco and Sainsbury’s.

2. Timeframe: Analyze the most recent three full years of annual accounts:

   • Tesco: 2022, 2023, 2024

   • Sainsbury’s: 2022, 2023, 2024

3. Tasks:

   • Ratio Analysis (10 ratios per company): Calculate ratios that provide meaningful insights into performance. Ratios must be consistent across both companies.

   • Financial Report: Analyze and evaluate relative performance over three years and provide a justified investment recommendation.

4. Deliverables:

   • Ratio calculations (Excel, copy-pasted into Word) – 2 pages, 1,000 words max, 15 marks.

   • Analytical report – 2,000 words max, 85 marks.

5. Key Requirements:

   • Use annual reports only; exclude interim or quarterly reports.

   • Focus on consolidated/group financial statements; avoid unnecessary detail.

   • Make a clear investment recommendation backed by financial analysis.

Assessment Approach by Academic Mentor

The Academic Mentor guided the student step by step, ensuring clarity and adherence to assessment requirements:

1. Understanding the Brief:

   • The mentor emphasized the need to read the case carefully, highlighting the companies, years of analysis, and focus on ratios.

   • Clarified the difference between ratio calculation (quantitative) and financial analysis/report writing (qualitative).

2. Data Collection:

   • Advised the student to gather the full annual reports of Tesco and Sainsbury’s for 2022–2024.

   • Focused on key financial statements: balance sheet, income statement, cash flow statement.

3. Selection of Ratios:

   • Mentor suggested selecting 10 ratios providing insights into profitability, liquidity, efficiency, and solvency.

   • Ensured the same ratios were applied to both companies for meaningful comparison.

   • Typical ratios included: current ratio, quick ratio, debt-to-equity, gross profit margin, net profit margin, return on equity, return on assets, inventory turnover, receivables turnover, and earnings per share.

4. Ratio Calculation in Excel:

   • The mentor guided the student to set up an Excel spreadsheet for clear, structured calculations.

   • Explained formula usage and cross-year comparison formatting.

   • Verified accuracy of figures before transferring to the Word document.

5. Analysis and Evaluation:

   • Step-by-step guidance on interpreting results: comparing trends over three years, identifying strengths and weaknesses of each company, and highlighting differences in performance.

   • Mentor encouraged linking financial ratios to sector benchmarks and business context.

6. Report Writing and Recommendation:

   • Structured approach: Introduction → Methodology → Ratio Analysis → Comparative Evaluation → Investment Recommendation → Conclusion.

   • Emphasis on justification: every claim about company performance supported by ratio evidence.

   • Guidance on clarity, conciseness, and word limit adherence.

Outcome Achieved

• Ratios Calculated: 10 key ratios for Tesco and Sainsbury’s over three years.

• Financial Analysis Report: Detailed, evidence-based evaluation of both companies.

• Investment Recommendation: Supported by quantitative and qualitative findings, identifying the stronger company for investment.

Learning Objectives Covered

1. Practical Application of Financial Accounting: Hands-on calculation of key financial ratios using Excel.

2. Analytical Skills: Evaluating trends, comparing performance, and making evidence-based recommendations.

3. Report Writing and Communication: Presenting complex financial information concisely and clearly.

4. Critical Thinking: Linking financial ratios to company strategy, sector context, and investment decisions.

5. Data Interpretation: Understanding and interpreting consolidated financial statements accurately.

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