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Each company belonging to different sector has different nature of business, market conditions and regulations, therefore it is not appropriate to compare financial performance of companies from different industries or sectors (Helfert, 2001)

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Each company belonging to different sector has different nature of business, market conditions and regulations, therefore it is not appropriate to compare financial performance of companies from different industries or sectors (Helfert, 2001).

In this report, the author has used various financial ratios in order to compare the financial performance of companies selected for analysis. The financial ratio analysis includes the comparison of the financial performances of the UK three companies from retail sector and three companies from oil and gas sector. In this regard, the following are the ratios which have been considered to conduct the analysis:

In order to analyse the liquidity position of the selected companies over a period of five years, current ratio and cash ratio have been determined for each company for each of the five financial year under consideration. By determining these ratios, it is possible to analyse the ability of companies being analysed to pay off their liabilities (Helfert, 2001). The ratios used in this regard include current ratio and cash ratio.

For determining the profitability of the selected companies, profitability ratios have also been considered. The ratios included in this analysis are “return on capital employed” (ROCE) and “return on equity” (ROE) (Helfert, 2001). The return on capital employed shows the overall profit earned by a company while making use of its total capital or resources. On the other hand, the return on equity shows the profits earned with respect to total equity held by a company (Helfert, 2001).

Debt ratios are determined to analyse the performance of the company in relation to its debt and the composition of debt in its capital. The report includes following two ratios to evaluate the debt composition of the companies and operating cash flows with respect to total debt of the company (Helfert, 2001).